Alex Brill doesn’t think so either and in an economic analysis conducted for GPhA, he makes his point.  The study outlines the following areas that FDA’s assessment apparently overlooked relative to downstream costs:

  • Generic manufacturers would face higher insurance premiums, self-insurance costs, and reserve spending on product liability.
  • Generic manufacturers may exit or decline to enter the market for certain products for which they perceive greater liability risk or uninsurable liability risks.
  • Insurance companies offering product liability insurance to generic manufacturers may leave the market when faced with insuring against increased risk, resulting in higher premiums for generic manufacturers.
  • Generic manufacturers would bear the cost of duplicating brand companies’ efforts to monitor adverse events reports for safety-related issues.

The study concludes that the FDA Proposed Rule will result in significantly higher generic drug costs to the consumer and the government to the tune of $4 billion/year, with the government on the hook for about $ 1.5 billion and private health insurers about $2.5 billion.  Dr. Brill also acknowledges that the Proposed Rule will raise the cost of liability insurance for generic companies and is likely to also result in an incentive to overwarn, which would dilute the importance of major warnings, adverse events and contraindications. As stated by the FDA in its own 2006 Federal Register Notice on “Requirements on Content and Format of Labeling for Human Prescription Drug and Biological Products”:

“FDA noted that liability concerns were creating pressure on manufacturers to expand labeling warnings to include speculative risks and, thus, to limit physician appreciation of potentially far more significant contraindications and side effects. . . . Overwarning, just like underwarning, can similarly have a negative effect on patient safety and public health.”

Dr. Brill, like many others in the industry, appears to be able to see through the Agency’s veiled attempt to make the Label Change Proposed Rule a real safety issue, as the FDA already has a process in place to make label changes (even for generic applicants), but in a more reasoned approach that is outlined in the current regulatory framework of the implementing regulations to the Hatch-Waxman Act.  And when discussing FDA’s economic analysis of the Proposed Rule, the Brill report states the following: “We assert that the FDA’s assumptions about the Proposed Rule are incomplete and inaccurate, rendering their economic analysis moot.” The study goes on to say, FDA fails to consider liability costs in its estimates and simply dismisses this issue.”

In addition, at least two firms contacted by this blogger provided estimate of about $1.5 million each that they lose in costs today, based on labeling changes that are either mandated by FDA or approved for by the innovator.  Now, consider the cost of label changes alone if generic manufacturers began changing their labels each time they received a report of an adverse event, and the cascade of label changes that would be the result of defensive label changes in an attempt to lower their liability exposure.

In explaining the above point, the report states: “The FDA is correct in assuming that every firm can be expected to operate in its own interest. However, the agency fundamentally misrepresents the interests at stake. Drug manufacturers will be driven by their legal obligations and desire to minimize the risk of litigation arising from product liability suits. Potential failure- to-warn suits would provide a strong incentive for every generic manufacturer to be the first to submit a CBE-0 supplement. Therefore, the FDA’s assumption that “there will be no CBE-0 supplements in addition to the current level submitted by NDA holders” is implausible, and we should anticipate a far greater impact than the agency’s estimate of a shift of 20 CBE-0 supplements from NDA holders to ANDA holders.”

The study also points out that, should this rule become final, generic liability insurance premiums will increase; it should be clear to everyone that all of these increased costs described in the study will be borne by the ultimate consumer.  Certainly, in this time of cost constraint and rampant government spending, this is no time to open the health care piggybank.  Let’s be realistic and clear about the “what” and the “why” of this Proposed Rule.  Time to take a step back and get to the real solution to the real problem, not the problem that FDA should not be trying to solve.

The full report can be found here.