Florida just received approval from the FDA to engage in bulk drug imports from Canada. Florida believes that if they can buy a limited set of prescription drugs at Canadian prices, the state will save oodles and oodles of money. The state is relying on the Canadian willingness and ability to credibly say “NO, not at that price” to manufacturers and distributes to get these good prices.
The NY Times has details and the obvious objection:
Florida has estimated that it could save up to $150 million in its first year of the program, importing medicines that treat H.I.V., AIDS, diabetes, hepatitis C and psychiatric conditions. Other states have applied to the F.D.A. to set up similar programs.
But significant hurdles remain. The pharmaceutical industry’s major lobbying organization, the Pharmaceutical Research and Manufacturers of America, or PhRMA, which has sued over previous importation efforts, is expected to file suit to prevent the Florida plan from going into effect. Some drug manufacturers have agreements with Canadian wholesalers not to export their medicines, and the Canadian government has already taken steps to block the export of prescription drugs that are in short supply.
Price levels are a function of leverage and substitution-ability. The US has very few entities that can credibly threaten “No, not at that price…” to prescription drugs manufacturers. Pharmacy Benefit Managers (PBMS) perform this function with fragmented pools. The VA has substantial cost savings compared to Medicare Part D because the VA can credibly threaten to exclude numerous drugs:
To repeat, the key findings are:
- The VA pays 40% less than Medicare plans for prescription drugs.
- Medicare plans cover about 85% of the most popular 200 drugs on average (ranging from a low of 68% to a high of 93%).
- The VA’s national formulary includes 59% of the most popular 200 drugs.
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Canada (and most other rich industrialized countries) have some set of systems that can far more credibly commit to “No, not at that price” or “HELL NO, NOT AT ALL” to manufacturers and distributers than the US.
Florida, and the other states that want to do bulk importation want to free ride on the costs that Canada pays to get Canadian price levels without having to say no directly.
I have a modestly strong belief that the Canadians and the drug manufacturers are unlikely to play ball to the extent that Florida and other American states think they will.
UPDATE: Some commentary from Dr. Stacie Dusetzina of Vanderbilt on this proposal. Dr. Dusetzina is one of the national experts on US drug pricing. Her opinion is that operationalization is going to be a challenge. She is also a friend, colleague, co-author and mentor for me:
Florida to Outsource the NO Function to CanadaPost + Comments (70)