A far-reaching new rule proposed by the Food and Drug Administration has the nation’s generic drug manufacturers in a stir.
The proposed rule would require makers of generic drugs to update their warning labels for the first time.
Historically, generics manufacturers were shielded from liability, because they were required to use only the warning label language used by the branded drug maker from which the generic was derived.
If the rule becomes law, it will lead to significant insurance changes, including higher premiums, more clinical tests, more lawsuits and greater staffing, as well as heightened attention to risk management issues.
“I think it’s going to be even more important for the generic drug companies to differentiate themselves because there’s going to be much more scrutiny on them from an underwriting perspective.” — Darlene Villoresi, managing director, Marsh life sciences practice
“I will say that anything like this that creates uncertainty in the litigation climate can have a negative effect on premiums, rates and availability of insurance coverage,” said Jim Walters, Philadelphia-based managing director of the life sciences and chemicals practice at Aon Risk Solutions.
“That historically is what has happened when uncertainty reaches the litigation climate,” Walters added.
Having to do their own clinical studies to support label changes will create a tremendous amount of expense for the generics industry, Walters said.
Alison J. Renner, CEO of Chicago-based A.J. Renner & Associates, a wholesale pharmaceutical specialty broker with a strong suit in generics, said that generics manufacturers will need to be aggressive about adverse event reporting of their own products, as well as conduct extensive independent review of reported events and information from the FDA and all other sources available to them.
In addition to legal concerns, said Renner, it is more than likely that certain high-risk products that are currently “insurable” due mainly to the current legal climate will become generally excluded.
“They will need to demonstrate to underwriters that they have best-in-class procedures,” said Renner of the generic drug makers.
“Being able to demonstrate near perfection in labeling will also form a cornerstone of defense of product liability actions going forward.”
John Parente, Boston-based assistant vice president of life sciences at Berkshire Hathaway Specialty Insurance, said the generic manufacturers’ fears center on how they will make labels consistent for each product.
“When you have multiple generic pharmaceutical manufacturing companies producing Tylenol, with the generic name acetaminophen, you could have many different labels warning of multiple or different side effects versus having one consistent label that the medical community can look at and agree upon,” Parente said.
The FDA and supporters of the proposed rule say that the rule change will pressure generic drug makers to be more proactive in discovering when drugs are harming patients and to provide accurate labeling for those drugs.
Generics Save Billions
Generic drugs, which account for more than 80 percent of all drugs manufactured in the U.S., were brought into existence by the 1984 Hatch-Waxman Act, which ensures the safety and affordability of generic drugs by requiring manufacturers to duplicate the effectiveness and labels of FDA-approved brand-name drugs.
One of the most attractive things about generic drugs is their relative cost. A generic industry trade organization points to the huge savings generated by generics.
VIDEO: Even with the current FDA regulations, some are worried about the safety of generic drugs. This CBS report looks at an Indian company that falsified data as part of regulatory approval process.
“The world’s leading health care analytics firm, IMS Institute for Healthcare Information, found that generics saved $239 billion in the U.S. in 2013 (a 14 percent increase in savings from 2012) and more than $1.6 trillion over the recent decade,” according to the Washington, D.C.-based Generic Pharmaceutical Association.
The association is threatening to sue the FDA if the agency finalizes its labeling regulation in its present form.
Critics of the proposed new rule argue that it would increase drug costs by $4 billion a year and lead to a confusing array of labels for the same drug.
But Janet Woodcock, director of the FDA’s Center for Drug Evaluation and Research, said the proposed rule would create parity among application holders and “would speed the dissemination of new safety information about generic drugs to health professionals and patients.”
The FDA’s controversial new rule was expected to be finalized last December, but will not be published until the fall of 2015, an agency spokeswoman said.
If adopted, the FDA rule would put in doubt two landmark U.S. Supreme Court decisions that currently protect generics manufacturers from most liability lawsuits.
In PLIVA vs. Mensing, a woman who took a generic drug had a horrible reaction to it. In June, 2011 the Supreme Court ruled that the generic manufacturer, under federal law could not alter the label, therefore it was not liable.
In a similar case, Mutual Pharmaceutical Co. vs. Bartlett, the Supreme Court held in June 2013 that federal law pre-empted a state law that would have required the generic manufacturer to make a safer drug, either by altering the drug’s composition or through changes in its labeling.
One well-regarded industry observer noted that the erosion of the Mensing and Bartlett defenses could increase claim expenses and potential judgments, which would likely impact the availability and affordability of generics product liability policies.
“In the event the rule went through as proposed, the degree and scope of the increased litigation might not only impact the cost of insurance but also the amount of capacity available,” the expert said.
Risk Management Needed
Kati Ballantyne, Whitehouse Station, N.J.-based assistant vice president and life science underwriting manager for Chubb Group of Insurance Cos., said that if the rule goes through as proposed, generic drug companies will face material changes in labeling and may consider adopting practices similar to those used by the innovator drug companies to help ensure that they’re doing all they can to identify potential patient issues that belong on the label.
“The changes may come at a cost for generic drug companies and could potentially have a downstream impact on the ultimate consumers,” Ballantyne noted.
Ballantyne added that if the rule is adopted, some best practices in risk management that would be critical include effectively managing adverse events, identifying trends in adverse events, and executing rapid escalation plans for external and internal early reporting to the FDA of adverse event trends that may warrant a label change.
“In addition, generic drug companies will need to make manufacturing adjustments to ensure the timeliness of changing labels,” Ballantyne said.
Allison Zieve, general counsel and director of the litigation group for the Washington, D.C.-based advocacy group Public Citizen, said, “The way the regulating scheme is set up, the drug manufacturers have the primary responsibility for ensuring the adequacy of the labeling. That makes sense because the FDA doesn’t have the resources to monitor the thousands of drugs on the market.
“Most of the labeling changes are based on adverse-event reports submitted to the FDA, and the FDA makes those reports available to any manufacturer,” she said.
If the FDA rule goes through as proposed, there are a couple of important impacts, said Darlene Villoresi, Morristown, N.J.-based managing director with Marsh’s life sciences practice.
“One is all about differentiation,” she said.
“I think it’s going to be even more important for the generic drug companies to differentiate themselves because there’s going to be much more scrutiny on them from an underwriting perspective.
“They’re going to get many more questions about underwriting data more in line with the branded drugs.”
Right now, she said, they’re protected from failure-to-warn claims so the underwriters don’t focus as much on pharmacovigilance.
If the proposed rule is adopted as planned, or in some form close to its current structure, Villoresi also envisions an impact on pricing.
There will be more pressure on generic companies to implement new programs to detect early warning signs for adverse events, and that’s going to cost money, she said.
“And underwriters will evaluate how successful they are in their plans, including how well they’re tracking their adverse events, their safety signals, how well they are identifying safety trends in the products that are out there,” Villoresi said.
In the risk management realm, Chubb’s Ballantyne said that the key to successful management of the FDA proposal is the implementation of best practices by the generic drug companies going forward.
“Since the FDA proposal first became known about a year and a half ago, we’ve been working with our customers in anticipation of the change to help them achieve best practices,” Ballantyne said.
“We’ve utilized our loss control expertise in the area of post-market surveillance and anticipate that our resources in this area will grow in value to those drug companies if the proposal goes through,” she said.
Aon Risk Solutions’ Walters said his team’s advice for generic drug manufacturers is to beef up their staffs and urge them to have the necessary tools to monitor adverse events and trends more effectively.
“There are lots of third parties that can help with monitoring adverse events, and we would look to advise our generic manufacturer clients with help from companies like these,” Walters said.
FDA Medical Device Guidance
The Food and Drug Administration has released “long-awaited” guidelines on the cyber security of medical devices.
Obviously, this is a concern for health and life insurers, but it is also relevant to other areas of coverage, such as automobile or any insurance that pays medical claims.
“There is no such thing as a threat-proof medical device,” said Suzanne Schwartz, director of emergency preparedness at the FDA’s Center for Devices and Radiological Health, in an article in “USA Today” on the release of the guidelines.
“…many device manufacturers and software vendors only learn of vulnerabilities in their products after said products have been hacked.”
“It is important for medical device manufacturers to remain vigilant about cyber-security and to appropriately protect patients from those risks.”
Important indeed. One would think that such statements would be followed by some specific safety requirements, or at least by substantive recommendations.
Instead, the article noted, “The agency is recommending that manufacturers consider cyber security risks as they design and develop medical devices.”
And which particular risks might those be? It seems there is again no specificity.
Once having “considered” those risks, however, the FDA says companies should give the FDA information about the potential risks they found, as well as what controls they put in place to mitigate them.
While this is a nice idea, it ignores certain realities in the world of technology development in general and cyber security in particular.
First, many device manufacturers and software vendors only learn of vulnerabilities in their products after said products have been hacked.
Yes, it would be fair to say that manufacturers and vendors should do a better job of testing in order to ferret out potential problems, but it is also fair to say that the number of ways to crack a product’s code are many and that not all of those ways are likely to be anticipated.
And at some point in the product development process, the testing phase must come to an end — unless the vendor is oblivious to the possibilities for profitably marketing a given product.
“Many devices are poorly secured and do not require a lot to hack. If there is sufficient incentive to do so, it will happen, causing harm to patients,” said Shel Sharma, director of product marketing for Cyphort, a threat-detection company, in the published piece.
But why would anyone want to hack into a medical device, implanted or otherwise? One obvious reason might indeed be to do harm to that individual. If an implant suddenly overheats and loses functionality, who is to say it wasn’t an accident, as opposed to attempted murder?
More ominous, however, is the idea that devices of various kinds must, by design, interface with broader medical systems that contain much more data — including confidential data on health and things like Social Security numbers. It might also be that a compromised device would provide a gateway to an entire enterprise, allowing for mischief and significant data loss, and the liability that would accompany same.
And liability is precisely the point for insurers of nearly any stripe. Of course, this whole risk scenario may represent a new area of insurance coverage to be marketed by our carriers.
Even in that case, however, insurers hardly want device makers to make things easy for criminals, because the carriers must then pay the claims. The FDA held a national workshop on medical devices and cyber security in October. Let’s hope the risks and the solutions that emerge from that gathering are more clearly defined.
A Modern Claims Philosophy: Proactive and Integrated
According to some experts, “The best claim is the one that never happens.”
But is that even remotely realistic?
Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.
And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.
Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.
This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.
“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.
“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
— Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance
Utilizing claims expertise to improve underwriting
Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.
“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
Aspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.
“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.
Risk management improved
Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.
“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
For a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.
Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.
World-class claims management
Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.
“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.
“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
A fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.
The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.
Modernize your carrier relationship
Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.
Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.email@example.com.
This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.