Cost Control — Understanding State Wholesale Drug Importation Programs

September 24, 2019

While a number of state initiatives have sought to control prescription drug costs — such as through regulation of pharmacy benefit manager practices, anti-price gouging, price transparency, and rate-setting review — the use of wholesale importation programs presents unique administrative challenges that few states have thus far undertaken.

Nevertheless, the U.S. Food and Drug Administration (FDA) recently estimated that 80 percent of the active pharmaceutical ingredients utilized in American pharmaceutical manufacturing derives from outside the U.S. Since Vermont’s importation program was first enacted in late 2018, Colorado, Florida and, most recently, Maine closely followed in enacting laws providing for the implementation of programs to import medications from Canada pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA). The landscape is changing quickly, as more than a dozen states have proposed similar legislation in an effort to curb the cost of prescription drugs and circumvent reliance upon traditional channels of distribution.

As an example, on June 24, 2019, the governor of Maine signed into law Bill L.D. 1272 to combat prescription drug prices by: (1) authorizing the wholesale importation of drugs, (2) creating a prescription drug affordability board tasked with monitoring prescription drug spending, (3) increasing drug pricing transparency and (4) introducing regulation governing pharmacy benefit managers.

This article looks at some of the core elements of the Maine regulation, places the Maine regulation in a broader context of other enacted laws and identifies several key takeaways.

1. Key Elements of the Maine Importation Law

Bill L.D. 1272 establishes the Wholesale Prescription Drug Importation Program for the purpose of importing drugs from Canada on behalf of the state. The program will operate in compliance with the federal Department of Health and Human Services (HHS) regulations governing importation of prescription drugs and with approval of the secretary of HHS. Approval of the program by the secretary of HHS, Alex Azar, is required under the FCDA, and thus a state agency will be designated to submit a request for approval and certification to Azar no later than May 1, 2020, after which the program is to begin operating no later than six months after receiving the approval and certification.

Under the regulation, the state agency will be a licensed wholesaler in Maine and must ensure that (a) all prescription drugs imported into Maine meet FDA safety and efficacy standards and (b) such drugs generate substantial cost savings for Maine consumers. The state agency must also contract with distributors licensed in Maine and one or more licensed and regulated prescription drug suppliers in Canada. Additionally, the state agency will consult with health insurance carriers, employers, pharmacies, pharmacists, healthcare providers and consumers to develop a registration process for health insurance carriers, pharmacies and healthcare providers authorized to prescribe and administer prescription drugs. The state agency will also create a publicly accessible website for listing the prices of prescription drugs to be imported under the program and create an outreach and marketing plan to generate public awareness of the program. Many details of this program are not yet solidified but will be negotiated with state wholesalers, providers, pharmacies and insurers before a request for approval is submitted to Azar.

2. Contrasting Variations in Approach

While there is substantial variation in the administrative structures of the states’ laws, a number of the core elements are relatively consistent across the states. The National Academy for State Health Policy, for example, proposed a “model” wholesale importation act for prescription drugs that addresses some of the administrative difficulties.

Some of the state programs’ consistencies include: (1) the types of prescription drugs eligible for importation (for example, opioids, biologics, injectables, and certain other drugs are not permitted import under FDCA); (2) prohibitions on distributing, dispensing or selling prescription drugs, imported under the state’s drug importation program, outside of the state; (3) limitations that only prescription drugs expected to generate substantial cost savings to the state or the state’s consumers be imported under the programs; and (4) various eligibility requirements for the prescription drug suppliers. The laws also largely limit eligible suppliers to Canadian entities, though Florida’s importation program, for example, expands the pool of eligible suppliers to include entities from foreign nations beyond Canada.

The principal variance among the states is whether a private entity or person is permitted to participate in the program as an “eligible importer” of medications. While the laws consistently require that a state agency become a licensed wholesaler (or contract with a licensed wholesaler to function as a vendor) for the process of importing prescription drugs, many states allow the agencies or vendors to either import drugs directly from suppliers or facilitate contracts between “eligible importers” and suppliers. An entity permitted to participate as an “eligible importer” may be as expansive as any state-licensed wholesaler, pharmacy or pharmacist, or may limit participation to pharmacies and pharmacists employed by or under contract with the state department’s central pharmacy, Medicaid pharmacies, or the state’s department of corrections.

Other states, such as Maine, do not contemplate the participation of pharmacies, pharmacists or wholesalers — aside from the licensed wholesaler under contract with the state agency as a vendor — in the importation of prescription drugs, appearing to foreclose pharmacy and pharmacist from participating in the drug importation process. Maine does, however, require that the agency consult with and develop a registration process for health insurance carriers, pharmacies and healthcare providers that are willing to participate in the program.

3. Key Takeaways

Various barriers to entry for these laws have prevented widespread blossoming of similar programs. For example, many states do not have administrative structures in place sufficient to administer the programs, audit imported medications or support the costs of enforcement against potential abuse.

In addition, programs must comply with burdensome federal regulations, such as Title II of the federal Drug Quality and Security Act of 2013 (DQSA), which imposes substantial requirements related to security and safety of the drug supply chain. Programs must also tread carefully in encouraging participation with private wholesale distributors so as to minimize risk of federal civil and criminal enforcement efforts by the FDA and Department of Justice (DOJ) related to violations of the FDCA or the False Claims Act. Programs developed by the states must further withstand federal scrutiny and receive HHS approval, which has yet to be granted to any state drug importation program. Opponents of the importation laws have argued that importation is incompatible with the DQSA’s efforts to create a modern “track and trace” system, that Canada is unable to support demand for U.S. drugs (thus inviting dangerous imitators), and that the FDA’s lack of enforcement abroad may compromise medication safety of imported drugs.

The state prescription drug importation program laws remain in their infancies and many details of these programs are not yet solidified, but states nevertheless are bounding optimistically ahead. Enacted laws largely function to provide state departments with the flexible authority to adapt the programs to an environment with little to no precedent. Maine provides an effective example of this principle at work, as the state agency has an obligation to consult with health insurance carriers, employers, pharmacies, pharmacists, healthcare providers and consumers to develop a registration process and reach the broadest subset of the population for which this legislation is aimed. Further, the White House has encouraged Azar to work with Florida in enacting its program, a directive which presumably signals some federal support for such state initiatives. Drug manufacturers, wholesale distributors, investors and others should continue to monitor these programs as they progress through the approval process with the HHS in the upcoming year.

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To discuss legal issues raised by this new law and any potential impacts on opportunities to invest in, participate as, or work in conjunction with an eligible importer in an importation state, please consult the authors or another member of the McGuireWoods life sciences team.