The FDA just announced that it will allow the state of Florida to import cheaper pharmaceuticals from Canada, which imposes price controls on its drugs. The FDA’s move is welcome but raises the question: Why doesn’t the US cap the price of medicines too?
Even small uses of federal regulatory authority can bring down pharmaceutical costs. (SDI Productions / Getty Images)
On Friday, January 5, the US Food and Drug Administration (FDA) announced that for the first time ever it would allow a state government to import foreign pharmaceuticals. The agency approved Florida’s proposal to buy cheaper medications directly from Canadian wholesalers for use in state-operated care systems, such as prisons, government health clinics, and certain Medicaid programs.
FDA approval comes after more than two decades of federal deliberation about the use of foreign importation to circumvent high drug prices in America. The first such attempt was a law passed during Bill Clinton’s administration, which formed a legal but untested pathway. This statute was overhauled in 2003, creating the current system, known as the Section 804 Importation Program (SIP).
Even as prescription prices skyrocketed, the law went untried for over seventeen years because any planned SIP would need approval first from the secretary of Health and Human Services, then from the FDA. It was not until late 2020 that a proposal cleared the first hurdle, when Trump appointee Alex Azar gave the state of Florida the go-ahead.
A few months after taking office, President Joe Biden pushed the efforts forward via executive order. Last Friday, the FDA gave its first official authorization to an SIP, opening the door for Florida to access cheaper Canadian pharmaceuticals. The move is a big step forward in making drugs more affordable, but it also highlights the deeper irrationality of current policy.
The FDA announcement underlines the appalling gulf in drug prices between the United States and other developed nations. Pharmaceutical prices in the United States overall are more than two-and-a-half times higher than those of our peers, with manufacturers charging nearly three-and-a-half times more for brand-name drugs.
Not only are costs egregiously higher in the United States, but American patients are more exposed to those costs than their counterparts in other rich countries, as over twenty-five million people have no health insurance, and even those who do often pay steep out-of-pocket costs. Together, uniquely high prices and a patchwork system of insurance results in Americans spending more than twice as much per capita on medications than residents of comparable countries.
Despite the clamoring over cheap drugs to our north, Canada has one of the most expensive markets for pharmaceuticals in the world. But prices in the United States are such an absurd outlier that even Canada’s costs pale in comparison. For instance, a Government Accountability Office study found that in 2020 a multipack of Anoro — a common asthma inhaler — cost $49 in France, $76 in Canada, and $514 in the United States. Florida’s newly approved plan illustrates this discrepancy: a single state contracting with Canadian wholesalers on a limited range of medications is expected to save upward of $150 million every year.
The difference in prices is due to the simple fact that Canada has strong federal price caps and the United States does not. Canadian price regulations are overseen by the Patented Medicine Prices Review Board (PMPRB), which monitors trends in the price of medicine, studies how costs affect patients, and prevents manufacturers from overcharging for pharmaceuticals.
For this last role, the PMPRB has veto power over which medicines receive copyright protection in the country: to receive a patent, a drug must have its price evaluated by the PMPRB and found not to be excessive. To make this determination, the board assesses the proposed price using criteria including the cost of similar medicines, its price in other countries, inflation, and other relevant factors. The result is a system that still defers significantly to drug companies, allowing them to make large profits from Canadian sales, while preventing the price gouging that plagues American patients.
A Medicine Price Review Board for the US?
While the authorization is certainly welcome after the twenty years of inaction that preceded it, the measure doesn’t change the fact that individuals are still prohibited from importing prescriptions. When I was dropped from my health insurance unexpectedly in November, I drove to Canada to get the insulin I need to live and paid less than a fifth of the American price. But bringing it back across the border meant I faced a $1,000 fine and up to a year in prison.
If cheaper Canadian drugs are safe enough for broad FDA approval, then there is no reason that individuals should be restricted from importing them as well. More fundamentally, there is no reason for the United States to outsource price controls to the Canadian government: we should have our own medicine price review board. An American PMPRB would allow the government to end Big Pharma’s obscene price gouging of US consumers, and make the importation of drugs by either individuals or states completely unnecessary.
Democrats have worked in recent years to reduce the cost of medications, but only through convoluted legal mechanisms that nibble around the edges of high prices. Among these are provisions of the 2022 Inflation Reduction Act (IRA). One new regulation ties price increases of prescriptions covered by Medicare to the national rate of inflation: if drugmakers raise prices beyond year-to-year inflation, they must pay Medicare a rebate making up the difference. The new rule is expected to put some downward pressure on the drug market at large.
Another IRA provision gives Medicare a sliver of the power to do what private insurers do everyday: negotiate directly on drug costs. The federal insurance program had been formerly barred from the practice thanks to a noninterference clause in federal law. Beginning in 2026, Medicare will negotiate the price of ten of its most costly drugs included under Part D, an opt-in Medicare program that covers the cost of prescriptions. Fifteen additional drugs will be negotiated in 2027, another fifteen in 2028 for both Medicare Parts D and Part B — which includes general medical care and covers some medications — and then twenty more for each part every year that follows. Even with tight restrictions on the types and number of medications eligible for negotiation, Medicare will save an estimated $98.5 billion over ten years.
The Biden administration has also recently proposed the use of “march-in” rights on profiteering drugmakers. Under US law, drugs that have been invented using taxpayer-funded research must be made available to the public; for decades, this was understood to mean just that the drugs be commercially available. Last month, however, regulators announced intentions to march-in on medicines whose exorbitant prices make them inaccessible to patients. If the government succeeds in pushing this novel interpretation of march-in rights — and actually chooses to invoke them — that would be another way to bring down the cost of some of the most expensive drugs on the market.
These measures demonstrate that even small uses of federal regulatory authority can bring down pharmaceutical costs. But the existence of our northern neighbor’s more rational model shows that we can and should go further: the good that might come from the FDA’s decision will be a direct result of Canada’s PMPRB capping the price of medicines, and the United States can do the same.Original post