Attempts to Import Other Countries’ Prescription Drug Prices Won’t Work

Sen. Bernie Sanders (I-VT) has introduced three concerning new bills that attempt to more closely tie what the U.S. pays for prescription drugs to prices in other countries. In his capacity as Chairman of the Subcommittee on Primary Health and Retirement Security of the Committee on Health, Education, Labor and Pensions, he held a hearing on U.S. prescription drug prices following the release of his legislation.

One bill would remove patent protections for manufacturers on prescription drugs that the government deems “excessive,” with the definition of that word tied in part to the median price paid in five other countries -- the United Kingdom, Canada, France, Germany, and Japan. The legislation would also allow other drug manufacturers to produce generic versions of the ‘excessively’ priced drug, with instructions for the Food and Drug Administration (FDA) to expedite review and approval of these generic options to within eight months or fewer.

Another bill would require the federal government to negotiate prices for a subset of drugs offered by private plans in Medicare Part D, and as a “fallback” would require plans to pay manufacturers the lowest of 1) the Department of Veterans Affairs price for the drug, which is subject to statutory rebates, 2) the median price for the drug paid in the five countries mentioned above, and 3) the average manufacturer price (AMP) for the drug.

The final bill would allow individual Americans, wholesale distributors, and pharmacies to import prescription drugs from Canada and, possibly at a later date (subject to the success of the Canadian importation program and U.S. regulatory approval), other foreign countries.

NTU recently wrote an issue brief tackling the potential pitfalls of versions of all three ideas mentioned above -- an international price index that determines what the U.S. pays for prescription drugs, federal price negotiation in Medicare Part D, and allowing importation of prescription drugs from Canada. Excerpts from that brief follow, as we again warn lawmakers that prescription drug policies that may sound promising and populist at face value could actually raise costs for consumers and/or taxpayers over time.

International pricing index:

President Biden’s campaign prescription drug plan spoke favorably of external reference pricing (setting a drug price based on the price of products in other countries). The new president suggested external reference pricing for “cases where new specialty drugs without competition are being launched,” and advocated for that government-set price to apply to public and private payers. Biden also recommended having a U.S. review board establish a price for drugs “entering the U.S. market first, based on an evaluation by the independent board members,” which could pave the way for internal reference pricing as well (setting a drug price based on the price of other products in the U.S.). More than 150 economists point out that reference pricing (or, to use another term, price controls) “leads to shortages, squeezes the cost bubble toward some other portion of the economy, and imposes a deadweight cost on society.” If manufacturers cannot squeeze the cost bubble to other payers (given reference prices would apply to the private sector as well), one significant concern is that the extremely expensive research and development (R&D) process for new and improved treatments will suffer as a result. And of course, even squeezing the cost bubble for prescription drugs from Medicare to private payers would itself be problematic.

Federal price negotiations:

This is a popular proposal, though recent iterations of allowing the government to “negotiate” prescription drug prices have extended beyond Medicare and to having the government effectively set prices for the private sector as well. The nonpartisan Congressional Budget Office (CBO) has long noted that negotiations would not lead to significant price reductions unless the Secretary of Health and Human Services (HHS) has “leverage … to secure larger price concessions from drug manufacturers than competing PDPs [private prescription drug plans in Part D] currently obtain.” Unfortunately, recent proposals like H.R. 3 (more below) include “leverage” that would make the negotiation process function more like an extortion of manufacturers, forcing them to accept a government-set price that applies to the public and private sectors. This illustrates the catch-22 of requiring the government to negotiate drug prices: government negotiators are ineffective without leverage, and different kinds of leverage (excise taxes, a national formulary for Medicare) threaten patient access to treatments. What’s more, as CBO notes, price negotiations are somewhat moot in Medicare Part D because the numerous private plans participating in the program already can and do negotiate drug prices (with leverage like formularies). Negotiations could be more effective if policymakers modernize the Part D benefit...

Prescription drug importation:

Earlier in 2020, the Trump administration issued a proposed rule to allow states and certain wholesalers to import prescription drugs from Canada. The administration issued a final rule in October, with the policy going into effect November 30. At the time of the proposed rule, NTU wrote to the Food and Drug Administration (FDA) that the agency failed to define the potential benefits of importation to both patients and taxpayers, and failed to adequately estimate the potential costs of importation. We urged the FDA to withdraw or significantly modify the proposed rule; unfortunately the FDA largely went ahead with their original proposal. According to KFF [Kaiser Family Foundation], the proposal is subject to a lawsuit and the Biden administration has not decided how to proceed. As with MFN [Most Favored Nation], we hope the new president will ditch President Trump’s importation proposal (despite Biden’s prior support), especially given its lack of clear benefits to taxpayers and the Canadian government’s ongoing opposition to the importation proposal.