Importation of Prescription Drugs Provisions in P.L. 108-173, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003
Released: 2004-03-12T00:00:00

Introduction

The new Medicare legislation, the Medicare Prescription Drug, Improvement, andModernization Act ( P.L. 108-173 ), addresses the importation of prescription drugs for all U.S.consumers, not just for Medicare-eligible individuals. (1) These provisions are rooted in consumer and congressional concernwith the high cost of prescription drugs in the United States. International comparisons of drugprices have confirmed that American consumers, particularly the elderly and uninsured, often paymore for prescription drugs than do citizens in other countries. (2) The importation oflower-priced prescription drugs is one strategy to reduce U.S. consumer spending.

The new Act, despite being structured as a replacement to the importation provisions in theMedicine Equity and Drug Safety (MEDS) Act of 2000, does not effectively change U.S.prescription drug importation policy. The details it adds will not be implemented unless theSecretary of Health and Human Services (hereafter referred to as the Secretary) certifies to Congressthat such imports would not threaten the health and safety of the American public and would providecost savings. That certification requirement, continued from prior law, has effectively haltedimplementation of import provisions because no Secretary has been willing to provide the requiredcertification, a stance outlined in testimony from the Food and Drug Administration (FDA). (3)

Although earlier laws restricted the importation of a prescription drug to its manufacturer,the FDA has maintained a lenient enforcement policy that lets individuals bring a small amount ofnon-FDA approved drugs into this country for their own use. (4) Called a "personal-use" or"compassionate-use" policy, this FDA discretion has made it easier for patients with life-threateningdiseases (such as cancer and AIDS) to bring medicines into the country and be treated by their owndoctors. The policy, as described on the FDA website, does not cover commercial imports, nor doesit cover individual imports of FDA-approved drugs available in the United States. (5)

Drug Import Provisions in Current Law

The new Medicare legislation (6) entirely replaces the language in Section 804 of the Federal Food,Drug, and Cosmetic Act (FFDCA) that had been inserted by the MEDS Act of 2000. The followingsummarizes the prescription drug import provisions in the new Act.

Provisions

Definitions. [Section 804(a)] "Importer" isdefined to mean a pharmacist or a wholesaler; "pharmacist" to mean a person licensed by a state topractice pharmacy, including the dispensing and selling of prescription drugs; and "wholesaler" tomean a person licensed as a wholesaler or distributor of prescription drugs in the United States, notincluding the manufacturer of the drug being imported. A "prescription drug" is defined as a drugsubject to Section 503(b) (7) excluding, however, a controlled substance, a biological product, an infused drug, an intravenouslyinjected drug, a drug that is inhaled during surgery, or a parenteral drug whose importation theSecretary determines poses a threat to the public health. "Qualifying laboratory" is defined as a U.S.laboratory that has been approved by the Secretary for the purposes of this section.

Regulations. [Section 804(b)] The Secretary,after consultation with the United States Trade Representative and the Commissioner of Customs,must promulgate regulations permitting pharmacists and wholesalers to import prescription drugsfrom Canada into the United States.

Limitation. [Section 804(c)] The regulationsmust ensure that all imported prescription drugs meet the same safety and efficacy standards as drugsapproved in the United States and that the importer comply with all information and reportingrequirements. The Secretary is permitted to adopt such rules as necessary to safeguard public healthor as a means to facilitate the importation of prescription drugs.

Information and Records. [Section 804(d)] Drugimporters must provide information that includes the name and amount of the active ingredient ofthe drug, the dosage form of the drug, the date the drug is shipped, the quantity shipped, andinformation about its origin and destination. The importer must also supply the price paid by theimporter; the importer's name, address, and license number; the original source of the drug and theamount of each lot received from that source; and the manufacturer's lot or control number. Also,the importer or manufacturer must certify that the drug is FDA-approved, properly labeled, notadulterated, and not misbranded; and provide laboratory records of authenticity testing, includingdata, and evidence that testing was conducted in an approved U.S. laboratory. The importer isrequired to provide any other information that the Secretary determines is necessary to ensure thepublic health. Records regarding imported prescription drugs must be provided to the Secretary, andthen kept for such time as the Secretary determines to be appropriate.

For a prescription drug imported directly from the first foreign recipient from themanufacturer, there must be documentation indicating that the drug came directly from themanufacturer, that the amount being imported is not greater than the quantity that was originallyreceived, that the drug was subsequently shipped by that recipient to the U.S. importer, andverification that each batch of the drug has been statistically sampled and tested for authenticity anddegradation prior to importation. Samples of subsequent shipments of these drugs must also betested for authenticity and degradation. For a prescription drug not imported directly from the firstrecipient in the foreign country, there must be documentation demonstrating that each batch of thedrug has been statistically sampled and tested for authenticity and degradation prior to importation.

Testing. [Section 804(e)] The importer or themanufacturer must conduct the required authenticity testing at a qualified U.S. laboratory. If theimporter conducts these tests, the manufacturer must give the importing pharmacist or wholesalerthe information needed to authenticate the product and confirm its labeling. Also, testinginformation must be kept in confidence and used only for this required import testing or to otherwisecomply with this Act. The Secretary may adopt rules to protect trade secrets and commercial orfinancial information that is privileged or confidential.

Registration of Foreign Sellers. [Section 804(f)] Any Canadian establishment engaged in the distribution of a prescription drug imported or offeredfor importation into the United States must register its name and place of business with the Secretary. The Canadian establishment also must register the name of its U.S. agent.

Suspension of Importation. [Section 804(g)] Ifthe Secretary discovers a pattern of counterfeit or violative products, the agency must suspendimportation of that specific prescription drug or that specific importer. The suspension must stayin effect until the FDA investigates and determines whether the public is being adequately protectedfrom counterfeit and violative drug products under existing regulations.

Approved Labeling. [Section 804(h)] A drugmanufacturer must give the importer written authorization to use, at no cost, the approved labelingfor the prescription drug.

Charitable Contributions. [Section 804(i)] Section 801(d)(1) of the FFDCA, which allows only the U.S. manufacturer of a drug to import it intothe United States, will continue to apply to a product donated by a manufacturer of a drug to acharitable organization or foreign government. (8)

Waiver Authority for Importation by Individuals. [Section 804(j)] Congress declares that the Secretary should use discretion when enforcing thecurrent legal prohibition against persons importing drugs or devices. The Secretary should focusenforcement on cases where the importing may pose a significant threat to public health. When theimportation is clearly for personal use and the prescription drug or device does not appear to presentan unreasonable risk to the individual, the Secretary should exercise discretion to permit theimportation by the individual. The new law specifies two waiver procedures to allow individuals-- other than pharmacists and wholesalers -- to bring prescription drugs into the United States fortheir personal use.

The first deals with drugs from Canada. The Secretary is required to publish regulations thatgrant waivers for an individual to import for personal up to a 90-day supply of a drug from a licensedCanadian pharmacy. The drug must also be in final dosage form, be made in an FDA-registeredfacility, come from a registered Canadian seller, be accompanied by a valid prescription, and beimported under conditions the Secretary determines are necessary to ensure public safety.

The second addresses drug imports from any other country. Here, the law gives the Secretarythe option, rather than a requirement, to issue regulations allowing imports from countries other thanCanada. If the Secretary were to publish such regulations, the law requires the Secretary to alsopublish guidance specifying the conditions under which individuals would be able to import drugsfor personal use.

Construction. [Section 804(k)] Nothing in thissection shall be construed to limit the Secretary's authority relating to the importation of prescriptiondrugs, other than with respect to Section 801(d)(1), which allows only the manufacturer to importa prescription drug.

Commencement of Program. [Section 804(l)] The drug import program described above can begin only if the Secretary first certifies to Congressthat its implementation would pose no additional risk to public health and safety, and would resultin a significant reduction in the cost of covered products (prescription drugs) to Americanconsumers.

Termination of Program. [Section 804(l)] Oncean importation program is implemented, the Secretary can move to terminate it under specifiedconditions. If the Secretary certifies to Congress, between 12 and 18 months after the regulationsare implemented, that, based on substantial evidence, in the opinion of the Secretary, the benefits ofthe implementation of the import program do not outweigh any detriment, drug imports under thesection would cease 30 days after the certification is submitted. (9) However, the Secretary'scertification may not be submitted unless, after a public hearing, the Secretary finds it is more likelythan not that implementation will result in an increased risk to the public health; identifies, inqualitative and quantitative terms, the nature and causes of the increased risk; considers whethermeasures can be taken to avoid, reduce, or mitigate the increased risk and, if those measures wouldrequire additional statutory authority, to report to Congress describing needed legislation; identifies,in qualitative and quantitative terms, the benefits that would result from the program, includingreductions in the cost of drugs to U.S. consumers, which would allow them to obtain neededmedications without foregoing other necessities of life; and, in specific terms, compares thedetriment with those benefits and determines that the benefits do not outweigh the detriment.

Authorization of Appropriations. [Section804(m)] The new law authorizes to be appropriated such sums as are necessary to carry out thissection.

Conforming Amendments. Section 1121(b) ofthe Medicare Prescription Drug bill replaces references to "covered product" in Sections 301(aa) and303(a)(6) in the Federal Food, Drug, and Cosmetic Act with "prescription drug."

Study and Report on Importation of Drugs. Section 1122 requires the Secretary, in consultation with appropriate government agencies, toconduct a study on the importation of drugs to the United States pursuant to Section 804 of theFederal Food, Drug, and Cosmetic Act (as added by Section 1121 of the conference agreement). TheSecretary shall submit the report to Congress not later than 12 months after the enactment of this Act.

Study and Report on Trade in Pharmaceuticals. Section 1123 requires the President's designees to conduct a study and report on issues related totrade and pharmaceuticals.

Discussion of Enacted Legislation

Import Provisions. It is doubtful whether theSecretary will implement these import provisions given the Act contains the provision that led bothSecretaries Shalala and Thompson to decline. That provision requires that the Secretary certify thatimported drugs would be safe and at reduced cost before implementing import regulations. Althoughsignificant changes were considered, the new law changes very few elements of the MEDS Act of2000. Effectively, until the Secretary makes a certification regarding safety and cost, the law allowsno one (other than the U.S. manufacturer of the drug) to legally import a prescription drug. (10) Therefore:

Until an HHS Secretary certifies to Congress that "the implementation of this section will (A) poseno additional risk to the public's health and safety; and (B) [will] result in a significant reduction inthe cost of covered products to the American consumer, (11) " drug imports are illegal unless imported by the manufacturerof the drug. Neither a pharmacist nor a wholesaler may import prescription drugs. The law does notallow an individual to import a drug for personal use. (12)

If the HHS Secretary were to certify to Congress the required safety and cost savings certification,then all the mechanisms of Section 804 would go into effect. In that case, pursuant to regulationsthat the Secretary must promulgate:

By law and according to regulations, a pharmacist or a wholesaler could importprescription drugs from Canada;

Personal-use imports by an individual from any other country would remainillegal unless the Secretary chose to issue regulations allowing them; and

The law's restrictions on personal-use imports would be waived so anindividual could import a 90-day supply of a prescription drug from Canada.

Studies and Reports. Unrelated to whether theSecretary certifies safety and cost savings, the Medicare Act mandates two studies with reports toCongress.

Study and Report on Importation of Drugs. The lawdirects the HHS Secretary, within 12 months of enactment, to study and report on "the importationof prescription drugs into the United States pursuant to Section 804 of the FFDCA (as added bySection 1121 of this Act)." The conference report provides the detailed instructions for that study. These include consideration of the pharmaceutical distribution chain; anti-counterfeitingtechnologies and their costs; the scope, volume, and safety of unapproved drugs; participation offoreign health agencies in ensuring product safety; the impact of importation on the drug prices thatconsumers face; the impact on research and development; agency resources; liability protections; andintellectual property rights.

Study and Report on Trade in Pharmaceuticals. Thenew law also directs that "[t]he President's designees shall conduct a study and report on issuesrelated to trade and pharmaceuticals." Here, too, the conference report provides detail not stated inthe bill, including the naming of the Secretary of Commerce, the International Trade Commission,the HHS Secretary, and the United States Trade Representative as responsible for the conduct of thestudy and report. Topics to be covered include how other countries use price controls and what thiscosts U.S. consumers; the impact of price controls and intellectual property laws on price,innovation, generic competition, and research and development; and whether these are appropriatetopics for trade negotiations with other countries.

Changes in Law

The following table provides a comparison of the drug import provisions of the recentlypassed Medicare legislation and the MEDS Act provisions that it replaced.

Comparison of the Importation of Prescription Drug Provisions in the New Law and What TheyReplace

House- and Senate-passed Bills in the 108th Congress Leading to the Medicare Bill Conference Agreement

In June 2003, the Senate and the House each passed drug importationprovisions as part of their Medicare bills. Both the Senate-passed Prescription Drugand Medicare Improvement Act of 2003 ( S. 1 ) and the House-passedMedicare Modernization and Prescription Drug Act of 2003 ( H.R. 1 )would have required the Secretary of HHS to issue regulations allowing pharmacistsand drug wholesalers to import prescription drugs from Canada into the UnitedStates. These two bills were sent to conference.

One month later, the House voted 243 to 186 to adopt the PharmaceuticalMarket Access Act of 2003 ( H.R. 2427 ), which contained broaderprovisions, such as permitting qualifying individuals (i.e., consumers) as well aspharmacists and wholesalers to import prescription drug products from 25industrialized countries, including Canada. This bill, introduced by RepresentativeGutknecht, differed strikingly from the then-current law and the subsequently enactedMedicare legislation in that it would have eliminated the provision that requires theSecretary to first certify that importation would pose no additional risk to publichealth and safety and would lower the cost of prescription drugs for U.S. consumers.

H.R. 2427 would also have required drug makers to incorporatevarious counterfeit-resistant technologies in the packaging and shipping containersof all prescription drugs. The bill would have created a new section in the law calledCounterfeit-Resistant Technologies. It would have required that all prescriptiondrugs (not just those being imported) be packaged to incorporate overt opticallyvariable counterfeit-resistant technology or technologies that have an equivalentfunction of security; provide, with those technologies, visible identification of theproduct; be similar to those used by the Bureau of Engraving and Printing to secureU.S. currency; be made and distributed in a secure environment; and integratenon-visible security features with forensic capability. (13)

Post-Passage Activity

Drug importation is attracting attention in the legislative, executive, andjudicial branches of government.

States and Municipalities

Because expenditures for pharmaceuticals continue to increase and are takinga larger portion than previously of public funds used for health care, some states aretrying various ways to legally import lower cost prescription drugs from Canada inorder to control the rate of growth of this portion of the state budget. Governmentofficials from several states have petitioned HHS Secretary Tommy Thompson togrant waivers from the current law prohibiting imports; allow pilot projects; orpromulgate regulations, as would be allowed under the new Section 804 of theFFDCA, if the Secretary issued the required certification, to authorize programs forthe safe importation of prescription drugs from Canada. They cite potential savings,in one case, of over $90 million a year. (14)

Coinciding with the National Governors Association meeting in Washington,D.C., a bipartisan group of Governors, accompanied by a bipartisan group ofMembers of Congress, held a February 24, 2004 hearing preceded by a pressconference in which they spoke of collective action to take advantage of lower pricedpharmaceuticals from Canada. (15)

Food and Drug Administration

The FDA, which is charged with ensuring the safety and effectiveness ofprescription drugs sold in the United States, has responded swiftly. Rather thansingle out individuals for punishment for breaking the law, the agency has sentwarning letters and has sought to close down the websites and facilities that areillegally supplying prescription drugs. (16) In January 2004, FDA reported on its second"blitz examination" of import courier hubs. It found that 87% of the almost 2,000examined parcels containing prescription drugs, mostly from Canada, containedunapproved drugs. Because, by law, any prescription drug imported by anyone otherthan the drug's manufacturer is illegal, the FDA considers it unapproved. (17) FDAcontinues to object to these websites and states in a letter to Governor Pawlenty ofMinnesota that the states could face tort liability suits and charges of assisting incriminal activity if citizens suffer injury from these drugs. (18)

Congress

Following passage of the Medicare bill, some Members have introduced billsthat seek to allow the importation of prescription drugs. S. 1974 ,introduced by Senator Daschle on November 25, 2003, includes the importation andanti-counterfeiting provisions that the House had passed in the Gutknecht bill, asdoes S. 2137 , introduced by Senator Dorgan on February 26, 2004. Senator Kennedy introduced S. 1992 on December 9, 2003, one sectionof which would amend the new law's importation provisions to include registration,inspection, and reporting requirements for Canadian wholesalers and pharmacistswho export prescription drugs to the United States; restore the prohibition ofmanufacturer discrimination against importers provisions from the MEDS Act;replace the report requirements now assigned to the Secretaries of HHS andCommerce with reports involving the Institute of Medicine and the GeneralAccounting Office; and remove the requirement that the Secretary certify safety andreduced cost to U.S. consumers before implementing the importation provisions.

It remains unclear whether Congress will act in the second session of the 108thCongress to ease the restrictions on prescription drug imports. It confronts adilemma in that several Governors, local officials, and the AARP support theimportation of drugs from Canada and possibly other countries and otherstakeholders, including the FDA, the pharmaceutical manufacturers, and pharmacistsare opposed to such importation.