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Prescription Drug Importation Fuels More Questions than Answers

President Trump announced that the country will move forward with drug importation, and the FDA has finalized a rule, but it remains unclear how and whether the policy will lower prices for patients, employers, or taxpayers.

Prescription drugs

With the election nearly a month away and drug pricing still a key issue among voters, President Trump announced late Thursday at a campaign event that the U.S. Food and Drug Administration (FDA) finalized rules to allow for the importation of certain drugs from Canada.

In his remarks, President Trump said the action will “go into effect today”; however, the rule will not be effective until 60 days after it is published in the Federal Register and may not impact consumers for some time after that date.

Major questions around the implementation and viability of the policy remain unanswered.

Importation Final Rule

  • What it is: The final rule, which follows a proposed rule in December 2019, exercises existing authority under section 804(b) of the Federal Food, Drug and Cosmetic Act (FD&C Act) that was granted to the Secretary of Health and Human Services in 2003. Congress permits the FDA to allow importation of certain prescription drugs if the secretary certifies that it poses no risk to public health and safety and results in a significant cost reduction for Americans.
  • What it does: The rule was finalized without significant change from the 2019 proposal. The FDA would allow jurisdictions, and in certain cases pharmacists or wholesalers, to enter into Section 804 Importation Programs (SIPs). These SIPs would need to be approved by the FDA, would be time-limited, and would need to specify which drugs the sponsor could buy and import from Canada. SIPs are also required to identify their eligible foreign seller licensed by Canadian and American authorities and meet other requirements, such as additional testing to assure the product’s authenticity.
  • Would it lower drug prices? The impact could be very limited, but it is unlikely to have a broad effect on the nation’s prices. Research has consistently shown that brand name drug prices in other high income countries, such as Canada, are often significantly cheaper than list prices in the U.S. because of coordinated government negotiation. While the law is limited in its scope — section 804 does not permit importation of biologics, controlled substances, or drugs with significant safety concerns, among other exclusions — there are a number of high-cost products that could potentially be considered under a SIP including treatments for cancer, multiple sclerosis, or hepatitis C. However, the costs of implementing a SIP, compliance, and logistics to import drugs from Canada may diminish any potential savings for consumers.
  • What’s the catch? Practically speaking, there are a number of hurdles that any SIP sponsor would struggle to overcome to produce savings. In the final rule, HHS said it was unable to produce an estimate of savings due to a lack of information. Secretary Azar certified in a letter to Congress that importation should produce significant savings for consumers; however, an economic impact analysis is not yet public. One reason for the uncertainty of savings is that the Canadian pharmaceutical market is far too small to support importation to the U.S. With only one-tenth of the population of the U.S., importation at scale would require a massive increase in purchases from Canadian wholesalers. It is unlikely manufacturers would willingly go along with this understanding that increased order volume is just being repackaged for the U.S. market. This has raised concerns among Canadian officials that this proposal could lead to new shortages in the Canadian market. Several commenters raised this issue in response to the proposed rule, but the FDA declined to address the comment directly.

While President Trump touted the rule as an immediate action to lower drug prices, the finalization likely sets up a long and complicated implementation period, and it is unclear whether any SIP will be authorized given the complexities noted above.