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Opening the Borders

The New Physician December 2004
The controversy over prescription drug reimportation heats up, but many question whether it is the real solution to making drugs more affordable.

The bus trips could become unnecessary, the legality of the Internet purchases a moot point. Seniors could stop worrying whether they can afford their prescription drugs and instead purchase them from the neighborhood drugstore as they used to do—before the market outpriced them. Sound too good to be true? It’s not, according to supporters of a congressional bill that would legalize drug reimportation.

Nearly a third of U.S. senators
support Sen. Byron Dorgan’s (D-N.D.) Pharmaceutical Market Access and Drug Safety Act. If passed, which is viewed as unlikely before Congress adjourns this month, “people would be able to buy lower-priced prescription drugs from their local pharmacists, because their local pharmacists would do the reimportation,” says Barry Piatt, Dorgan’s spokesman. Ninety days after its passage, the bill would allow pharmacies to import drugs from Canada and from European Union countries, Australia, Japan, New Zealand and Switzerland after a year. The U.S. Food and Drug Administration (FDA) would certify all exporting pharmacies, assessing a fee to cover the cost.

“Seniors are forced to go to Canada because the price of prescription drugs in this country is out of control,” said bill co-sponsor Sen. Russ Feingold (D-Wis.) during a congressional hearing in July. “The Congressional Budget Office (CBO) estimates that brand-name drugs cost, on average, 35 [percent] to 55 percent less in other industrialized countries than they do in this country.” The CBO reported in April that Americans typically pay 67 percent more than Canadians for patented drugs.

Currently, U.S. law prohibits drug importation because the FDA argues it can’t ensure the drugs’ safety and efficacy. “Consumers are exposed to a number of potential risks when they purchase drugs from foreign sources…,” said John Taylor, the FDA’s associate commissioner for regulatory affairs, during a May congressional hearing. “These outlets may dispense expired, sub-potent, contaminated or counterfeit drug products, the wrong or contraindicated product, [or] an incorrect dose of medication unaccompanied by adequate directions for use.” And although the FDA has the authority to test the drugs, he says it doesn’t have the resources.

However, importation advocates dispute the safety concerns. Dr. Marcia Angell, a former editor of the New England Journal of Medicine and current lecturer at Harvard Medical School, calls the safety concern “bogus,” saying the drugs distributed in Canada are the same ones the FDA approves for distribution in the United States. Pharmaceuticals are, by industry standards, global products, she says, entering and exiting many countries during their production and distribution. “The implication that somehow crossing a border makes drugs less safe flies in the face of this industry.”

Alan Sager, Ph.D., professor of health services at Boston University School of Public Health and director of the school’s Health Reform Program, also doubts the safety concern. “I’m not familiar with any problems with Canadian drug safety, and the FDA apparently isn’t either,” since it hasn’t identified anyone harmed by Canadian drugs.

But Tom McGinnis, the FDA’s director of pharmacy affairs, says the agency lacks important information about Canadian drugs. “We really worry about the formulation being different and the patient not having the same therapeutic responses.” The Department of Health and Human Services (HHS) is studying the issue and will present a report to Congress this month on importation safety and costs.

Opponents also warn that importation would increase the amount of counterfeit drugs introduced in the United States. “If I’m living in Maine or Minnesota and go across the border, am I concerned? No,” says Merrill Matthews, resident scholar at the Institute for Policy Innovation (IPI), a think tank founded by former Rep. Dick Armey (R-Texas). “But what’s happening is, as this expands, the companies working in importations are going to have to find more supply.” Instead of depending directly on pharmaceutical companies, these sources may turn to other wholesalers, making the sources we considered secure, less secure, Matthews says. And although counterfeit drugs are not a large problem in the United States or Canada, Matthews says it is a huge problem in such nonindustrialized countries as China, Pakistan, India and throughout Africa.

Jeff Trewhitt, spokesman for the Pharmaceutical Research and Manufacturers of America, also warns, “If we have importation, we would open up what is essentially a closed-pharmacy system,” inviting more imitations.

Angell disagrees, saying counterfeits are more likely in the United States than in Canada because here, “there are usually many wholesalers, many middlemen, in getting the drug from the manufacturing plant to the user.” The higher prices invite counterfeits as they offer a lucrative incentive, she adds.

Concerns about imitation drugs aside, the CBO says the cost savings from importation would not be nearly as great as supporters predict. It issued a report in April warning that drug companies would alter their distribution methods before they lower prices. The report said companies may limit Canada’s supply or, if required to charge one price to all countries, choose a higher dollar figure that could outprice entire nations. Drug companies could also slightly modify the drugs they distribute outside the United States, essentially preventing the resale, because the FDA must approve forms, dosages and strength levels of all variants. Accounting for these changes in delivery method, the CBO concluded that importing foreign drugs would produce minimal cost savings to Americans, roughly $40 billion over 10 years, or approximately 1 percent of spending. If imports are limited to Canada, the report says savings would be “negligible.”


But that’s what more and more Americans, particularly senior citizens, are heading north for—savings. “The costs for the most commonly used drugs by senior citizens have been rising at over three times the inflation rate,” Angell says. Typically, seniors rely on multiple medications, yet many lack prescription drug benefits that would reduce their out-of-pocket expenses. Medicare, which insures more than 39 million seniors and disabled Americans, began offering its first-ever drug discount card in June, but the amount of savings and number of beneficiaries remain below the anticipated level.

Americans are spending millions of dollars reimporting the drugs they can’t afford to buy locally, Sager says. “Somewhere between $1 [billion] and $3 billion dollars worth of prescription drugs will be imported into the United States in 2004,” he says, estimating it will be closer to the $3 billion figure.

Despite the importation prohibition, citizens are benefiting from a 50-year-old FDA policy on personal importation that McGinnis says was developed to give patients who have not had success with FDA-approved medicines access to foreign drugs. “That policy was really meant for only things not available in the United States,” he says, recognizing that Americans are using it to import all types of medications. In spite of this, he says, the FDA will turn a blind eye until it can review the HHS’ December report.

Sager says the loophole acts as “a political safety valve, allowing people who really feel the pressure to escape the crushing burden of high U.S. drug prices. If the FDA ever blocked this importing, we’d have a political explosion….”


After realizing his citizens were traveling to Canadian pharmacies or trying their luck with online vendors, New Hampshire Gov. Craig Benson (R) dispatched two pharmacists to investigate and identify a safe online Canadian retailer. The pharmacists, Frank Lukosius and Merton Dyer, returned saying they found a pharmacy that offered “a safe, cost-effective, confidential alternative for those wishing to purchase drugs through Canadian mail order.”

Since Benson linked the state’s Web site to the Canadian pharmacy in April, 400 New Hampshire citizens have filled their prescriptions online, says Kevin Smith, spokesman for the governor. Patients must either mail or fax a prescription from their U.S. physicians, which, according to Lukosius and Dyer, are verified by one of six Canadian physicians with whom the pharmacy contracts. To further assure authenticity, drugs are dispensed in the original manufacturers’ packaging, eliminating the need for the pharmacist to count pills.

Other states, counties and municipalities are taking similar steps to help their residents access lower-priced pharmaceuticals. Illinois connects its residents with state-inspected and approved pharmacies and wholesalers in Canada, Ireland and the United Kingdom, paving the way for patients to purchase their drugs online from safe facilities. And for more than a year, Springfield, Massachusetts, which funds an insurance program for municipal employees, has encouraged workers and retirees to purchase patented drugs from Canada by offering them a lower co-pay. The city also saves money when they do because it pays 75 percent of all medical costs, including prescription drugs for city employees, says Chris Collins, Springfield’s insurance program director.

All these importation practices are illegal, but at press time McGinnis says the FDA has sent only warning letters to violators.


But Americans shouldn’t have to rely on foreign retailers for their drugs, says Patty Reilly, spokeswoman for the Alliance for Retired Americans, which supports Dorgan’s legislation as a short-term solution.

A permanent solution, many say, would allow groups to negotiate directly with pharmaceutical companies for lower prices. “Importation is a stop-gap policy for seniors who are desperate for medications,” says Jerry Flanagan, who lobbies for bulk-purchasing programs on behalf of the Foundation for Taxpayer and Consumer Rights, a California-based advocacy group. He would like the United States to allow Medicare to buy drugs in bulk, as it allows the Department of Veterans Affairs.

The pharmaceutical industry opposes such measures, Trewhitt says, because it would afford states and municipalities too much power. Instead of competitive negotiations involving many buyers and sellers, bulk purchasing by states, or groups of states, allows for one buyer who could potentially dictate prices or exclude entire drug companies from its formulary.

To sidestep the issues of equitability with bulk purchasing, Sager recommends a “prescription drug peace treaty.… If we cut prices by 40 percent to Canadian levels, worldwide drug revenue would fall by $60 billion,” he says. “[But] you cut prices, volume goes up,” offsetting most of that loss. He also argues that the cost to make the additional pills would be nominal, since the overhead has already been invested.

But Richard Epstein, a University of Chicago law professor and critic of Dorgan’s legislation, says drug companies charge high prices because of the costs of introducing pills. “You can’t run a complex system with heavy front-end costs unless there’s some degree of price discrimination.” Estimating that it costs between $100 million and $1.7 billion for pharmaceutical development, marketing and clinical trials to make the first pill, Epstein argues drug companies must be able to recoup those expenses or they won’t continue to be innovative. “America essentially provides research for the rest of the world…,” he says.

Trewhitt also warns against price controls, saying they do not acknowledge research and development spending and can discourage companies from making new medicines.

The IPI’s Matthews says it may depend on consumer activism to bring prices down. As patients become more active and question their physicians more intensely about their medications, they will begin to request drugs that fit in their budget, forcing companies to respond to demand. “[Pharmaceuticals] eventually will start to compete on prices. They don’t want to compete on prices, nobody wants to…[but] the way the market is moving, they basically are going to have to start…,” he says. A nonlegislative, bottom-up solution will be the most effective, he says.
Molly Novotny is associate editor of The New Physician. Direct comments about this article to