Tuesday, February 22, 2011

Importation is back? Really?!?

Yes, you read the headline correctly. U.S. Senator Olympia Snowe (R-ME) has just re-re-re-re-re-introduced the misnamed Pharmaceutical Market Access and Drug Safety Act (S.319). It has 18 co-sponsors.

There must be some bizarre advanced political calculus behind this move, because it makes no logical economic or public safety sense. A weak dollar and a high generic dispensing rate imply that even the theoretical financial benefits are minuscule, so the diversion dangers from this bill would never justify the risk. The chart below tells the story.

I don’t see this legislation moving forward, but then again, drug importation has been declared dead more times than an orange parka clad Kenny McCormick. So here’s a brief review of the economic and safety issues. You can also revisit previous Drug Channels articles tagged with Importation.


My reasoning is quite simple:
  • Diversion is the sale of a drug outside of the distribution channels for which it was originally intended, as in “made to be sold in Europe but diverted to the U.S.”
  • Drug diversion is the primary way that counterfeit drugs get into legitimate pharmacies.
  • Importation and parallel trade are—by definition—diversion.
The problems with importation arise because independent wholesalers and pharmacies can buy, repackage, and resell the products. This trading activity, a.k.a. “parallel trade,” creates the potential for counterfeit and mishandled products to enter the supply chain. The Partnership for Safe Medicines has an impressive archive of counterfeit drug news stories, many of which involve diversion.

Are all diverted drugs counterfeit? No.

Does the risk of counterfeiting rise dramatically with diversion? Yes.

Why else do you think that the European Parliament has voted yesterday for the Falsified Medicines Directive, which will hopefully reduce counterfeit medicines in Europe due in part to a standardized serialization system. See Europe votes in new anti-counterfeit law.

The U.S. still has a crazy patchwork of pedigree, serialization, and licensing laws across the 50 states. The FDA does not have the authority to put a national system in place. Check out this review of the February 2011 FDA meeting on track-and-trace from Pharmaceutical Commerce.


I am amazed at Senator Snowe’s apparently willful disregard for today’s healthcare realities. The new bill, like its infamous predecessors, excludes biologicals and therefore most specialty drugs. So, we are talking about importing traditional brand-name drugs, which are a diminishing part of the industry as the generic dispensing rate climbs.

The chart below tells the story. The value of drug importation declines as we move toward the lower right portion of the chart.

But wait, there's more! Cross-border trade can create shortages if a country happens to be “low cost” based on current exchange rates. Yes, this matters because the U.S. is a nearly bankrupt republic with a debased currency. And any remaining price differences will be absorbed by the middlemen—retailers and wholesalers
while manufacturers and consumers would bear the risks and costs. See my 2007 editorial Importation Illusions.

In December 2009, an aide to President Obama stated the White House still favors drug importation. (source). Let’s hope that the POTUS gets busy with legitimate matters—like, say the long-term fiscal health of our country—instead of this fraudulent and dangerous bill.


  1. I agree. It's a ridiculous thing to have government focus on. We spent a lot of time looking at this at ESI long ago. The reality is that generics are so much cheaper here (to your point around so few brand drugs).

    Even if we figured out how to make this work, it's a short-term issue which would cause broad pricing changes.

    But, it's not surprising. The government seems to listen to the biased influencers rather that honestly looking at the data. (see a few of my comments here - http://georgevanantwerp.com/2009/06/23/govt-reduce-hc-costs-rx-decisions-say-no/)

  2. Dear Dr Fein,

    I have been a follower of your blog for some time now and greatly respect your opinion, however I continue to be disappointed with your position on importation. Now, I have my own biases, being that I work with a Canadian firm that provides prescription drugs to US citizens, from government licensed pharmacies in Canada, the US, England, Australia, New Zealand and India that provide manufacturer sealed prescriptions in 90 days supplies to the US consumer.

    I too share your concern on counterfeits, whether for the US market or for any market. You do state that not all diversion drugs are counterfeit. I agree, however rather than focus on how this could be done safely, which is what we are doing, you seem to imply that this is just too costly, dumb, a waste of time etc. The sole counterfeit issue from Canada, at the Partnership for Safe medicines cites a factory in Montreal, in 2009 and not from a licensed Canadian pharmacy source at all, nor were any of these counterfeits within any Canadian Pharmacy chain of care.

    Importation from Canada, from a safe, legitimate and affordable source, from provincially licensed pharmacies, owned and operated by provincially licensed pharmacists, are as safe as any US pharmacy – and in some cases, more safe according to the GAO. We have a number of Canadian Pharmacies who were awarded State Pharmacy licenses by US State Pharmacy boards – surely these pharmacies are as safe as the ones resident in those particular States?

    You argue that Importation will be unsafe on the following reasoning:

    ( a ) Diversion is the sale of a drug outside of the distribution channels for which it was originally intended, as in “made to be sold in Europe but diverted to the U.S.”
    ( b ) Drug diversion is the primary way that counterfeit drugs get into legitimate pharmacies.
    ( c ) Importation and parallel trade are—by definition—diversion.

    Your second point is a fallacy, in regards to the Canadian closed system of custodial care of prescriptions – hence your reasoning, as applied to the Canadian system, is no longer valid. Canadian pharmacies do not have a counterfeit drug problem given our closed system. This is reinforced when the Canadian Government has already formally guaranteed the safety of our system, for our own domestic consumption or export to other markets, to your Government, on 8 May, 2003. When we ship Pfizer Canada brand names from our pharmacies to US consumers, that is what they receive, and also they save the 30 to 60 percent savings as well.

    While usage of brand names is falling in the USA, even a 30 percent usage rate in the US leaves this a huge number, based on a 200 billion per year market space. The fact remains that when we provide brand name Lipitor from any of our countries, the consumer saves approximately 50% compared to US prices listed at drugstore.com. And these are savings the consumer achieves – savings not being absorbed by middle men etc.

    In closing, I find your blog and writing quite interesting as you provide me the “boots on the ground” view on the sole market in which I am focussed on. I am disappointed that you have consistently taken a stand that appears to be incredibly one sided, when factually speaking, it is quite possible to achieve safe, legitimate importation from Canada and other Tier 1 countries.

    With sincere respect,

    Warren Armstrong
    Ottawa, Ontario, Canada

  3. Warren,

    You misunderstand my point. Once you open the floodgates, all bets are off. Katherine Eban, author of Dangerous Doses, wrote an excellent article on this phenomenon: Where Good and Bad Drugs Mix: Why drug importation poses real risks for American consumers.

    Those of us who follow this issue are also aware that many "Canadian" products come from somewhere else. See this 2005 FDA news release.

    Plus, the "permitted countries" in this legislation go far beyond good ol' Canada. they include Australia, Japan, New Zealand, Switzerland, and every country in the EU (including Greece, Bulgaria, et al).

    I understand that you want to promote your own business interests, but I just don't see how the risks and costs associated with importation outweigh the minimal benefits.


  4. Dr Fein,

    I did not realize that it was all or nothing, although reading your posts over time indicates that as a trend, I just did not realize how solidly you have embraced this position.

    Health Canada approved has never meant manufactured in Canada; which is no different than FDA approved has never meant that it was manufactured in the United States. To imply otherwise, as your second point seems to allude, is to, by omission, to imply that this is somehow out of step with the globalization of pharmacy manufacturing - or that every product in a US pharmacy was manufactured in the the good old USA. I trust we both can agree that this is not the case.

    I read the importation legislation this morning - one of the reasons why I follow your blog - you help me stay abreast of these issues, despite our not sharing the same point of view.

    And yes, too broad is a problem as well.

    Katherine Eban does provide an excellent article, which on the balance, reads that all pharmacy is in peril, noting US pharmacy is in no better shape despite the FDA's vigilance.

    I shall watch with interest, as I have done since 2000 when President Clinton first signed into law the legalization of importation. And I am secure in the knowledge that a "poison pill" provision will further be inserted, as it always is, into legislation, which will ensure that the US consumer continues to pay the highest prices in the G8 for prescription drugs, so that Big Pharma can continue to profit off the backs of your citizens.

    The invisible hand of the market will continue to allow price arbitrage to be the foundation of a business model that provides approximately 1.5 billion dollars in safe, affordable and legitimate prescriptions to be provided from Canada to US citizens, regardless of either of our own positions on the merits of importation.


    Warren Armstrong
    Ottawa Ontario

  5. Some people will never get it ! The USA distribution system relies on a delicate balance of generic vs brand. If the balance is comprimised for any reason, then we can expect to pay more for all drugs.

    At least right now No-one complains about the cost of generic drugs!

    The branded drugs reflect the cost of developing the safest and most effective drugs in the world. Last time I checked the FDA had the least amount of: Recalls, Adverse Events, Death, etc.

    Today we have a choice; and we have availability at any USA Pharmacy. And; we can purchase drugs legally or illegally through mail order pharmacies,and; we can buy from Canadian Pharmacies located in China or India.

    America! What a country! We have it all!

    Finally, this "rally cry" is really no different from the rest. "Vote for me and I will lower your drug cost." Just another empty promise from Washington.

    Enjoyed Round 1 Canada vs USA. When is Round 2?

  6. George,

    Seriously? If the balance is compromised you can expect to pay more? So, by extension, if the balance is NOT compromised you won't pay more? Hate to rain on your parade but the GAO just provided their report that shows that prices have risen, steadily since 2006 at 3 times the rate of inflation on both the brand names and generics. Yes, in the land of the free you have the right to pay the highest prices in the world for your prescriptions. How is that FDA approval on Avandia doing for you? As a former Express Scripts employee I do understand your biases. But it is just silly to suggest that there is a delicate balance of generics versus brands which, if disturbed will cost the US consumer more. The delicate balance is how much longer big pharma can take the US consumer to the cleaners.