Executive SummaryThis white paperadvocates for prescription drug importation from Canada and other OECDcountries as a solution to high drug prices and is targeted toward the federalgovernment. The Problem:· In the United States, high cost ofprescription drugs has been a huge concern and is significantly responsible forpatient’s poor access and nonadherence to medication. · Per capita prescription drugspending is higher in the United States than any other industrialized countryand it is due to not so much high consumption as high drug prices.· There is little regulation inlimiting drug prices and many pharmaceutical companies charge the maximum thatthe market can bear. · Historically, pharmaceuticalcompanies’ spending on advertising and marketing have been many folds higherthan that on research and development leading to an astronomically expensivedrug market.
Such soaring prices are largely driven by brand drugs and theirexclusive selling rights. · Since it is the physicians whomakes the choice of drugs, patients have very little control over how much theywill have to pay for drugs. · Having health insurance does notinsure complete access to medicine as insurance companies charge highcopayments or deductibles on prescription drugs in many cases. At present, evenafter the enactment of the Affordable Care Act, many patients have to spendmore than expected on prescription drugs.
The Solution:No singleapproach will be sufficient to bring down drug prices to the expected level butthere are reasons to believe that prescription drug importation is part of thesolution. · Importingcheaper alternatives from across the border or overseas will help establishfair competition in the drug market and force drug manufacturers to lower theirprices. · Onthe patient’s end, they can choose from the marketplace the right insurancethat will cover cheaper alternative drugs and reduce their copayments. · Amajor concern against this concept is to ensure drug safety and quality butwith proper monitoring and regulatory control, these can be maintained. · FDAcan start by allowing reimportation from Canada immediately through approvedsellers and accredited retail pharmacies. · Intwo years, manufacturers from Canada and other industrialized countries canexport less expensive drugs into the U.S.
upon approval from FDA. · Medicare,Medicaid, and private payers must cover all essential imported drugs. WhitePaperIntroduction Theconstant growth of prescription drug prices is a major issue in the UnitedStates’ health care and is capturing considerable attention these days. Totalhealth care expenditure itself is growing at a staggering rate but the growth onprescription drug spending has surpassed it. Net spending on prescription drugsincreased by 20% between 2013 and 20151 against a total healthcareexpenditure increase of 11% in the same period.2 Prescription drugsaccount for about 17% of total healthcare expenditure according to most recentdata.
3 Prescriptiondrug expenditure in America exceeds that of all other countries. Per capitaspending on pharmaceuticals was highest in America compared to all other Organization for Economic Cooperation andDevelopment (OECD) countries in 2015.4 This pharmaceuticalspending is mostly driven by prescription drugs which is reflected by the factthat per capita prescription drug spending in U.S. was more than double that ofthe average of 19 other OECD countries in 2013 i.e. $858 in the U.S.
versus anaverage of $400 in other countries.5 Theeffect of high drug prices is not limited to its burden on national economy, itaffects individual’s access to health care and thus the national health aswell. Several studies and surveys showed drug price is one of the biggestbarriers to medication adherence, if not the biggest,6,7 which oftenleads to unnecessary hospitalization, emergency department visit, and physicianvisit and adds to the problem of high health care cost.8 It alsoadversely impacts quality of life for many patients.9 A lot of theincrease in drug prices can be attributed to brand name drugs as drug companiesenjoy patent benefit and lack of competition allows them to charge the marketas they see fit.10 Numerousattempts have been made by different stakeholders to check drug prices but withlittle success. No single approach is likely to bring down drug prices to theexpected level, but there is reason to believe that allowing more generics inthe market will promote competition and help control drug prices.
The problem: Skyrocketing Prescription DrugExpenditure in the U.S. TheUnited States spent about $457 billion in 2015 on retail plus non-retail prescriptiondrugs which amounts to about 17 percent of the total health care expenditure inthe country.3 The growth in prescription drug spending slowed down abit in the later period of the last decade (figure 1) because of the entry ofmany generic and fewer brand name drugs. This contributed to the relativelyslow growth in total health care expenditure in the same period but thenaccelerated again in 2014.
3 Prescription drug spending is projectedto grow by an average of 7.3 percent annually till 2018; and the NationalHealth Expenditure Accounts (NHEA) projected the total health expenditure togrow at 5.2 percent in that period.3 Therefore, prescription drugspending is projected to comprise a greater percentage of the total health careexpenditure in the coming future and reach $535 billion in 2018.3 Figure 1: U.S.
prescription drugspending from 1990 to 2015 (2014-2015 estimated)Source:CMS, Office of the Actuary Recently,the growth in price increase on branded drugs has slowed, and several drugmanufacturers have pledged to limit their price growth under 10 percent underpressure from politicians and payers.11 In reality, even such smallgrowth can keep pushing drugs beyond many patients’ reach considering theastronomical price level of many of these drugs today. Some of the burden areoffset by growing use of cheaper generics or less expensive biosimilars as manybrand-name drugs lost patent.11 The U.
S. Food and DrugAdministration (FDA) has approved 22 new medicines in 2016, 23 less than theprevious year,11 yet brand-name drugs lead the market by expenditure.All these phenomena have contributed significantly towards recent years’ slowedgrowth of prescription drug price indicating that entry of more low-pricedgeneric can help significantly control prescription drug prices. Obamacare and high drug prices: Opportunity for theGOP administration Aftersix years of the Affordable Care Act (ACA), we see many changes in the healthsector.
Perhaps the most prominent of them is bringing many Americans underhealth insurance coverage. But one major player of the system that managed toescape completely from the ACA is the pharmaceutical companies. Consequently,affordability remains a big concern especially in the area of prescriptiondrugs.
12 Former North Dakota Senator Kent Conrad (D) said, “That isprobably my single greatest regret, is we didn’t have the chance to getnegotiating power for Medicare for drugs. That would have made a profounddifference.”12 This indeed presents the GOP government anopportunity to leave a mark in the health care sector by taking a meaningfulinitiative especially since repealing and replacing ACA is no longer apossibility. How does prescription drug expenditure in the U.S.compare with other countries’? According to the most recent data, percapita prescription drug spending is way higher in the U.S.
than any other industrializedcountry (figure 2).10 Though the United States had very similar percapita expenditure as other OECD countries till the end of last century, itstarted dwarfing the countries thereafter.13 The gap in per capitaspending looks ever-increasing since then (figure 3).13 Apossible reason for such discrepancy is the slow and more gradual adoption ofnew drugs and medical technologies in other countries. Other countriesgenerally approve a new drug when it is not just effective, but morecost-effective than current therapies.13 Study showed that the highbrand drug prices and spending in the U.
S. is likely in part caused by quickand frequent uptake of new drugs.14 Therefore, while per capita drugutilization in the U.S.
is somewhat similar to that in other developedcountries (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 ondrugs nearly double that of other countries’. Notably, a lot of times these newmedicines show no evidence of better outcomes.13 Table 1: Use of and spending on pharmaceuticalsin select OECD countries in 2010Adopted from: Squires, TheCommonwealth Fund.
July 201115 Thedrug 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 variousdiscounts.16 While it is true that insurers and pharmacy benefitmanagers (PBM) enjoy significant discounts on drug prices and these discountshelp reduce the price difference, U.S. payers still have to bear substantiallyhigher cost after discounts.
Estimated average prices after discounts (alsoreferred 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 oralantidiabetic, Januvia in the U.
S. for half the listed price after discounts. Yetthe manufacturer makes twice as much in the U.S.
for a monthly supply as inCanada.16 Humira, AbbVie Inc.’s rheumatoid arthritis drug, costsover 40% higher for a month’s supply in the U.S.
than in Germany, and evenhigher than in other countries.16 Table 2 lists the prices oftop-selling drugs in 2015 in the U.S.
(discounted and non-discounted), Canada,France, and Germany. U.S. leads the other three countries by considerablemargin even after applying estimated discounts.
Table 1: Average prices fortop-selling drugs in 2015 in the U.S., Canada, France, and Germany Source: Bloomberg Business Reportand SSR Health18 What do the makers have to say? Pharmaceuticalcompanies often scapegoat the research and development (R&D) and especiallyinvention of new drugs for their exorbitant prices, though this reasoning doesnot explain such soaring prices in most cases.10,19 Pharmaceuticalresearch leading to new drug innovation is mostly funded by the NationalInstitutes of Health (NIH) or other federal sponsors. Study found thatcompanies spend on an average only 10% to 20% of their revenues on research& development and that is how biotechnology and pharmaceutical sectors havehistorically been among the most successful industries from an economicstandpoint.10 A more reasonable explanation of companies’ chargingexcessive prices is lack of government control.
There is practically no set lawto restrict companies from charging however much they want to for their patentdrugs. On the flip side, Medicare, one of the biggest buyers of medicine in theU.S., is not allowed to negotiate drug prices directly with manufacturers.
15Medicaid, the government program for the poor and disabled, is required tocover all drugs approved by FDA regardless of availability of cheaperalternatives.20 On top of that, the U.S. patent system restrictsentry of generic drugs in the market for the first 20 years or more of a branddrug allowing the brand drug to enjoy monopoly market. The drug industriestherefore price drugs at the maximum level that the market can bear. Impact on healthcare and quality of life Theburden of escalating prescription drug price cascades down to all types ofpayers in health care.
Medicare has paid approximately 40% of the nation’sretail prescription drug cost since the introduction of the Part D program.21Another major payer of prescription drugs is private health insurance. Aproblem with private payers is that they often transfer the burden on patientsby means of deductibles, copayments, and coinsurances when cost grows out ofexpectation. As a result, out-of-pocket cost in the U.S. is growingconsiderably over the years.22 eHealth conducted a survey on ACAparticipants in 2015 where 35% of the participants said that they spent morethan expected (on average, over $800) on prescription drugs in the previousyear.23 Theadverse impact of high cost of drugs on medication adherence is well studied.
Areview of articles published from 1974 to 2008 showed that of 160 articles, 85%found an association between increasing out-of-pocket medication cost anddecreasing medication adherence.6 A survey of 2,400 retailpharmacists by CVS Caremark found that 62 percent believe high cost of drugs isthe biggest reason for patients not being adherent.24 They alsoestimated that nearly one-third of their customers go without filling aprescription due to high cost.24 Highspending on drugs also affects quality of life. A 2016 poll conducted byConsumer Reports Best Buy Drugs found that people make adjustments in householdspending to accommodate drug expenditure.
25 An online poll conductedin 2016 by Consumer Reports Best Buy Drugs found that more people whoexperienced a cost increase in their drugs in last 12 months than those who didnot 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 payingother bills (19% vs.
7%), postponed retirement to maintain health insurance(10% vs. 4%), stopped taking a medication because of cost (16% vs. 5%), andreduced healthcare coverage (12% vs.
5%).9 What factors into high prescription drug prices Severalfactors are held accountable for such outrageous growth in prescription drugprices. Only the relevant factors are discussed below within the scope of thiswhite paper. 1) Poorregulation Strong regulation where prices are set bythe government would be the most effective way to control drug price. This isvirtually existent in many developed countries such as Sweden.26 Suchstep in U.S. would cause turbulence in the marketplace and is not probablypolitically feasible considering strong pharmaceutical lobby in Washington, DC.
27Currently there is no set rules or laws to control the prices a pharmaceuticalcompany can charge for its products. Companies take advantage of patent andexclusive selling rights and set high prices. They often try to justify drugprices by the high cost of drug development, but there is no evidence thatprices are associated with drug development costs.10 They also makethe excuse of clinical benefit where a drug can help reduce other treatmentcosts and thus charge high price for that when there is no availablealternative to the drug. In reality, only a few were proved cost-effective orto offer greater benefit than cheaper alternative therapies.10 Prescriptiondrugs are usually priced at the maximum what the market will bear. 2) Physicianbias Anotherfactor is the physician choices of expensive brand-name drugs over cheapergenerics.
Prescription drug is a sector where the end customer i.e. patients donot make the ultimate purchase decision as they are not often aware of theirtrue physical condition, thereby leaving the decision making to theirphysicians. Needless to say, physicians often take advantage of thisinformation asymmetry and do not work in the best interest of the patient.
Fromthe payer’s perspective, in order to deal with such high drug price and stillremain profitable, insurance companies increase the cost sharing of consumersby raising deductibles, premiums, or copayments. 3) Lackof competition In the U.S. patent system, manufacturers for theirinnovation medicines enjoy monopoly for 20 years or more. During this periodcompanies do not have any competition in the market that would force them tocut down prices. On top of that, sometimes drug companies take questionablestrategies to retain their monopolies such as slightly tweaking the nontherapeuticparts of the medicine and launching it as a new drug which is often of noadditional therapeutic value.25 This adds a lot to the high costsince drug prices usually decline to 55% of their original price when there aretwo generics in the market and to 33% when there are five or more, a studypublished in the Journal of the American Medical Association said.
10According to the study, even after the patent expires, it often takes generics threeor four years to clear application backlogs at the FDA and make it to themarket.10 Importation of prescription drugs as a solution Importationof prescription drugs has emerged as a possible solution and gained bipartisanpopularity. In a poll 71% Americans supported importation of safe andaffordable drugs from Canada.28 But the idea has expectedlytriggered strong opposition from pharmaceutical companies. In February 2017, SenatorJohn McCain (R-Ariz.) introduced a legislation, the Safe and Affordable Drugsfrom Canada Act of 2017 advocating for importing prescription drugs fromCanada.29 He also led some Republican senators to support anamendment sponsored by Sens. Amy Klobuchar (D-Minn.
) and Bernie Sanders (I-Vt.)in January 2017 that would allow Americans to import drugs from Canada. Theeffort failed with only 46 votes anyway.
29 Itwas not the first time that Republicans had voiced for drug importation. Duringthe Obama administration, republican senators Chuck Grassley (Iowa) and John McCainpressurized then President Obama to open drug importation from Canada,especially for drugs that had seen significant price hike.30Notably, it was soon after Turing Pharmaceuticals’ ridiculous price increase ofDaraprim from $13.50 a pill to $750 overnight. Duringlast year’s presidential election campaign, one issue that both parties agreedon is importation of cheap drugs from Canada.31 President Trump,while expressing his desire to bring prescription drug cost, had advocatedmultiple times for allowing importation of cheaper drugs from foreigncountries. 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-costdrugs from Canada.28 Reps. Elijah Cummings (D-Md.
) and Lloyd Doggett(D-Texas) introduced a companion bill in the House arguing that Canada and someother major countries sell medications manufactured by the same companies andfactories, but they sell the medications at a much lower rate than the US.28Sen. Sanders urged President Trump to enact the bill as soon as possible asthis provision was included in the President’s election mandate. Asa matter of fact, such drug reimportation from Canada has been taking placeconstantly despite being illegal in the US.32 The volume of drugreimported from across the border is on the rise and it seems impossible tostop people from bringing drugs from Canada as long as the US government cannotlower or control drug prices in the US market.32 Even though themost significant rebuttal against reimportation of drug is the safety concernas these drugs are, as of now, not under strict monitoring of the Food and DrugAdministration (FDA), people do not seem to be bothered about safety andquality since this is apparently the only way for them to obtain drugs of theirneed.
However, many online Canadian pharmacies that Americans obtain drugs fromare licensed by local authorities and they bear accreditation from the CanadianInternational Pharmacy Association.29 If FDA can take the initiativeto certify these online pharmacies after ensuring their quality, many Americanswill benefit by getting their drugs at far cheaper rates from these sources. Key Actions Key actions proposedin this white paper can be divided into two phases. Phase 1: Legalizing reimportation from Canada FDA needs to identify drugs that areexported to Canada after being manufactured in the U.
S. and are sold at a lowerprice there. Depending on the demand in the U.S. market, these drugs can beallowed to be reimported once checked for quality.
If reimporting or purchasingfrom retail pharmacies, the pharmacies will need to be accredited by theCanadian International Pharmacy Association. Since this requires minimallogistics, reimportation from Canada can be initiated officially within a shorttime. Phase 2: Importation from Canada and other OECDcountries Oncereimportation from Canada is initiated, FDA can start working on importingdrugs from OECD countries. The first step for FDA would be to ensure thatstandards of operations in potential seller’s facilities are comparable tothose in the U.
S. The drugs to be imported must have the same activeingredient, route of administration, dosage form, and strengths as drugsapproved by the FDA. Medicare, Medicaid, and private payers would be encouragedto negotiate with for drugs that are on FDA’s approval list.
Evaluation of proposed policy Anyhealth care policy should be evaluated on four criteria: effectiveness,efficiency, equity, and political feasibility.33 This paperevaluates the proposed policy below. Effectiveness Effectiveness of the policy can bedetermined by reduction in prices of the imported drugs.
As prices of importeddrugs would be much lower, it would create positive pressure on localcompetitions. Entry of competition in the market leading to lower demand forlocal medicines will force local manufacturers to cut down drug prices. Efficiency For a policy to be efficient, itneeds to offer a reasonable outcome vs. cost ratio. The proposed policy is notexpected to have astronomical cost or does not need sophisticated logistics;therefore, the policy should be economically efficient.
Equity The benefits of the policy areequitable to patients and insurance companies. It should be well received bythese two major stakeholders of the market. Political feasibility Since the Obama administrationfailed to keep their promise of opening drug importation from Canada, it leavesan opportunity for the current administration to take advantage of theirfailure and create an impact on the drug market. Historically, importation ofdrugs has had support from both parties, so effective lobbying and carefullyprepared proposal can result in an acceptable policy. Recommendations Drug prices in the United States inconstantly rising and quickly going beyond many Americans’ reach. People withor without insurance coverage are having hard time paying for the drugs oftheir need.
This white paper proposes importation of drugs from Canada andother OECD countries as a solution to skyrocketing prescription drug prices.Some specific recommendations to implement the proposed policy are listedbelow. · Medicinesbe imported only from certified manufacturers in Canada initially · Intwo 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.
· Medicinescan be imported online from Canada only through licensed pharmacies · Allimported medicines must have the same active ingredient, route ofadministration, dosage form, and strengths as drugs approved in the U.S. · Medicare,Medicaid, and private payers be required to cover all essential imported drugs · Allforeign sellers be required to go through FDA audit of concerned plants andoperations facilities every three years · U.S.will hold the authority to terminate certification of any seller at any timeshould they fail to meet the standards required by FDA in any part of theiroperations.