Issue No. 44: The Myth and the Danger of Importing Drugs to the United States

Every few years, the idea of importing medicines from other countries into the United States comes into vogue. In large part because drug prices are set by foreign governments, many medicines are cheaper in Europe and Canada. So why shouldn’t Americans benefit from lower prices abroad?

Two reasons: First, importation is unsafe. Second, importation doesn’t actually save much, if any, money.

Popularity Among Politicians, Even Republicans

Alex Azar, the Secretary of Health and Human Services (HHS), has called importation “a gimmick.” He might have added the adjective “dangerous.”

Still, there is no denying importation is popular with politicians. While left-leaning legislators like Sen. Bernie Sanders (I-Vt) and Rep. Elijah Cummings (D-Md) have been advocating importation for years, the notion is spreading in Congress among more centrist Democrats and with Republicans. For example, in January, Sens. Charles Grassley (R-Iowa), the chair of the Finance Committee, and Amy Klobuchar (D-Minn), a candidate for president, introduced the Safe and Affordable Drugs From Canada Act.

But much of the action this time around is in the states, and Canada is the favorite prospective source. Even the Governor of Florida, a conservative Republican named Ron DeSantis, is on board. “While our prices remain high,” said DeSantis in February, “our neighbors in Canada are spending significantly less for the same drugs. These price disparities are indefensible and inexcusable and I am ready to act.” DeSantis claimed in a press conference that President Trump “not only supports this, he is enthusiastic.”

Florida passed a limited importation bill in its House of Representatives on April 12 by a margin of 93-22. A key Senate committee passed a more restrictive version on April 10, and that bill is headed to the full Senate in Tallahassee.

“Legislation has been advanced this year in about a dozen states that would advance wholesale drug importation programs,” wrote Shefali Luthra and Phil Galewitz in Kaiser Health News. Among the states, according to the National Academy for State Health Policy, are traditionally Republican Missouri (SB 722), Oklahoma (SB 1381), Utah (HB 163), and West Virginia (HB 4294).

Those states, write Luthra and Galewitz, “are leaning on a provision in a 2003 law that empowers the [U.S.] Department of Health and Human Services to approve state programs to import medications from Canada.” But to gain that approval, the HHS Secretary has to certify the practice would pose “no additional risk” to the public’s safety and “result in a significant reduction” in cost for the “American consumer.” As a Wall Street Journal editorial on April 16 commented, “These are high bars,” and “No secretary has ever made such a judgment, and it’s hard to see why Florida deserves such a special federal blessing.”

Where the Administration Seems to Stand

Would HHS approve mass drug imports from Canada or any other country? Azar’s posture can be characterized as disdain. The word “importation” did not even appear in the HHS “Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs,” issued last May.

The Food & Drug Administration, which is the HHS agency charged with the safety of medicines, has a long record of opposition to importation, in both Democratic and Republican administrations. Scott Gottlieb, the departed FDA Commissioner was a staunch foe. Two years ago, just before Gottlieb took office, his four predecessors – two appointed by President Obama and two by President George W. Bush – came out against legalizing drug importation, writing that it would ‘‘harm patients and consumers and compromise the carefully constructed system that guards the safety of our nation’s medical products.’’ 

President Trump, of course, is Azar’s boss. The White House has not officially rejected importation, but it has not embraced it either. After DeSantis’s statement, Judd Deere, a presidential deputy press secretary, said that Trump “has instructed his staff to meet with the governor to learn more details about what he is considering…. The Administration also looks forward to educating Governor DeSantis on the many policy options the Trump Administration has proposed to reduce costly drug prices for American families.” (P.S.: None of those options includes importation.)
 
In the past, Trump has shown an interest in importation. During the campaign, his seven-point health plan included this sentence: “Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.”

It appears, however, that the President has abandoned his affection for importation – at least for now. Instead, his Administration has focused on removing regulatory barriers to letting private-sector competition work its will on prices.

As a result, President Trump has presided over the first decline in drug prices in decades. The latest data from the Bureau of Labor Statistics show that the average price of a drug prescription in America was 0.4% lower in March 2019 than it was in March 2018. That marks the eighth time in the last 11 months that drug prices were below year-ago levels. The President has a strategy that is working. He apparently doesn’t have to turn to what his HHS Secretary calls a “gimmick.”

Safety Imperiled

Some 3.8 billion prescriptions were filled at U.S. pharmacies last year – a figure that does not include drugs dispensed by hospitals and in doctors’ offices. Ensuring that these medicines don’t sicken or kill people is an enormous task, and it’s working. Americans have confidence in their supply of prescription drugs. But would they still, in the face of a flood of medicines from other countries?

The FDA explains on its website:

Many 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.

Former FBI Director Louis Freeh led a team on an extensive study in 2017 of the effects of importation on security. He concluded that importation “would increase the threat of illegitimate products entering the United States, fueling criminal organizations’ activities and profits “and that “already overburdened law enforcement and regulatory capacity would be unable to ensure a safe prescription drug supply.”

The Freeh Report noted 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 sale, 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. Adding importation to the pedigree would present a bureaucratic nightmare.

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. In Operation Pangea last year, Interpol agentsconducted raids in 116 countries, seizing 10 million units of medicines and arresting 859 suspects.

With all these safety concerns, an important issue is who will be held accountable if a patient suffers an adverse event because of faulty imported medicine. Clearly, legislators will be blamed, but will there be liability for the pharmacies and distributors who are sending medicines back to the United States? Inevitably, someone will be held responsible.

But What About Canada?

Even imports from highly developed nations to the U.S. would endanger Americans’ health. Counterfeit drugs from countries like China could be shipped to Canada and then sent to the United States. An FDA official testified in 2007, “Of the drugs being promoted as ‘Canadian,’ 85 percent appeared to come from 27 countries around the globe.”

More recently, Gottlieb, the FDA Commissioner, stated in February, “When a consumer goes online to buy medicines purportedly from Canada, they may get a medicine sourced from elsewhere that could be counterfeit, expired or misbranded.” Gottlieb made the comments while the FDA was issuing anenforcement letter to the Canadian company CanaRx, which the U.S. regulator accused of “facilitating the distribution of unapproved new drugs and misbranded drugs to U.S. consumers. These drugs are potentially dangerous to U.S. consumers.”

Last year, another large online Canadian pharmacy, Canadadrugs.com, was fined $34 million for shipping counterfeit cancer drugs like Avastin and Altuzan into the United States. The company’s domain name was seized by the U.S. Department of Justice and the FDA.

Canada is a country with a population of 37 million, just one-ninth that of the United States. In fact, Florida alone has a population that is 22 million, or about 60% that of Canada. How could Canada ensure that drugs that leave its borders are safe for millions of Floridians or tens of millions of Americans? Are state legislators in Florida ready for the consequences of unsafe or counterfeit medicines poisoning their constituents?

Finding Medicines to Re-Import

Canada’s size also plays a role in any assessment of whether importation would actually save U.S. patients any money. Understand first that importation is actually re-importation. In the best-case scenario of politicians in states like Florida, drugs would go from U.S. manufacturers to Canada and then come back to the United States.

In Canada, the prices of branded drugs are set by the Patented Medicine Prices Review Board.

Imagine a drug that currently costs $100 per monthly prescription in Canada and $130 in the U.S. Imagine as well that the drug manufacturer sends enough pills to Canada to fill 100,000 monthly prescriptions. Now imagine that a small slice of Americans want access to those drugs – say, 20,000 prescriptions. Where will the pills come from?

It’s doubtful that the U.S. manufacturer would have to acquiesce in diverting an increased supply of the drug from the U.S. to Canada, where the company would receive less money. That makes little sense. As Azar said last year:

[Canada is] a lovely neighbor to the north, but they’re a small one. Canada simply doesn’t have enough drugs to sell them to us for less money, and drug companies won’t sell Canada or Europe more just to have them imported here.

So where do the 20,000 prescriptions come from? From Canadians who need them. Would Canada’s government allow such a diversion? Highly unlikely.

“If you think about the practicalities of trying to feed a large section of the U.S. market from Canada, it doesn’t make much sense,” said Michael Law, a pharmaceutical policy expert and associate professor at the University of British Columbia’s Centre for Health Services and Policy Research, quoted byKaiser Health News. “There are too many steps along the way where people will shut it down.”

In limited cases, the FDA does allow the direct importation of some drugs from Canada for personal use. According to a paper, “Drug Reimportation Practices in the United States,” by Monali J. Bhosie and Rajesh Balkrishnan in the Journal of Clinical Therapeutics and Risk Management in 2007, “A few US drug companies have already cut off drug supplies to the Canadian pharmacies that sell prescription drugs to US consumers. This has led to serious drug shortages at these pharmacies.”

Not only manufacturers but insurers may be reluctant to cooperate with a drug importation scheme. Will insurers agree to pay for imported drugs? After all, a half-price $100,000 is still $50,000. Will patients be able to use their insurance to pay for imported medicine? 

According to CBO, the Price Reduction Is 1% or Less

But suppose that U.S. manufacturers did send extra drugs to Canada and suppose that Canada allowed importation. In that case, middlemen, including distributors and pharmacy benefit managers, would certainly take a cut. Simple economic theory would lead to the conclusion that the final U.S. price would be set, not by the price in Canada but by forces of supply and demand in the United States.

In 2004, during a congressional session when a drug-import bill passed the House but died in the Senate, the Congressional Budget Office (CBO) conducted what is probably the most definitive report on the prospective effects of importation.

The CBO 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.”

The report is worth quoting at length on the process and the economics that would prevent the kind of savings that some politicians expect:

Permitting the importation of foreign-distributed drug products would not necessarily result in much additional volume reaching the United States. Many foreign governments…might act to limit exports to avoid shortages. Furthermore, the possibilities of parallel trade are limited by drugmakers’ ability to restrict shipments of patented drugs to markets outside the United States, effectively limiting potential imports. Drugmakers could also try to stipulate in sales agreements that prices be contingent on products not being sold across borders.
 
While an individual can fill a prescription in another country and realize savings reflecting the full difference in price, the same would not be true for the health care system as a whole. Potential overall savings would depend not just on the price difference but on the size of the parallel trade market, with greater potential savings accompanying greater potential import volume. For example, expanded parallel trade with Canada by itself would offer sharply limited prospects for aggregate savings given the small size of the drug market in Canada.
 
CBO defines “parallel trade” as the “legal movement of products across borders without the explicit consent of the manufacturer, usually in response to price disparities.” Studies of parallel trade in pharmaceuticals in Europe have found “only limited effects on patients and health insurance systems, and on the prevalence of low prices,” according to Joan Costa-i-Font of the London School of Economics. An academic paper he wrote with Panos Canavos concluded, “Instead of a convergence to the bottom in EU pharmaceutical prices, the evidence points at ‘convergence to the top.’”

The same phenomenon could repeat itself if importation is allowed into the United States. “Obviously, manufacturers respond to these sorts of threats of importation by trying to raise prices in the countries that could become sources of export,” said Patricia Danzon, a professor emeritus at the Wharton School at the University of Pennsylvania, quoted in the Washington Post.

The Truth About Canadian Vs. U.S. Prices

Certainly, some individual medicines are cheaper in Canada, but many are not, according to the Bhosie-Balkrishnan study cited above: “A Canadian study of 27 top-selling generic prescription drugs concluded that three-fourths of those drugs cost less in the US, and Canadians could save millions by access to the US versions.” That study confirmed a smaller one by the FDA itself, which found that five of the seven top-selling generis in the United States were cheaper than the same generics in Canada.

In 2014, Canada’s Globe and Mail reported that a new study by the University of Ottawa and the Bruyere Research Institute found that Canadians are “spending much more than people in the…United States” for six drugs studied, including popular medications for cholesterol and high blood pressure.

Generics account for nine out of ten U.S. prescriptions, and an extensive studyof the prices of generics around the world found that U.S. generics, on average, cost just 8% more than Canadian.

Finally, comparisons between individual Canadian and U.S. drug prices frequently pit apples against oranges. Unlike the Canadian price, the U.S. price is almost always gross – that is, without the subtraction of discounts and rebates. As HHS has pointed out, “The average difference between the list price of a drug and the net price after a rebate is 26 to 30 percent.”

Importing More Than Drugs

While re-importation is largely a myth, it is far from an innocuous idea.

Canada, Europe and other countries have been free-riding on U.S. innovation for decades. The funds needed to develop new medicines come from the profits that drug manufacturers earn, and those profits come mainly from the United States because the nationalized health care systems of foreign governments control drug prices.

The dangerous strategy that is gaining favor today is not merely the importation of drugs but the importation of those price controls – indeed, the importation of an entire top-down, government-run health care system. Incredibly enough, the Trump Administration has proposed setting the prices of some medicines using an index of prices in other countries.

Importing features of nationalized health care systems to the U.S. will have two consequences: innovation will be more rare, and access to medicines will be more limited. The disparity between U.S. and foreign drug prices rankles Americans, and it should. But there are other ways to address it. The most obvious is for the Trump Administration, which prides itself on its ability to press other governments into trade deals that are beneficial to the U.S., to demand that other countries stop fixing the price of U.S. goods (in this case, drugs) they import.

The White House can start by naming a special pharmaceutical negotiator to the Office of the U.S. Trade Representative. That will have more effect on ending the drug-price disparity that all the importation “gimmicks” politicians can devise.