Issue No. 16: Importing Medicines Creates Broad Threats to Public Safety

Strong Words in Report by Ex-FBI Chief Freeh

In a world awash in counterfeit and contaminated medicines, the U.S. is an island of safety. But there are threats. One is the repeated recommendation – even from Donald Trump during the presidential campaign – that the United States import prescription drugs from abroad. A report issued June 6 by a team led by former FBI Director Louis Freeh provides overwhelming evidence that such an idea be rejected immediately. 

The report – by the law firm of Freeh, Sporkin & Sullivan and the Freeh Group International Solutions -- finds that drug importation is a particularly bad idea for three reasons:

First, importation “would increase the threat of illegitimate products entering the United States, fueling criminal organizations’ activities and profits.”

Second, it would “worsen the opioid crisis – a crisis that has already grown substantially worse due to the powerful opioid fentanyl and fentanyl analogue-laced counterfeit pills being produced by illegal drug trafficking organizations, including in China.” 

And, third, “Already overburdened law enforcement and regulatory capacity would be unable to ensure a safe prescription drug supply under importation.”

This third reason is powerful, especially coming from Freeh. The report states: 

Allowing wholesalers, doctors, and patients to import direct from sources in Canada and Europe will increase the enforcement and investigative scope for US law enforcement and regulators when they are already stretched to the limit dealing with these agile and creative criminal organizations.

The report reminds us that the "U.S. prescription drug supply is the safest and most controlled system in the world. It has been referred to as the ‘Gold Standard.’… U.S. consumers take for granted that when they fill a prescription at a pharmacy in the United States they will receive the medicine prescribed by their doctor in the requisite form, quality, potency, and dosage.” But importation, even from Canada, puts that safe system in jeopardy.

Dangers of Tarnishing the ‘Pedigree’

The law is clear. As the FDA website explains:

The United States Federal Food, Drug, and Cosmetic Act (Act) (21 U.S.C. section 331) prohibits the interstate shipment (which includes importation) of unapproved new drugs. Thus, the importation of drugs that lack FDA approval, whether for personal use or otherwise, violates the Act. Unapproved new drugs are any drugs, including foreign-made versions of U.S. approved drugs, that have not been manufactured in accordance with and pursuant to an FDA approval.

[M]any drugs sold in foreign countries/areas as "foreign versions" of approved prescription drugs sold in the United States are often of unknown quality with inadequate directions for use and may pose a risk to the patient's health…. The manufacturing facilities and procedures for approved products are also carefully regulated by FDA to ensure product integrity…. FDA cannot assure the consumer that the drug purchased in the foreign country/area would be the same product his or her physician's prescription is written for.

The Freeh Report notes that the 1987 Prescription Drug Marketing Act established a “pedigree” requirement for prescription drugs. The Act says, “A drug pedigree is a statement of origin that identifies each prior sales, purchase, or trade of a drug, including the date of those transactions and the names of all the parties to them.” It took over a century to develop this closed system, and it works well – despite constant challenges.

Operation Pangea Seizes 20.7 Million Pills

The volume of the illegal and counterfeit drug trade is staggering. The World Customs Organization pegs the global market for counterfeits at $200 billion says the Freeh Report. Interpol’s Operation Pangea seized 2.4 million pills in 2011, and by 2015, the number had swelled to 20.7 million. 

The consequences can be dire. In 2013, an estimated 122,350 children died in Africa because of a “poor-quality anti-malaria medication.” The American Journal of Tropical Medicine and Hygiene in 2015 published a supplement entitled “The pandemic of falsified medicines.” According to one of the academic papers: “Poor-quality medicines are a real and urgent threat to decades of success in global public health…. Although previously thought to be limited to low-income countries with weak pharmaceutical regulatory systems…, increasing reports of a large variety of poor-quality medicines…in high- and middle-income economies are illustrative of the pandemic nature of this problem.”

In a previous newsletter, we pointed out that a common practice is manufacturing counterfeit drugs unsupervised in a country like China and then shipping them to a more respectable source like Denmark or Canada, from which they are sent to the United States – a transaction that could become legal if drug importation rules change. An FDA official testified in 2007, “Of the drugs being promoted as ‘Canadian,’ 85 percent appeared to come from 27 countries around the globe.”

We also noted that earlier this year the four most recently serving FDA commissioners – two appointed by President Obama and two by President George W. Bush -- last month came out against legalizing drug importation. The four wrote that importation would ‘‘harm patients and consumers and compromise the carefully constructed system that guards the safety of our nation’s medical products.’’ 

Commissioner Gottlieb’s Skeptical View of Importation

Scott Gottlieb, the new FDA commissioner, also has a negative view of drug importation. In a March 2016 column in Forbes, he wrote that importation does not address any of the “core challenges” of pricing: the structure of health insurance and the lack of competition because of regulatory barriers. 

In his article, Gottlieb pointed out:

Given the rapid growth in the prevalence of sophisticated counterfeit drugs, no politician will approve a drug importation scheme without implementing a reasonable measure of regulatory oversight. There are simply too many channels for fake drugs to enter any importation scheme to forgo some meaningful controls.

Yet when importation of foreign drugs is done under a regulated scheme, it really wouldn't save money. I know. I worked on sketching an importation scheme for the FDA regulation of imported drugs when it looked like similar legislation would pass in 2004. That scheme would have added so much cost to the imported drugs; they wouldn’t be much cheaper than drugs sold inside our closed American system.
And, by the Way, Canadian Drugs Aren’t Cheaper

In fact, a strong argument against drug importation is that, even now, without the new regulatory apparatus that would be required, drugs from Canada and Europe are not necessarily cheaper than in the United States anyway. 

A study by the non-partisan Congressional Budget Office in 2004 concluded that “permitting the importation of foreign-distributed drugs would produce at most a modest reduction in prescription drug spending.” Even if imports were allowed from “a broad set of industrialized countries,” the reduction would be about “$40 billion over 10 years, or about 1 percent. Permitting importation only from Canada would produce a negligible reduction in drug spending.”

One reason is that 85% of prescriptions in the U.S. are for generic drugs (up from 50% in 2005), and our generics are cheaper than those sold in Canada.The FDA in 2004 looked the prices of the seven “biggest-selling generic prescription drugs for chronic conditions that became available as generics in the United States since 1993” and found that “for six of the seven drugs, the U.S. generics were priced lower than the brand-name versions in Canada.” These results have been confirmed in subsequent studies: here and here.

Better Ways to Reduce the Cost of Medicines

The perennially bad idea of drug importation has surfaced because of legitimate concerns about the cost of medicines. There are much better approaches. “Enhancing competition and eliminating unnecessary regulation” were two more constructive suggestions urged by Jane Norris, a spokeswoman for the Centers for Medicare and Medicaid Services recently quoted in the Wall Street Journal. That’s the direction that Gottlieb wants to take.

Regulations, for example, currently, deter what is called “value-based pricing.” As an April article in Health Affairs explained;

Value-based pricing is an umbrella term, encompassing a number of different possible payment arrangements. At its administratively simplest, a company could link the single price it charges for a given drug to an assessment of how well it works. More sophisticated versions of value-based pricing in the marketplace would allow insurers and patients to receive rebates from drug manufacturers if a drug failed to work, an arrangement known as “outcome-based pricing.” Another variant would involve “indication-based pricing,” in which drug companies charge different prices for the same drug when it is used to treat different conditions.

In his Forbes piece last year, Gottlieb cited an article in BioCentury that showed that, “if a drug maker wanted to offer discounts based on a drug’s ability to shorten or reduce hospital stays, it can’t--not unless FDA explicitly says that the drug is approved to reduce or prevent hospital stays.” 

There were reports late last week that President Trump was moving toward issuing an executive order that would promote value-based pricing in federal programs, such as Medicare Part D. Legislation would be required to use the approach more broadly. The President, like many other policy makers, is learning that tired “solutions” like importation won’t lower costs but will create serious side effects, like the ones Freeh enumerates. Market-based solutions and regulatory reforms will be far more effective.