The price of prescription drugs in the U.S. compared with those in other countries has been at the forefront of many political discussions. Studies examining global retail prices shows wide disparities, with the U.S. spending more on prescription drugs on a per capita basis than most other countries. Other research found prices in the U.S. are two to four times higher than Australia, Canada and France.
Many countries limit prices through mechanisms such as centralized price negotiations, cost effectiveness analysis and national formularies. Historically, the U.S. federal government has avoided these strategies.
Provisions in the Inflation Reduction Act ushered in a new era of federal drug price negotiations, however they only apply to the Medicare market, not the commercial market. Rather than wait for federal action to address unchecked drug prices in the commercial market, some state lawmakers are pursuing legislation to import drugs from other countries.
Before a pharmaceutical can be sold in the U.S., it must go through a rigorous approval process by the FDA and meet stringent safety and efficacy standards. Federal regulations, such as those developed to implement the Drug Supply Chain Security Act, operationalize protections like requiring electronic tracing of products as they are distributed in the U.S. The FDA also inspects and approves international drug manufacturing facilities before they can sell drugs to U.S. consumers. Because prescription drugs sold in other countries are not subject to U.S. procedures, industry and other experts have raised concerns that importation might lead to counterfeit or substandard products compromising the supply chain.
Section 804 of the Food, Drug and Cosmetic Act—The federal law that permits the importation of prescription drugs in certain instances was enacted in 2000 and amended in 2003 to limit importation to drugs from Canada. Some states then passed importation laws of their own. However, the FDA did not promulgate a final rule implementing the act until 2020, leaving many states unable to execute their programs. The 2020 final rule authorized Section 804, permitting states, tribes and, in some circumstances, wholesalers and pharmacists to submit a Section 804 Importation Program proposal to the federal government.
To gain federal approval, a proposal must provide:
- The list of drugs the program intends to target.
- The Canadian seller that would purchase products from the manufacturer.
- The importer in the U.S. that would buy the drug from the seller in Canada.
- The re-labeler or re-packager that would ensure the imported drugs meet U.S. requirements.
- The lab responsible for testing the drug for authenticity.
- Additional steps the program will take to ensure supply chain security.
- Estimated cost savings to consumers.
- Data reporting actual savings after importation.
In the wake of the final rule, states passed new importation laws. These drug importation programs leverage the FDA’s drug manufacturing inspection program and existing pharmaceutical distribution chains to import commercial quantities of select high-cost drugs from Canada. Only FDA approved drugs are eligible, and some products—such as controlled substances, injectable drugs and biologics—are excluded. Imported drugs are manufactured in FDA-approved facilities and would be repackaged and relabeled by FDA-registered entities to adhere to U.S. requirements. More than 30 Canadian drug manufacturers are registered with the FDA to produce drugs for U.S. markets.
Even with support from the federal government, states seeking to import drugs from Canadian sources faces challenges. One concern is that a manufacturer distributes a specific quantity of a drug to a country based on estimates of how many people may take it. Canada’s population is less than 12% of the U.S. population. If drug sales intended for Canada are redistributed to the U.S., Canada may experience shortages. It was for this reason that the Canadian government issued regulations prohibiting certain drugs from being sold for use outside of Canada that could cause or worsen a shortage.
The financial impact of importation on states or consumers is unknown. State agencies may need to make significant investments in personnel to administer an importation program. For consumers choosing to purchase imported products, out-of-pocket savings may depend on their insurance coverage. Critics also suggest that because some high-cost drugs, including biologics, do not qualify for importation, the impact of these policies may be limited. Biologics make up 3% of drug utilization but account for 51% of drug spending.