FDA’s labelling proposal will increase cost of generics

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In November 2013 the US Food and Drug Administration (FDA) proposed a new rule which would allow generics makers to change their labelling in the same way as brand-name manufacturers [1]. However, an analysis by economic consulting firm Matrix Global Advisors (MGA) shows that this change would add US$4 billion to the annual healthcare costs in the US.

Label FDA V14b20

Generics account for 84% of all prescriptions dispensed to American patients. But under current regulations, which have been in place for 30 years, generics manufacturers cannot update the labelling of their products until the brand-name manufacturer does so.

MGA believes that the new rule on labelling being proposed by FDA would drastically alter the existing legal landscape by eliminating pre-emption (whereby generics makers could not be sued by patients for injuries) and would expose generics manufacturers to product liability lawsuits, and as a consequence increase generics prices.

MGA’s reasoning for the increase in costs include:

  • Higher insurance premiums faced by generics manufacturers due to self-insurance costs and reserve spending on product liability.
  • Generics 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 generics manufacturers may leave the market when faced with insuring against increased risk, resulting in higher premiums for generics manufacturers.
  • Generics manufacturers would bear the cost of duplicating brand-name companies’ efforts to monitor for safety-related issues.

It is estimated that as a result the proposed rule could be expected to increase spending on generics by US$4 billion per year (or 5.4% of generic retail prescription drug spending in 2012). Medicare and other government programmes will incur US$1.5 billion in annual new spending, while private insurers and patients will pay US$2.5 billion per year.

FDA has stated that it expects the proposed rule would ‘generate little cost’. However, contrary to FDA’s assertion, MGA’s study finds that the proposed rule would result in an increase in expenditures far in excess of the US$141 million threshold for economic significance defined by the Unfunded Mandates Act of 1995.

As well as the increased cost for generics the Generic Pharmaceutical Association (GPhA) is warning that ‘flooding the marketplace with multiple versions of labels for the same medicines would … seriously jeopardize patient safety’.

Mr Ralph G Neas, President and CEO of GPhA, added that ‘new labelling regulations should protect patients, facilitate care and reduce costs’ and that this study ‘demonstrates that in proposing this rule, the FDA overlooked its very real financial impact on the affordability and availability of generic medications for patients and all stakeholders in the drug supply chain’.

GPhA is therefore calling on FDA ‘to work with all stakeholders and identify a course of action that does not put patient safety or patient savings at risk’.

Related articles

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Brand-name and generics labels don’t match


1.   GaBI Online - Generics and Biosimilars Initiative. FDA to allow generics makers to change labelling [www.gabionline.net]. Mol, Belgium: Pro Pharma Communications International; [cited 2014 Feb 21]. Available from: www.gabionline.net/Policies-Legislation/FDA-to-allow-generics-makers-to-change-labelling

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Source: GPhA,Matrix Global Advisors

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