HISTORY OF PROTECTING INNOVATION

Pharmaceutical Importation

Some federal, state, and local legislators have set their sights on legalizing importation of prescription drugs from other countries as a way to reduce drug costs. Despite the significant safety risk of such policy and the fact that independent analysts such as the Congressional Budget Office have predicted no significant savings to consumers for such proposals, these lawmakers pursue all avenues to require the federal government to permit wide-scale importation of pharmaceuticals.

Much of the pressure to lower prescription drug costs is attributable to the fact that, until 2004, Medicare granted seniors no access to the lower-cost drugs that many Americans have through their health insurance plans. However, despite the enactment of comprehensive prescription drug coverage in the “Medicare Prescription Drug, Improvement and Modernization Act of 2003” (MMA), importation of prescription drugs has continued to be a popular issue for the Congress and many state and local legislatures.

Most recently, the “Consolidated Appropriations Act” (P.L. 110-161), signed by the president in late December, included a provision that prevents U.S. Customs and Border Protection from prohibiting an individual from importing up to a 90-day supply of prescription drugs from Canada, excluding controlled substances and biologics.  CBO had previously held that such a proposal would yield no significant savings.

Legislation to allow the large-scale importation of prescription drugs has also been introduced.  On January 10, 2007, Senators Byron Dorgan (D-ND), and Olympia Snowe (R-ME) and Reps. Rahm Emanuel (D-IL) and Jo Ann Emerson (R-MO) introduced legislation to allow consumers, pharmacies, and drug wholesalers to import prescription drugs.

Legislation to allow the importation of prescription drugs has a history.  The issue was first raised by way of a surprise amendment to the House Agriculture Appropriations bill in the summer of 2000.  The amendment allowed prescription drugs to be imported into the United States, effectively importing foreign price controls into the U.S. prescription drug market. The amendment was almost universally opposed by former FDA commissioners from both political parties because of the potential safety risks to U.S. consumers.

The legislation was signed into law in the fall of 2000. However, Health and Human Services (HHS) Secretary Donna Shalala announced in December 2000 that the department would not implement the provision. The law gave the secretary the authority not to implement if there were safety risks and if she could not assure cost savings to consumers.

Since 2000, the House and Senate have acted on various versions of importation language on a variety of bills, but until the Consolidated Appropriations measure; none of these bills was enacted into law.

The Bush administration has been active on the importation issue.  The White House formed a task force to study drug importation, as required under the Medicare MMA. The task force released its findings in December 2004, citing safety and supply concerns, with evidence indicating no cost savings from drug importation.

The states have shown a great degree of interest in the importation of prescription drugs. At this point, efforts by the states to obtain federal approval for wide-scale importation of prescription drugs have been unsuccessful, preventing the formal establishment of state importation programs.  However, several states, such as Minnesota, New Hampshire, and the District of Columbia, point residents to the websites of foreign pharmacies so their citizens can obtain their own pharmaceutical products by way of the mail. 

Illinois joined with several other states to provide residents with access to lower-priced prescription drugs through a network of 45 inspected and approved pharmacies and wholesalers in Canada, the United Kingdom, and Ireland.  In September 2006, the Illinois Auditor General concluded that the program violated federal law and outlined the enormous administrative costs necessary to assist a very small minority of state residents. Despite these discouraging results, importation continues to hold general appeal, and many state legislatures have looked to importation to curb the cost of pharmaceuticals.

Though importation proponents are eager to import prescription medicines from other countries, some countries, such as Canada, have grown unwilling to share their drug supply with Americans.  Canadian officials announced in June 2005 that they intend to block bulk imports of prescription drugs when supplies are low in Canada. While this may complicate American legislative efforts to allow wide-scale importation from Canada, Canadian pharmacies have already begun stockpiling drugs from other countries.

Price Control Legislation

Politicians occasionally have invoked wage and price controls to try to manage inflation.  Our employer-based health insurance system evolved as a result of wage freezes during World War II.  Across-the-board price controls imposed by President Nixon in the early 1970s failed and were dismantled by 1981.  Controls on gasoline prices in the 1970s helped lead to widespread shortages, which were only relieved by lifting the price controls in 1981.  Similarly, federal controls on natural gas prices led to a severe shortage in the late 1970s, which was alleviated when controls were lifted.  Examples of the failure of price controls are plentiful in the telecommunications, trucking, airline, and many other industries.

The pharmaceutical and biotechnology industries are especially vulnerable to the adverse impact of price controls because they depend on bringing new products online continually.  These industries invest heavily in research and development.   Many emerging biotech companies have little or no revenue and few if any products and are entirely dependent on investment capital.  Prices need to be set to produce an acceptable return on investment, given the inherent financial risk in developing new drugs.

Efforts to allow the federal government to set prices for prescription drugs in the Medicare program, effectively establishing federal price controls in the Medicare program, were part of the Democratic “first 100 hours” agenda for the 110th Congress. The House leadership introduced legislation (H.R. 4) to eliminate an MMA provision forbidding the federal government from directly negotiating prescription drug prices. The “price negotiation” provision served as a rallying cry for critics of the prescription drug program. The legislation, which also required that there be proven cost savings as a result of the provision's elimination, passed 255-170, with 24 Republicans supporting the measure. Despite the victory, the margin was not wide enough to override the president’s veto.  Senate legislation eliminated the prohibition on negotiation but did not require demonstrated cost savings and precluded the use of formularies or changes that would hurt community pharmacists. The Senate bill failed 55-42 on a procedural vote, with six Republicans voting to consider the legislation.

Congressman Tom Allen (D-ME) introduced legislation in the 106th Congress that would have effectively set federal price controls on prescription drugs sold to senior citizens. The legislation did not move in the 106th Congress, and the last three Congresses have not considered direct price-control legislation.

Prescription Drug and Medical Device User Fees

Prescription drug and medical device companies invest enormous resources into researching, developing, and testing new drugs and devices. On average, it takes more than 12 years to bring a medication from concept in the laboratory through preclinical animal studies to the final stage of clinical trials on human patients.
 
The Food and Drug Administration (FDA) must review and approve all new prescription medications and devices. It takes significant resources and time for the FDA to review research and trials on particular products, synthesize this information, and grant approval to these new treatments.

In 1992, Congress passed the “Prescription Drug User Fee Act” (PDUFA). PDUFA authorized FDA to collect fees from companies that produce certain human drug and biological products.  Companies seeking FDA approval for a new drug or biologic prior to marketing must submit an application along with a fee to support the review process. Similar legislation, the “Medical Device User Fee and Modernization Act of 2002” (MDUFMA), governs user fees for medical device companies.

Previously, taxpayers alone paid for product reviews through funds provided by Congress. In the new programs, industry provides the funding in exchange for FDA agreement to meet performance goals that emphasize timeliness. Agency review times have shortened significantly since PDUFA was enacted.

In September 2007, the president signed into law the "Food and Drug Amendments Act of 2007" (P.L. 110-85). The act, which amends the Federal Food, Drug, and Cosmetic Act to reauthorize the collection of prescription drug and medical device user fees for FY 2008-FY 2012, passed the House and Senate almost unanimously.  In addition to the user fee provisions, the act requires the secretary of HHS to assess and collect fees for advisory review of direct-to-consumer television advertisements of prescription drugs.  The act also contained provisions relating to pediatric drugs and devices and established the Reagan-Udall Foundation for the FDA as a nonprofit corporation to modernize medical, veterinary, food, food ingredient, and cosmetic product development, accelerate innovation, and enhance product safety.

THE FUTURE

Enactment of landmark Medicare modernization legislation that added a prescription drug benefit to Medicare relieved some of the political pressure for improving access to prescription drugs. 

However, with the success of the appropriations provision to allow personal importation of prescription drugs, supporters of importation are likely to push for broader- scale legislation in 2008. Even with a likely majority of lawmakers supporting such measures, a bipartisan group of current and former administration officials continues to express concern over the public safety risk of importation. Indeed, the FDA announced in January 2004 that a recent import blitz examination found 1,728 unapproved drugs, including so-called “foreign versions” of FDA-approved drugs, recalled drugs, drugs requiring special storage conditions, drugs requiring close physician monitoring, and drugs containing addictive controlled substances.  These findings add credence to the FDA’s view that importation of prescription drugs poses a serious public health risk.  The FDA’s continued opposition and public wariness over the danger of such measures may provide some safeguard against the enactment and implementation of broad-scale importation legislation.

All told, the 110th Congress is likely to be quite active on measures that may have a dramatic impact on health care innovation. While today’s patients have access to health care that is the envy of the world, such measures could compromise America’s place as the health care standard bearer.