Tara O'Neill Hayes December 19, 2019
Executive Summary
·
As part of its efforts
to reduce drug costs, the Trump Administration released a proposal to establish
protocols for the importation of prescription drugs from Canada, but this
proposal is unlikely to have any meaningful impact on Americans’ prescription drug
costs.
·
The proposal only allows
drug importation from Canada—a country one-tenth the size of the United States
and whose citizens use fewer drugs than Americans—and as a result the supply of
drugs that could be redirected to the United States is limited.
·
Besides the supply
issues, the legal restrictions on the types of drugs eligible for importation
severely limits any potential savings: 42 of the top 50 drugs in terms of total
spending in Medicare Part B may not imported, while 31 of the 50 most expensive
drugs per claim in Medicare Part D may not be imported.
The Proposal
A top priority of the Trump Administration has
been lowering drug costs. As part of this effort, it has finally released a
long-awaited proposal to establish protocols for the importation of
prescription drugs from other countries. First, a proposed rule was published
outlining the regulatory process that will govern the importation of
prescription drugs from Canada. Second, the Food and Drug Administration (FDA)
issued draft guidance detailing how pharmaceutical companies may voluntarily
import into the United States their drugs originally intended for sale in other
countries.
The administration suggests that a manufacturer
may be interested in importing its own drugs in order to bypass existing
contract terms with insurers or pharmacy benefit managers that may prohibit it
from lowering the price of a given drug. If a manufacturer wishes, it may
import a drug and obtain a different national drug code, which allows it to
price the drug differently from an identical drug that was originally made
available for sale in the United States. It seems unlikely that many
manufacturers will take up this opportunity, so this paper focuses instead on
the proposed rule for importing drugs from Canada.
Section 804 of the Food, Drug, and Cosmetics
Act—a statute long in force—already allows for the importation of prescription
medicines so long as the Secretary of Health and Human Services can certify
that importation will not threaten or undermine public health and safety and
will result in a significant cost reduction to American consumers. No secretary
has ever previously made such a certification.
This importation plan is limited to drugs from
Canada. To be imported, each country’s respective drug approval agency—the FDA
in the United States, and the Health Products and Food Branch in Canada—must
approve the drug for sale, meaning that the United States will not rely on a
foreign drug approval agency to guarantee safety. The FDA may currently approve
a drug for sale in other countries while a market exclusivity provision
prevents it from approving the drug for sale in the United States. Under this
plan, such protections would remain and a drug would not qualify for
importation until any exclusivity protection expired.
As a further safety measure, the plan limits the
supply chain for these products to three entities: the manufacturer, the
foreign seller, and the importer, each of which must be licensed and registered
with the appropriate entity and subject to various supply chain security
requirements. Under the plan, a qualifying laboratory must test the imported
drug for authenticity, degradation, and other quality standards.
Six Challenges Facing the Importation Plan
There are a number of reasons why such a plan is
unlikely to provide American consumers access to significantly lower prices for
their prescription medications.
1.
Canada
has a much smaller population and lower utilization of prescription drugs, and
as a result the number of drugs available for importation is likely to be very
low.
According to the Centers for Disease Control and
Prevention, 69 percent of Americans aged 40-79 used at least one prescription
drug, while 65.5 percent of Canadians did; 22.4 percent of Americans in this
age group used at least 5 each month, while 18.8 percent of Canadians used that
many.[1]
While the percentage of Canadians using prescription drugs appears to be only
slightly less than the share of Americans, the difference in population size
results in significant differences on a nominal basis.
There are only 19.2 million Canadians over age
40.[2]
Based on the above statistics, 12.6 million Canadians over age 40 use at least
1 prescription drug (assuming the rate holds for those over age 79); only 3.6
million use more than 5 prescription drugs per month. Meanwhile, there are
156.1 million Americans over age 40.[3]
An estimated 107.7 million therefore use at least 1 prescription drug; 35
million take at least 5 prescriptions each month. In other words, for each
Canadian using a prescription drug, there are 8.5 Americans, and nearly 10
times as many Americans use 5 or more prescription medications as Canadians.
Even if we imported all of the drugs used by Canadians, there would not be
nearly enough to offset much of Americans’ consumption.
2.
Canadian
authorities have a duty to ensure their citizens get the drugs they need before
allowing any to flow to the United States, and Canadian drug exports could lead
to shortages there.
Given the population differential, any
meaningful exportation of Canadian drugs into the United States could cause a shortage for Canadian citizens, and
Canadian health officials are unlikely to let that happen. The administration’s
plan requires Canada’s cooperation—and it has already expressed opposition.[4]
3.
Drug
companies will do everything in their power to limit supply and ensure there is
no excess.
Like Canadian officials, drug companies will
also be looking for ways to prevent drugs from being exported to the United
States at lower prices. Drug manufacturers control the supply of their drugs;
they can limit the supply to a given country to ensure there is no excess to be
exported. They could also require in their contracts that the buyer not export
any of the supply to another country.
4.
Many
other countries do not have drugs that are the most expensive in the United
States, and thus these drugs are not available for importation.
Other countries have largely secured lower
prices for medicines by refusing to purchase drugs if the government decides
the price is too high. In the United States, 89 percent of all 290 new drugs
and 96 percent of the 82 new cancer medicines launched between 2011 and 2018
were available within three months of their global launch; in the 14 countries
that the administration is considering for its
International Pricing Index proposal, only 48 percent of all new medications
and 57.1 percent of new cancer medicines are available, and it took an average
of 16 months and 17.8 months, respectively, for those drugs to become available
in those countries after initially being available elsewhere.
Regarding Canada specifically, less than half of
all new medicines and only 56 percent of new cancer medicines are available,
and there was a delay in their availability of 13 months, on average. [5],
[6]
5.
The
plan excludes from importation the vast majority of the most expensive drugs,
severely limiting the ability to achieve significant savings.
As stated in the rule, “Section 804(a)(3)
excludes several categories from the definition of prescription drug, including
controlled substances, biological products, infused drugs (including a
peritoneal dialysis solution), intravenously injected drugs, and drugs that are
inhaled during surgery. The proposed regulation excludes these categories from
the definition of ‘eligible prescription drug.’ In addition, we propose to
exclude drugs that are subject to risk evaluation and mitigation strategies
(REMS).”
The drugs described above that would be
ineligible for importation are the types of drugs that are typically the most
expensive and drive the high spending on prescription drugs in the United
States. For example, 31 of the top 50 Part D drugs in terms of average spending per
claim are biological products, with an average cost of $47,341 in 2018. Those
drugs would not be eligible for importation. Regarding Part B drugs, 42 of the top 50 drugs in terms
of total spending are either biologicals or intravenous-injection drugs and
would not be eligible for importation. Those top 50 drugs accounted for 81
percent of total Part B drug spending. Excluding most of these drugs
dramatically limits any potential cost savings. Of note, even insulin—which
accounts for billions in annual spending, and which has
received significant attention recently—could not be imported. Even if other
countries had as robust a drug market as the United States and the new,
expensive drugs were available there, most of the products that drive high drug
spending still could not be imported.
6.
If
drug importation does not achieve significant cost reductions, then the
importation is illegal under the authority used for this proposal.
Current law requires that any importation plan
result in “significant reductions” in the cost to consumers. The proposed rule,
however, states that cost estimates cannot be made at this time because
regulators are unable to estimate the volume or value of drugs that may be
imported.[7]
If the drug importation does not achieve significant cost reductions, then the
importation would be illegal under the authority that the rule uses.
As explained, there are numerous reasons why
importing Canadian drugs is unlikely to achieve significant costs savings.
Further, any savings that may be achieved via the ability to purchase
cheaper imported drugs will be offset at least partially by the significant costs incurred during the
importation process. Participating entities will face numerous and costly
regulatory requirements. Besides the shipping and handling costs (particularly
for medicines that require storage at a particular temperature), the costs of
testing the drugs to ensure their quality and authenticity will also be
expensive. Finally, the paperwork burden required to comply with the
regulations will be significant and may require participating companies to hire
additional workers. It is not guaranteed that any initial cost savings on the
price of the drug itself will exceed the costs of importing that drug.
The proposed rule also fails to quantify what
will constitute “significant reductions” in the cost to the consumer; without a
benchmark, it will be hard to know whether this requirement is being met, and
thus whether the endeavor is legal. Perhaps that’s intentional.
[4] https://www.reuters.com/article/us-canada-pharmaceuticals-exports-exclus/exclusive-canada-warns-us-against-drug-import-plans-citing-shortage-concerns-idUSKCN1UD2LN
[6] https://www.phrma.org/-/media/Project/PhRMA/PhRMA-Org/PhRMA-Org/PDF/IPI-Model—Comparison-of-Cancer-Medicine-Availability—012819.pdf
https://www.americanactionforum.org/insight/obstacles-to-success-of-the-drug-importation-plan/#ixzz68g0vwAlK
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