United States: $4 Billion Price Tag For Pleasing Plaintiffs' Bar? New Study Estimates Costs Of FDA's Proposed Rule On Generic Drug Labeling

An economic consulting group recently published findings that a Food and Drug Administration (FDA) proposed rule will increase annual healthcare costs by $4 billion. The FDA's proposal, announced in November 2013, would allow generic drug manufacturers to update product labeling with new safety information even if the revised labeling differs from that of the reference listed drug (RLD). The FDA's proposed change was a direct response to the Supreme Court's call for action in PLIVA, Inc. v. Mensing. In the rule, the FDA estimated net annual costs would range between $44,000 and $385,000, which many critics have suggested is too low. Those critics have also voiced concerns that the proposed rule would only serve to fund the plaintiffs' bar at the expense of public safety. The alarming cost increases announced by this recent study provide further support for those who believe that the FDA simply got it wrong this time.


In PLIVA, Inc. v. Mensing, 564 U.S. __, 131 S. Ct. 2567 (2011), the Supreme Court held that federal law preempted state law failure-to-warn claims against generic drug manufacturers because the Hatch-Waxman Amendments ("Hatch-Waxman") require generics to use warnings that are identical to the brand-name's. Recognizing generic preemption could leave some plaintiffs without a failure-to-warn claim, the Supreme Court nevertheless declared it "will not distort the Supremacy Clause in order to create similar pre-emption across a dissimilar statutory scheme. As always, Congress and the FDA retain the authority to change the law and regulations if they so desire." Id. at 2852. In response, the FDA issued the rule currently under debate.

The proposed rule allows holders of abbreviated new drug applications (ANDAs) to update product labeling to reflect newly acquired information related to drug safety, regardless of whether the revised label is different from the RLD's label. The proposal permits the ANDA holder to distribute the revised label at the same time that it sends labeling changes in a "changes being effected" supplement (CBE-0) to the FDA. Simultaneously, the ANDA holder sends labeling changes and supporting information to the RLD manufacturer, which is generally the new drug application (NDA) holder.

The NDA holder reviews the information and submits a revised label to the FDA indicating whether it supports the CBE-0 supplement. The FDA evaluates the proposed labels and determines which label should be approved. After that determination, the ANDA holder has 30 days in which to update its labels.


On February 4, 2014, Matrix Global Advisors (MGA), an economic policy consulting firm, released its findings following a study of the proposed rule. MGA projected that the changes would add $4 billion annually in U.S. healthcare costs due to increased product liability exposure. The study called the $4 billion figure a "conservative estimate" of the total cost of the proposed rule, which flies in the face of the FDA's insistence that the rule would "generate little cost."

First, MGA's study contrasted the FDA's stated purpose for the proposed rule—creating "parity" between brand-name and generic manufacturers' labeling obligations—with what MGA believes is the FDA's actual purpose: fixing the "perceived inequality" in a consumer's ability to sue drug manufacturers after the Supreme Court's decisions in Wyeth v. Levine, 555 U.S. 555, 129 S. Ct. 1187 (2009), and PLIVA, Inc. v. Mensing.

Next, MGA criticized several aspects of the FDA's economic impact assessment under the proposed rule. For instance, the FDA did not consider product liability costs, even though the FDA acknowledged the proposed rule may eliminate generic preemption. Instead, the FDA focused only on increased costs associated with extra paperwork and added administrative burdens. The FDA also failed to account for increased insurance premiums or increased CBE-0 filings, and did not even attempt to quantify the benefit from the proposed rule that would come in the form of improving communication to health care providers.

The study highlighted that even small price increases for generic drugs could significantly impact drug spending and savings in the U.S. due to the sheer volume of generic prescriptions. In 2012, generics were responsible for $217 billion of savings, in a year where retail prescription drug spending totaled $263.3 billion. Without generics, retail prescription drug spending would have been $480.3 billion, equivalent to an 82 percent spending increase. Generic price increases under the new rule would reduce savings attributed to generics, add to total retail prescription drug spending, and dramatically change the savings figures.

Finally, the study used brand-name product liability costs to project generic product liability costs. MGA estimated that, in 2012, the cost of a brand's product liability exposure equaled "0.4 percent of consumer spending," or $758.3 million. Dividing this by the 652.5 million brand prescriptions from 2012, brand-name product liability spending was approximately $1.16 per prescription. Multiplying brand-name product liability spending per prescription ($1.16) by the number of generic prescriptions in 2012 (3.4 billion) totals $4 billion in generic product liability spending. Although the study uses different assumptions to arrive at brand- and generic product liability costs, in any event it is clear that these costs represent a significant potential economic impact that the FDA completely ignored. In light of recent healthcare reform and concerns over rising healthcare costs, these numbers are particularly disconcerting.

Some of MGA's assumptions may be susceptible to criticism. For instance, multiple labels may not create confusion in the marketplace and the study assumes that generics' current product liability litigation costs are minimal. But there is no doubt that the rule will eliminate generic preemption, which dramatically increases a generic's product liability exposure. This heightened risk will lead to higher insurance premiums, which in turn may force some generic manufacturers to exit the market or decline to enter the market, causing decreased supply and increased prices.


The MGA's study was the latest in a series of highly critical reactions to the proposed rule. Both lawmakers and industry have criticized the proposal. Congressional Republicans urged the FDA to "reconsider [its] departure from decades of settled practice" surrounding generic labeling, and the pharmaceutical industry suggests the rule could result in fewer generic options for the public.

The GOP, through Senator Lamar Alexander (the senior Republican on the Senate health committee), expressed its displeasure in a letter to FDA Commissioner Margaret Hamburg. The letter noted "grave concerns regarding a regulation . . . that would directly conflict with [Hatch-Waxman's] longstanding policy." In particular, Republicans identified three main problems with the proposed rule: (1) it directly conflicts with the statute, (2) it "thwarts" the law's purpose, creating confusion, and (3) it imposes "significant costs on the drug industry and healthcare consumers."

Senator Alexander suggested that allowing generic drug manufacturers to unilaterally revise their labeling contradicts Hatch-Waxman's "sameness" requirement. As the FDA itself recognized, the "sameness" requirement is important because "[c]onsistent labeling will assure physicians, health professionals, and consumers that a generic drug is as safe and effective as its brand-name counterpart." FDA, Abbreviated New Drug Application Regulations – Final Rule, 57 Fed. Reg. 17950, 17961 (Apr. 28, 1992). Eliminating the "sameness" requirement will cause confusion in the healthcare industry. Generic manufacturers will also be forced to engage in costly "duplicative testing," thereby facing increased exposure to tort lawsuits.

The lawmaker's concerns were echoed by the pharmaceutical industry, as demonstrated in an 11-page white paper issued on January 29, 2014. In the white paper, the Generic Pharmaceutical Association (GPhA) reproached the FDA for ignoring Hatch-Waxman's "delicate balance" between the brand-name drug industry and the generic drug industry. It predicted the increased cost burden will force some generic manufacturers out of the market.

The GPhA also accused the FDA of disregarding the possibility of generic drug shortages and higher costs. These costs would result from additional regulatory requirements and an exponential increase in "litigation risk," which lends support to the conclusions reached in the MGA's study.


Generic drug manufacturers will feel an immediate impact if FDA's proposed rule is adopted. But the rule's effects on government programs (such as Medicare), private insurers, doctors, patients, and the general public will be much farther reaching, leaving no one untouched by increased costs. As GPhA CEO Ralph Ness said, we should call on the FDA to "work with all stakeholders and identify a course of action that does not put patient safety or patient savings at risk." As with any proposed rule, FDA welcomes comments and has extended the comment period until March 13, 2014. All affected parties are urged to submit comments at http://www.regulations.gov, the Docket No. FDA-201

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Erin M. Bosman
Jessica Roberts
Julie Y. Park
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.