Commentary

Importing drugs from Canada is cause for concern

Focus should be finding ways to provide lower cost medications to patients who need them; many people don’t have their prescriptions filled.

The United States has the dubious distinction of having the highest prices and highest spending per person for prescription medications. Spending for prescription drugs has shown double-digit increases in recent years, greater than for any other health service. Meanwhile, prices for brand-name prescription drugs are 35% to 55% lower in other industrialized countries. The main reason for this disparity is direct regulation of prescription medication prices in Canada and most European countries.

In the United States, people without insurance coverage pay substantially more on average (15%) than people covered by insurance, as insurance companies negotiate lower prices with drug manufacturers. More than 69 million (25.1%) Americans have no prescription drug insurance, while many others lack adequate coverage.

In a recent survey, one-third of Americans admitted to having difficulty paying for medications and a similar proportion did not fill a prescription because of high out-of-pocket costs. These problems particularly affect the elderly and people with chronic illnesses.

name, cert
Bradford C. Berk

As a result, many patients are searching for less expensive alternatives for their prescription drugs. They turn to Canada because of significantly lower prices for many widely used brand medications.

Seven percent of American consumers have purchased medicines recently from pharmacies in Canada or another country.

Unapproved drugs

The number of unapproved prescription medications currently entering the United States is significant. According to the Department of Health and Human Services Task Force Report On Drug Reimportation, “nearly five million shipments, comprising about 12 million prescription drug products with a value of approximately $700 million entered the United States from Canada alone in 2003, via Internet sales and travel to Canada by American consumers” seeking lower-priced medications.

It is estimated that an equivalent amount of prescription drugs are being imported from other sources in the world, mostly through mail and courier services.

The U.S. House of Representatives has responded to this activity by passing legislation (H.R. 2427, or the Prescription Drug Reimportation Bill) that would potentially allow drug wholesalers and pharmacists to reimport drugs from a number of industrialized countries.

Monitoring, control, safety

The FDA has consistently opposed the reimportation of drugs from Canada and other countries because of safety concerns. Moreover, the FDA is also concerned that consumers may be exposed to counterfeit drugs imported from other countries.

Monitoring, control and safety are the primary issues concerning imported drugs. Specific concerns related to importation are controlled substances, biologics, drugs requiring refrigeration or freezing, medications with narrow therapeutic range, drugs requiring monitoring, intravenous products, drugs that are highly susceptible to counterfeiting on the global market, and those that have a less expensive alternative (ie, generics) in the United States.

Medications purchased in Canadian pharmacies by Americans traveling to Canada are generally regarded as complying with Canadian drug safety standards. However, there is evidence to suggest that the same is not always true of drugs purchased through Canadian Internet pharmacies, some of which are not even located in Canada or regulated by the Canadian authorities.

Moreover, in an “announced” inspection of Canadian Internet pharmacies in 2003, the Minnesota Board of Pharmacy found 32 unsafe or questionable practices, including unsupervised pharmacy technicians, incomplete patient profiles, returned products relabeled and resold, and unsafe storage and shipping of temperature-sensitive drugs.

Fail quality tests

According to the Center for Pharmacoeconomic Studies at the University of Texas at Austin, there has been a dramatic increase in importation into Canada of medications from around the world. Since 1999, Canada’s total pharmaceutical imports have increased by 101.6%. Among the countries exporting medications to Canada are Iran, Bulgaria, China, Pakistan, Thailand and South Korea.

The World Health Organization concluded that about 10% to 20% of drugs tested in developing countries fail the most basic quality tests, meaning that the medicines are either counterfeit or that they have not been handled according to the manufacturer’s specifications.

With growing technological sophistication, counterfeit medications may often look almost identical to authentic ones. A great deal of indifference exists concerning such counterfeit goods as Diesel jeans, OP sunglasses or Nike athletic shoes.

The same cannot be said about prescription medications. Drug counterfeiters not only defraud consumers, they also deny ill patients the therapies that can alleviate suffering and save lives.

High cost of R&D

The high prices of prescription drugs in the United States are said to be necessary to cover the costs of research and development for new and better drugs.

The research of DiMasi et al found that the development of new drugs is a long and costly process, with the estimated total R&D cost per new drug of $802 million. Pharmaceutical executives point out that three out of 10 new drugs return the investment costs for development.

The aforementioned HHS report estimates that “R&D incentives would be reduced by legalized importation, resulting in roughly between four and 18 fewer new drugs introduced per decade.” Patents to make and market particular products frequently last for 10 to 14 years following FDA approval and are typically granted to drug makers as an enticement to undertake R&D.

This purported link between drug prices and innovation may be exaggerated. Profits from reformulations and new mechanisms of delivery of existing drugs as well as taxpayer-funded research of new products are just two factors that result in a significant reduction in overall R&D outlays.

Additionally, the profitability of the pharmaceutical industry should not be threatened by drug reimportations, as large institutional purchasers such as the state governments through Medicaid or the VA already obtain large discounts from drug makers without any great negative impact on profit or innovation.

Market forces at work

It is apparent, however, that there are market forces at work that argue against importation of drugs from Canada as a long-term strategy.

The HHS report states that official commercial drug reimportation may not offer significant savings. A large portion of the potential price savings will be taken by intermediaries (exporters/importers) through markups, as indicated by experience with other countries that permit reimportation.

As the importable supply will be limited, demand for products exported from Canada would thus increase the prices of these products. Drug manufacturers would likely also work to hold down supplies of medications available abroad.

Several large companies recently took steps to limit supplies to Canadian clients, particularly Internet pharmacies, compelling these businesses to look to sources such as Pakistan or Bulgaria for inventory. This could potentially create a supply of substandard “pseudo-Canadian drugs” of unknown origin. Additionally, Canada accounts for only 2% of worldwide pharmaceutical sales, whereas the United States accounts for nearly 50%.

If wide-scale drug reimportation were permitted, it would appear that Canada lacks the necessary quantity of pharmaceuticals to adequately supply the U.S. market and provide medications for its own citizens. Also, reimportation may cause the prices of pharmaceuticals in Canada to increase.

Price reductions needed

Providing affordable medications to every patient that requires them is the biggest challenge. Since patients will either not fill prescriptions or search for cheaper alternatives if their out-of-pocket costs are perceived as prohibitive, negotiation of price reductions may be the only way for the government to accomplish this goal within existing resources.

Even with significant price reductions, some elderly patients may still not gain access to affordable drugs.

One solution is extending Medicare coverage to seniors. The 2003 Medicare act extended the federal insurance program to begin covering most outpatient purchases by seniors in 2006.

Since an estimated 12.2 million people lacking prescription drug coverage are aged 65 and above, this means that extending prescription drug insurance to all seniors through Medicare would only cover 20% of all people lacking coverage for prescription drugs. Hence, the only solution may be a prescription drug benefit that provides essential medications to all patients.

Price controls would also be an alternative to personal or official drug importation and would be necessary to ensure that all Americans can obtain the medications they need.

Cutting brand name prescription drug maker’s prices an average of 42% to Federal Supply Schedule levels would save about $35.5 billion per year. The increased volume of prescriptions filled as a result of lower prices would make up most of the revenue.

Cut prices

Sager’s Prescription Drug Peace Treaty calls for cutting manufacturers’ prices as well as lower spending for advertising, marketing and administration, while ensuring higher volumes for drug makers as well as more money for research.

In addition, generic medications tend to be significantly less expensive (up to 50%) and more available in the United States than in other countries. As a matter of fact, some generic drugs may be considerably more expensive when imported from Canada.

According to the HHS report, drug spending could be reduced by billions of dollars annually through greater use of U.S.-approved generic drugs by Americans.

Long-term strategy

In summary, importation of drugs from other countries may not be safe and may eliminate incentives for drug companies to develop new medications.

As physicians whose primary focus is the health and welfare of our patients, we must strive for balance between their need for access to affordable medications and pharmaceutical innovation with development of new and safe pharmacological therapies.

However, importing drugs from Canada is not a viable long-term strategy to address America’s prescription drug problem. Rather, developing mechanisms to provide lower cost medications to patients who need them should be our goal.

Hanna Mieszczanska, MD and Bradford C. Berk, MD, PhD, are at the Cardiovascular Research Institute and Department of Medicine (Cardiology Unit), University of Rochester, Rochester, NY. Berk is a member of the Cardiology Today Editorial Board on the Vascular Biology section.

For more information:

  • Steinbrook R. The Prescription-Drug Problem. NEJM 2002; 346; 11: p.790.
  • Altman SH, Parks-Thomas C. Controlling Spending For Prescription Drugs. NEJM 2002; 346; 11: 855-856.
  • Sager A. Socolar D. A prescription drug peace treaty: cutting prices to make prescription drugs affordable for all and to protect research. Available at: http://dcc2.bumc.bu.edu/hs/sager/Peace%20Treaty%2028%20Sept%2000.pdf. Posted September 28 2000.
  • Scherer FM. The Pharmaceutical Industry: prices and progress. NEJM 2004; 351; 9, pp: 927-932
  • Frank RG. Prescription-drug prices. NEJM 2004; 351;14:1375-77.
  • Choudhry NK; Detsky AS. A Perspective on US Drug Reimportation. JAMA 2005- vol 293, No3: 358-362.
  • Lester W. The Associated Press/Ipsos Poll. Almost a third of Americans say paying for drugs is a problem in their families. Available at: http://www.ipsos-na.com/news/pressrelease.cfm?id=2064. Accessed April 23, 2004.
  • Lueck S, Mathews AW. Drug makers not out of woods; legalizing Canadian imports has support on both sides of aisle. Wall Street Journal, April 13, 2004:A4.
  • The Wall Street Journal Online/Harris Interactive Health Care Poll. Drug companies may be headed for a bruising battle as drug importation grows. Available at: http://www.harrisinteractive.com/news/newsletters/wsjhealthnews/WSJOnline_HI_Health- CarePoll2003vol2_iss8.pdf. Accessed April 23, 2004.
  • HHS Task Force on Drug Importation. Available at: http://www.os.dhhs.gov/importtaskforce/Report1220.pdf
  • DeMaria A. Drug Reimportation: Sitting in the Middle. JACC 2004 vol 43, No 1: 149-150.
  • Hubbard WK. Statement before the Committee on Government Reform, Subcommittee on Human Rights and Wellness, US House of Representatives. Canadian prescription drug re-importation: is there a safety issue? Available at: http://www.fda.gov/ola/2003/canadian0612.html. Posted June 13, 2003. Accessed April 26, 2004.
  • FDA, US/Canadian Price comparisons- available at: http://www.fda.gov/oc/opacom/hottopics/importdrugs/canadarx.html
  • Center for Pharmacoeconomic Studies, University of Texas at Austin; Report to Senate Permanent Select Committee on Investigation, 2004.
  • Baker C. Would prescription drug importation reduce U.S. drug spending? Washington DC: Congressional Budget Office; April 29, 2004. Available at: http://www.cbo.gov/showdoc.cfm?index=5406&sequence=0.
  • DiMasi JA, Hansen RW, Grabowski HG. The price of innovation: new estimates of drug development costs. J Health Econ. 2003; 22:151-185.
  • Wilson JF. Cheaper drugs in foreign markets increase the focus on domestic drug prices. Ann Intern Med.2004; 140:677-680.
  • Ward C. Economic and policy implications on reimportation: a Canadian perspective. Manag Care. 2004; 13:17-20.
  • Zuger A. Rx: Canadian drugs. NEJM 2003; 349; 23: 2188-2190.

The United States has the dubious distinction of having the highest prices and highest spending per person for prescription medications. Spending for prescription drugs has shown double-digit increases in recent years, greater than for any other health service. Meanwhile, prices for brand-name prescription drugs are 35% to 55% lower in other industrialized countries. The main reason for this disparity is direct regulation of prescription medication prices in Canada and most European countries.

In the United States, people without insurance coverage pay substantially more on average (15%) than people covered by insurance, as insurance companies negotiate lower prices with drug manufacturers. More than 69 million (25.1%) Americans have no prescription drug insurance, while many others lack adequate coverage.

In a recent survey, one-third of Americans admitted to having difficulty paying for medications and a similar proportion did not fill a prescription because of high out-of-pocket costs. These problems particularly affect the elderly and people with chronic illnesses.

name, cert
Bradford C. Berk

As a result, many patients are searching for less expensive alternatives for their prescription drugs. They turn to Canada because of significantly lower prices for many widely used brand medications.

Seven percent of American consumers have purchased medicines recently from pharmacies in Canada or another country.

Unapproved drugs

The number of unapproved prescription medications currently entering the United States is significant. According to the Department of Health and Human Services Task Force Report On Drug Reimportation, “nearly five million shipments, comprising about 12 million prescription drug products with a value of approximately $700 million entered the United States from Canada alone in 2003, via Internet sales and travel to Canada by American consumers” seeking lower-priced medications.

It is estimated that an equivalent amount of prescription drugs are being imported from other sources in the world, mostly through mail and courier services.

The U.S. House of Representatives has responded to this activity by passing legislation (H.R. 2427, or the Prescription Drug Reimportation Bill) that would potentially allow drug wholesalers and pharmacists to reimport drugs from a number of industrialized countries.

Monitoring, control, safety

The FDA has consistently opposed the reimportation of drugs from Canada and other countries because of safety concerns. Moreover, the FDA is also concerned that consumers may be exposed to counterfeit drugs imported from other countries.

Monitoring, control and safety are the primary issues concerning imported drugs. Specific concerns related to importation are controlled substances, biologics, drugs requiring refrigeration or freezing, medications with narrow therapeutic range, drugs requiring monitoring, intravenous products, drugs that are highly susceptible to counterfeiting on the global market, and those that have a less expensive alternative (ie, generics) in the United States.

Medications purchased in Canadian pharmacies by Americans traveling to Canada are generally regarded as complying with Canadian drug safety standards. However, there is evidence to suggest that the same is not always true of drugs purchased through Canadian Internet pharmacies, some of which are not even located in Canada or regulated by the Canadian authorities.

Moreover, in an “announced” inspection of Canadian Internet pharmacies in 2003, the Minnesota Board of Pharmacy found 32 unsafe or questionable practices, including unsupervised pharmacy technicians, incomplete patient profiles, returned products relabeled and resold, and unsafe storage and shipping of temperature-sensitive drugs.

Fail quality tests

According to the Center for Pharmacoeconomic Studies at the University of Texas at Austin, there has been a dramatic increase in importation into Canada of medications from around the world. Since 1999, Canada’s total pharmaceutical imports have increased by 101.6%. Among the countries exporting medications to Canada are Iran, Bulgaria, China, Pakistan, Thailand and South Korea.

The World Health Organization concluded that about 10% to 20% of drugs tested in developing countries fail the most basic quality tests, meaning that the medicines are either counterfeit or that they have not been handled according to the manufacturer’s specifications.

With growing technological sophistication, counterfeit medications may often look almost identical to authentic ones. A great deal of indifference exists concerning such counterfeit goods as Diesel jeans, OP sunglasses or Nike athletic shoes.

The same cannot be said about prescription medications. Drug counterfeiters not only defraud consumers, they also deny ill patients the therapies that can alleviate suffering and save lives.

High cost of R&D

The high prices of prescription drugs in the United States are said to be necessary to cover the costs of research and development for new and better drugs.

The research of DiMasi et al found that the development of new drugs is a long and costly process, with the estimated total R&D cost per new drug of $802 million. Pharmaceutical executives point out that three out of 10 new drugs return the investment costs for development.

The aforementioned HHS report estimates that “R&D incentives would be reduced by legalized importation, resulting in roughly between four and 18 fewer new drugs introduced per decade.” Patents to make and market particular products frequently last for 10 to 14 years following FDA approval and are typically granted to drug makers as an enticement to undertake R&D.

This purported link between drug prices and innovation may be exaggerated. Profits from reformulations and new mechanisms of delivery of existing drugs as well as taxpayer-funded research of new products are just two factors that result in a significant reduction in overall R&D outlays.

Additionally, the profitability of the pharmaceutical industry should not be threatened by drug reimportations, as large institutional purchasers such as the state governments through Medicaid or the VA already obtain large discounts from drug makers without any great negative impact on profit or innovation.

Market forces at work

It is apparent, however, that there are market forces at work that argue against importation of drugs from Canada as a long-term strategy.

The HHS report states that official commercial drug reimportation may not offer significant savings. A large portion of the potential price savings will be taken by intermediaries (exporters/importers) through markups, as indicated by experience with other countries that permit reimportation.

As the importable supply will be limited, demand for products exported from Canada would thus increase the prices of these products. Drug manufacturers would likely also work to hold down supplies of medications available abroad.

Several large companies recently took steps to limit supplies to Canadian clients, particularly Internet pharmacies, compelling these businesses to look to sources such as Pakistan or Bulgaria for inventory. This could potentially create a supply of substandard “pseudo-Canadian drugs” of unknown origin. Additionally, Canada accounts for only 2% of worldwide pharmaceutical sales, whereas the United States accounts for nearly 50%.

If wide-scale drug reimportation were permitted, it would appear that Canada lacks the necessary quantity of pharmaceuticals to adequately supply the U.S. market and provide medications for its own citizens. Also, reimportation may cause the prices of pharmaceuticals in Canada to increase.

Price reductions needed

Providing affordable medications to every patient that requires them is the biggest challenge. Since patients will either not fill prescriptions or search for cheaper alternatives if their out-of-pocket costs are perceived as prohibitive, negotiation of price reductions may be the only way for the government to accomplish this goal within existing resources.

Even with significant price reductions, some elderly patients may still not gain access to affordable drugs.

One solution is extending Medicare coverage to seniors. The 2003 Medicare act extended the federal insurance program to begin covering most outpatient purchases by seniors in 2006.

Since an estimated 12.2 million people lacking prescription drug coverage are aged 65 and above, this means that extending prescription drug insurance to all seniors through Medicare would only cover 20% of all people lacking coverage for prescription drugs. Hence, the only solution may be a prescription drug benefit that provides essential medications to all patients.

Price controls would also be an alternative to personal or official drug importation and would be necessary to ensure that all Americans can obtain the medications they need.

Cutting brand name prescription drug maker’s prices an average of 42% to Federal Supply Schedule levels would save about $35.5 billion per year. The increased volume of prescriptions filled as a result of lower prices would make up most of the revenue.

Cut prices

Sager’s Prescription Drug Peace Treaty calls for cutting manufacturers’ prices as well as lower spending for advertising, marketing and administration, while ensuring higher volumes for drug makers as well as more money for research.

In addition, generic medications tend to be significantly less expensive (up to 50%) and more available in the United States than in other countries. As a matter of fact, some generic drugs may be considerably more expensive when imported from Canada.

According to the HHS report, drug spending could be reduced by billions of dollars annually through greater use of U.S.-approved generic drugs by Americans.

Long-term strategy

In summary, importation of drugs from other countries may not be safe and may eliminate incentives for drug companies to develop new medications.

As physicians whose primary focus is the health and welfare of our patients, we must strive for balance between their need for access to affordable medications and pharmaceutical innovation with development of new and safe pharmacological therapies.

However, importing drugs from Canada is not a viable long-term strategy to address America’s prescription drug problem. Rather, developing mechanisms to provide lower cost medications to patients who need them should be our goal.

Hanna Mieszczanska, MD and Bradford C. Berk, MD, PhD, are at the Cardiovascular Research Institute and Department of Medicine (Cardiology Unit), University of Rochester, Rochester, NY. Berk is a member of the Cardiology Today Editorial Board on the Vascular Biology section.

For more information:

  • Steinbrook R. The Prescription-Drug Problem. NEJM 2002; 346; 11: p.790.
  • Altman SH, Parks-Thomas C. Controlling Spending For Prescription Drugs. NEJM 2002; 346; 11: 855-856.
  • Sager A. Socolar D. A prescription drug peace treaty: cutting prices to make prescription drugs affordable for all and to protect research. Available at: http://dcc2.bumc.bu.edu/hs/sager/Peace%20Treaty%2028%20Sept%2000.pdf. Posted September 28 2000.
  • Scherer FM. The Pharmaceutical Industry: prices and progress. NEJM 2004; 351; 9, pp: 927-932
  • Frank RG. Prescription-drug prices. NEJM 2004; 351;14:1375-77.
  • Choudhry NK; Detsky AS. A Perspective on US Drug Reimportation. JAMA 2005- vol 293, No3: 358-362.
  • Lester W. The Associated Press/Ipsos Poll. Almost a third of Americans say paying for drugs is a problem in their families. Available at: http://www.ipsos-na.com/news/pressrelease.cfm?id=2064. Accessed April 23, 2004.
  • Lueck S, Mathews AW. Drug makers not out of woods; legalizing Canadian imports has support on both sides of aisle. Wall Street Journal, April 13, 2004:A4.
  • The Wall Street Journal Online/Harris Interactive Health Care Poll. Drug companies may be headed for a bruising battle as drug importation grows. Available at: http://www.harrisinteractive.com/news/newsletters/wsjhealthnews/WSJOnline_HI_Health- CarePoll2003vol2_iss8.pdf. Accessed April 23, 2004.
  • HHS Task Force on Drug Importation. Available at: http://www.os.dhhs.gov/importtaskforce/Report1220.pdf
  • DeMaria A. Drug Reimportation: Sitting in the Middle. JACC 2004 vol 43, No 1: 149-150.
  • Hubbard WK. Statement before the Committee on Government Reform, Subcommittee on Human Rights and Wellness, US House of Representatives. Canadian prescription drug re-importation: is there a safety issue? Available at: http://www.fda.gov/ola/2003/canadian0612.html. Posted June 13, 2003. Accessed April 26, 2004.
  • FDA, US/Canadian Price comparisons- available at: http://www.fda.gov/oc/opacom/hottopics/importdrugs/canadarx.html
  • Center for Pharmacoeconomic Studies, University of Texas at Austin; Report to Senate Permanent Select Committee on Investigation, 2004.
  • Baker C. Would prescription drug importation reduce U.S. drug spending? Washington DC: Congressional Budget Office; April 29, 2004. Available at: http://www.cbo.gov/showdoc.cfm?index=5406&sequence=0.
  • DiMasi JA, Hansen RW, Grabowski HG. The price of innovation: new estimates of drug development costs. J Health Econ. 2003; 22:151-185.
  • Wilson JF. Cheaper drugs in foreign markets increase the focus on domestic drug prices. Ann Intern Med.2004; 140:677-680.
  • Ward C. Economic and policy implications on reimportation: a Canadian perspective. Manag Care. 2004; 13:17-20.
  • Zuger A. Rx: Canadian drugs. NEJM 2003; 349; 23: 2188-2190.