Policy Sync-Up: The Drug Importation Conundrum

In the last two years, three states have enacted drug importation legislation, at least 16 states have considered such legislation, and senators Bernie Sanders of Vermont and Chuck Grassley of Iowa each have pending importation bills at the federal level. With the recent flurry of legislation and pending legislation, Bobby Darin fans may be singing “somewhere beyond the sea, a cheaper prescription drug is waiting for me.” However, before Americans begin singing songs of hope, there are difficult questions that must be answered with regard to drug importation’s coexistence with the Drug Supply Chain Security Act (DSCSA), whether importation generates cost savings, the safety of drug importation, and the impact of importation on consumer behavior and how patients receive care.

The existing state laws and pending federal bills on drug importation vary in scope and detail. For example, in Florida, the importation law creates a wholesaler importation program for certain drugs from Canadian suppliers which are likely to generate cost savings to Florida Medicaid. The statute also allows for Florida wholesalers, pharmacies, and pharmacists to import drugs from foreign nations, which the US recognizes as adhering to good manufacturing practices. By comparison, Vermont’s law creates a program for wholesale importation of otherwise high-cost drugs from Canada, which would be sold to Vermont residents through local pharmacies.

At the federal level, Grassley’s bill is narrower, focusing on personal importation, and authorizing individuals to mail-order or purchase online a limited group of drugs from Canadian pharmacies. In contrast, Sanders’ bill is broader, initially authorizing US wholesalers, pharmacies, and individuals to import certain drugs from Canada, but also allowing for expansion of such importation to countries within the Organization for Economic Cooperation and Development that meet certain standards comparable to US standards.

Regardless of the details of any given legislative program, each one must face the same difficult questions regarding implementation. Perhaps the most difficult challenge facing drug importation programs is coexistence with the DSCSA. Congress passed the DSCSA in 2013 with the intent to track prescription drugs from the manufacturer to the pharmacy to prevent counterfeit drugs from entering into our system. The statute is broad and preemptive of any state-level drug product tracing efforts. Because the statute is a broad, federal law with preemptive effect as to the drug supply chain, any state or federal legislation addressing the drug supply chain must contend with the DSCSA, including state or federal foreign drug importation legislation.

The state importation programs and proposed federal importation programs, to varying degrees, seek to incorporate or comply with the DSCSA. For example, Florida’s program establishes a vendor to ensure that the state’s program complies with the DSCSA. By comparison, Sanders’ bill establishes an agreement with Canada that attempts to ensure compliance with the DSCSA, and requires that certain DSCSA tracing information be exchanged within the importation program.However, the question is whether any of these importation programs can truly comply with or coexist with the DSCSA.

Key concerns with the DSCSA are as follows. First, it requires that only authorized trading partners may transfer ownership of most prescription drugs from the manufacturer down to the pharmacy. To be an authorized trading partner under the DSCSA, manufacturers must be registered with FDA under the Food, Drug and Cosmetics Act (FDCA), wholesalers must be licensed under state law or yet-to-be released federal wholesaler licensure regulations, and dispensers must be licensed under state law. Accordingly, any drug importation program must ensure that foreign drug manufacturers, wholesalers, and pharmacies that transfer ownership of prescription drugs subject to the DSCSA are authorized trading partners. It is far from clear how any importation program will accomplish this.

Second, when fully implemented, the DSCSA will require each prescription drug smallest saleable unit to include a product identifier, which consists of the National Drug Code (NDC), a unique serial number, a lot number, and the expiration date. Foreign drugs will inevitably be missing at least some of the DSCSA required serialization information, or will not have such information in a format that aligns with the DSCSA system. This is particularly true to the extent that a given drug importation program authorizes importation of non-FDA approved drugs.

Surveying the current international drug supply, imported drugs are not likely to contain NDC numbers or unique serialization numbers required by the DSCSA. NDC codes are particularly critical because they are used

for many functions within the supply chain, including reimbursement and billing, as well as for patient safety and clinical purposes. With foreign drug importation programs, it is further unclear how patients will be notified that a dispensed drug is subject to a recall or is withdrawn, or how adverse event reporting or post-marketing surveillance can occur.  

Third, because information, such as the NDC code, will be widely absent from foreign imported drugs and because many exporters will not be authorized trading partners under the DSCSA, other related DSCSA requirements prove problematic as well. More specifically, if there is no NDC code or serial number, then the transaction information required by the DSCSA will be incomplete. The exporter cannot exchange complete transaction information with the domestic purchaser of the drug as required by the DSCSA. Moreover, if the exporter is not an authorized trading partner, then the exporter cannot affirm that that entity is authorized under the DSCSA, as required in transferring a transaction statement to the domestic purchaser of the drugs. Sellers must transfer transaction information and transaction statements with the transfer of drug ownership, and purchasers can only accept drug ownership if they receive the transaction information and transaction statements. Incomplete transaction information and transaction statements are unacceptable under the DSCSA.

Cost-savings debate

Beyond the DSCSA, another elephant in the room is whether drug importation will generate cost savings. This is a highly controversial debate. Drug importation supporters believe that importing lower cost foreign drugs is tantamount to importing lower costs. Arguably, foreign countries have lower-cost drugs because they have drug price controls or a single payer system with a single purchaser of drugs, both of which are an anathema to the US. Importing foreign drugs may not be the same as importing foreign drug pricing.

For context, a study connected to the recent Vermont drug importation legislation found that private insurers could annually save $1 million to $5 million through drug importation. However, Vermont Medicaid indicated that the program would produce no net savings to the state or Medicaid enrollees. Moreover, the same study raised concerns that upfront investment, appropriations, and other costs may offset any generated savings.

Questions must be asked regarding the cost to state and/or the federal government to provide oversight over foreign manufacturers, wholesalers, and/or pharmacies, and the cost to ensure the quality, safety, and efficacy of foreign drugs, particularly foreign drugs without FDA approval. Along these same lines, several former FDA commissioners have openly questioned whether drug importation will actually generate any cost savings. Another important cost question is whether third-party payers will provide coverage for foreign drugs or drugs dispensed by foreign providers, raising the possibility that patients will assume the full responsibility for the cost of imported drugs.

Safety at stake?

Turning to the issue of patient safety, given the risk that a drug importation program undermines the DSCSA, it likely undermines patient safety, as well. The World Health Organization estimates that 10% of drugs in low- and middle-income countries are counterfeit. Such drugs have a greater likelihood of reaching US consumers when a drug importation program undermines or bypasses the DSCSA. Even though a US purchaser may believe they are purchasing a drug from Canada or another developed country, the actual source of the drug may be a third-world country and the developed country may be a mere pass-through. This is particularly true for drugs purchased online. Without the benefit of the DSCSA, imported drugs cannot be traced to their source to ensure that they are not counterfeit drugs.

Where a drug importation program allows for the importation of drugs without FDA approval, the risk to patients is even more acute. At best, it will be difficult for US wholesalers, pharmacies, and patients to identify which non-FDA approved foreign drugs have the same active ingredients, route of administration, and strength as comparable to FDA-approved drugs. US drug supply chain participants will lack the expertise to distinguish between what may be, for example, a legitimate Canadian drug product and a counterfeit substandard and unsafe foreign drug. Foreign drugs will look different and be packaged differently. Confusion will likely abound at the expense of patient safety.

The concern over drug importation and patient safety is also evident in warnings from past FDA commissioners that drug importation will facilitate counterfeit drugs entering the US system. Similarly, Canadian officials have publicly stated that Canada will not verify that drugs coming from Canada to the US are safe and high quality drugs. The latter statement would seem to indicate that Canada recognizes that it may serve as a pass-through for possibly counterfeit drugs manufactured in third world countries, as well as demonstrating Canada’s unwillingness to facilitate importation of drugs from Canada to the US. 

Finally, drug importation fundamentally alters how patients receive care. First, to the extent that drug importation authorizes patients to purchase foreign drugs online, a drug importation program normalizes such behavior. In an effort to save money, patients will seek to purchase certain drugs online from what they believe are legitimate Canadian or developed country online pharmacies. However, patients will not necessarily be able to distinguish “legitimate” online vendors from those that are illegal or dispensing counterfeit drugs. Patients will think any online purchasing of drugs is safe, thereby subjecting themselves to a greater risk of counterfeit online drugs.

Care channel gaps

Drug importation also promotes fragmented care, a concept that US policymakers are trying to eliminate, not facilitate. This concern is of greatest concern with regard to patients purchasing from foreign online pharmacies. Canadian pharmacists can only dispense prescriptions issued by Canadian prescribers.Accordingly, patients must engage with Canadian prescribers to obtain their low-cost medications-possibly through telemedicine-while still engaging with US healthcare providers for all of their other medical needs.

There is no assurance that patients’ interactions and medical records with Canadian prescribers and pharmacists will be shared with their American counterparts, yielding a fragmented and disconnected picture of a patient’s healthcare profile. For example, comprehensive medication reviews as part of medication therapy management (MTM) will not be comprehensive due to the lack of connectivity between US providers and Canadian pharmacies.

In a similar vein, use of online pharmacies for drug importation weakens the pharmacist-patient relationship. It is much more difficult for a patient to receive counseling from a foreign online pharmacy than to receive such counseling face-to-face from their neighborhood community pharmacist. Moreover, it will be difficult for a community pharmacist to provide such counseling with missing pieces of the patient’s healthcare profile located overseas.

Moreover, the US trend toward value-based care is undermined by drug importation. Value-based care does not work when a patient receives some of their care outside of the value-based care structure. Nonetheless, drug importation, particularly through foreign online pharmacies, would create such a scenario, as the US value-based standards are not incorporated into the foreign pharmacy’s system. Outcomes-based reimbursement also suffers when providers subject to such reimbursement may be penalized for the actions of foreign pharmacies or patients’ reactions to non-FDA approved medications.

Complex pursuit

On the surface, opening the borders to foreign drug importation may seem like an easy way to generate cost savings and attack high drug prices. In reality, drug importation is a highly complex and extremely challenging policy endeavor. From compliance with existing laws to truly generating cost savings to ensuring patient safety, land mines abound. The rapid movement toward drug importation at both the state and federal level may prove more challenging than politicians would have you believe.

Christopher R. Smith is a senior counsel in the Health Care & Life Sciences and Litigation & Business Disputes practice of Epstein Becker Green