Crossing borders: importing prescription drugs, illegally or legally, into the United States isn't expected to have a significant short-term impact on health insurers, but long-term could be a different story.

Key Points

* Nearly 20 million packages of prescription drugs are estimated to be shipped into the United States each year--a supply worth more than $3 billion.

* Many health plans believe drug importation has had little, if any, impact on their operations thus far.

* The federal government and many states are trying to craft solutions to the drug importation problem, and about 30 proposals recently have been introduced to Congress.

Rising prescription drug prices are driving nearly 2 million Americans to cross national and global borders to seek necessary medications. Some are physically venturing into Canada and Mexico for the pharmaceuticals, while others are turning to mail-order pharmacies or storefront brokers via the Internet. Thus far, many health plans have noticed little effect from the practice and are hopeful that passage of pending legislation to lift the ban on importing drugs into the United States also would have little impact on the industry. Many are concerned, however, about the safety of imported drugs and the effect that importation eventually will have on drug manufacturers' funding for research and development.

Today, nearly 20 million packages containing prescription drugs are estimated to be shipped into the United States each year--a supply worth more than $3 billion.

While it's illegal for anyone other than drug companies to import drugs into the United States, many Americans see it as the only way to purchase necessary pharmaceuticals at affordable prices. A growing number of Americans are already playing Russian roulette with their medications. According to a study by the Civil Society Institute, more than 20 million Americans worried about drug costs either skip medications or reduce dosages to stretch their medication.

Legislators are trying to craft a solution. Several dozen proposals concerning drug importation have recently been introduced in Congress, ranging from permitting drugs to be imported only for personal use to allowing imports for commercial purposes. Several states are also trying to pass legislation about the issue.

In addition, many Americans are in favor of change. A recent poll by the Henry J. Kaiser Family Foundation and the Harvard School of Health found that nearly 80% of people receiving Medicare benefits favor allowing drug importation from Canada if it means lower costs for their drugs. In addition, several states, such as Minnesota, New Hampshire, North Dakota, Rhode Island and Wisconsin, have set up programs to help residents buy medicines from Canadian pharmacies.

Industry Impact

The impact of drug importation on health plans is minimal because members are receiving cost-saving alteratives through lower-cost copays, said Dr. Ed Wong, pharmacy director for Premera Blue Cross, which serves members in Washington and Alaska. "So, a $100 drug isn't a $100 drug but rather only $10 to $20 for members," he said. "As an insurance company, we want to provide peace of mind for members that we provide access to drugs that are safe and effective. The only people having the impetus to go to Canada are cash-paying people, primarily the elderly."

Importation has been a hot topic in the media and an alternative for the elderly and other cash-paying citizens without prescription drug coverage, said Premera's Wong. "Typically, health plans have processes to reimburse members who obtain medications out of the country while on vacation or on a work assignment. Premera's standard out-of-network pharmacy benefit applies whether members are filling prescriptions at home or around the world."

Except for a few complaints from its members, the impact of imported drugs also has been minimal for the Regence Group, said David Clark, vice president of pharmacy. While he said some plans are looking the other way and not addressing the issue, Regence took the stance not to reimburse its members for imported medications due to legality issues.

A.M. Best Co. analyst Christian Miles said it's difficult at this point to measure the exact impact illegal drug importation is having on the industry because it doesn't address the root cause of the issue--that drug manufacturers obtain their highest margins and funding for research and development in the U.S. market. "Other markets, such as Canada and Europe, have price 'ceilings' and are subsidized by the U.S. market, in effect. Broader use of importation could lower U.S. margins for drug manufacturers, thus reducing their return on investment and funding for continued R&D," he said. Miles believes importation is more of a political short-term issue; the real question is how drug manufacturers will spread costs over markets with different price thresholds over the long term while generating adequate cash flow to fund research and development.

Eric Elliott, vice president, pharmacy management, for Aetna, also believes the real issue doesn't lie solely with importation. "Instead, the issue is pricing and lack of parity of pricing globally for similar medications," he said. Some of the activities on border states--such as people moving into coalitions and orchestrating trips across the border for medications--is keeping the topic in a high-profile position. "If you look at supply, Canada has about 2% of the world's drug supply and the United States consumes something north of 40% of the world's prescription reeds, so our concern is having this as the only solution to the issue, which could result in a solution that doesn't really get you the answer you need," he said.

Instead, the answer for many health plans, including Aetna, is to educate members about other lower-cost alternatives, such as the availability of generics. Aetna, for instance, is continually talking to members about these lower-cost products and has found good results in members' use thus far, said Elliott. In addition, the company recently entered into a joint venture to develop Aetna Specialty Pharmacy, which allows Aetna to directly contract for discounts with manufacturers instead of through third parties. "We can bring in specialty pharmaceuticals and ensure we are getting the best discounts and enabling products to be part of our benefit going forward," he said.

In addition, many generics can save members a significant amount because they're tried, proven and available in the U.S. market for lower prices than going through the importation process, said Clark. Regence also is educating its members about the use of generics.

As an example of the industry's efforts to provide affordable medications for Americans, Mohit M. Ghose, a spokesperson for America's Health Insurance Plans, cited the PACE prescription drug program in Pennsylvania, which he said has been held up as one of the "brightest jewels" in public policy today. The program, which is funded entirely by Pennsylvania lottery proceeds, offers comprehensive prescription coverage to older Pennsylvanians with no premiums or monthly fees charged to enrollees. "In a recent study, we found that if you overlaid managed care techniques currently in use in the private sector, such as mail order, step therapy and tiered formularies, on top of the PACE program, we could see additional savings of up to 40% for the state of Pennsylvania. Our members are working on several levels across the industry to keep drug costs down," he said.

Legislating a Solution

Drug importation is nothing new for the U.S. government. In 2000, President Clinton signed a bill into law allowing for commercial importation of drugs from Canada, provided the Secretary of Health and Human Services deemed them sale. Donna Shalala, the Secretary at the time, said it was impossible, however, for the department to ensure the products' safety and called importation unsafe.

Today, more than 30 Senate members have sponsored legislation that would allow prescription drugs to be imported from Canada. One such bill was introduced by Sen. Charles Grassley, R-Iowa, in April 2004 to "immediately open the door for American consumers to buy the cheaper prescription drugs, while requiring the FDA to establish a new system for drug importation."

Another bill garnering some publicity is $2427, known as "The Pharmaceutical Market Access Act," introduced by Sen. Byron L. Dorgan, D-N.D., and Sen. Olympia Snowe, R-Maine. The act would allow U.S. licensed pharmacists and wholesalers, as well as individuals, to import FDA-approved drugs made in FDA-inspected facilities from 25 major industrialized countries, including Canada, the European Union, Australia and New Zealand. In June, advocacy group AARP announced its support for the legislation and has since held a series of events to raise awareness on the issue. "We feel the legislation can address some of the safety issues we previously had, as well as being a system where individuals, pharmacists and wholesalers can import drugs, not just for individuals who live within a few miles of the Canadian border," said David Certner, head of federal affairs for the organization.

Sen. Tom Daschle, D-S.D., said there's a 50% chance the Senate could vote on a drug importation proposal before the end of the year. Certner is also hopeful that Congress will either take action on the issue during its current lame duck session or early next year.

Health plans continue to keep a close watch on the issue. "We are following the public debate as federal public policy on importation is not settled," said Lindsay Shearer, spokeswoman for Broomfield, Conn.-based Cigna Healthcare. "The Department of Health and Human Services hasn't authorized importation due to concerns about ensuring the safety of drugs manufactured in foreign countries, and we don't feel that it would be appropriate to standardly cover imported drugs until this question is settled," she said.

"If legislation is just about importation, then it's not a complete enough answer," said Aetna's Elliott. Some of the bills have to do with reimportation--in which U.S.-manufactured drugs are sent abroad but then are brought back into the United States--vs. importation. "Reimportation seems to be a middle ground that gets you even farther to nowhere. If you are only allowed to reimport drugs made here, then the control of what amount of product can be reimported can be controlled by what amount of that product is sent out of the United States," Elliott said.

Elliott also believes work should be done to accelerate generic introduction, to limit patent protection extensions and to focus on research and development of true product innovation inside manufacturers. In addition, he said other steps in the right direction are for some controls to be brought to direct-to-consumer advertising of pharmaceuticals and work needs to done to create sharing of research and development value among countries, such as making drug pricing part of international trade talks.

One of the barriers to prior passage of drug importation legislation has been lack of support by President Bush, who continues to express concern about potential safety risks from imported pharmaceuticals. Instead, he believes the new Medicare subsidy for prescription drugs will eventually ease the financial strain of dissatisfied elderly. The President said he would support drug imports only if a system could be established to guarantee their safety.

Several states have made their own movement to legalize drug importation. Attention recently focused on California in its attempt to pass such legislation. In October, however, Gov. Arnold Schwarzenegger vetoed four bills that would have allowed state residents to purchase lower-cost medications from Canada. The governor felt the bills would have violated federal law and wouldn't have adequately ensured the safety of state residents.

Maine is another state getting in on the action. Gov. John Baldacci recently sent a letter to HHS Secretary Tommy Thompson to request a waiver to allow state residents to purchase lower-cost prescription drugs from Canada through the Penobscot Indian Nation. As part of the proposal, the governor awarded the tribe $400,000 to establish and operate a prescription drug warehouse. The tribe would sell reimported drugs to Maine pharmacies, which would then sell the products to state residents at lower prices.

Playing It Safe

But while some fight to legalize imported drugs, many health plans are joining the FDA's concern about the safety and efficacy of the products because safety standards of Canada and other countries aren't at the same level as those imposed by the organization.

For instance, Regence's Clark said studies show that a growing number of inappropriately labeled and packaged prescription drugs come into the United States from Mexico, resulting in costly hospitalization visits and other problems for pharmaceutical users.

Legislation currently defines what the FDA has to do to ensure safety of patients in the United States, said Clark. "Whether or not the FDA will have the resources to oversee inspection of more plants and distribution channels in other nations will be both a funding and monitoring issue of the national distribution channels," he said.

In addition, Canadian standards don't take into account drugs coming in from other sources. Americans' demand for pharmaceutical sales is forcing Canadian pharmacies to seek supplies from other countries. During the first eight months of 2004, there was a 430% increase in pharmaceutical imports into Canada from China, followed by a 369% increase from South Africa, 160% from Turkey, 165% from Iran, 90% from Saudi Arabia, 120% from the Philippines, and 1,300% from Bangladesh, according to "Drug Importation is Subject to National Symposium," an article by Steve Stanek published in Health Care News.

Clark said the way imported medications will fit into the insurance market is also of concern. Generally more than 98% of all medications in the United States are adjudicated electronically, thanks to National Drug Code standard codes that were adopted several decades ago.

The codes are 11-digit, universal individual product identifiers for human drugs and are labeled on every package. "Whether imported meds would be readily adopted in NDC standards will need to be seen," said Clark. For example, a package labeled Lipitor from Canada may not have the same code as a package from the United States. "We'll have to have the same codes here to continue to have a high rate of electronic adjudication, which is important both financially and clinically," he said. In addition, the industry has a large number of edits that address patient safety issues, such as potential overdoses and drug interactions, and they only work if medications can accurately be identified, preferably at the time the prescription is filled.

Varying international standards may also pose a challenge. The United States follows United States Pharmacopeia standards, which Clark calls one of the most stringent sets of standards in the world. USP is a nongovernmental, standards-setting organization that ensures the quality and consistency of medicines, promotes the safe and proper use of medications and verifies ingredients in dietary supplements. Most--but not all countries--follow USP standards, Clark said. "A supply of Lipitor, for example, may be labeled as 20 mg, but can't vary more than 5% to 10% from having 20 mg in every capsule. But other countries may allow other variations of up to 15% or more, in addition to possibly using different fillers that can bring on other safety concerns such as allergic reactions." Fillers found in medications contribute to more user allergic reactions than active ingredients, he added.

Some U.S. drug manufacturers are standing firm against drug importation. Mammoth pharmaceutical manufacturer Pfizer recently cut off supplies to several Canadian wholesalers. In September, GlaxoSmithKline, maker of such commonly used medications as the migraine medicine Imitrex and antidepressant Paxil, launched several newspaper advertisements that question the safety and quality of medications ordered through Canadian Web sites as part of its campaign against importation of prescription drugs.

On the Lookout

34%
of Americans with health insurance who buy
prescription drugs are purchasing cheaper drugs
from pharmacies in Canada or other nations.

33%
said they plan to purchase the cheaper
medications.

Source: "Americans & Health Care Reform: How
Access and Affordability Are Shaping Views," a
national opinion survey of 1,020 U.S. adults conducted
Sept. 2-5 by Opinion Research Corp. on
behalf of Results for America, a project of Civil
Society Institute.

Support for Prescription
Drug importation

Do you favor or oppose the
federal government making it
easier for people to buy
prescription drugs from Canada?

Oppose       23%
Don't Know    9%
Favor        68%

Source: Kaiser Family Foundation/Harvard
School of Public Health Medicare Prescription
Drug Survey, 2003.

Table made from pie chart.

Learn More

Aetna Group

A.M. Best Company # 08189 Distribution: Brokers, consultants, retail networks (pharmacy products)

Cigna HealthCare A.M. Best Company # 68124 Distribution: Agents and brokers

Premera Blue Cross A.M. Best Company # 60076, 64764 Distribution: Agents and brokers

Regence Blue Cross Blue Shield Cos.

A.M. Best Company # 60074, 64412, 60199, 60266

Distribution: Agents and brokers, direct

For ratings and other financial strength information about these companies, visit www.ambest.com.

RELATED ARTICLE: Drug importation cost savings: fact or fiction?

With Americans spending just under $1 out of every 10 health-care dollars on pharmaceuticals, many are turning to Canadian and other national pharmacies to receive lower-cost drugs.

Prescription drug spending continues to rise exponentially, with spending projected to increase by an average of 12.6% annually until 2010. In addition, Americans pay the highest prices in the world for prescription drugs. A prescription drug that costs $1 in the United States costs only 62 cents in Canada, 65 cents in Germany, 69 cents in Great Britain, 55 cents in France and 52 cents in Italy, according to information posted on U.S. Senator Byron L. Dorgan's Web site. Sen. Dorgan, D-N.D., cosponsored a bill now before Congress to create a competitive marketplace so Americans can purchase U.S. Food and Drug Administration-approved drugs at the much lower prices available in other countries.

When purchasing drugs from outside the United States, many Americans are turning to Canada because its pharmaceutical prices are touted to be 40% to 60% lower than those in the United States. The lower costs are due in part to controls enforced by Canada's Patented Medicine Prices Review Board. According to the board, prices for existing patented medications can't rise by more than the consumer price index, and prices for newly patented drugs must be set so that the cost of therapy falls within the same range as using existing drugs targeting the same disease. And "breakthrough" drugs, such as asthma medication Singulair, can't exceed the median prices in the United States, United Kingdom, France, Germany, Italy, Sweden and Switzerland. Canada doesn't regulate prices for nonpatented or generic drugs.

But some experts argue whether Canadian pharmacies really are passing on added savings to customers. The Health and Human Services Task Force on Drug Importation recently found that if patients shop around they often can find lower costs than Canadian prices. The FDA recently began a cost comparison analysis of prescription drug prices in the United States and Canada based on a CanadaRX shipment intercepted earlier this year by U.S. Customs and Border Protection officials in Miami. The 439 packages in the shipment contained 881 prescription drugs with invoices.

Preliminary results of the task force's analysis indicate that one-half of the medications had less-expensive, FDA-approved generic versions available in the United States. For instance, a 100-dose supply of the 200-milligram version of the antiarrhythmic medication Amiodarone--one of 10 of the most common drugs in the intercepted shipment--cost $116.97 from CanadaRx, while the same prescription can be purchased from some American pharmacy chains for as little as $41.

In addition, the Congressional Budget Office said that if the importation ban is someday lifted, limited to only certain countries such as Canada, the effect of lower prescription drug costs for American consumers would be small, according to an article on "Health Care and the 2004 Elections" by the Kaiser Family Foundation. The Congressional Budget Office acknowledges that prices for drugs still under patent protections (as opposed to generic products) are 35% to 55% lower in other countries than in the United States. It cautions, however, that responses by foreign governments and by the pharmaceutical industry to such a change in policy could erode most savings, according to the article. For instance, foreign governments could restrict the supply of drugs leaving their borders, or pharmaceutical manufacturers could limit the supply of drugs sold to foreign nations that facilitate sales to U.S. purchasers.

"It's unfortunate, but a lot of seniors are getting brand-name drugs and going to Canada to get them when there are generic alternatives available at less cost in the United States," said Dr. Ed Wong, pharmacy director for Premera Blue Cross, which serves members in Washington and Alaska. Several years ago the company created its Generics--Yes! program--a comprehensive educational campaign to educate members, consumers, providers, payors and others about available generics and the cost savings they offer. In addition, Premera is motivating members to try generics by waiving two to three copays. Premera's generic usage was 51.3% in August, compared to Merck-Medco's national percentage rate of 47.7%.