Trump Administration opens the door to drug importation

It’s been over a year in coming, and it ain’t here yet: the Trump Administration is signaling its intention to allow for importation of drugs from abroad. The announcement drew predictable reactions from PhRMA and others—but there’s a catch: the more closely the proposal is read, the less there appears to be.

The facts: in June 2018, President Trump and HHS Secretary Azar announced their “blueprint” for lowering drug prices in the US—the highest in the world. Various ideas in that blueprint have been looked at and then tossed out since (notably, the idea to remove safe harbor protections for the rebates that PBMs and others extract from manufacturers’ list prices). Now it’s importation’s turn, just as the drug-pricing issue becomes a prominent feature of the debating going on among Democratic candidates for presidential nomination. (It should be noted, too, that multiple Democratic candidates are in favor of importation under various criteria, and that several states have passed legislation permitting it.)

The HHS “Action Plan” announced on July 31 proposes two distinct pathways: Pathway 1 one for pharmacies, wholesalers and US states; and Pathway 2 for manufacturers. There is language that seems to favor Pathway 2, provided it has some industry uptake. Under it, manufacturers “would need to establish with FDA that the foreign version is the same as the U.S. version,” then label the drug with a suitable NDC and associated coding, and, presumably, sell it for a lower price than its existing US-labeled products. Why would a manufacturer do this? “The Administration has reason to believe that manufacturers might use this pathway [because] they wanted to offer lower cost versions but could not readily do so because they were locked into contracts with other parties in the supply chain.” In fact, Mylan offers an authorized generic version of its EpiPen autoinjector, at a lower price in a setup similar to what HHS is describing; and earlier this year, Eli Lilly began offering an authorized generic of its Humalog insulin, at a 50% discount.

In both cases, the nominal logic of the lower price is that it reaches the patient through an alternative channel, one that doesn’t involve PBMs and rebates. Thus, Pathway 2 is something of an end-around the rebate and PBM pricing structure, and doesn’t necessarily result in lower revenues for the manufacturer. Whether this would actually play out this way in the overall marketplace is highly debatable.

Pathway 1 follows through on authorization that the HHS Secretary has had for years: the Sec. 804 section of the Food, Drug and Cosmetic Act, which enables the Secretary to begin an importation process provided that sufficient safeguards have been met. Past Secretaries opted not to invoke this; now Azar could. The proposed approach is to select demonstration projects, of limited scope and duration, and to use only APIs manufactured at FDA-approved facilities, and final drugs formulated to the same specifications as the FDA-approved version. Only drugs from Canada would be eligible, and FDA is evaluating what labeling and supply-chain traceability would be enabled. A Notice of Proposed Rulemaking would initiate Pathway 1, but Azar is hedging: if there is sufficient followup with Pathway 2, “there may be reduced need for the demonstration projects outlined in Pathway 1.”

Industry balks

The reaction to the Action Plan was swift: “The Administration’s importation scheme is far too dangerous for American patients. There is no way to guarantee the safety of drugs that come into the country from outside the United States’ gold-standard supply chain. Drugs coming through Canada could have originated from anywhere in the world and may not have undergone stringent review by the FDA,” stated PhRMA president Stephen Ubl.

“As a new HDA Research Foundation study indicates, federal proposals to permit prescription drug importation would result in significant costs due to patient risks, additional regulatory oversight and the operational challenges placed on the healthcare supply chain,” read a statement from the Healthcare Distribution Alliance. HDA is particularly focused on the mechanics of implementing the Drug Supply Chain Security Act; with importation, "The hard work already underway by supply chain stakeholders to implement the federal traceability law ... would be jeopardized."

And while the Trump Administration assumes as a right to import from Canada, Canadians feel differently: a letter sent by a large group of Canadian industry and healthcare groups wrote to Health Canada, the national authority, saying that “We hope Health Canada will take action immediately and strengthen laws and regulations to protect the Canadian drug supply.” (Canada has one-tenth the population of the US, and consumes roughly 5% of the drug volume that the US does.)

On the flip side, consumer and other groups are rooting the Trump Administration forward: “Let’s be clear: there is a crisis in drug prices, and the safe, legal importation of less expensive prescription drugs is one step that will help lower costs and add competitive pressure on drug makers to lower the prices they set in the US,” stated AARP EVP Nancy LeaMond.

Does it matter?

While it is clear that there are many drugs whose prices are significantly lower outside the US, it is not easy to assume that those drugs—and prices—could float over the US without significant effort. The potential requirement to only allow FDA-approved facilities in the demonstration projects of Pathway 1 is a significant constraint. The relabeling (and, potentially, reformulating for drugs available abroad in different versions from the US) and supply-chain security issues are significant as well. The Action Plan noted that it would stick to the types of drugs already listed in Sec. 804, which excludes all biologics, injectables and infusibles—and these are among the higher-priced drugs on any formulary today. (Ironically, the two aforementioned authorized generics of EpiPen and Humalog would both be excluded from the demonstration program, for this reason.)

The 800-lb gorilla in the room continues to be the ability of US manufacturers to set prices, and increase them, at will. There will be a continuing dogfight, running through a Presidential election year, over the drug