Trump Administration, In Shift, Announces Plan To Permit Drug Importation

“These manufacturers would be able to use a new National Drug Code (NDC) in doing so, possibly enabling them to offer lower prices than are available under their existing distribution contracts…………………….”

Rachel Sachs

JULY 31, 2019

This morning, the Trump administration announced a plan that, if eventually finalized, would enable the importation of prescription drugs, primarily from Canada. This plan is part of the administration’s overall agenda to bring down prescription drug prices, and like the rest of that agenda it faces a number of potential roadblocks before it can be implemented.

In this post, I summarize the existing legal authority on the issue of drug importation and situate it within the administration’s broader efforts to lower prescription drug prices in the United States. Then, I explain the two strategies the administration laid out today to attempt to use that authority. Finally, I articulate a number of unanswered questions the administration will need to resolve before finalizing any importation plans.

Existing Legal Authority And Context

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (best known as the law creating Medicare Part D) provided the Secretary of Health and Human Services (HHS) with the legal authority to permit the importation of prescription drugs from Canada. More specifically, the 2003 law amended the Federal Food, Drug, and Cosmetic Act (FD&C Act) Section 804 (21 U.S.C. § 384) to permit such importation. The law creates a series of requirements around registration by potential importers, limits on what can and can’t be imported, and conditions regarding laboratory testing, to name just a few of its provisions.

But most importantly, the importation clause takes effect “only if the Secretary certifies to Congress that the implementation of this section will “pose no additional risk to the public’s health and safety” and “result in a significant reduction in the cost of covered products to the American consumer.” In the sixteen years since the Act’s enactment, no HHS Secretary or FDA Commissioner appointed by a president of either party has made such a certification.

Importantly, the claim regarding safety is not that prescription drugs sold in Canada are not themselves safe. It is that HHS and the FDA cannot ensure the integrity of the supply chain that would be needed to import such drugs into the United States. To put it simplistically, how can we be sure that drugs purportedly being sold from Canadian entities actually are? Previous governmental officials have articulated this as a key problem preventing them from making the statutory certification. Earlier this year, the FDA took action against one company that claimed to be providing Canadian drugs for American patients, but which was in at least some cases distributing misbranded or unapproved products.

But section 804 also requires the Secretary to certify that any such importation plan would result in a “significant reduction” in the cost of drugs, and it is unclear how such a certification would be made. As I note below, an importation strategy would face a number of roadblocks, including but not limited to strong opposition from both Canada and the pharmaceutical industry. It is unclear whether certifying this reduction requires HHS to grapple with these challenges, or simply to note the disparities between US and Canadian prices and suggest that the administrative costs incurred in standing up an importation regime are unlikely to consume all of those potential savings.

Today’s announcement must be understood in the context of the administration’s broader drug pricing agenda. Although the administration has repeatedly stated that it views drug pricing reform as one of its highest priorities, little has been implemented on the topic so far. Two of the administration’s major efforts in the area — reforms to the protected classes in Medicare Part D and to the rebate system in Part D — have been pulled. A third — international reference pricing — remains in embryonic form. The administration’s effort to require pharmaceutical companies to disclose the list prices of their drugs in television ads has been blocked by the courts as exceeding HHS’s statutory authority. Today’s announcement represents a renewed administration push on drug pricing.

In some ways, today’s shift is motivated by the actions of state governments. Frustrated with the lack of action from the federal government thus far, states have been passing bills of their own on the topic of prescription drug pricing. Recently, several states (most notably Vermontand Florida) have passed bills allowing them to import prescription drugs from Canada, subject to approval by HHS. Florida’s law in particular may have motivated today’s actions, as the president is reportedly supportive of Florida’s efforts on this subject.

Even though President Trump is seemingly quite supportive of importation efforts, Secretary Azar has previously not been so sanguine. He previously dismissed drug importation as a “gimmick” that would fail to lower drug prices. Last year, Secretary Azar did direct the FDA to create a working group that would authorize importation in the limited case of prescription drug price spikes, but thus far nothing has been released publicly from that effort, not even a list of members of the group. The president’s push now on behalf of Florida may have been effective in pressuring HHS to release today’s plan, but the Secretary would still need to make the required certification before importation from Canada could become effective under section 804.

Two New Pathways For Drug Importation

Today’s announcement sets forth two new pathways that the administration envisions for drug importation.

State-Based Demonstrations

First, the administration plans in the future to release a Notice of Proposed Rulemaking (NPRM) that would use the above-described authority to “authorize demonstration projects” to allow Canadian drug imports. Specifically, this first pathway envisions that states (including those who have already demonstrated an interest in this area, like Vermont and Florida), wholesalers, or pharmacists would submit plans for demonstration projects “outlining how [the entities] would import Health-Canada approved drugs” in compliance with the FD&C Act.

Although the administration did not release the NPRM itself, it did articulate the broad outlines of the proposal, noting that the NPRM would need to address items including “past consideration of importation under section 804 and … what has changed” since then, given previous Secretaries’ unwillingness to invoke the law. Further, HHS notes that section 804 explicitly excludes certain drugs from any importation program. Most notably, 804(a)(3)(B) explicitly excludes biological products from any importation program, meaning that many of the most costly drugs — including insulin, a topic of particular interest from an importation perspective – would be excluded from any such program.

A number of states will clearly be interested in this pathway, given the proposals that several have already developed. However, it is not entirely clear yet what would be required of them to make such a submission. It seems natural for the safety element of the certification process to be centralized on the federal level; however, if the administration envisions implementing importation in a state-based way, would the states themselves need to gather information to prove that importation would achieve the significant reductions in cost that are statutorily required? It is not yet clear.

The second pathway would allow manufacturers themselves to “import versions of FDA-approved drug products that they sell in foreign countries that are the same as the U.S. versions.” These manufacturers would be able to use a new National Drug Code (NDC) in doing so, possibly enabling them to offer lower prices than are available under their existing distribution contracts. The logic seems similar to that driving some companies to release authorized generic versions of their own products at far lower prices.

At first glance, it is not clear why any company would choose to pursue this pathway and offer a lower-priced version of its own product for sale in the United States, potentially jeopardizing its own profits. However, the administration notes that “multiple manufacturers have stated (either publicly or in statements to the Administration) that they wanted to offer lower-cost versions but could not readily do so because they were locked into contracts with other parties in the supply chain.” In effect, this pathway calls the bluff of these companies, providing them with a pathway to actually offer such products at lower prices.

Today’s announcement certainly represents a significant shift for HHS on drug importation, but it also does not appear that the agency is eager to implement this plan in the near future. The administration is merely stating its intention to release such plans in the future, rather than actually doing so today. Such plans could then take months or years to implement. Most importantly, the plan relies on others — states, wholesalers, and manufacturers themselves — to do the federal government’s work for it, to demonstrate the potential for importation to be done safely and effectively. Finally, the state-based importation programs would be only demonstration projects, which (in addition to only applying in a geographic subset of the country) would be time-limited and require renewal.

Unresolved Questions

Today’s announcement raises more questions than it answers. Although there are many issues that would need to be resolved, three seem more prominent.

Timing

On what time scale does the administration envision implementing this action plan? Manufacturers choosing to import their own drugs might be able to do so more quickly, but under the first pathway, the administration has only announced its intention to release an NPRM. That NPRM must actually be released and then finalized after public comment. Only then could demonstration projects be submitted, followed by their eventual approval and implementation. This process could take years and be derailed at any turn.

State-Based Concerns

A number of concerns involve the state-based aspect of the administration’s first articulated pathway. It is not clear what information the states would need to submit to the federal government to obtain approval of such a demonstration, but even putting that aside, the choice to approve these projects on a state-based level is curious. Canada is a much smaller country than is the United States from a population perspective, and at least some stakeholders have argued that the Canadian market cannot supply medicines to the much larger US market without experiencing drug shortages.

To put it another way, it may not be possible for some states to identify enough drugs for importation to satisfy their patients’ needs, given the disparity in market sizes.

If an applying state must certify that the importation of drugs would result in significant cost reductions, this may not be possible in large markets. Perhaps a pilot program could be approved in Vermont, with roughly 625,000 residents, but perhaps not in Florida, with over 21 million residents. Or perhaps the first states to apply would obtain approval, but not later states. That would be a curious result, but one that seems possible under today’s plan.

Stakeholder Responses

Other stakeholders would of course seek to respond to any such importation plan. Canadian officials have already expressed concern about its effects on their market, and understandably pharmaceutical companies may worry about importation undercutting their profits in the US. Importantly, either or both of these stakeholders could take action to try to obstruct drug importation efforts. Canada itself may impose new reporting or regulatory requirements to bar pharmacies from participating in drug importation programs with the US, or pharmaceutical companies may also take steps to prevent the resale of their products into the US. (Senator Bernie Sanders has previously introduced an importation bill that would attempt to prevent pharmaceutical company efforts to hinder importation, but it is not clear that the administration has the legal authority to do so on its own, without additional statutory authority.)

Today’s importation action plan suggests that the administration continues to make drug pricing a priority, although its achievements in the space remain limited. However, it also suggests that no strategy may be off the table, including strategies that administration officials have previously rejected. The next step will be to see whether and when the administration actually releases an NPRM in this area.

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