Importation: Oh Yeah, This Happened Too

Yesterday, the U.S. Food and Drug Administration (FDA) also released a final rule outlining a new pathway for legal, large-scale importation of prescription drugs from Canada. State, territorial, and tribal governments will be able to submit importation plans to the FDA for review and approval; in the future, pharmacies and wholesalers will also be eligible to submit importation plans.

But there’s a catch: the plan requires the agreement and participation of manufacturers. Manufacturers would be required to apply for a separate National Drug Code (NDC) number for imported drugs, as well as separate packaging and labeling. This is a positive for manufacturers: because Medicaid rebates are calculated and reported based on NDC, the presumably lower prices of imported drugs would not impact “best price” calculation for stateside products. It also means that a state cannot simply import drugs wholesale independent of a manufacturer. It is unclear what tools a state may have at their disposal in order to compel manufacturers to participate in an importation scheme if the manufacturer is otherwise unwilling.

At first glance this seems to offer states a way to negotiate lower prices with manufacturers, who may be more willing to play ball because the use of an importation-specific NDC code offers a way for the manufacturer to protect their U.S. pricing scheme.

Except that…states and manufacturers can already do that via supplemental rebates. And if separate NDC numbers are a concern, manufacturers and states already have ways of using separate NDC numbers to protect pricing (see: Louisiana’s agreement with Gilead on Hepatitis C medication). It seems that an even more complex process involving reimportation would make these existing agreements even more attractive?

Here is how it could work: a state with an importation plan uses that as leverage to open negotiations over supplemental rebates in an attempt to get the net Medicaid price equivalent to the current Canadian price. The manufacturer has some leverage here too: the state has to cover the drug under Medicaid rebate rules, but the state could make life more difficult for the manufacturer if they refuse to negotiate. So maybe the state is successful at getting a lower price, but not quite as low as the Canadian price. The state still realizes savings, and the manufacturer is able to limit the collateral damage through the use of supplemental rebates.

Importation is a zombie health policy idea that refuses to die. Serious health policy experts know that there is zero chance that large-scale importation would work to reduce prescription drug costs. But it could be a powerful negotiation tool for certain states. Florida is leading the charge here, and with one of the larger Medicaid populations it in theory has the ability to drive a hard bargain with manufacturers (and because the state has not expanded Medicaid under the Affordable Care Act, it is also home to an even larger potential Medicaid population). It will be interesting to see how this plays out in the future.