The US drug approval process is long and costly, and pharmaceutical development companies pass the extensive costs of research, user fees, and monopoly rent on to American consumers. Essentially, U.S. patients have been carrying the water for the fixed pharmaceutical pricing schemes of the rest of the world because Congress permits it and U.S. trade policy has failed to ever prevent it. In time it is inevitable that states will be required to take on more of the cost for Medicare and Medicaid programs, including prescription drug costs, as federal funding to these programs is headed for cuts in the rate of growth. With an aging U.S. population, increasing burdens on states to provide for their citizens, and the current regulatory and U.S. pharma market-protection regime it seems that reducing prescription drug prices is out of reach.
Drug Importation Possible Under HHS
But what if a solution was available now within the constraints of existing law? We think it is. In short, the current version of the Federal Food Drug and Cosmetic Act (FDCA) allows for the Secretary of Health and Human Services (HHS) to certify (and supervise) a drug importation program, which meets certain statutory criteria, and which will both result in a significant cost reduction for the American consumer and not increase risks to public health and safety. Such a certified program would enable wholesalers to import drugs from Canada (at least), granting access to cheaper foreign-sourced drugs that meet FDA’s requirements regarding approval, labeling, quality, identity, purity and safety. This provision, section 804 of the FDCA, has been relegated to the back burner for over a decade because no HHS Secretary has found it possible (or adequately expedient?) to certify “yes.” So, no drugs from Canada – at least not under section 804.
One of the main obstacles to certifying programs to import drugs from Canada is ensuring consumer safety. It is difficult to ensure the safety of the supply chain if each person must place their own individual order to Canadian pharmacies or if private wholesalers must somehow satisfy FDA that the drugs they import are distributed through appropriate channels. The oversight of a larger responsible party would be necessary to establish and maintain the safety of the imported drugs. Involvement of purely for-profit importing wholesalers adds the risk that multiple resellers in the supply chain could offset meaningful price discounts that would otherwise be available to consumers. And so there has remained this apparent quandary; HHS will not certify any drug importation program that involves the drug wholesale/import industry or foreign sourced drugs because there are too many unknowns regarding handling and safety and too many people who stand to make a profit as the cheaper drugs make their way through the supply chain.
“Oh, and the fraud! Don’t get me started on the potential fraud!”
Of course, fraud is a serious concern, but Congress has already demonstrated a comfort level with managing the risk of fraud in distribution supply chains using mechanisms that work just as well in this scenario, as we discuss below. We believe that there is a better solution to solving the problem of prescription drug pricing. The missing element in any drug importation program proposed thus far under section 804 is the larger responsible party – an organization that has the power to enforce its own program rules to ensure they conform to the federal criteria. We see that larger responsible party as the individual state – that entity that is about to shoulder a greater burden of healthcare costs as the Fed looks for ways to divest and disentangle itself from the mess left from the last 12 years or so.
States as Wholesalers
Under this proposal, a state could act as the wholesaler under section 804 and establish a secure supply chain from Canadian source to local pharmacies within the state. A state could negotiate with Canadian drug facilities to receive lower costs for prescription drug products, and provide guarantees against distribution outside the state’s own borders. States could thus offset rising Medicaid and Medicare operating costs. The state could limit the price markup through the supply chain, and can select drugs that have the greatest savings potential based upon their own constituents needs.
Under this plan, each participating state would pass a statute outlining their prescription drug importation program; develop a regulatory program including testing to prevent counterfeiting and adulteration; and develop appropriate relabeling and distribution channels. Distribution channels can include current health care infrastructure to both limit cost and ensure safety. The Drug Supply Chain Security Act (DSCSA), enacted in 2013, outlines steps for building an electronic system to identify and track prescription drug distribution in the US. States could leverage this effort and incorporate it for Canadian suppliers to introduce prescription drugs into the supply chain and make distribution to the dispensing pharmacy safer and more efficient.
There is the concern whether states would eventually create too high a demand for Canadian prescription drug supplies to meet. Indeed, a slow but steady approach would work best, with low-population states testing and optimizing the process before high-population states. Another concern is that Pharma companies supplying prescription drugs to Canada will limit their supply, reducing the amount of drugs available for export under the program. While this concern is valid, Canada (and Congress) could mitigate this risk by restricting the power of companies (for public health policy reasons) from reducing drug supplies based solely upon lawful downstream transactions that may have the effect of increasing Canadian demand exceeding Canadian consumption. (China figured that out. In 2016, several Chinese pharmaceutical companies were fined for pharmaceutical price fixing and violation of China’s Anti-Monopoly Act). We recognize a state’s importation plan would require both the presence and the enforcement of antitrust provisions.
A Model for the States
While the implementation of state importation programs appears complex, the potential savings are great. This plan is both strong, as it relies on states rather than private wholesalers or individual patients, and flexible as it can vary state to state. The National Academy for State Health Policy, an independent non-profit and non-partisan organization, is working on a model importation act to guide states through developing importation programs for prescription drugs. For more information on the model provisions, visit www.nashp.org.
FDAImports.com is dedicated to empowering people and improving lives. For information on how we achieve our mission or assistance with your regulatory or legal matters, email contact@fdaimports.com or call 410-220-2800. We look forward to talking with you!
- Editor’s note: This is part 1 of a multi-part series on drugs and drug pricing. See also The Intellectual Property Rights Challenge of Global Drug Pricing and The Current “State” of Drug Pricing: How States are Stepping in to Relieve Prescription Costs
