Colorado Lawmakers Should Reject Drug Importation Legislation

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Dear Legislator:
On behalf of the National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, we write to express our opposition to S 199, which would expand Colorado’s current drug importation program to allow a manufacturer, wholesale distributor, or pharmacy from other nations to export prescription drugs into the state. As many of you know, NTU has for many years in the past worked with lawmakers in your chamber to protect the taxpayers of Colorado. It is from this position of great respect that we offer the following views and concerns on important programs based on NTU’s decades of institutional experience at the federal and state levels. As a nonpartisan taxpayer organization, we intend to focus on the fiscal aspects of importation.
NTU has a consistent record of opposing drug importation programs. From a fiscal standpoint, importation presents significant risks. Since 21 U.S.C. 384 was modified in 2003 to permit importation under certain conditions, no U.S. Secretary of Health and Human Services has certified that federal importation could occur without endangering public health and with cost savings to consumers. Furthermore, federal law did not envision individual state pathways to developing importation. The very process of a state attempting to implement importation on its own through an “application” to the federal government therefore carries immediate administrative and legal costs. 
Ensuring consumer safety likewise carries a considerable financial burden to government agencies, and therefore to taxpayers. In 2004, a Department of Health and Human Services report estimated that approximately 10 million packages entered the United States with imported prescription drug products; developing a federal regime to screen all these packages for safety would add up to nearly $3 billion—or approximately the total potential savings from an importation regime, according to the Congressional Budget Office (CBO). It would be a mistake to assume that some 16 years later, improvements in tracking, testing, and monitoring shipments have erased these costs. In order to preserve the integrity of the pharmaceutical supply chain, the Federal Drug Administration estimated that the cost to comply with packaging and label requirements for a national importation program of prescription drugs could reach $2 billion in the first year – easily overwhelming whatever price breaks drug importation could produce nationwide or in Colorado. 
We would also note that the net impact of importation on consumers – and in the case of Colorado’s Medicaid and state employee insurance programs, taxpayers – remains uncertain, despite being informed by other states’ generally negative experiences. In December of 2018, importation advocates hailed a report from Vermont’s Agency of Human Services which claimed that a wholesale Canadian-oriented importation regime there could allow commercial insurers to “see savings of between $1-5 million dollars.” Yet that same report also noted that administration of such a program “would likely come at substantial cost to the state, requiring an upfront investment and appropriations.” Trying to raise these funds through taxes on the pharmaceutical industry would likely result in these companies passing along the cost to other customers, reducing research or employee benefits, or cutting returns to institutional entities such as state pension funds.
If enacted, S 119 will go beyond the scope of the original Canadian drug importation law passed last year in Colorado. This expansion will place an additional fiscal burden on taxpayers, especially if lawmakers are also truly concerned about the safety of imported drugs. In a March 16, 2017 letter to members of Congress, former Commissioners of the U.S. Food and Drug Administration expressed their grave concerns regarding the safety of drug importation and raised concerns regarding the resources needed in order to ensure consumer safety: 
“Drugs purchased from foreign countries may be substandard, unsafe, adulterated, or fake. Americans who currently use the internet to purchase drugs from outside the U.S. are likely receiving medicines that are either of substandard quality, adulterated, or fake. Since 1999, the FDA has conducted investigations to curb online sales and distribution of such products. Through massive efforts that involve multiple regulatory and law enforcement agencies from 115 countries, these efforts continue to uncover websites illegally selling unapproved, potentially dangerous prescription drugs to U.S. consumers, including numerous sites claiming to sell Canadian drugs despite evidence that the drugs originated elsewhere. Given the enormous volume and complexity of imports to the U.S., obtaining sufficient resources and expertise to screen and verify the authenticity of every product destined for American consumers presents enormous challenges.” 
On the other hand, innovator drugs produced for the U.S. market have yielded proven savings for taxpayers. In general, even high-priced pharmaceuticals tend to be a better long-run value because they replace hospital stays, surgeries, recovery therapies, and other costly activities that would have to occur in their place. A National Bureau of Economic Research study put a fine point on this equation, concluding that every dollar spent on prescription drugs leads to a $2.06 reduction in overall Medicare expenditures. The state’s Medicaid system is likely benefitting in a somewhat similar fashion. 
Even without these practical considerations, importation as a policy is problematic for taxpayers. Voluntarily negotiated rebates could shrink, or other countries’ price controls – which already take a heavy toll on private-sector drug research and development – would seep into Colorado’s health care system. As a recent NTU Policy Paper warned, “importing self-destructive policies from abroad causes collateral damage here at home. That damage extends to, but is not limited to, our own exports, our workers, our shareholders, our efforts to liberalize and strengthen standards of international commerce, and the long-term savings that innovative drug therapies deliver for taxpayer-funded health care programs.” 
We would recommend that Colorado policymakers evaluate alternatives to importation and other strategies relying on artificial price constraints, many of which have been outlined in a recent NTU Issue Brief, “Prescription Drug Costs: Better Ways to Help Patients and Taxpayers,” dated December 6, 2018. Although its recommendations are federally focused, some could be an answer to some of Colorado’s most pressing health care challenges.
Leah Vukmir, Vice President of State Affairs
Jessica Ward, Director of State Affairs