State Pharmaceutical Importation Programs Threaten Patients and Innovation

“The plan essentially relies upon importing price controls from Canada, which will both undermine innovation and prove unsustainable.”

“Given the rapid growth in the prevalence of sophisticated counterfeit drugs, no politician will approve a drug importation scheme without implementing a reasonable measure of regulatory oversight. There are simply too many channels for fake drugs to enter any importation scheme to forgo some meaningful controls. . . Providing a reasonable measure of oversight to reduce the number of counterfeits coming through an importation scheme is complex and costly. It’s very hard to ‘inspect in’ safety after a drug is manufactured. There’s no question that a drug importation scheme will increase the flow of counterfeits in the U.S. supply chain. Policy makers would have to weigh that cost against any perceived benefits.” – Former FDA Commissioner Scott Gottlieb

https://depositphotos.com/118234398/stock-photo-3d-rendering-pills-out-of.htmlIn mid-December, President Trump presented a plan to lower prescription drug prices by allowing states, drug wholesalers and pharmacies to import some cheaper drugs from Canada. While reducing the cost of medicines is a laudable goal, pharmaceutical importation programs – if implemented safely and effectively – would fail to deliver the promised savings. And if implemented without the necessary safeguards, they would endanger the lives of countless patients. The plan essentially relies upon importing price controls from Canada, which will both undermine innovation and prove unsustainable.

As with many “simple solutions” the devil is in the details. Not surprisingly, the Trump Administration’s plan contains very few details on implementation. And it is precisely those details that are expensive and complicated.

Analyzing Cost Effectiveness

The bottom line is that all cost savings quickly evaporate when accounting for the cost of quality testing, the medical consequences of treatment failure, and the cost of treating an adverse medical event. I have studied drug importation programs for more than two decades and recently completed an exhaustive analysis of the cost effectiveness of such programs. While the study is rigorously structured to estimate the greatest savings possible from pharmaceutical importation, the analysis demonstrates that importation is not cost effective in the majority of cases.

To examine the cost effectiveness of importation, the study analyzes 24 drugs obtained from both an online Canadian supplier and a brick-and-mortar Canadian pharmacy, accounting for the cost savings, the cost of testing, the medical consequences of treatment failure, and the cost of treating an adverse medical event. Given a 99.999% confidence level with 99.999% reliability, the cost of testing exceeds the presumed cost savings in all cases. The study also weighs the presumed cost savings against the costs of treating an adverse medical event resulting from treatment failure due to ineffective (counterfeit) drugs. At the national level, for a “Representative State” comprised of 1/50th the U.S. population, the presumed savings from an online Canadian supplier are exhausted in the treatment of only one patient in the case of Nexium, to 24,318 adverse events for patients in the case of Advair.

Importing Price Controls

Further, for an individual patient, regardless of whether one’s drugs are obtained from a Canadian online supplier or a brick-and-mortar Canadian pharmacy, in three out of four cases, the annual presumed savings fails to cover the costs of an adverse medical event. For the 24 drugs analyzed, patients would need to acquire the cost savings over a period of up to 111 years to cover the costs of one adverse event.

While pharmaceutical importation amounts to a false promise of cost savings for patients, such programs also threaten biopharmaceutical innovation. Fundamentally, the Trump Administration’s proposal equates to the importation of Canadian price controls. Empirical studies (here, here, here, and here) have repeatedly shown a strong correlation between the enactment of price controls and reductions in pharmaceutical R&D investment, resulting in decreases in new drug innovation. The consequences for patients would be a loss of innovative treatment and cures, those incentivized by the robust U.S. pharmaceutical market.

Cheap or Safe – Not Both

Pharmaceutical importation schemes would endanger patient safety without saving consumers money. Moreover, the importation of Canadian price controls would undermine biopharmaceutical innovation. Pharmaceutical importation plans are politically attractive, but the numbers demonstrate that they fail to deliver cost savings when implemented safely. These schemes can be cheap, or they can be safe, but not both.

Image Source: Deposit Photos
Image ID: 118234398
Copyright: gioiak2 

The Author

Kristina M. L. Acri née Lybecker

Kristina M. L. Acri née Lybecker is an Associate Professor of Economics at Colorado College in Colorado Springs, and Chair of the Department of Economics and Business. She earned a B.A. from Macalester College, with a double major in Economics and Latin American Studies, and received her Ph.D. in Economics in 2000 from the University of California, Berkeley. Dr.Acri's research analyzes the challenges surrounding intellectual property rights protection in innovative industries: incentivizing pharmaceutical research and development especially on neglected diseases, addressing the difficulties of strengthening intellectual property rights protection in developing countries, battling the problems related to pharmaceutical counterfeiting and the unique nature of protection for biotech therapies. Recent publications have also addressed alternatives to the existing patent system, the balance between pharmaceutical patent protection and access to essential medicines, and the markets for jointly produced goods such as blood and blood products. Kristina has testified in more than a dozen states on the economics of pharmaceutical counterfeiting. She has also worked with US Food and Drug Administration, Reconnaissance International, PhRMA, the National Peace Foundation, the OECD, the Fraser Institute, the Macdonald Laurier Institute, and the World Bank, on issues of innovation, international trade, and corruption.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments. Join the discussion.

  1. Ternary January 2, 2020 5:56 pm

    I have yet to see a structural proposal by the pharma industry that will address the issue of current absurd pricing. And charity is not a structural solution. We again will see a substantial increase in drug prices this year. The pharma industry will not give in to any reasonable demand to make the system more affordable.

    Supposedly, any drug marketed in the USA is subject to Adverse Effect control and reporting by/to the FDA. Imported drugs are not an exception. There seems to be some implication (deliberately?) in the article that high drug prices in the USA are due to our superb quality control. Well, that is really fake news. Not surprisingly, drugs marketed in the US by US companies in well documented cases may contain cancer causing compounds like NDMA. The FDA recommends is certain cases that consumers switch to a different brand. Now that is superior safety control, what?

    I must say that I probably have as much confidence in Canadian and European Drug Control as in the FDA. There is of course no reason to re-check imported drugs to the extent as suggested in the article, if certified correctly by these foreign entities. A sufficient FDA regime can be set up as is now done with drugs from India and China for instance. It is a matter of enforcement. But, as it is nowadays, the health industry tries to circumvent even those minimal rules, when they themselves rely on imports.

    It seems that the extensive re-testing of imported drugs is a red-herring issue introduced in this article and by US Pharma to counter any effort to affect some price control. Furthermore, if these drugs are protected by US patents they cannot be imported. So, the argument of protecting “innovation” by preventing drug import does not apply.

    The heading “Cheap or Safe – Not Both” in the article is a misleading one. We in the US pay much, much, much (did I say much?) more for healthcare than almost anyone else in the world. So we are certainly not Cheap, thanks in a large part to the Pharma Industry. But I would not say that our system is Absolute Safe or safer than Canada or Europe. And it is certainly not Good for many in this country.

    To call the US drug market a “robust U.S. pharmaceutical market” is an understatement and a denial of the problems we have and reveals the bias of the author. The US market is out of control. And there are many people, including the President, Senators, healthcare experts and not to forget sick people who are Voters, who find that to be the case.

  2. Anon January 3, 2020 10:12 am

    What you are really seeing being played out here is that Big Pharma wants to hold on to its ability to apply “geo-pricing” while NOT allowing its own products to enter into any type of secondary market scenario. Note that any of the “imported products” are ostensibly the real products merely first sold and put into the stream of commerce in a different geographical area. It is a fallacy and strawman to attempt to make the issue into one about “fake products,” much less, about importing fake products.

    However, rather than forced pricing, I would (continue to) advocate for full price/cost transparency in the Pharma ecosystem (across all geo boundaries and including all players such as insurance agencies).

    If people could see what is really going on, the actions and decisions of Big Pharma itself would bring the disinfecting sunlight of public knowledge into the situation, and ANY subsequent political action would be better informed.

  3. Anon January 3, 2020 11:22 am

    Ternary,

    I see now your comment, and find that this is (another!) topic that we have a strong correlation in viewpoints.

  4. ghostndragon January 3, 2020 11:45 am

    Ternary and Anon have hit it on the head. There is potential for plenty of savings from importing if the FDA didn’t have to recertify drugs that were certified elsewhere (in 1st world markets, nonetheless). I’m assuming some palm greasing necessitates such ridiculousness. Also, big pharma doesn’t lose money in Canada and Europe–they just make less money. We’re being milked for the extra profit because it’s legal and the government is doing all it can to ensure that it stays that way (palm greasing again). Importation isn’t an IP issue, it’s a greed issue. No harm will come to patents (after all, they’re the same drugs by the same companies most of the time) other than the harm big pharma keeps doing on their own. We have FTF instead of FTI and the 101 ridiculousness largely because of the disgust in the (real or perceived) greed of big pharma. I don’t begrudge them a profit, especially since it’s not free to innovate drugs, but I do begrudge the sacrifice of American dollars for foreign markets.

  5. Ternary January 3, 2020 3:41 pm

    Good points Anon @2. A considerable part of importation of drugs from Canada would actually be re-import, as the product was manufactured in the US, exported to Canada and then re-imported to the US. A simple solution for pharma would be to load a truck with product and just drive it in and out of Canada. No extra testing required and, according to the tables cited in the article by the author, achieving immediately huge savings.

    There is an additional reason why Pharma does not want to lower drug prices in the US. Countries like Canada determine drug prices on a weighted average of world-wide prices, which includes prices in the US. It is of significant financial interest for pricing in Europe and Canada to keep US prices high.

    I agree with Anon that forced price control is generally undesirable. However, because of the behavior of pharma and their distributors/outlets, it is clear that no real action is to be expected from the industry itself. A large number of drugs will be raised in price this year, way above inflation. In fact the industry invented their own term and defend their price increase with: we are in line with standard pharma inflation.

    There is just no way to reason with these people. The industry acts as a monopoly or oligopoly and appears not to be subject to any theory of free markets. So: reign them in by price control.

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