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Will the FDA Crackdown on Imported Prescriptions Cost Local Governments?

For years, hundreds of cities and counties have been saving money by letting their employees use cheaper drugs from other countries.

A pharmacy in Canada.
A pharmacy in Canada.
The cost of employee health care is rising, and prescriptions are a big part of the reason.

Nationally, the prescription portion of health spending has grown dramatically -- from about 4 percent in the 1980s to roughly 20 percent today, according to the Segal Group, a firm that consults with governments on health care.

Hundreds of local governments have found a way to cut back. They are covering drugs imported from countries where medications are sold at lower prices. In Canada, one of the providers, per-capita spending on retail prescriptions is 40 percent less than in the United States.

"We figured if there was anything we could do to reduce our prescription costs, we would try it," says Stacie Mason, human resources director for Sarasota, Fla. 

Since January 2018, Sarasota has worked with CanaRX, a private Canadian company that takes prescriptions written by U.S. doctors and finds pharmacies in Canada, Great Britain and Australia that will fill them. Other companies have tried to build similar businesses, but CanaRX appears to have this market to itself. It currently services prescriptions for employees of about 500 local governments in America.

There are federal rules against organizations importing drugs into the United States, but they don't stop individuals from getting FDA-approved drugs from other countries in limited supply for their own personal use. Wherever it does business, the CanaRX relationship is with employees -- governments are not directly involved in the transactions, says Joseph Morris, the chief counsel for CanaRX in the United States.

The imported prescriptions are generally free of co-pays, which incentivizes employees to use this option. The company, however, limits its services to brand-name drugs used for health maintenance, such as controlling high blood pressure. It does not export controlled substances, drugs used for short-term use, such as antibiotics, or expensive specialty drugs like the ones used to fight cancer or hepatitis.

Still, in the first full year that Sarasota offered employees this option, the cost of imported drugs was 72 percent less than if the drugs had been purchased from U.S. pharmacies. 


FDA Crackdown

Local governments have been importing prescription drugs since the early 2000s, but federal enforcement against the practice has recently grown. 

In October, the Food and Drug Administration raided nine stores in Florida that help Americans buy foreign drugs. In February, the FDA sent CanaRX a harsh letter accusing the company of violating several sections of the Food, Drug and Cosmetic Act by introducing unapproved and misbranded drugs into the U.S. The letter listed 14 specific drugs, which CanaRx immediately removed from its list of prescription offerings.

Safety is a concern for everyone involved.

Morris, the CanaRX rep, says, "I want to emphasize that in the world of transborder pharmaceuticals, there are a lot of bad actors. We think the regulators, the FDA and state boards of pharmacies are all doing the right thing when they try to crack down on medicines that are dangerous to the health of people. We view ourselves as allies. We’re dealing with real prescriptions, real doctors and real brick-and-mortar companies, and we work with countries that have high levels of comparable safeguards."

Morris says CanaRX has strict safety protocols, carefully vets pharmacies and has yet to have a patient safety issue reported.

In Schenectady County, N.Y., which has offered the CanaRX option to employees since 2004, "no safety issues have come out," says Chris Gardner, the county’s attorney. "It’s been popular with employees and with the public because they know we’re saving money."


Other Ways to Save

Importing drugs, however, isn't the only way governments are cutting back on drug costs. Others are negotiating higher rebates from manufacturers, increasing the use of generics and requiring employees to try cheaper drugs first, says Ed Kaplan, national health practices leader for the Segal Group.

In Schenectady County, the growing use of generic medications has limited the need for imported drugs. In 2008, CanaRX prescriptions made up 30 percent of the total cost of employee prescriptions.  In 2018, it was 7 percent, according to Gardner. Although the degree to which Schenectady uses CanaRX has lessened, Gardner continues to regard it as important.

When governments ask the Segal Group about CanaRX, the consultant refers them to their own internal general counsel’s offices. 

"We don’t advise against it," says Kaplan, "but we don’t say do it."  

This appears in the Management newsletter. Subscribe for free.

Caroline Cournoyer is GOVERNING's senior web editor.
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