Reimportation Remains an Issue in Efforts To Address Prescription Drug Costs

On Jan. 16, the popular satirical cartoon The Simpsons showed its blue-collar anti-hero, Homer, smuggling in prescription drugs from Canada after losing his health insurance. The show’s celebration of the underdog who puts one over on pharmaceutical companies reflects the zeitgeist of 2005 — prescription drug reimportation.

A recent poll by the Kaiser Family Foundation and the Harvard School of Public Health found that 29% of people surveyed said that profits of pharmaceutical firms and health insurers are responsible for higher health care costs, while 73% said they believe federal laws should be altered to allow U.S. residents to buy medications from Canadian pharmacies.

Drug reimportation, a contentious issue in the 2004 presidential debates, remains a divisive and controversial topic in 2005. The Bush administration and the Pharmaceutical Research and Manufacturers of America strongly oppose the practice, but some state governments — including Illinois, New Hampshire and Wisconsin — are encouraging residents to take advantage of the cost savings offered by Canadian retailers.

Action in California

In California, county governments have been actively pursuing policies that would follow the example of other states. Alameda, Santa Clara and San Francisco counties are considering or have adopted regulations to help public employees and consumers buy drugs from foreign pharmacies.

Meanwhile, state lawmakers have introduced legislation that would facilitate commerce with Canadian and European prescription drug suppliers and require the state to play a larger role in protecting consumers from disreputable mail-order pharmacies.

Assembly member Dario Frommer (D-Los Angeles) and Assembly member Wilma Chan (D-Oakland) in January introduced a bill (AB 73) that would require the Department of Health Services to create a Web site providing price comparisons between U.S. and foreign pharmacies. If the bill is passed, the state also would evaluate and vet foreign mail-order pharmacies and direct consumers to suppliers that meet local health and safety standards.

The bill is a slightly tweaked version of one Gov. Arnold Schwarzenegger (R) vetoed last October, and this year’s incarnation might be headed for a similar fate. The governor says he opposes any legislation that encourages reimportation because it’s illegal under federal law and does not include adequate provisions to ensure product safety.

Instead, Schwarzenegger is promoting an alternative proposal along with Sens. Deborah Ortiz (D-Sacramento) and Chuck Poochigian (R-Fresno). The new program, known as California Rx, would offer drug discounts close to those available at Canadian pharmacies for uninsured Californians whose incomes do not exceed 300% of the federal poverty level.

The governor has pledged to work directly with PhRMA to secure sizeable discounts that could amount to as much as 40% off retail prices for the participants with the lowest incomes.

Although some insiders are skeptical of PhRMA’s commitment to voluntarily lower drug prices for millions of consumers, Schwarzenegger’s high profile persona and close relationship with the industry may help bring the industry on board. Pharmaceutical companies’ donations — $367,200 over the past year, according to the Foundation for Taxpayer and Consumer Rights — to Schwarzenegger and his various committees would seem to indicate a strong confidence in Schwarzenegger’s policies.

Stan Rosenstein, deputy director of medical care services for DHS, said, “It’s really a question of market share for the manufacturers. They won’t want to lose any of their government program share, so they’ll likely participate.”

“Cal Rx holds the promise of providing immediate, legal, safe, FDA-approved drugs from a local pharmacy. It will be comparable to what you get in Canada when you factor in shipping and handling,” he added.

But some consumer groups say Cal Rx won’t stem the flow of patients ordering prescription drugs from Canada because only a small portion of California residents — as many as five million — would be eligible to participate in Cal Rx. “This is a very timid first step — the prices that they’re talking about will not be the same as the prices in Canada, which are 40% to 80% less than what we pay here,” Gary Passmore, executive director of the Congress of California Seniors, said. “We think it’s important for the state not to rely on the governor’s celebrity and the largesse of the pharmaceutical companies to get reasonably priced drugs for Californians.”

Effects of Medicare Prescription Drug Benefit

The new Medicare prescription drug benefit, which goes into effect in 2006, also might influence consumer and government interest in drug reimportation.

Bryan Liang, executive director of the Institute of Health Law Studies at California Western School of Law, said that the Medicare prescription drug benefit will “help the situation a little by taking pressure off seniors.” He added, “The cost sharing will likely reduce the debate around reimportation.”

But the reimportation issue already has dramatically shifted the public debate on how to control medication costs. Consumers are now well aware of the drug industry’s differential pricing schemes under which U.S. consumers shoulder the bulk of the research and development costs for new drugs.

The media attention around the effort to curb commerce with Canadian mail-order pharmacies laid bare a simple fact that PhRMA would rather keep quiet: While the Canadian government drives a hard bargain with the industry to secure lower drug prices for its citizens, the U.S. federal government does not and is, in fact, banned from doing so under the 2003 Medicare law.

The Kaiser/Harvard Poll found that this provision of the new Medicare law is extremely unpopular with U.S. consumers, with four out of five respondents saying that the federal government should negotiate with drug companies for lower prices.

David McKay, executive director of the Canadian International Pharmacy Association, said, “More than anything, we’ve been a public relations nightmare for PhRMA.”

Ironically, U.S. residents’ increasing demand for lower-cost drugs might end up hurting Canadian suppliers. Some of the largest pharmaceutical companies have started refusing to sell to Canadian pharmacies, causing local supply shortages. And the Canadian government, under pressure from the Bush administration and pharmaceutical industry lobbyists, has signaled that it’s prepared to implement new rules requiring U.S. patients to see a Canadian doctor in person before a prescription can be filled. The move would effectively put an end to the $700 million Canada-U.S. cross-border drug business, according to McKay.

“As a result of supply constrictions we’ve been forced to look to other jurisdictions. We’re already purchased or established pharmacies in Great Britain and the other developed G8 countries,” McKay said.

California Legislators Look Ahead

State lawmakers anticipated these developments, however, and the Frommer-Chan legislation names England and Ireland as possible sources of discounted drugs, as well as Canada.

The coming year likely will see more changes to the evolving mail-order pharmacy landscape and reimportation likely will remain a hot button issue in the 2005 Legislature.

According to Rosenstein, Schwarzenegger has not changed his position on reimportation. And it looks like Democratic lawmakers are headed for another face-off with the governor over their proposed legislation.

Karen Kim, press secretary to Frommer, said, “Assembly Democrats believe these bills are merited. They’re going to push it through again with the faith that the governor will sign it.”

More on the Web

The survey by the Kaiser Family Foundation and the Harvard School of Public Health is available online.

A report on California Rx by the Legislative Analyst’s Office is available online.

KFF Health News is a national newsroom that produces in-depth journalism about health issues and is one of the core operating programs at KFF—an independent source of health policy research, polling, and journalism. Learn more about KFF.