Executive · A major concern against this concept

Executive Summary

This white paper
advocates for prescription drug importation from Canada and other OECD
countries as a solution to high drug prices and is targeted toward the federal

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The Problem:

In the United States, high cost of
prescription drugs has been a huge concern and is significantly responsible for
patient’s poor access and nonadherence to medication.

Per capita prescription drug
spending is higher in the United States than any other industrialized country
and it is due to not so much high consumption as high drug prices.

There is little regulation in
limiting drug prices and many pharmaceutical companies charge the maximum that
the market can bear.

Historically, pharmaceutical
companies’ spending on advertising and marketing have been many folds higher
than that on research and development leading to an astronomically expensive
drug market. Such soaring prices are largely driven by brand drugs and their
exclusive selling rights.

Since it is the physicians who
makes the choice of drugs, patients have very little control over how much they
will have to pay for drugs.

Having health insurance does not
insure complete access to medicine as insurance companies charge high
copayments or deductibles on prescription drugs in many cases. At present, even
after the enactment of the Affordable Care Act, many patients have to spend
more than expected on prescription drugs.


The Solution:

No single
approach will be sufficient to bring down drug prices to the expected level but
there are reasons to believe that prescription drug importation is part of the

·       Importing
cheaper alternatives from across the border or overseas will help establish
fair competition in the drug market and force drug manufacturers to lower their

·       On
the patient’s end, they can choose from the marketplace the right insurance
that will cover cheaper alternative drugs and reduce their copayments.

·       A
major concern against this concept is to ensure drug safety and quality but
with proper monitoring and regulatory control, these can be maintained.

·       FDA
can start by allowing reimportation from Canada immediately through approved
sellers and accredited retail pharmacies.

·       In
two years, manufacturers from Canada and other industrialized countries can
export less expensive drugs into the U.S. upon approval from FDA.

·       Medicare,
Medicaid, and private payers must cover all essential imported drugs.






constant growth of prescription drug prices is a major issue in the United
States’ health care and is capturing considerable attention these days. Total
health care expenditure itself is growing at a staggering rate but the growth on
prescription drug spending has surpassed it. Net spending on prescription drugs
increased by 20% between 2013 and 20151 against a total healthcare
expenditure increase of 11% in the same period.2 Prescription drugs
account for about 17% of total healthcare expenditure according to most recent

drug expenditure in America exceeds that of all other countries. Per capita
spending on pharmaceuticals was highest in America compared to all other Organization for Economic Cooperation and
Development (OECD) countries in 2015.4 This pharmaceutical
spending is mostly driven by prescription drugs which is reflected by the fact
that per capita prescription drug spending in U.S. was more than double that of
the average of 19 other OECD countries in 2013 i.e. $858 in the U.S. versus an
average of $400 in other countries.5

effect of high drug prices is not limited to its burden on national economy, it
affects individual’s access to health care and thus the national health as
well. Several studies and surveys showed drug price is one of the biggest
barriers to medication adherence, if not the biggest,6,7 which often
leads to unnecessary hospitalization, emergency department visit, and physician
visit and adds to the problem of high health care cost.8 It also
adversely impacts quality of life for many patients.9 A lot of the
increase in drug prices can be attributed to brand name drugs as drug companies
enjoy patent benefit and lack of competition allows them to charge the market
as they see fit.10

attempts have been made by different stakeholders to check drug prices but with
little success. No single approach is likely to bring down drug prices to the
expected level, but there is reason to believe that allowing more generics in
the market will promote competition and help control drug prices.


The problem: Skyrocketing Prescription Drug
Expenditure in the U.S.


United States spent about $457 billion in 2015 on retail plus non-retail prescription
drugs which amounts to about 17 percent of the total health care expenditure in
the country.3 The growth in prescription drug spending slowed down a
bit in the later period of the last decade (figure 1) because of the entry of
many generic and fewer brand name drugs. This contributed to the relatively
slow growth in total health care expenditure in the same period but then
accelerated again in 2014.3 Prescription drug spending is projected
to grow by an average of 7.3 percent annually till 2018; and the National
Health Expenditure Accounts (NHEA) projected the total health expenditure to
grow at 5.2 percent in that period.3 Therefore, prescription drug
spending is projected to comprise a greater percentage of the total health care
expenditure in the coming future and reach $535 billion in 2018.3 


Figure 1: U.S. prescription drug
spending from 1990 to 2015 (2014-2015 estimated)

CMS, Office of the Actuary

the growth in price increase on branded drugs has slowed, and several drug
manufacturers have pledged to limit their price growth under 10 percent under
pressure from politicians and payers.11 In reality, even such small
growth can keep pushing drugs beyond many patients’ reach considering the
astronomical price level of many of these drugs today. Some of the burden are
offset by growing use of cheaper generics or less expensive biosimilars as many
brand-name drugs lost patent.11 The U.S. Food and Drug
Administration (FDA) has approved 22 new medicines in 2016, 23 less than the
previous year,11 yet brand-name drugs lead the market by expenditure.
All these phenomena have contributed significantly towards recent years’ slowed
growth of prescription drug price indicating that entry of more low-priced
generic can help significantly control prescription drug prices.


Obamacare and high drug prices: Opportunity for the
GOP administration


six years of the Affordable Care Act (ACA), we see many changes in the health
sector. Perhaps the most prominent of them is bringing many Americans under
health insurance coverage. But one major player of the system that managed to
escape completely from the ACA is the pharmaceutical companies. Consequently,
affordability remains a big concern especially in the area of prescription
drugs.12 Former North Dakota Senator Kent Conrad (D) said, “That is
probably my single greatest regret, is we didn’t have the chance to get
negotiating power for Medicare for drugs. That would have made a profound
difference.”12 This indeed presents the GOP government an
opportunity to leave a mark in the health care sector by taking a meaningful
initiative especially since repealing and replacing ACA is no longer a


How does prescription drug expenditure in the U.S.
compare with other countries’?


According to the most recent data, per
capita prescription drug spending is way higher in the U.S. than any other industrialized
country (figure 2).10 Though the United States had very similar per
capita expenditure as other OECD countries till the end of last century, it
started dwarfing the countries thereafter.13 The gap in per capita
spending looks ever-increasing since then (figure 3).13



possible reason for such discrepancy is the slow and more gradual adoption of
new drugs and medical technologies in other countries. Other countries
generally approve a new drug when it is not just effective, but more
cost-effective than current therapies.13 Study showed that the high
brand drug prices and spending in the U.S. is likely in part caused by quick
and frequent uptake of new drugs.14 Therefore, while per capita drug
utilization in the U.S. is somewhat similar to that in other developed
countries (Table 1), the proportion of new and more expensive drugs in a U.S.
consumer’s medication list is much higher making the per capita spending on
drugs nearly double that of other countries’. Notably, a lot of times these new
medicines show no evidence of better outcomes.13

Table 1: Use of and spending on pharmaceuticals
in select OECD countries in 2010

Adopted from: Squires, The
Commonwealth Fund. July 201115


drug industry often claims that the difference in drug prices in the U.S.
compared to other countries is overestimated as payers in the U.S. get various
discounts.16 While it is true that insurers and pharmacy benefit
managers (PBM) enjoy significant discounts on drug prices and these discounts
help reduce the price difference, U.S. payers still have to bear substantially
higher cost after discounts. Estimated average prices after discounts (also
referred to as rebates) in the U.S. were 10-15% higher than in Canada, France,
and Germany in 2010.17 For instance, Merck & Co. sells its oral
antidiabetic, Januvia in the U.S. for half the listed price after discounts. Yet
the manufacturer makes twice as much in the U.S. for a monthly supply as in
Canada.16 Humira, AbbVie Inc.’s rheumatoid arthritis drug, costs
over 40% higher for a month’s supply in the U.S. than in Germany, and even
higher than in other countries.16 Table 2 lists the prices of
top-selling drugs in 2015 in the U.S. (discounted and non-discounted), Canada,
France, and Germany. U.S. leads the other three countries by considerable
margin even after applying estimated discounts.


Table 1: Average prices for
top-selling drugs in 2015 in the U.S., Canada, France, and Germany

Source: Bloomberg Business Report
and SSR Health18



What do the makers have to say?


companies often scapegoat the research and development (R&D) and especially
invention of new drugs for their exorbitant prices, though this reasoning does
not explain such soaring prices in most cases.10,19 Pharmaceutical
research leading to new drug innovation is mostly funded by the National
Institutes of Health (NIH) or other federal sponsors. Study found that
companies spend on an average only 10% to 20% of their revenues on research
& development and that is how biotechnology and pharmaceutical sectors have
historically been among the most successful industries from an economic
standpoint.10 A more reasonable explanation of companies’ charging
excessive prices is lack of government control. There is practically no set law
to restrict companies from charging however much they want to for their patent
drugs. On the flip side, Medicare, one of the biggest buyers of medicine in the
U.S., is not allowed to negotiate drug prices directly with manufacturers.15
Medicaid, the government program for the poor and disabled, is required to
cover all drugs approved by FDA regardless of availability of cheaper
alternatives.20 On top of that, the U.S. patent system restricts
entry of generic drugs in the market for the first 20 years or more of a brand
drug allowing the brand drug to enjoy monopoly market. The drug industries
therefore price drugs at the maximum level that the market can bear.


Impact on healthcare and quality of life


burden of escalating prescription drug price cascades down to all types of
payers in health care. Medicare has paid approximately 40% of the nation’s
retail prescription drug cost since the introduction of the Part D program.21
Another major payer of prescription drugs is private health insurance. A
problem with private payers is that they often transfer the burden on patients
by means of deductibles, copayments, and coinsurances when cost grows out of
expectation. As a result, out-of-pocket cost in the U.S. is growing
considerably over the years.22 eHealth conducted a survey on ACA
participants in 2015 where 35% of the participants said that they spent more
than expected (on average, over $800) on prescription drugs in the previous

adverse impact of high cost of drugs on medication adherence is well studied. A
review of articles published from 1974 to 2008 showed that of 160 articles, 85%
found an association between increasing out-of-pocket medication cost and
decreasing medication adherence.6 A survey of 2,400 retail
pharmacists by CVS Caremark found that 62 percent believe high cost of drugs is
the biggest reason for patients not being adherent.24 They also
estimated that nearly one-third of their customers go without filling a
prescription due to high cost.24

spending on drugs also affects quality of life. A 2016 poll conducted by
Consumer Reports Best Buy Drugs found that people make adjustments in household
spending to accommodate drug expenditure.25 An online poll conducted
in 2016 by Consumer Reports Best Buy Drugs found that more people who
experienced a cost increase in their drugs in last 12 months than those who did
not spent less on groceries (31% vs 11%), spent less on their family (25% vs.
9%), spent less on entertainment and dining out (38% vs. 19%), postponed paying
other bills (19% vs. 7%), postponed retirement to maintain health insurance
(10% vs. 4%), stopped taking a medication because of cost (16% vs. 5%), and
reduced healthcare coverage (12% vs. 5%).9


What factors into high prescription drug prices


factors are held accountable for such outrageous growth in prescription drug
prices. Only the relevant factors are discussed below within the scope of this
white paper.




Strong regulation where prices are set by
the government would be the most effective way to control drug price. This is
virtually existent in many developed countries such as Sweden.26 Such
step in U.S. would cause turbulence in the marketplace and is not probably
politically feasible considering strong pharmaceutical lobby in Washington, DC.27
Currently there is no set rules or laws to control the prices a pharmaceutical
company can charge for its products. Companies take advantage of patent and
exclusive selling rights and set high prices. They often try to justify drug
prices by the high cost of drug development, but there is no evidence that
prices are associated with drug development costs.10 They also make
the excuse of clinical benefit where a drug can help reduce other treatment
costs and thus charge high price for that when there is no available
alternative to the drug. In reality, only a few were proved cost-effective or
to offer greater benefit than cheaper alternative therapies.10 Prescription
drugs are usually priced at the maximum what the market will bear.


factor is the physician choices of expensive brand-name drugs over cheaper
generics. Prescription drug is a sector where the end customer i.e. patients do
not make the ultimate purchase decision as they are not often aware of their
true physical condition, thereby leaving the decision making to their
physicians. Needless to say, physicians often take advantage of this
information asymmetry and do not work in the best interest of the patient. From
the payer’s perspective, in order to deal with such high drug price and still
remain profitable, insurance companies increase the cost sharing of consumers
by raising deductibles, premiums, or copayments.

of competition

In the U.S. patent system, manufacturers for their
innovation medicines enjoy monopoly for 20 years or more. During this period
companies do not have any competition in the market that would force them to
cut down prices. On top of that, sometimes drug companies take questionable
strategies to retain their monopolies such as slightly tweaking the nontherapeutic
parts of the medicine and launching it as a new drug which is often of no
additional therapeutic value.25 This adds a lot to the high cost
since drug prices usually decline to 55% of their original price when there are
two generics in the market and to 33% when there are five or more, a study
published in the Journal of the American Medical Association said.10
According to the study, even after the patent expires, it often takes generics three
or four years to clear application backlogs at the FDA and make it to the


Importation of prescription drugs as a solution


of prescription drugs has emerged as a possible solution and gained bipartisan
popularity. In a poll 71% Americans supported importation of safe and
affordable drugs from Canada.28 But the idea has expectedly
triggered strong opposition from pharmaceutical companies. In February 2017, Senator
John McCain (R-Ariz.) introduced a legislation, the Safe and Affordable Drugs
from Canada Act of 2017 advocating for importing prescription drugs from
Canada.29 He also led some Republican senators to support an
amendment sponsored by Sens. Amy Klobuchar (D-Minn.) and Bernie Sanders (I-Vt.)
in January 2017 that would allow Americans to import drugs from Canada. The
effort failed with only 46 votes anyway.29

was not the first time that Republicans had voiced for drug importation. During
the Obama administration, republican senators Chuck Grassley (Iowa) and John McCain
pressurized then President Obama to open drug importation from Canada,
especially for drugs that had seen significant price hike.30
Notably, it was soon after Turing Pharmaceuticals’ ridiculous price increase of
Daraprim from $13.50 a pill to $750 overnight.

last year’s presidential election campaign, one issue that both parties agreed
on is importation of cheap drugs from Canada.31 President Trump,
while expressing his desire to bring prescription drug cost, had advocated
multiple times for allowing importation of cheaper drugs from foreign
countries. In February 2017, Sens. Bernie Sanders (I-Vt.), Cory Booker (D-N.J.),
and Bob Casey (D-Penn.) advocated strongly in favor of importing safe, low-cost
drugs from Canada.28 Reps. Elijah Cummings (D-Md.) and Lloyd Doggett
(D-Texas) introduced a companion bill in the House arguing that Canada and some
other major countries sell medications manufactured by the same companies and
factories, but they sell the medications at a much lower rate than the US.28
Sen. Sanders urged President Trump to enact the bill as soon as possible as
this provision was included in the President’s election mandate.

a matter of fact, such drug reimportation from Canada has been taking place
constantly despite being illegal in the US.32 The volume of drug
reimported from across the border is on the rise and it seems impossible to
stop people from bringing drugs from Canada as long as the US government cannot
lower or control drug prices in the US market.32 Even though the
most significant rebuttal against reimportation of drug is the safety concern
as these drugs are, as of now, not under strict monitoring of the Food and Drug
Administration (FDA), people do not seem to be bothered about safety and
quality since this is apparently the only way for them to obtain drugs of their
need. However, many online Canadian pharmacies that Americans obtain drugs from
are licensed by local authorities and they bear accreditation from the Canadian
International Pharmacy Association.29 If FDA can take the initiative
to certify these online pharmacies after ensuring their quality, many Americans
will benefit by getting their drugs at far cheaper rates from these sources.


Key Actions

Key actions proposed
in this white paper can be divided into two phases.


Phase 1: Legalizing reimportation from Canada


            FDA needs to identify drugs that are
exported to Canada after being manufactured in the U.S. and are sold at a lower
price there. Depending on the demand in the U.S. market, these drugs can be
allowed to be reimported once checked for quality. If reimporting or purchasing
from retail pharmacies, the pharmacies will need to be accredited by the
Canadian International Pharmacy Association. Since this requires minimal
logistics, reimportation from Canada can be initiated officially within a short


Phase 2: Importation from Canada and other OECD


reimportation from Canada is initiated, FDA can start working on importing
drugs from OECD countries. The first step for FDA would be to ensure that
standards of operations in potential seller’s facilities are comparable to
those in the U.S. The drugs to be imported must have the same active
ingredient, route of administration, dosage form, and strengths as drugs
approved by the FDA. Medicare, Medicaid, and private payers would be encouraged
to negotiate with for drugs that are on FDA’s approval list.


Evaluation of proposed policy


health care policy should be evaluated on four criteria: effectiveness,
efficiency, equity, and political feasibility.33 This paper
evaluates the proposed policy below.



            Effectiveness of the policy can be
determined by reduction in prices of the imported drugs. As prices of imported
drugs would be much lower, it would create positive pressure on local
competitions. Entry of competition in the market leading to lower demand for
local medicines will force local manufacturers to cut down drug prices.


            For a policy to be efficient, it
needs to offer a reasonable outcome vs. cost ratio. The proposed policy is not
expected to have astronomical cost or does not need sophisticated logistics;
therefore, the policy should be economically efficient.


            The benefits of the policy are
equitable to patients and insurance companies. It should be well received by
these two major stakeholders of the market.

Political feasibility

            Since the Obama administration
failed to keep their promise of opening drug importation from Canada, it leaves
an opportunity for the current administration to take advantage of their
failure and create an impact on the drug market. Historically, importation of
drugs has had support from both parties, so effective lobbying and carefully
prepared proposal can result in an acceptable policy.




            Drug prices in the United States in
constantly rising and quickly going beyond many Americans’ reach. People with
or without insurance coverage are having hard time paying for the drugs of
their need. This white paper proposes importation of drugs from Canada and
other OECD countries as a solution to skyrocketing prescription drug prices.
Some specific recommendations to implement the proposed policy are listed

·       Medicines
be imported only from certified manufacturers in Canada initially

·       In
two years, FDA will monitor operations, and visit sites periodically if needed,
to certify manufacturers in OECD countries that have standards of procedure,
approval, and supply chain requirement comparable to that in the U.S.

·       Medicines
can be imported online from Canada only through licensed pharmacies

·       All
imported medicines must have the same active ingredient, route of
administration, dosage form, and strengths as drugs approved in the U.S.

·       Medicare,
Medicaid, and private payers be required to cover all essential imported drugs

·       All
foreign sellers be required to go through FDA audit of concerned plants and
operations facilities every three years

·       U.S.
will hold the authority to terminate certification of any seller at any time
should they fail to meet the standards required by FDA in any part of their