December 19, 2019 Read Advisory Board's take: Why we're skeptical about the impact of this announcement

HHS on Wednesday issued a notice of proposed rulemaking and draft guidance that together would allow states and drugmakers to import lower-cost versions of drugs from other countries—though the proposals exclude certain high-cost and specialty drugs, such as biologics and insulin, that have been major concerns in discussions about drug pricing.

Details on the pathways

According to STAT News, the latest proposals represent a first step toward finalizing a pathway for states and certain other non-federal governmental entities to import lower-cost drugs from foreign countries.

In the notice, HHS proposed a pathway that would amend FDA regulations to allow states, drug wholesalers, or pharmacists to develop systems to import certain brand-name drugs from Canada, where they are typically sold at a lower price.

The notice of proposed rulemaking explains that states would have to identify importers that are licensed by Canada's health ministry. States also would have to provide proof to FDA that the imported drugs are safe and would reduce costs.

However, some of the most expensive drugs would be excluded from the proposal, according to the New York Times. For instance, the proposal does not apply to intravenous drugs or biologic drugs such as insulin and AbbVie's rheumatoid arthritis drug Humira. The proposal also would exclude controlled substances, Politico reports.  

Regarding the exclusion of biologics and other complex drugs, HHS Secretary Azar, a former executive for Eli Lilly, said that if the pilot programs are successful, Congress might be able to expand the rule to include some of those products. "I would envision that as we demonstrate the safety as well as the cost savings from this pathway that there can be basically a pilot and a proof of concept that Congress could then look to," he said.

The second pathway, which FDA outlined in the form of draft guidance, would let drugmakers import versions of their own FDA-approved drugs from foreign countries. The drugs being considered for importation would first have to be approved by Canada's health ministry and meet FDA's criteria for a drug application. The drugmakers would then use a new National Drug Code to sell the medications in the United States at a lower price. Biosimilars would not be eligible for importation under this proposal.

The proposed rule is set to be published on the Federal Register on Dec. 23, and will remain open for comments for 75 days. The draft guidance will be open for comment  for 60 days after it is published on the Federal Register

HHS' Assistant Secretary for Health Brett Giroir in a release said, "The proposed rule and draft guidance include procedures intended to protect the public’s health and safety." He added, "Our ultimate goal is to provide a robust program that clearly lays out procedures to import drugs that could provide lower prices while also maintaining the high quality Americans expect."

Industry, experts are divided over proposal's potential effects

The Pharmaceutical Research and Manufacturers of America (PhRMA) has strongly opposed the proposal.

PhRMA President and CEO Stephen Ubl in a statement said, "It is disappointing the administration once again put politics over patients." He added, "The administration chose to proceed with an importation scheme that could endanger American lives, could worsen the opioid crisis and has been called unworkable by Canadian officials."

Meanwhile, while some patient advocacy groups, like AARP, praised the move, other observers have questioned whether the plan will actually succeed in lowering U.S. drug prices. 

Nancy LeaMond, EVP of AARP, in a statement said, "The ability to import lower-priced medicines would help states manage their ever-tightening budgets, save taxpayers' money, and lower drug costs for its citizens."

But others are skeptical that the proposal will come to fruition any time soon, given the pharmaceutical industry's opposition as well as other potential hurdles.

According to Politico, if the federal government adopts the draft rule, it will likely be years before states can implement plans that act on them. Once the rule is in place states would then have to draft their plans and imported drugs would need to get FDA labels and have to be tested for safety, Politico reports.

It's also not clear whether Canada would export drugs to the United States, as some Canadian pharmacists have said it could result in a shortage for Canadian patients. The Canadian Pharmacists Association has asked the Canadian government to oppose the United States' calls for importation.

Another potential concern with the proposal is whether it will meet statutory requirements to justify importation. On Twitter, Rachel Sachs, an associate professor of law at Washington University in St. Louis, noted, "Right now, HHS can only authorize importation if the Secretary makes both of these certifications to Congress—'no additional risk' in terms of safety, and a promise of a 'significant reduction' in the cost of drugs." She added, "However, today's proposal explicitly says that HHS is 'unable to estimate the cost savings' from the proposal. This is because HHS is depending entirely on states to develop this information themselves" (Thomas, New York Times, 12/19; Inserro, AJMC, 12/18, Siddons, Roll Call, 12/18; Weixel, The Hill, 12/18; Owermohle et al., Politico, 12/18; Florko, STAT News, 12/18; HHS release, 12/18; Sachs twitter thread, 12/18; Notice of proposed rulemaking, Federal Register, 12/18; Galewitz, Kaiser Health News, 12/18).

Advisory Board's take

In the notice of proposed rulemaking, HHS offers a few more details on the drug importation policies it unveiled in August. But the nuts and bolts of the policies remain the same and it's for that reason that we remain doubtful these proposals would have much of an impact for health systems for two reasons:

  • The Pathway 1 proposal excludes many categories of high-cost and specialty drugs, including biologics and insulin; infused and injectable drugs commonly administered in clinical settings; and drugs with Risk Evaluation and Mitigation Strategies (REMS). In other words, many of the most expensive drugs for both health system pharmacies and consumers aren't eligible for lower-cost Canadian options; and

  • Demonstrating compliance with the importation safety requirements—including the track and trace requirements—will take significant resource investment. This likely limits pilot participants to wholesalers, state agencies, national pharmacy chains, and a handful of large health systems. By the time these limited Canadian imports make their way through the pharmacy supply chain, the cost savings impact on any one health system or health plan is likely to be minimal.

We also don't anticipate many changes for pharmaceutical manufacturers. Despite industry opposition to widespread drug re-importation, the general reaction among pharmaceutical leaders and Wall Street investors to the HHS proposal was "meh." The proposal's category exclusions, tracking requirements, and voluntary "pilot" approach likely dilute the financial consequences for biopharmaceutical companies. Furthermore, there's no obvious incentive for manufacturers to voluntarily participate in Pathway 2. Those who do offer lower-priced "imported" options for certain drugs may raise prices on both their US and imported versions to compensate.

Finally, it's also not clear that Canada's political or health care leaders will go along with the plan once it's finalized. Any perceived threat to their own access or pricing will likely yield strong resistance and counter-measures from the government.

However, while the HHS proposal may not have much near-term impact, its potential ripple effects on consumer perceptions and behavior are worth watching. For instance, we may see changes to the black or "grey" market for Canadian (or other trusted countries') drugs.

Before the passage of Medicare Part D, there was a thriving cottage industry of drug re-importation services. Most partnered with reputable Canadian pharmacies to provide safe, lower-priced drugs to seniors. The business shrunk significantly when seniors obtained drug coverage through Part D, but the rise in consumer cost-exposure has renewed interest in these Internet and mail-order pharmacies.

While these direct-to-consumer options clearly fall outside of HHS' proposed plans to ensure the safety of drugs imported for US patient consumption, it's possible that the HHS pilots will make more US residents comfortable with the idea of buying drugs from Canada or other similarly-regulated countries. If that happens, we could see a spike in direct-to-consumer Canadian online pharmacy sales. We could also see a surge in states and other large employers funding pharmaceutical shopping trips to Mexico or Canada—similar to what Utah has done for some of its state employees.

These potential shifts in consumer behavior would likely have more impact on the drug pricing conversation than the small-scale, institutional importation pilots HHS is proposing.

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