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Drug Importation and its Impact on the World Pharmaceutical Market |
| Published On: 07-03-2005 |
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Most Americans, especially the elderly, are having a difficult time paying for their prescription drugs. In response to extreme pressure from interest groups, it appeared that Congress was going to take action. In Spring 2004, there were three Congressional hearings regarding the issue of drug importation.1 The major issues raised at the hearings concerned the safety of American citizens, savings to the American consumers, and a possible reduction to the 20-year patent period for prescription drugs. Although legislation has been proposed to regulate drug importation, the votes necessary for passage have not been there in the view of House and Senate leadership. Congressional action seems to have lost the momentum that carried throughout the summer into the 2004 election period.
In the past few years, drug importation from Canada has become an important issue. In the 2004 presidential campaign, Senator Kerry supported importing drugs from Canada, while the Bush administration consistently opposed imports from Canada and other countries. But in the presidential debate on Oct. 8, 2004, President Bush hinted that he might be open to the idea if the government could somehow ensure the safety of imported drugs. "It may very well be here in December you hear me say I think there's a safe way to do it,'' Mr. Bush said.
The Food and Drug Administration (FDA) is responsible for the approval of all drugs entering the U.S. prescription drug market.2 In the case of drugs from Canada, the FDA focuses on the different standards that Health Canada (the Canadian equivalent of the FDA) uses to approve drugs for sale to their citizens and the fact that Canada does not certify that drugs imported into the United States are safe.3 The FDA has warned that Canadian drugs may be outdated, subpotent, contaminated, or counterfeit and that Canadian pharmacists might dispense the wrong product, an incorrect dose, or a medication that is not accompanied by adequate directions for use.
At its 2003 Annual Meeting, the American Medical Association’s (AMA) House of Delegates chose not to adopt a resolution supporting prescription drug importation because, in the delegates view, current legislation lacks the safeguards necessary to ensure patient safety.4 However, when asked to give a specific example of patients being harmed by Canadian drugs, the FDA has been unable to provide any evidence.
Representatives from Heath Canada have explained that Health Canada approves drugs for distribution in Canada only. Therefore they have no obligation to approve a drug if the distribution will be outside its borders. In addition, both Canada and the United States regulate prescription drugs in virtually identical ways—from manufacturing and importation, to labeling, distribution, and sales. Canada's pharmaceutical controls mimic those in the United States, with Canada tracking drugs through each distribution step.5
The real issue, of course, is not whether the drugs from Canada are safe, but rather, why they are so much cheaper. Canadian pharmacies offer savings that average 35 percent compared to prices available in the United States, mostly because the Canadian government imposes price controls. The American Association of Retired Persons (AARP) reports that about 2 million Americans currently buy their prescription drugs from Canada. With the inability of the U.S. government to lower the high cost of prescription drugs, cash-strapped health programs from cities and states around the nation are beginning to embrace the idea of taking their business north.
The Governors of Illinois and Wisconsin have responded to concerns regarding their policy of importing Canadian drugs without FDA approval. They explain that their policy is to buy drugs from licensed pharmacies in Canada, but not from the pharmaceutical websites that are highly unregulated. They have negotiated with the Canadian pharmaceutical companies to have access to the Canadian manufacturing facilities to assure that their citizens will not be put at a higher risk. As a result, the citizens of many states are enjoying significantly reduced costs for their prescription drugs.6
Some contrary evidence has been raised on purported savings on drugs from Canada. The Congressional Budget Office Report of April 20047 concluded that allowing importation of drugs from Canada would not result in significant savings. Drug importation is a form of “parallel trade”, which refers to the legal movement of products across borders without the explicit consent of the manufacturer, usually in response to price disparities. International disparities in patented drug prices reflect the drug-maker’s ability to charge different prices based on purchasers’ willingness to pay in a particular market. Although expanding parallel trade would make it more difficult for firms to charge different prices across markets, there is no assurance that the resulting global price would be substantially lower than the price charged in the United States. Firms forced to charge one price may choose a price that is higher than that currently charged in some foreign countries, even if some price-sensitive consumers are priced out of the market. Therefore, most U.S. consumers may not benefit at all from importation.
There have been suggestions that the patent protection period on pharmaceutical drugs be reduced from 20 to 15 years. Proponents argue that a reduction in the protection period would allow generic pharmaceutical companies to seek FDA approval sooner and enter the market place with generic drugs, thus providing lower-cost prescription drugs through greater competition. Generic drugs are virtually identical to the brand name pharmaceutical drugs with only a slight difference in ingredients that do not affect the chemical properties of the drug.
For example, you can either buy Advil or the CVS generic drug Ibuprofen. Some people act on a false belief that generic drugs are less effective because they cost less, but the potency is identical. The only difference is that the generic ibuprofen costs less. The pharmaceutical industry has argued against any reduction in the patent period. They claim that one out of every four new drugs never makes it to the market place and that it costs approximately $800 million to produce one approved drug. As a result, a reduction in the patent period would force drug companies to raise the price in order to recoup their research and development costs.
Even if U.S. law amended the 20-year patent period, the NAFTA8 and World Trade Organization (WTO) TRIPS Agreement9 would need to be modified. Although these international agreements allow member countries to provide limited exceptions to the exclusive rights conferred by a patent, there are no provisions allowing for a reduction of the 20-year protection period. As a result, the U.S. would need to seek amendments to both of these agreements in order to reduce the patent period.
Congress is weighing legislation that would legalize the import of Canadian drugs to U.S. consumers. The Canadian Health Minister, Ujjal Dosanjh, is preparing legislation that would place restrictions on the export of drugs to the United States when there is a shortage in Canada, as well as on individual purchases over the Internet. Mr. Dosanjh is concerned that the Canadian supply chain, which supports a population of 30 million, will be unable to meet the increased demand from the 280 million Americans seeking lower cost prescription drugs.10
As the 2006 election season begins, Congress is likely to pay more attention to the high cost of prescription drugs. The AARP, with the millions of American voters they represent, are sure to put pressure on Congress to act quickly. In their deliberations, Congress will need to address the barriers that limit potential solutions, such as drug safety, potential legislation in Canada restricting the quantity of drug sales to the U.S., as well as the U.S. and WTO patent laws.
1 To read about the hearings, go to: http://www.bna.com/webwatch/drugreimport.htm
2 Statement of William K. Hubbard, Associate Commissioner for Policy and Planning, "Canadian Prescription Drug Re-Importation: Is There a Safety Issue?" Before the Committee on Government Reform Subcommittee on Human Rights and Wellness, US House of Representatives, June 12, 2003. http://www.fda.gov/ola/2003/canadian0612.html
3 American Medical Association Statement: December 21, 2004. http://www.ama-assn.org/ama/pub/category/14447.html
4 Health and Human Services Task Force on Drug Importation: May 14, 2004. http://www.hhs.gov/importtaskforce/
5 "Importation of Prescription Drugs from Canada", October 10, 2003. http://www.medicarerights.org/fairmedicare_reimportation.html
6 "States Defy FDA on Drug Importation", October 2004. http://www.aarp.org/bulletin/prescription/Articles/a2004-10-08-fda_importation.html
7 Congressional Budget Office Report: April 29, 2004. http://www.cbo.gov/showdoc.cfm?index=5406&sequence=0
8 Article 1709(12) of the North American Free Trade Agreement. http://www-tech.mit.edu/Bulletins/Nafta/17.intellect
9 WTO TRIPS Agreement Text on Patent Protection. http://www.wto.org/english/tratop_e/trips_e/t_agm3_e.htm#5
10 "Canada to Restrict Exports to U.S. of Prescription Drugs", June 30, 2005. http://www.washingtonpost.com/wp-dyn/content/article/2005/06/29/AR2005062901632.html?referrer=emailarticle |
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