February 5, 2014

New Study Confirms: FDA Rule Would Create a Costly Lawsuit Machine

by Lisa A. Rickard, President, U.S. Chamber Institute for Legal Reform

Mega lawsuits.

That’s what I warned (in this September op-ed in The Hill) would be the result of a recently-proposed Food and Drug Administration (FDA) rule that would permit generic drug manufacturers to make changes to their products’ labels.

That’s because the proposed rule would undo the system provided for the past three decades by the Hatch-Waxman Act, which requires generic drugs to have exactly the same ingredients of the equivalent name brand drug. The FDA has consistently interpreted the law to prohibit generic drug manufacturers from using labels different from the name brand equivalent.

Until now.  

The FDA’s proposed change will make warning labels inconsistent and confusing for consumers. Such confusion is welcomed by the plaintiffs’ bar, which will undoubtedly take advantage of the confusion to unleash a torrent of lawsuits against generic pharmaceutical manufacturers.

A new study by Matrix Global Advisors highlights the full scope of the potential legal morass resulting from the FDA’s proposed rule. As the study’s executive summary states:

The Proposed Rule would drastically alter the existing legal landscape by eliminating preemption and exposing generic manufacturers, who supply 84 percent of all prescriptions, to product liability lawsuits. This, in turn, would have substantial negative consequences for national health care spending due to the increase in generic drug prices that product liability would induce. Because the FDA fails to consider liability costs for generic manufacturers, the agency reaches the erroneous conclusion that the Proposed Rule would “generate little cost.” 

In fact, the new rule would result in significantly higher costs, the study concludes.  Here’s why:

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 for safety-related issues.

In the end, the study estimates, the FDA’s proposed rule could increase overall spending on generic medications by an astounding $4 billion per year ($1.5 billion of which would be footed by the taxpayers via government health programs.)

At a time when our country is wrestling with crippling deficits, and in the midst of a national debate over the best way to reduce health care costs
, why would the FDA consider a rule that would increase health care costs and stick the American taxpayers with an even bigger bill?

We knew the FDA rule would be costly. This new study from Matrix Global Advisors confirms the hefty price tag. 

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