For decades, critics of the U.S. drug pricing system have advocated importing drugs from Canada as a convenient shortcut to lower prices. The Food and Drug Administration’s recent release of a proposed regulation to create a process for approving state-sponsored importation plans is one step closer to that goal. A closer look shows that it’s actually a false step.
Career FDA staff, supported by previous FDA commissioners and Health and Human Services secretaries, have long maintained that there is no way to open a drug import channel into the U.S. pharmaceutical supply chain without violating the 2003 law authorizing Canadian drug imports that required the FDA to certify that importation would create no safety risk to the public. Now, with a heavy twist of the arm from President Trump’s strong support for importation, the FDA has been forced to describe a possible pathway for it.
Importation has never been about actually bringing drugs into the U.S. — it’s about bringing their prices here. The drugs that people want to import are not like Caspian Sea caviar, French Bordeaux, or Chilean sea bass. The drugs Americans want are already available in the U.S. in plentiful quantities, and some are even produced or finished in U.S. factories. But the U.S. wholesale price of these drugs is often multiples of what drug companies charge purchasers outside the U.S. Inconveniently, we can only import the prices along with the actual drugs.
Bills in the House of Representatives (H.R. 3) and the Senate (S. 2543) that take direct aim at high drug prices make drug importation from Canada seem like a bit of an anachronism. However, it is an anachronism that enjoys widespread support as a quick fix since these bills are far from certain to advance in the near future. Florida has already advanced a detailed drug import plan, and several other states have taken steps toward devising their own plans. With Florida a likely battleground state in 2020, the president is eager to deliver its voters lower drug prices.
Enter the FDA. Its 44-page proposal, published formally in late December, is serious and well thought through. To ensure the safety of the U.S. drug supply, FDA has set out a detailed, complex, step-by-step process that a state would need to follow if it wishes to import drugs for its Medicaid and other state programs, or for use by private health plans.
To do its best to ensure safety, the FDA proposes allowing only the shortest possible supply chain: manufacturer to exporter to importer to patient. While that makes sense, it also creates a practical problem for the program’s success: Why would a manufacturer sell its drug to anyone who is going to ship it into the U.S. and undercut its prices here?
In other countries with active drug sales across country borders, such as those in the European Union, exporters can buy their drugs from other wholesalers, and even pharmacies, through a process of drug arbitrage in which they find products in low price markets and resell them in high price markets. That would not be allowed if the FDA regulation becomes final.
And then there is the issue of why Canada would participate in this scheme when exports from the country’s small market could create supply shortages that would harm Canadians. Health Canada has already signaled it would “take action to ensure Canadians have uninterrupted access to the prescription drugs they need.” The FDA proposal has given the Canadians an easy path to such action. To serve as a drug exporter, a Canadian entity must have — you guessed it — a license from Health Canada. How quickly would Canada impose a new licensing requirement that prohibits participation in the U.S. import program?
Even assuming that a Canadian exporter can get its hands on enough product to export, and that the Canadian government decides to look the other way in the interest of promoting its own businesses or not angering the Trump administration, the proposed rule raises the very real question of whether the costs of complying with its many requirements are worth the savings.
Here are just a few of the duties an importer would have to agree to:
- screening the drugs for damage and counterfeiting
- relabeling the drug with the U.S.-approved label information
- gaining FDA approval for each shipment
- having samples of each shipment tested at an FDA approved laboratory
- creating a system for collecting and investigating any physician or consumer reports of adverse reactions
- sharing with the FDA detailed records that each requirement has been met
Each of these is costly, and a misstep could lead the FDA to terminate an importer’s ability to do business. Like a regulatory game of Jenga, the FDA has also stipulated that if the courts remove any piece of its process, the entire thing tumbles down and the FDA will terminate this entire importation plan.
And yet the FDA is saying, “If you really want to try, go for it!” Whether anyone takes the agency up on the offer will depend on what the final rules look like. I anticipate that importation proponents will raise objections to some of the requirements in comments that are due by March 9. Based on typical regulatory timetables, the FDA could finalize its rule and be open to considering state applications as early as this summer.
Given the political momentum behind importation, it’s a safe bet that one or more states will take up the challenge and at least initiate the process of gaining FDA approval for its importation plans and start the process of seeking a U.S.-based drug wholesaler or pharmacy partner. But given the approach FDA is proposing, it’s a long shot that states will see significant savings, or even enough to justify the cost of setting up such a program.
If drug importation is not the answer to high drug pricing, it will continue to fall to Congress and the White House to see if agreement is possible on any of the current proposals for the U.S. to directly deal with prices rather than delegating that role to our neighbors to the north.
Ian D. Spatz is a senior adviser with Manatt Health.
I don’t pay anything for the many medications that I must take and I don’t pay anything for my other healthcare. This is because I have Medicaid. I have many medical conditions, so I must see doctors about once a week. I was hospitalized three times in 2019. I am 69 years old and I have been disabled for my entire life.
People beating the drum for Medicare for All totally ignore that we have Medicaid. They wave the banner for poor people who can’t afford healthcare, but Medicaid already covers them. They are really angling for a wealth transfer to the middle class.
This “proposed plan to lower drug prices” is so cumbersome
it would better be called “the proposed plan to codify that medication pricing continues to be controlled by the U.S. pharmaceutical companies, in
perpetuity” It was devised under the strict supervision of the U.S. pharmaceutical companies to insure they can continue gouge the U.S. consumer in what amounts to
monopolistic price fixing. In turn more and more people will be unable to afford their medications. And the federal
government will divert more and more tax dollars to insure
pharmaceutical companies profits over the health and welfare of the U.S. public. This
will further explode the deficit.
So, this is just more corrupt
We must have publicly funded elections and completely outlaw the corrupting flow of money from special interests to politicians.
I think you mean government PARTICIPATION in the pharmaceutical industry would explode the deficit. Staying out of it does the opposite…
Another pathetic attempt to provide a complicated work around, instead of fixing the lack of regulatory oversight. The FDA is almost completely in the pocket of big pharma and will work to protect their interests, as they have demonstrated repeatedly in the past. Most of the drugs Americans buy already are manufactured in China and India, and the FDA has failed numerous times on the inspection process. At the request of the industries, and due to underfunding by corrupt politicians to protect corrupt manufacturing corporations, there are not enough inspectors. There have been numerous times, contaminated products have made it to the American market. Mnay of these drugs did not even contain the active ingredients. Thanks to the continuing misinformation and pharma marketing, in the media, the average American is not even aware of this threat the their health. Pharma prices did not come down as a result of shipping the manufacturing overseas, they increased.
With Medicare For All we would not have these problems, or this expensive, corrupt and dangerous corporate malfeasance.
What does Medicare For All have to do with the FDA? Different organizations, different functions.
It would appear the intent of the FDA proposal is to provide the appearance of doing something while actually not doing anything at all.
The short path requirement dooms the plan to failure. US drug suppliers would virtually certainly raise prices to the Canadian distributors willing to sell pills back to the US. Canadian distributors in turn would simply decline to sell to the US to avoid price retribution from the US suppliers. Game over. End result: Donald Trump gets something to tout at his endless pep rallies about his beautiful FDA plan and gets a bonus of being able to criticize Canada for declining to participate. Nothing changes for US consumers. Why am I not surprised?
It would behove the big US to not aim to plunder a neighbour’s drug supply. The US has over 10 times the population of Canada, would render Canada dry in about 3 months. The Canadians have done some serious, tax-payer funded work for decades – in health care and medicine costs. And of course they will protect their work and results. The US needs to vastly improve = ditch the hungry greedy middle men, pharma lobbyists, and corrupt “buy-able” policitians. The FDA seems to understand that bit.
Oh well, the name of the game is pretending to be doing something, but indeed keeping everything the same
The right needs to come up with some good proposals here to protect truly free markets. We will lose all faith in markets if other countries strangle us with monopsony pharma price control cartels.
So if the FDA discards the rule about shortest possible path, it would work? Can’t we do that?
This won’t work. Manufacturers could simply restrict the flow of medicines to Canada who then restricts the flow back to the US. Also, the market in Canada on some products is relatively small, so you’d have to create another system for US distribution. Add on top of that only a small number (McKesson mostly) of companies manage the pharma distribution business in Canada, and they’ll need their cut, the whole thing falls short of the intended goal. On its face the idea makes sense, but in practice this won’t work. More of a political sound bite than something that will actually work. This also lends to creating black and gray markets that could end up hurting more patients than it helps (think of compounding pharmacies and meningitis outbreaks).
You could make that argument about arbitrage in any industry, yet it works in nearly all of them. What is peculiar to pharma that makes it impracticable?
I’m don’t see this as an “arbitrage” scenario. Canada isn’t buying cheap and selling high, and we’re not offshoring production to Canada to lower prices in the US for example.
I’m not sure of many industries that are similar, but that is just me. I mean we don’t grow oranges in Florida for Canada to sell back to New Yorkers. Also, the drug companies to some degree still control the price in Canada. If they choose to forgo that business they can simply raise prices in Canada which would diminish the return here in the US. Lastly, these goods aren’t products like clothing. If the design or fit is off you can return a shirt or send it to a thrift store. If there is a fault with the medicine peoples lives could immediately be at risk, which could in turn cause more dr and hospital visits, ultimately costing tax payers more than if they just bought the medicine here.
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