Plans by the US Food and Drug Administration (FDA) to allow generics manufacturers, for the first time, to make changes to their products’ labels without FDA approval would increase the nation’s spending on generics by 5.4%, or $4 billion a year, a new study claims.

Last November, the FDA issued a Proposed Rule seeking to end the prohibition on generics firms from making changes to their labels; under a 30-year-old law, they can now only do so if the manufacturer of the reference listed drug (RLD) changes its label first. The FDA said the proposed change would “create parity among application holders,” and it estimated that the change would “generate little cost.”

However, a new analysis from economic consulting firm Matrix Global Advisers (MGA) says the change would in fact increase government spending on generics by $1.5 billion a year, while for private health insurance the annual rise would be $2.5 billion.

The Proposed Rule would “drastically alter the existing legal landscape” by exposing generic manufacturers, which supply 84% of all US prescriptions, to product liability lawsuits, and this would in turn increase the costs of generics, it says, adding that the FDA was able to reach the “erroneous conclusion that the Proposed Rule would generate little cost” because it had failed to consider liability costs for generics makers.

Manufacturer costs, and therefore prices, would go up because generics makers would face higher insurance premiums, self-insurance costs and reserve spending on product liability, says MGA. They might also exit or decline to enter the market for certain products for which they perceive greater or uninsurable liability risks, and they would bear the cost of duplicating brand companies’ efforts to monitor for safety-related issues. 

MGA also foresees insurance companies which offer product liability insurance to generics firms leaving the market when faced with insuring against increased risk, resulting in higher premiums for manufacturers. 

Commenting on the study, Generic Pharmaceutical Association (GPhA) CEO Ralph Neas said that while new labelling regulations should protect patients, facilitate care and reduce costs, the Proposed Rule would do none of these things and that its unintended consequences “would be nothing short of catastrophic.”

“Flooding the marketplace with multiple versions of labels for the same medicines would not only seriously jeopardise patient safety, but would also burden consumers, taxpayers, large and small businesses and state and federal governments with billions of dollars in increased costs for generic medicines,” Mr Neas warned.