NCPA - National Center for Policy Analysis

U.S. Food and Drug Administration Proposal Means Higher Prices, No Health Benefits

March 19, 2014

A new U.S. Food and Drug Administration (FDA) proposal will increase drug prices while yielding no public health benefits, say Scott Gottlieb, Alex Brill and Robert W. Pollock of the American Enterprise Institute.

"Failure to warn" products liability suits can be lodged against pharmaceutical companies for insufficient warning labels on their drugs. But as the law stands now, those suits can only be filed against brand name drug makers. This is because the responsibility for keeping warning labels up to date falls on the branded company. In fact, current law does not allow generic producers unilaterally to make changes on their warning labels, rather they must petition the FDA if they think changes should be made.

A new FDA proposal would make generic firms responsible for making drug labeling changes. What this means is that they would now be exposed to "failure to warn" tort suits. Most likely, generic drugs would begin carrying different warning labels for the same product and costs would increase.

  • While the FDA expects the rule to "generate little cost," that is unlikely. Generic drug makers would be forced to put more resources toward insurance and litigation, ultimately increasing drug costs for consumers.
  • Also, increased exposure to tort suits would reduce competition, because small firms are less able to bear the risks and would be forced to exit the market. Again, this reduction in competition would only increase prices as fewer firms compete. According to the FDA, drug prices only decline significantly after five or more generic firms enter the market.
  • Label clutter is also a likely problem. Generic drug makers do not have the same commercial constraints on overlabeling as do branded drug makers. Competing with other firms on distribution and price, generic makers will have every reason to load up their drugs with as many warnings as possible to shield themselves from liability.

The FDA's main goal should be public health, and indeed that is what the agency claims this rule will improve. However, the regulation will in fact do nothing to improve public health. The FDA itself was unable to quantify even one benefit from imposing these labeling obligations on generic drug makers, and it has presented no evidence that important safety information is currently being kept off of generic labels due to existing law.

Source: Scott Gottlieb, Alex Brill and Robert W. Pollock, "Proposed FDA Generic Drug Regulation: Higher Prices, No Public Health Benefit," American Enterprise Institute, March 12, 2014.


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