National Symposium on Drug Importation: Costs, Compulsory Licensing, and Counterfeiting

Published November 21, 2003

I agree with several points Senator Lauzen made earlier. People are angry about this issue, and they really do see it as an issue of costs. But prescription drug prices are the tip of the iceberg in overall health spending. Focusing on drug prices alone is unlikely to solve the bigger problem.

The U.S. spent $1.5 trillion on health care last year, about one-tenth of that on prescription medications. But the costs of prescription drugs are often more visible to consumers than spending on other health services, and as a result, that is the piece of overall health spending that people often focus on.

Senator Lauzen mentioned high health insurance costs which some people feel are out of control. In a lot of ways, the prescription drug issue stands for the public’s anger at high overall health costs. Focusing on this one piece is a way of getting our arms around something that is much, much more complex.

I also think it might be important to walk you through where the issue of drug importation is from a legal perspective—because it is actually illegal to purchase drugs from foreign countries for anything other than personal use—and what is happening in Congress to try to change the legislation.

History of the Legislative Debate

Last summer, at the end of June, Congress was debating a big Medicare bill. Both the House and Senate bills contained provisions addressing drug importation, along with many other things, including spending $400 billion of taxpayer money over the next ten years to provide a Medicare prescription drug benefit and to fix a lot of the other problems in the Medicare program. It’s a very big package. Drug importation was just one small part. The original language in both the House and Senate bills would allow importation of drugs from Canada provided the Secretary of Health and Human Services could certify both safety and savings.

The $400 billion Medicare bill passed the Senate by a vote of 76 to 21. But, it only passed the House by one vote, 216 to 215. And the leadership of the House had to keep that vote open until the middle of the night, just before people were ready to leave for their 4th of July recess, trying to get the last one vote to pass the bill.

Finally, Congresswoman Joanne Emerson, a Republican from Missouri, said she would vote for the bill if a vote were also allowed later on a bill proposed by Representative Gil Gutknecht, also a Republican, to allow importation of drugs from not just Canada, but from 25 other countries as well, almost all of which impose price controls on prescription drugs. The House leaders really wanted her vote, so they said yes to the deal.

Gutknecht’s bill then did get its final up or down vote just before Congress left for its August recess. His bill basically would give the U.S. Food and Drug Administration a lot less authority to regulate the supply of drugs coming into this country from 26 countries.

And how do they pick those 26 countries? The bill says that if any facility in a country is approved by the FDA to do clinical trials, even if only in a closed university setting, then U.S. citizens, dealers, and wholesalers can import drugs from those counties. There is a real mismatch, I think, between whether or not facilities manufacturing prescription drugs are safe and up to FDA standards and whether the FDA can control the quality of drugs used in limited clinical testing environments. The latter is comparatively much easier than the former.

Still, the Gutknecht bill passed the House. It now has been sent over to the Medicare conference committee that is trying to reconcile the significant differences between the House and Senate Medicare bills. The conference committee is right now deciding how we are going to address this issue. Because it’s so emotional, it’s hard for people to understand some of the other issues going on.

The Reason for Price Differences

How did we get into this position? I think concerns about high drug costs and a negative view of the pharmaceutical industry have collided, at the same time Americans have grown increasingly angry over paying what they perceive to be a disproportionate share of the research cost for prescription drugs. I think that was really the thing that turned the corner in the House vote, because members realized that American consumers are paying a disproportionate share of R&D costs, that the French and the Germans and the English are not paying their fair share. And they got mad about it, and they essentially took out this sledgehammer and said, “Bam!” to the pharmaceutical industry, “Fix this. We don’t like this.”

Why, then, does the pharmaceutical industry sell drugs to the French and the Germans so far below U.S. prices, at least in some cases? Why do we have to be the ones who pay for so much of these research and development costs? The answer is something called compulsory licensing. It’s a law that these countries have on their books that says if the government can’t reach an agreement with drug companies over a price the government is willing to pay, the government can say the drug companies are not making their products available in the country, and can license a different company to make and sell the drug.

Either drug companies negotiate a deal in which they can make a little bit of profit so they can at least cover their manufacturing cost, or they stand to lose the thing that’s of most value to them, and that’s their intellectual property rights. That’s why the companies make the deal. These countries are using their government-run health care systems to essentially strong-arm companies to sell at below-market rates. Because other countries demand below-market prices, Americans are paying higher prices.

Real Safety Risks

Congressman Gutknecht was quoted by the New York Times recently, saying, “The FDA’s blind refutation of fact and its duplicity in making safety claims are predictable and pathetic.” And what does the FDA say about this? FDA Commissioner Mark McClellan says he believes this legislation to allow imports from 26 countries creates “a wide channel for large volumes of unapproved drugs and other products to enter the United States that are potentially injurious to public health and pose a threat to the security of our nation’s drug supply.”

The White House issued a statement saying essentially the same thing. But, interestingly, this is not a partisan issue. Congressman John Dingell, a Democrat from Michigan and a leader on health policy in Congress, said he thinks the Gutknecht bill will allow this country to be “flooded with unsafe, counterfeit drugs, drugs that will not do what they should, drugs that are unsafe and drugs that will kill the American people.”

Governor McGreevey of New Jersey, also a Democrat, made a similar statement, saying, “Re-importation is not a substitute for a comprehensive drug benefit program. Congress on a bipartisan basis must pass a Medicare drug benefit plan and New Jersey is asking for the adoption of a drug benefit.” And I understand Mayor Daley of Chicago is also very much against importation both for safety issues and also because he doesn’t believe the idea will do what it’s supposed to do.

Do you remember the Tylenol scare in 1982? Somebody, some deranged person, went to a drug store and bought a dozen, two dozen—nobody knows for sure—bottles of Tylenol off the shelf, laced the pills with cyanide, and put them back where unsuspecting people bought them. Seven people died before authorities were able to figure out what was going on.

Immediately afterward, every bottle of Tylenol was pulled from every shelf in every drug store in America. And then every drug company in the U.S.—not just Johnson & Johnson that makes Tylenol—figured out how to make tamper-proof packaging so consumers could tell if that package had been opened. Over-the-counter medicines have been made and packaged since then in such a way that they are much more difficult to tamper with.

The Tylenol scare demonstrates how vulnerable our nation’s drug supply is to terrorists and counterfeiters. The Gutknecht bill essentially says companies must put anti-counterfeiting and anti-tampering markings on every drug they make around the world to keep that from happening. It is possible for pharmaceutical companies to keep careful tabs on medicines made in manufacturing plants that they own or contract with in other countries. For example, there are plants in Ireland where drugs are manufactured under very controlled conditions, which the FDA carefully monitors. The drugs are tracked through the supply chain as they are shipped to U.S. distributors who are expected to also keep a paper trail for the drugs.

But this sort of security requires careful monitoring and control. If we open our borders to 26 other countries, shipping drugs over the Internet into the United States, there is really no way the FDA could possibly monitor all those shipments to see if they are safe and to make sure people are getting the drugs they believe they are buying. And what is to keep people from operating drug manufacturing plants that are completely outside the scrutiny of the FDA or the control of the pharmaceutical companies and then slipping those drugs into the distribution system?

The Gutknecht bill would, as a recent Washington Post series says, enable “pharmaceutical peddlers [to] take advantage of lax regulations to move millions of prescription drugs into the United States from Canada, Mexico, and elsewhere. Overwhelmed customs workers inspect less than 1 percent in an estimated two million packages containing medicine shipped into the country each year.”

And who is to stop someone from using the Internet to perpetuate another Tylenol scare on Americans? We saw from the anthrax scare that it takes only four or five letters to scare all of us, to nearly shut down the U.S. mail service for several months. The same thing is true with prescription drugs. Drugs are not going to come just from FDA-monitored facilities like the one in Ireland, but it will open our borders to the bad players the Washington Post series described.

Buyer Beware?

The warning “buyer beware” doesn’t work very well to protect consumers from counterfeit or adulterated drugs. How can someone know if the drug they purchased over the Internet caused the adverse reactions they experienced? How can we tell if a patient’s death was due to the illness or because the drug dosage was only 1/20th of what it should have been? Counterfeit drugs can look remarkably like the real thing but contain too much, too little, or none of the active ingredient the medicine is supposed to have.

The threat to health and safety is very real. Take the example of a diabetic taking insulin who decides to try to save some money and buy insulin over the Internet from Canada, which actually happened. But the patient was getting sicker and sicker and went back to the doctor six or seven times because he was just not able to get the dosage right, only to find out that the “insulin” was sugar water.

Counterfeiting drugs is often more profitable than counterfeiting currency these days, and in some ways easier, because there are up to 20 layers of anti-counterfeiting technologies in currency. The battle against currency counterfeiters is instructive, by the way. The government continues to have to keep ahead of counterfeiters because they do figure out the technologies. They do the same thing with anti-counterfeiting technologies for drugs.

Do we really want to multiply the security threat to the U.S. drug supply? The FDA has its hands full protecting our domestic drug supply even without opening the border to 26 other countries, including countries we know harbor people who want to do harm to the citizens of the United States.

So, there are the risks, and yes, there are bad actors out there, in other countries as well as in the United States—people who just want to make a buck and don’t care at all about public safety. The FDA needs to spend its time protecting us from these people. Opening our borders to drugs from Namibia and Bangladesh and Iran and Saudi Arabia—as would likely happen—would make the FDA’s job infinitely more difficult, maybe impossible.

The safety and security of our drug supply to assure people that the drugs they are taking are the drugs they need—that is what is at stake in the debate over drug importation.

Grace-Marie Turner is president of The Galen Institute, located in Alexandria, Virginia, a free market, public policy research organization founded in 1995 to promote education on health and tax policy issues. She is the editor of Empowering Health Care Consumers through Tax Reform. Her email address is [email protected].