The Drug Importation Follies

With much of the Administration, the House, and the Senate’s bills meant to lower drug pricing being postponed well into 2020 (if not dropped altogether), the one initiative that is still alive is the one that has been around the longest—drug importation. This is now being planned as a pilot program driven by the Trump administration and Department of Health and Human Services.

Drug importation

I can’t remember when I started writing about drug importation, though it must have been nearly 10 years ago, when it was first raised as a novel way of gaining access to lower priced drugs. The problem then, as it is now, is that few outside the pharma industry seem to understand what a short-term fix this is.

Today, a small number of Americans obtain their small-molecule medicines (not biologics) from Canada (or Mexico) for substantial discounts. However, the pharmaceutical supplies of Canada or Mexico cannot fulfill the needs of millions of US residents; obviously, the manufacturers do not send all of their stock to these countries. For example, Canada currently buys approximately 2% of all pharmaceuticals sold. On the other hand, the US utilizes more than 40% of all pharmaceuticals produced. Once the supply runs low in Canada, what happens next?

Once drug makers see that a significant percentage of their North American supply is being sold at a discount relative to before large-scale importation started, they will have two very basic choices: (1) cut the supply to Canada, which will leave Americans without drugs to import and perhaps threaten Canada’s supply for its own population or (2) increase the supply to Canada but raise prices close to what they charged in the US. The business decision is as simple as that. The latter choice likely is less workable, because Canada has a single-payer system with the power to push back strongly against large, sudden price increases. Either way, drug importation will result in significant discounts to Americans for a very short time (perhaps months). Does it sound like this hasn’t been thought through?

The value of this drug importation law is limited further in that it would apply to only small-molecule agents—not very high cost drugs, like biologics. Opioids would be excluded as would any drugs that are subject to Risk Evaluation and Mitigation Strategies (REMS) programs.

Under the pilot plan, pharma companies can voluntarily relabel their Canadian supply for reimportation to the US. The Trump administration did not describe any reasons why a drug maker would be incentivized to sell more of their Canada-bound drugs at a lower cost to Americans. If someone has a coherent explanation about how this can be successful, I’m willing to consider it.

I remain skeptical that this will go beyond a pilot program. Earlier this year, we were discussing the potential impact of a Medicare International Pricing Index, drug price negotiations by the federal government, and other initiatives. This seems like a pointless political gesture in comparison.

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