Recent headlines announced a new regulatory view from the federal government regarding the ability of US consumers to obtain drugs from other countries. In particular, the Federal Drug Administration (FDA) approved an application from the State of Florida to obtain some specified prescription pharmaceuticals directly from Canadian sources for some of its state-funded programs and expanding to its Medicaid population. The move was hailed by many as a necessary first step in controlling prescription drug prices. How it will be implemented and whether the option benefits employer plans are still not clear.

Background

The US is typically described, as it is in this Rand study, as having higher costs for brand-name prescription drugs than other countries. There are reasons for that, including price controls in other countries that artificially restrict prices for brand-name drugs in those countries. Ironically, the Rand study also notes that prices for generic drugs are typically lower in the US than in those other countries. Nevertheless, for decades, many observers have advocated the ability of US-based individuals and plans, including employer-sponsored health plans, to import brand-name drugs from those other countries with the hope of driving down the costs of prescription drugs that are used by US citizens.   

Congress has investigated the effects. The potential impact has traditionally been seen as ambiguous, as it is not clear how the Canadian or other governments would react or whether the consumer can be adequately assured, in the absence of FDA approval, of actually obtaining the same or the equivalent of the FDA-approved pharmaceutical. Recent history has seen those pressures increase, and the FDA may be more inclined to permit more importation of drugs than in previous years. Ironically, perhaps, there has been a move in the market that should make generic drugs less expensive (as they have been increasingly costly in recent years as well).  

With the approval of the Florida application to import brand name prescription drugs for some of the Florida-run plans, many employers will ask if that avenue will be available for employer plans as well.

Employer Plan Impacts

There has traditionally been little enforcement of the prohibition of importing prescription drugs. Note that even bringing drugs to the US for personal use is technically illegal (unless it meets a couple of narrow exceptions), but it is just not an emphasis of the FDA for enforcement.  

Employers are being contacted by various vendors who claim to help employer plans reduce prescription drug costs by importing the drugs from Canada. If there is no enforcement, the question is whether the employer plan should go ahead and pursue that option. There is no “right” answer, but there are various factors that employers should consider before they sign on.  

Will importation result in real cost savings, and are these medications the major cost drivers for the employer’s group health plan? Will drug manufacturers react by increasing prices to US importers? There is certainly no reason to believe that the medications will be sold in the US at lower prices. Perhaps that will be true, but some news reports have noted that Canadian authorities are not keen on making limited drugs widely available to US patients.

There is no specified pathway for employer plans to gain access to the prescription drugs and the savings, if any, that the states can negotiate. It is entirely possible, given the statements from the Canadian authorities, that limited volumes, if any, of the drugs will be available given the concern of the Canadian government for the health of their citizens.

It is also unclear whether expanding the program to other countries will assist with the volume of drugs available for import to the US. The pharmaceutical industry (which has its own point of view, of course) has provided information for years that it is just not possible for the FDA to know that drugs imported from other countries are safe and effective. The FDA itself has noted that it cannot vouch for the safety of drugs from other countries. So, employers will need to take additional steps to ensure the safety of the drugs if they seek to use that route. 

Conclusion

Employers have been seeking importation as a silver bullet to lower prescription drug costs for their plans. Given the prescription drug inflation of the last few years and the unsustainable costs, employers are desperate for some relief. The final verdict on whether this approach will effectively address medical costs remains uncertain.

This Legal Update is not intended to be exhaustive, nor should any discussion or opinion be construed as legal advice. Readers should contact legal counsel for legal advice. All rights reserved.