Facing the Practical Challenges of Importation
Last week, Secretary of Health and Human Services (HHS) Alex Azar became the first Secretary of HHS to certify to Congress that importation of prescription drugs from Canada is safe. This is a key step towards legalizing widespread importation. HHS also issued a final rule outlining requirements for state, local, or tribal governments to implement importation plans.
An article on Canada’s response, however, highlights the major practical challenge facing the ultimate success of the policy:
Where Will the Drugs Come From?
According to Statistics Canada, almost 38 million people lived in the country in April 2020. That’s just more than 1/10th the population of the United States, which the Census Bureau clocks at over 330 million. I wasn’t a math major, but I am going to assume that the existing Canadian prescription drug supply chain could not handle a sudden influx of demand from their neighbors to the south without a subsequent ramp-up in supply.
Canadian Prime Minister Justin Trudeau has stated that the is open to the idea of allowing importation, as long as Canadians are still able to access the medicines they need. Which sounds a lot like the government would consider requiring Canadian wholesalers to fill Canadian orders before U.S. orders. Or “Canada First!” to borrow a phrase from our current President.
What About Canadian Wholesalers?
In my previous post, I touched on whether manufacturers would want to (or could be compelled to) participate. The final rule offers a bit of a work-around here, as imported drugs would be required to use a unique National Drug Code number, as well as different packaging and labeling. This would lessen the impact of lower pricing on a product’s overall pricing strategy and may make manufacturers more willing to deal with states.
If we clear the first hurdle of manufacturer willingness to participate, we are still left with the issue of supply. This brings us to the motivations of Canadian wholesalers themselves, and their parent companies. The “Big Three” wholesalers that dominate the U.S. pharmaceutical distribution market – AmerisourceBergen, Cardinal Health, and McKesson – all have Canadian subsidiaries.
Importation would theoretically shift sales currently routed through the American wholesalers to their Canadian subsidiaries (and they would also stand to lose business to other Canadian wholesalers). The cost of that shift isn’t just about the differences in price – wholesalers make relatively small margins on product sales – but also about the requirements for the imported drugs.
The FDA will require imported drugs to have different NDC codes (the uniform number assigned by the FDA to identify the ingredient and dose, as well as the manufacturer and package size) and is recommending that manufacturers indicate on the package that the drug has been imported in accordance with FDA guidance.
Leaving wholesalers with a need to manage three inventories: U.S., Canadian, and “multi-market approved” (MMA). At the same time, they will likely lose at least some revenue off the sales themselves. That leaves an option of increasing administrative fees for imported drugs, something else that could eat away at potential savings.
And Pharmacies?
Yeah, pharmacies would have a similar problem as well. Let’s assume it is unreasonable to expect a state like Florida to successfully import all of their drugs. They would most likely implement rules that would allocate cheaper imported drugs for patients covered under state-subsidized plans, namely Medicaid and the state employee health benefit plan.
So those plans would then need to be able to guarantee that their pharmacy networks could reliably access imported drugs. This would require either a) widespread access to imported drugs by pharmacies throughout the state or b) narrowing of the pharmacy network in such a manner that patients may not like. Pharmacies with 340B contracts already struggle to maintain separate inventories for that program. Now we would add an additional inventory type.
Where does this leave importation? I think that almost all (if not all) pro-importation politicians haven’t spent enough time thinking about how such a policy would actually be implemented in a serious way. This will require changes to an already complex supply chain that will almost certainly add costs, eating away at any potential savings. The bigger question is whether the savings left over will be meaningful.
