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Prescription Drug Prices Spur Maine Law, San Francisco Referendum

Health Letter article, December 2013

The long-standing discontent with high prescription drug prices was channeled into two public initiatives this year. In October, Maine became the first state in the country to permit, for personal use, the importation of prescription drugs from other countries. And in San Francisco, voters took to the polls in a November referendum, overwhelmingly approving a proposal dubbed “Prop D,” which calls on city officials to attempt to reduce prescription drug prices. Whether or not the initiatives are successfully implemented (the Maine law is vulnerable to legal challenges and legitimate critiques on drug safety grounds), they represent unprecedented attempts to remedy America’s status as home to the world’s costliest prescription drugs.

Maine’s law, first in the nation, targeted by Big Pharma

Known as the “Act to Facilitate the Personal Importation of Prescription Drugs From  International Mail-Order Pharmacies,” Maine’s law was enacted in June 2013 and went into effect on Oct. 9, 2013. The law removes state licensing requirements from mail-order pharmacies based in Canada, the U.K., New Zealand and Australia, and allows the importation of prescription drugs from these online pharmacies for personal use.

Americans have been crossing the Canadian border for years to purchase cheaper pharmaceuticals for personal use from Canadian pharmacies, often in large groups on chartered buses. More recently, online mail-order pharmacies based overseas have emerged to cater to Americans’ demand for lower-priced drugs. According to 2011 surveys by the Centers for Disease Control and Prevention (CDC), 2 percent of Americans reported buying prescription drugs from other countries. (That is likely an underestimate due to a possible reluctance to report an illegal activity.) Although it is now commonplace, Maine’s law represents the first time the practice has been officially sanctioned by a governmental body.

The Food and Drug Administration (FDA) has long banned the importation of prescription drugs without FDA approval, but it generally does not enforce this ban on imports for personal use. Nevertheless, the fact that state and federal laws conflict raises the specter that the state law may not survive a challenge in court.

The pharmaceutical industry, in alliance with the Maine State Pharmacy Association, is banking on this potential federal-state conflict to kill the legislation, filing suit against the state government on the grounds that the law circumvents the federal prohibition on drug imports and “puts Maine residents at risk of serious harm.”

To be sure, the law raises a number of serious safety concerns. Many of the pharmacies that advertise themselves online as “Canadian” are actually based elsewhere and sell products that may not have been approved by regulators in Canada or anywhere else. This type of fraud could pose problems as more Maine consumers go online looking for low-cost medicines.

Municipalities such as Portland can avoid safety risks by setting up purchasing plans with carefully vetted Canadian pharmacies verified as being legitimate and high-quality, but finding a solution for everyday individual consumers poses additional challenges. The Canadian International Pharmacy Association and other trade organizations may be able to help by providing a verification process for legitimate online pharmacies, but this practice is relatively new and is unlikely to eliminate the possibility that counterfeit or poor quality medicine will be sold by some fraudulent online pharmacies to patients.

Proponents of the new law argue that it merely legalizes a practice that has been going on safely for years. Many of the drugs ordered through the Canadian-based mail-order pharmacies were manufactured in the U.S. and thus represent no additional safety concern. They also point out that the globalization of the pharmaceutical supply chain means that medications purchased in different countries often receive their active ingredients from the same production sites in the developing world. Nevertheless, buying any drug that has not been approved by the FDA always adds an additional degree of uncertainty and risk to the equation.

Turf, not safety, at issue for Big Pharma

In all likelihood, it is not safety concerns that are driving the opposition to the law from the same drug industry whose prices routinely force Americans to go without life-saving medications and are fueling demand for the mail-order market in the first place. In an interview with The Wall Street Journal, Maine's Republican Gov. Paul LePage countered: “It’s not a safety issue. It’s turf."

It’s not hard to see why Maine’s initiative might rattle more than a few nerves in the pharmaceutical industry. In 2004, the Congressional Budget Office estimated that prescription drug prices in other industrialized countries are, on average, 35 to 55 percent lower than in the U.S. The price differentials for some drugs are striking. For instance, The New York Times reports that Augmentin, a commonly prescribed antibiotic, retails for $13 per pill in the U.S. compared with $.56 per pill in Belgium, and a single Advair inhaler, a top-selling asthma treatment, retails for $250 in the U.S. and $36 in France.

High-priced brand-name drugs drive two-thirds of U.S. spending on prescription drugs (which reached $325 billion in 2012) even though they represent just 16 percent of all dispensed prescriptions. And prices for brand-name drugs show no sign of slowing, rising by 25 percent in 2012, over six times the rate of increase in overall health care spending.

Unlike many of their universally insured European and Canadian counterparts, patients in the U.S. too often have to shoulder these higher costs on their own. While most Americans’ prescription costs are, at least in part, covered by private insurance, Medicare or other publicly funded programs, co-pays and out-of-pocket expenses add up, especially for the sickest patients on multiple medications. When factoring in the 50 million Americans with no health insurance at all, too many people end up forgoing necessary care. According to the CDC, in 2010-2011, 25 million Americans (8 percent of the population) reported going without a prescription drug because they couldn’t afford it, more than double the 12 million (4.5 percent) reported in 1997-1998.

It’s hardly surprising, then, that proposals to legalize prescription drug importation are overwhelmingly popular, garnering the support of 80 percent or more of those polled in 2004 and 2006, when the issue last gained prominence. In line with LePage’s recent assessment, two-thirds of those polled “strongly agreed” that laws banning such imports are “intended to protect drug companies’ profits.”

San Francisco voters support public efforts to contain prices

On the other side of the country, public pressure resulted in a first-of-its-kind initiative allowing voters to speak out directly on high drug prices. On Nov. 5, 2013, less than a month after Maine’s law went into effect, the city of San Francisco held a referendum on whether the city government should use “all available opportunities,”  including direct negotiations with drug manufacturers (something notably prohibited under Medicare’s Part D prescription drug benefit), to lower the prices of prescription drugs purchased by the city government. The measure was approved by approximately 80 percent of voters.

San Francisco pays $23 million every year on prescription drugs used in its hospitals, jails and health centers. Activists and advocacy groups working for greater access to essential medicines for treating patients with human immunodeficiency virus (HIV) infection were at the forefront in getting Prop D on the ballot, focusing on San Francisco because of the city’s large population of HIV patients, many of whom can’t afford the medicines needed to keep the disease at bay. (As an example, Stribild, a once-daily combination pill for HIV, costs $28,500 a year.)

Whereas Maine’s law officially sanctioned an avenue for cheaper medicines, the San Francisco referendum, with its nonspecific language, was intended mainly as a symbolic statement to pressure lawmakers to implement more binding measures. Nevertheless, the referendum was the first of its kind in the country and may serve as a model for other local and state governments.

As high prescription drug prices continue to force some Americans to decide between paying their rent and buying their pills — and many others to go without medications entirely —other public initiatives like Maine’s and San Francisco’s are surely in the cards. Calls for lifting or relaxing the federal ban on drug imports have repeatedly been quashed by the $150-million-a-year pharmaceutical lobby, one of the largest in Washington, D.C. In the latest affront to public opinion, the drug industry successfully nixed provisions in the Affordable Care Act that would have allowed some importation of drugs, despite having received millions of new paying patients with the passage of the act.

The U.S. has a long way to go in catching up to the health standards that its counterparts in the industrialized world have long since achieved. Reigning in runaway monopolistic drug prices would be a good start.

High Drug Prices: A Necessary Evil?

The pharmaceutical industry’s argument, too often echoed in the mainstream media, is that the high prices of prescription drugs are necessary to fuel investment into the research and development of innovative and life-saving drugs. The industry claims that the average cost to develop a single new drug is $1.3 billion. According to an independent analysis published in the British Medical Journal, however, the true sum is much lower. Half of the industry’s figure includes lost “opportunity cost,” which is what a company would have earned had it invested the research money in stocks with annual returns of 11 percent compounded over 15 years. (The authors of the study argue that including this is inappropriate in calculating the research costs from which profits are eventually earned.) Half of the remaining $650 million is recouped by the company through tax breaks. The remaining figure, approximately $330 million, actually represents the average for only the costliest 20 percent of drugs, those that are developed in-house. When adjusting for all new drugs, the true average is just $90 million per new drug, less than one-tenth the industry’s claimed total. And this figure includes within it all the failed drugs that never reached the market.

Big Pharma avoids advertising the fact that many of the drugs approved today are neither innovative nor life-saving and are instead mere reformulations of existing drugs. The industry also regularly omits that much of the funding (four-fifths, according to the BMJ study) for the innovative, basic science research largely responsible for the development of breakthrough drugs and vaccines comes from public sector organizations such as the National Institutes of Health.

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