“Re-Importing” Drugs from Canada: Really?

Image credit: Ali Tawfiq/Unsplash

During my two tenures as FDA Commissioner, there were many times when I would have personally chosen to take a different policy route than the one chosen by the administration, but as a Presidential appointee, part of the job is to support the administration’s policies. The issue of how to deal with drug pricing is one such example that gave me significant heartburn during my second stint at FDA but that also had a history going back to my first term.

Shortly after being nominated for the post of FDA Commissioner in 2015, I was lounging in a hammock during a planned beach vacation on the North Carolina coast when my cell phone rang. It was Senator Bernie Sanders of Vermont. After a brief congratulations, he got right to business: he wanted to know if I supported a policy that would enable states to purchase medicines from Canada at Canadian prices as a solution to the exorbitant prices charged for many medications in the U.S. This was an easy question to answer my first time around as Commissioner: the Obama administration did not support this approach. Instead, the administration supported using the Centers for Medicare and Medicaid Services’ authority to negotiate the prices of pharmaceuticals to a more reasonable level.

To say that Senator Sanders was unhappy with my answer and explanation would be an understatement.

Why Do We Pay So Much for Medications in the U.S.?

The issue of drug pricing is a frequent bone of contention in policy discussions. How can it be that we in the U.S. pay many times what our neighbors in Canada and friends in Europe and Asia pay for exactly the same medication? From my perspective, the primary issue is clear: U.S. prices for innovator drugs are too high for the well-being of the U.S. population. The lower prices in all other high-income countries provide all the evidence needed that these high prices are not immutable.

But I also think that it makes no sense to try to circumvent the system by importing drug from Canada rather than using the power of U.S. purchasers to negotiate a reasonable price and force the industry to negotiate more effectively with other high-income countries so that they pay their fair share.

The pricing in the U.S. is often described by advocates as a “free market system.” However, in my view it is at best a “modified free market system,” in which higher prices are protected by banning the development of competitors with patent protection. I believe that patent protection is needed to enable recovery of the cost of development and generate profit that pays for the ongoing success of the manufacturer.

The current status quo, however, is too extreme. In one of my Congressional hearings, I noted that in my experience the price of an innovator drug is set by what the market will bear, minus a “shame factor” that is different for different indications and also modulated by patient advocacy efforts. But really negotiating on price when the manufacturer has the only effective treatment for a serious disease seems like a lopsided negotiation at best.

The consequences of these higher prices are drastic for people in the U.S. who develop diseases for which innovator drugs are truly beneficial. “Financial toxicity,” which has been described in every area of medicine, leads to a significant number of bankruptcies and is also implicated in personal decisions to discontinue effective medications, something that can lead directly to death or disability. In a country spending $5 trillion on medical care, such outcomes should be unacceptable.

But when thinking about this issue, it’s also important to keep the other side of the pharmaceutical equation in mind. Well over 90% of U.S. prescriptions are for generic drugs, which are not protected by patents and operate in a market driven by price. While the generic drug laws (known as the Hatch-Waxman Act) are a major triumph of policy, there are significant issues that need to be addressed in the generic drug supply chain. Nevertheless, it’s worth noting that U.S. generic drug prices are typically lower than those in other high-income countries. So, for most of our drugs in the U.S., we pay a lower price, but patent-protected innovator drugs are much more expensive than in other high-income countries. I’ll have a lot more to say about generic issues in future posts.

The Challenges of Reimportation

Reimportation presents a very different set of issues than the ones that arise when an individual person drives across the border and fills individual prescriptions in Canadian pharmacies. U.S. citizens who live near the border are perfectly free to fill their prescriptions in a Canadian pharmacy. Ordering prescriptions over the internet, though, is a different issue. A large proportion of “.ca” internet addresses that appear to be legitimate are in fact siphoning adulterated or fake medications into the U.S. Accordingly, a buyer in the U.S. needs to be sure of the provenance of the drug—a difficult or impossible challenge for the average American.

This is not the only difficulty broad reimportation strategies face. An additional complication to reimportation from Canada arises from the so-called Section 804 Importation Program (SIP). Under the final rulemaking issued in October of 2020, this law requires individual U.S. states seeking to import drugs to develop the same quality systems as exist at the federal level in order to provide quality supply, adverse event reporting, and other systems for quality and security (in response to an executive order from President Trump, the FDA has also recently announced steps intended to further streamline the process). A highly talented team was recruited from within FDA to help make this happen. They systematically assembled a guidance to translate the law into policies and procedures that states and importers would need to approximate the security and safety of the national FDA-led approach. None of my critique has anything to do with the FDA personnel—they are first-rate experts who are actively interacting with states attempting to meet the mark.

However, SIP presents two layers of problem. The solvable problem is that states are not generally prepared to create a “mini-FDA.” It takes a lot of work, much attention to detail, and investment. Most states have not had the focus and funding to make this happen, but Florida has done so and several other states are close to meeting legal criteria to be cleared by FDA to import.

The larger issue is that Canada is understandably unwilling to risk its own pharmaceutical supply to divert medicines to the U.S. simply because the U.S. cannot get its act together to negotiate a fair price. Under the Canadian system, each province purchases its own supply of pharmaceuticals on a contract with the manufacturer. This supply is carefully monitored at the provincial level and by Health Canada to meet the needs of the population, and the average Canadian taxpayer has no obvious interest in purchasing excess supply. The pharmaceutical companies have indicated that a sudden increase in inventory to create a circuit to bypass U.S. pricing would be met with restriction of supply. In response to publicity by the Trump administration to encourage plans for reimportation, the Canadian government has recently emphasized its plan to enforce its law if Canadian supply of important drugs is jeopardized.

The Path Forward

I believe that if we agree that the cost burden of innovator drugs on the U.S. patient is too high, then we should do the “American thing” and negotiate a better price. We started down this road with the Inflation Reduction Act. I’ll have more to say about that in a later post, but we showed that it could be done without destroying a vital U.S.-based industry. I don’t believe we should go to the “Most Favored Nation” policy, because we are a wealthy country (and so should pay a somewhat higher price) and there are real advantages to having this industry based in the U.S., partially because we account for a large share of industry profits. Surely, we can find a middle ground on this issue.

The bottom line is that the Canadians have absolutely no motivation to deplete their own citizens’ access to innovator medications to artificially provide U.S. citizens with an alternative because U.S. politicians haven’t reached a consensus on how to address the issue directly within our own domain. It’s always possible that I’m missing something here, but rather than pursue this workaround, I hope the Executive Branch and Congress will focus on a real solution to this problem.