Where do we stand on Canadian drug importation?

Alex Woodruff is a policy analyst at Boston University School of Public Health with research support form the Laura and John Arnold Foundation. He tweets at @aewoodru

The COVID-19 pandemic has brought the importance of drug supply and affordability into sharp focus. In 2019, the Food and Drug Administration (FDA) proposed regulatory changes that would allow some designated medications to be imported from Canada. The goal is to decrease drug prices for consumers. Americans continue to struggle to afford expensive pharmaceuticals, especially now as unemployment rises and the economic impacts of the Covid-19 pandemic set in. While policymakers and states continue to roll out pathways to drug importation, it is very unlikely to work.

Drug prices were a frontline issue for many Americans even before COVID-19 hit. According to a 2018 survey, 40% of Americans reported struggling to afford their prescriptions, despite the vast majority of respondents having health insurance coverage. The United States spends roughly $1,200 dollars per capita on pharmaceutical spending every year, more than any other country. As a result, Many Americans have taken to getting their drugs from Canada either by physically traveling across the border or having drugs illegally shipped from Canadian pharmacies. And the FDA is cracking down.

Programs aimed to address drug prices are very popular among Americans.  Importing cheaper drugs from Canada is easy for the public to understand and support, but generating cost savings is not as simple as it sounds. The new FDA regulation lays out the simplest possible pathway to import drugs from Canada: Manufacturer to exporter to importer to patient. Numerous critics argue that the pathway is unlikely to be successfully implemented or result in any meaningful cost savings.

Barriers to Drug Importation

Importation of drugs from Canada has been legal since 2003, but only if certified by the Secretary of Health and Human Services (HHS) after certain quality conditions are met. To date, no importation plan has been certified. The recent FDA proposal outlines the requirements for approval and signals an openness to approving individual states plans. Five states have passed legislation that paves the way to making this a reality.

But there are many lingering problems with this approach. Perhaps most notably, the Canadian government and pharmaceutical manufacturers strongly oppose the plan. The Canadian drug supply is tiny compared to the US demand and importing drugs could have serious consequences for the Canadian people’s drug supply and availability. If only 10% of US prescriptions were filled in Canada, the country’s drug supply would run out in about eight months. Additionally, many Canadian manufacturers are subsidiaries of US companies and to import drugs would undermine their own profits. It seems unlikely for a variety of reasons that the Canadian drug market is unified in its unwillingness to participate.

Even if the Canadian stakeholders’ hold-ups could be overcome, there are still legal concerns with the proposal. According to recent legal analysis of the issue, the certification by HHS may not be legal unless the state can collect information that is likely unavailable to them about the safety of the drugs marked for importation and generate a cost-savings analysis, for which the FDA proposal offers little guidance.

Limitations for Success and Cost-Saving Estimates

Even if these barriers are overcome, it seems unlikely that it will matter much to the patient. Estimates to date of cost-savings from this plan paint a grim picture of offering cheaper drugs to US citizens. At the federal level neither the FDA or HHS have offered any estimate regarding potential cost-savings and have not been able to declare that this plan offers any benefits.

Two state concept papers, Florida and Vermont, have attempted to outline the savings. Florida generously estimated that if it were to replace its eligible domestic medications with Canadian counterparts, it would generate $150 million dollars in savings. That amount equates to .7 percent of the state’s Medicaid budget and is very unlikely to be a true estimate. Cost savings for Vermont are even smaller at $1-5 million per year in savings.

But if Canadian drugs are so cheap why are these savings estimates so meager? While Canadian medications are much cheaper than their American counterparts, the changes to the supply chain would incur a 40-45% mark up on any imported product. This mark-up along the supply chain makes it suspicious if any savings will be passed along to patients,  especially if pharmaceutical wholesalers can use access to this cheaper drug supply to increase profit margins. All told, It is likely that the infrastructure start-up costs will exceed savings for several years, and the program may not ultimately result in cheaper drugs to patients.

Acting on Drug Affordability

The popularity of drug importation among the American people makes it no wonder that policy makers continue to push this proposal. But as some states move forward with drug importation plans, the public should have realistic expectations for the benefit that could come of it. Under the FDA’s proposal, states would spend time and money crafting a system that could reap few benefits and face opposition from Canadian governments and drug markets.

As we rebuild and repair the economic fallout from the COVID-19 pandemic, there may be unique policy windows to regulate drug prices and lower costs for Americans. But whether or not Congress and administrative agencies have the stomach to address this issue remains to be seen. As it stands, the FDA’s drug importation proposal may amount to little more than political theater.

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