Insights

HHS Deploys Strategy to Import Drugs From Canada

The latest strategy in the Trump administration’s war on drug prices is to import brand drugs from Canada, leveraging cheaper drug prices to reduce costs in the United States.  Drug importation is not a new topic and has been fiercely debated over the years.  Similar bills allowing drug importation from Canada have been introduced and typically received bipartisan support.  The Trump administration has also presented the idea when addressing drug pricing concerns.  For HHS Secretary Alex Azar, this is a major shift in position from just a year ago referring to drug importation as a “gimmick” to now stating that the federal government is “open for business” for drug reimportation.

How Does the Plan Work   – Considerations for proposal and ruling will provide the opportunity for individual states to develop their own importation plan that demonstrates how the state will effectively and safely import drugs. This will take time to develop and get approved.  There is also talk about letting manufactures import their own drugs at lower prices, but we think it is unlikely to happen.

Economic – Economically, this plan makes sense when all other factors are excluded. Brand drugs sell at a significant discount in Canada compared to the United States because Canada is able to regulate the cost of drugs at a national level.  Interestingly enough, while the administration is eager to leverage the Canadian system for lower prices, the United States could implement a similar plan to regulate drug prices.

Can the supply meet the demand – Probably not.  California alone has a larger population than Canada so we find it hard to believe that Canada could meet the demand of the United States.  Manufacturers are also very aware of spikes and dips in demand and the United States importing drugs at scale would hit their radar as a spike in demand within Canada.  The profits are higher in the United States so it would be likely that manufacturers would then limit their supply in Canada.

Safety – PhRMA, a United States trade organization that represents pharmaceutical manufacturers has made a statement calling this plan “far too dangerous for American patients.”  Any change or disruption in the supply chain has opportunity to create safety issues and counterfeit products entering the market.  However, if the plan requires an entity importing drugs to implement secure supply chain standards with traceability, these safety issues do not carry much validity.  More importantly, PhRMA would oppose this plan as the United States is the most profitable market for brand name drugs and the importation of drugs from countries that regulate prices would dramatically impact profits.

Summary – In summary we think Alex Azar was probably right when he initially called drug reimportation a “gimmick”.  This plan still must face several hurdles before it becomes a final rule which will take some time.  Even if that happens, the states that are interested need to develop and submit their plans for approval.  Even with these hurdles cleared, it is highly unlikely that Canada will be able to provide enough supply into the United States to impact drug prices.

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