Vermont Report Finds that the Costs of Prescription Drug Importation May Outweigh Savings

As we previously reported, Vermont Governor Phil Scott signed a new law in May 2018 allowing for the wholesale importation of prescription drugs from Canada into Vermont.  Vermont’s Agency of Human Services (VAHS) recently issued a report containing the Agency’s preliminary design for a “Canadian Rx Drug Import Supply Program” and considerations for the State’s next steps.

VAHS was tasked with designing a wholesale prescription drug importation program that complies with the federal requirements for safety and cost savings.  Under Section 804 of the Federal Food, Drug, and Cosmetic Act (FDC Act), drugs may be imported from Canada if they meet certain minimum standards and if the Secretary of the U.S. Department of Health and Human Services (HHS) certifies that (i) the drugs will pose no additional risk to the public’s health and safety and (ii) that importation will result in a significant reduction in costs to American consumers.  HHS has never certified a prescription drug importation program under Section 804 – a fact that VAHS noted at the beginning of its report.

Nevertheless, VAHS set forth a preliminary design for an importation program.  VAHS proposed to establish two new types of licenses – “Rx Drug Importer-Wholesaler” and “Canadian Rx Drug Supplier” – administered by the Vermont Office of Professional Regulation.  All Rx Drug Importer-Wholesalers and Canadian Rx Drug Suppliers would be required to pass an inspection/audit conducted by the State of Vermont, a third-party contractor, or a U.S. state or Federal regulatory agency.  Rx Drug Importer-Wholesalers would be required to distribute products in compliance with the current Federal Drug Supply Chain and Security Act requirements.

To meet the second element of the federal requirements, VAHS set forth to determine whether importing drugs from Canada could result in savings to Vermont consumers.  Vermont Medicaid determined that importing drugs from Canada would not result in savings to the state because the State’s existing prescription drug rebate program already yields substantial savings.  VAHS then sought to determine whether importing drugs from Canada would provide savings to commercial health insurance customers.  For 17 prescription drugs, VAHS determined that importation from Canada could result in annual savings between $1 and $5 million.

However, VAHS also determined that a compliant drug importation program will require substantial upfront investment and appropriations.  In addition to inspection and auditing activities to ensure public health and safety, a compliant drug importation program must continue to show that the imported drugs result in a significant reduction in consumer costs.  As such, VAHS explained that the program must include ongoing monitoring and analysis of the savings opportunities, taking into account “changes in prescribing patterns, the introduction of new drugs to market, participation of additional purchasers of imported drugs, and changes in the value of U.S. and Canadian currency.”  VAHS admitted that it will need to acquire, develop, or repurpose expertise to monitor these trends and make the opportunities for savings transparent.  As such, VAHS concluded that “[b]efore a program of prescription drug importation can be recommended, the state needs to determine the cost of operating such a program and whether that cost eclipses the savings for participating commercial payors.  A program that costs more to operate than produces in savings is highly unlikely to meet the Secretary’s criteria for certification.”

Based on the VAHS report, it appears that our initial skepticism that the Vermont drug importation program will actually be implemented may be correct.  However, both federal and state legislatures continue to express interest in allowing for the importation of prescription drugs from Canada.  For example, Senator Grassley [R-IA] has introduced S.61 and Representative Pingree [D-ME-1] has introduced H.R. 478 to the 116th Congress.  Both bills seek to amend the FDC Act to allow for the personal importation of safe and affordable drugs from approved pharmacies in Canada.  We will continue to monitor and report on federal and state actions to regulate drug pricing.