US: New Life In Drug Importation

The high price of medications is driving many different policy initiatives aimed at providing relief for patients and health care payers. The Inflation Reduction Act is the most comprehensive example, as the federal government commences negotiation of prices with manufacturers for a limited number of medications. Other proposals are more focused, such as the cap on out-of-pocket spending for patients with diabetes in the Medicare Part D program who must purchase insulin. In the same vein, the state of California has recently sued insulin producers and pharmacy benefit managers, alleging unsound business practices and seeking relief for patients unable to afford insulin. Many other beneficiaries and payers are now getting relief from high prices through the so-called 340B program, which was originally targeted to a quite narrow audience.

Importation Gains Momentum

Importation of relatively inexpensive medications from foreign markets is another long-anticipated program for reducing drug costs that is now finally taking shape. It was first contemplated in the Medicare Modernization Act in 2003, which birthed modern Medicare Advantage, as well as the Part D Medicare drug benefit. But ensuing administrations failed to develop the necessary regulatory structure, and many leaders, including former commissioners of the Food and Drug Administration (FDA), criticized the concept as likely unworkable and potentially dangerous. Recent commentary by health policy experts has also been rather withering.

But cost concerns have fanned persistent state and federal government activism. A decision by Judge Timothy Kelly of the federal District Court for the District of Columbia on February 6, 2023, signals the extent of this energy. Kelly swept aside a suit by the Pharmaceutical Research and Manufacturers of America, among others, intended to block the federal government from taking further steps to expedite importation of medications from Canada by states. While not deciding on the specific merits of the program, the court’s outline of the new regulation reveals a coherent structure that could lead to real benefits for patients. Indeed, Florida, Colorado, and New Mexico each have applied to take advantage of the new federal architecture taking shape.

Importation was one of the Trump administration’s signature health policy programs. As noted by Judge Kelly, Congress had authorized the Department of Health and Human Services (HHS) in 2003 to develop “regulations permitting pharmacists and wholesalers to import prescription drugs from Canada into the United States.” The statute, referred to by the FDA as Section 804, outlined requirements for testing and labeling modifications. Importantly, any program approved by the federal government had to pose no risk to public health or safety and significantly reduce the cost of the covered product. Neither the Bush nor the Obama administrations pursued an implementation pilot.

State Implementation Plans

Trump stepped forward. Prompted by an executive order, HHS promulgated a final rule on October 1, 2020. Instead of the federal government itself developing a policy, the regulation outlined the elements that a state- or tribal-run program for importation of medications from Canada would have to fulfill to be approved by the FDA. The Biden administration, again energized by a presidential executive order exhorting the concept of importation, has taken further steps to enable states to submit implementation plans (SIPs) that activate importation. Thus, importation is the rarest of species in Washington, a health policy initiative with bipartisan support.

The FDA’s Office of Drug Security, Integrity, and Response (ODSIR) within the Center for Drug Evaluation and Research is taking the lead in the assessment of the SIPs. Focusing on efforts by states, the ODSIR requires that all imported medications be identified, and that they be approved by Canada’s Health Products and Food Branch. Except for its lack of US labeling, the drug must also meet the conditions of an FDA new drug application. Certain classes of medication are wholly excluded, including biologics, controlled substances, and infused medications. The state must also identify a foreign seller in Canada, who will purchase the drug from a pharmaceutical firm, and an importer in the United States who will buy the drug from the foreign seller and supply it within a given state. Entry into the United States is limited to a single port of entry designated by the United States Customs and Border Protection authority.

Once in the United States, the newly imported medications will be assigned a unique National Drug Code, which enables tracking through pharmacy commerce. The state’s SIP must also identify a plan for testing the medications for authenticity and degradation and specify the laboratory that will do the testing. All of this is harmonized with the federal Drug Supply Chain Security Act.

Finally, the state must be prepared to monitor and report adverse events. The state will continue to file information with the FDA on the volume and extent of the importation program. At any point, the federal government can revoke the SIP approval.

In his opinion, Judge Kelly noted that states have begun to submit SIPs, specifically mentioning Florida and New Mexico. The former has been particularly prominent , recently suing the Biden administration for failure to process its application. But perhaps the best example is the carefully constructed Colorado proposal, which was submitted in December 2022, with anticipated approval in summer of 2023, and initiation of the program in 2024.

The Colorado Drug Implementation Plan was first conceived in the 2019 legislative session. It has evolved as the federal requirements have become clearer. AdiraMedical, LLC, an American company with offices in Canada, will be the foreign seller. Premier Pharmaceuticals, LLC, in Boise, Idaho, will be the importer. The drugs will be re-labeled by Omega Tech Labs, with adverse event reporting conducted by Rocky Mountain Poison and Drug Safety. The quality testing vendor is Q Laboratories in Cincinnati, Ohio. Colorado’s plan neatly fits the complicated approach outlined by the FDA, assuring safe importation.

Colorado has also identified the 112 unique drugs and dosages it plans to import, which include treatments for cancer, multiple sclerosis, human immunodeficiency virus (HIV) infection, and respiratory disorders, among others. The list is not final as the state must negotiate directly with each manufacturer. It has become clear that this process will be lengthy, as state officials have just started talking with pharmaceutical firms.

Savings will be real though. One example provided by the Colorado authorities is Latuda, used in the treatment of schizophrenia, which costs an uninsured person more than $1,500 for a month’s supply. Under the drug importation program, the costs are anticipated to be $120 per month. Colorado estimates that if the imported drugs can replace 25 percent of the originator medications in the commercial market, the savings will be more than $85 million. Thus, the plan fits the other horn of the Section 804 requirements, substantial savings.

Colorado plans to make the imported drugs available primarily in the commercial market. It does not anticipate using the medications in the Medicaid program as there is doubt that the imported drugs will cost less than the Medicaid best price, which all state Medicaid programs can access. The state will, however, encourage Medicare beneficiaries to check on SIP-based drugs’ prices, as cost savings may be available to them. Colorado officials are also involved in discussions with insurers about substituting the imported drugs onto their formularies. They are fully cognizant that they will have to work with pharmacies and other stakeholders to make the imported drugs’ cost benefits transparent for consumers.

Insurers are generally taking a “wait and see” approach, as the state begins to negotiate its list of medications. However, the discussion has matured with the state employee plan, as might be expected.

Remaining Questions

So, drug importation, long rumored and debated, is moving rapidly toward implementation. However, there are still major questions, especially in two areas. The first is supply. Implementation plans in Colorado and other states depend on pharmaceutical manufacturers and the Canadian government playing ball. The Canadian government has already issued an order indicating it will ban importation if these plans lead to decreased access to medications for Canadian citizens. But such shortages seem unlikely at this point.

As discussed, the pharmaceutical manufacturers have already attempted to block further development of the FDA section 804 planning through litigation. Another approach would be to just not sell to the SIP-approved foreign seller. Certainly, some pharmaceutical firms have refused to make their products available to countries who will not pay what the firms believe to be a reasonable price. In the case of importation, the manufacturers would be selling at a discount compared to what they are currently earning in the United States. But negotiations between Colorado and manufacturers have begun.

The second key issue is how importation will eventually settle into the complicated pharmaceutical commerce ecosystem. In this regard, one is reminded of the federal 340B program. 340B originally had the narrow purpose of providing affordable medications through pharmacies operated by medical centers for low-income patients. Yet, 340B has slowly metastasized through pharmacy commerce and has attracted participation by retail and specialty pharmacies as well as pharmacy benefit managers. The low costs of 340B products are now benefitting many insured individuals and their payers (insurers and employers).

One could imagine the same happening with imported medications. Once in the pharmacies in a particular state, it stands to reason that at least the fully insured beneficiaries of plans, plans that are regulated by the states, could add the medications to their formularies and lower costs for the plan. The same is likely true for the state-based exchange plans under the Affordable Care Act. Less certain is how the state basis for the Section 804 importation plans would affect access by self-insured plans, which account for the majority of employer plans. Nor can one anticipate how a drug imported into Colorado, for example, might be used by a patient in Utah, or even New York. The SIP is clear that the benefits are meant to be available only in the state with an approved plan. One can be sure, however, that just as with 340B, wholesalers, pharmacies, and pharmacy benefit managers will use entrepreneurial efforts to access lower costs drugs.

In any case, drug importation has moved rather rapidly over the past three years from a concept, often castigated on safety and cost-savings grounds, toward a reality that appears to have merit for at least some people currently unable to afford their drugs.

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