Canada must guard against unrestricted drug exports to the US

This editorial by Amir Attaran and Adam R. Houston was published in Policy Options on August 14, 2018. Dr. Attaran is a professor in the faculties of law and medicine at the University of Ottawa. Adam R. Houston is a Ph.D. student at the University of Ottawa working in the area of health law concerning communicable and noncommunicable disease.

Canada must guard against unrestricted drug exports to the US

The US wants to buy our cheaper drugs. Ottawa needs to act quickly to protect Canadians against the real threat of drug shortages.

As US President Donald Trump threatens tariffs on Canadian goods like automobiles, his administration has announced a working group to look into importing prescription medications from Canada and elsewhere to give Americans access to cheaper drugs.

The move hasn’t prompted much attention or concern in Canada, perhaps because of the mistaken belief that any resulting cross-border drug sales would remain restricted to a narrow range of old, off-patent and anomalously ultra-expensive drugs, some of which are not even available in Canada.

Such complacency is worrisome, however, as mounting political pressure around drug pricing in the US makes the bulk importation of everyday, mainstay drugs from Canada an increasingly likely prospect. If that happens, it would very quickly lead to severe, life-threatening drug shortages in this country.

The notion of importing cheaper drugs from Canada is nothing new in American politics. In 2003, Congress passed the underlying legal framework to permit Canadian drug imports, and it subsists in American law today. Nor is it unique to one side of the political spectrum. Democratic Senator Bernie Sanders famously introduced “import from Canada” legislation as a solution to US drug woes, while similar bipartisan proposals have attracted prominent Republicans like John McCain.

Polls have shown a majority of Americans, regardless of party affiliation, support the idea. It has also caught on at the state level, with multiple states exploring the possibility of creating their own Canadian drug importation programs under the existing legal framework. Vermont became the first state to enact such a law earlier this year.

And so laws for large-scale importation of Canadian drugs are already in place on the American side of the border. To take effect, they require only approval from the Secretary of Health and Human Services, Alex Azar. His public statements — and their rapid evolution from his position as recently as mid-May, when he dismissed importation as “just a gimmick” — suggest it’s becoming increasingly likely.

"Political realities in the US, especially the power of the pharmaceutical lobby, make it difficult to rein in high prices. That’s made parasitizing Canada’s drug supply attractive."

The US perspective, unsurprisingly, is all about helping Americans whose pocketbooks are crippled by pricey prescriptions. Political realities in the US, and especially the breathtaking power of the pharmaceutical lobby, make it difficult to rein in high prices through domestic regulation. That’s made the alternative of parasitizing Canada’s drug supply attractive.

It’s not uncommon for the exact same drug, from the same maker, to cost four times as much in the US as in Canada, and sometimes more. Canada’s prices for patented medicines (typically the most expensive kind) are lower because of regulation, especially by the Patented Medicine Prices Review Board (PMPRB), which ensures that prices in Canada are comparable to those in similar peer countries.

The US has no such regulations; on the contrary, its laws forbid governments from negotiating with pharmaceutical companies for lower prices. Importation would therefore save American government programs money directly: the Congressional Budget Office estimated that Sanders’ proposal would save $6.8 billion over 10 years.

Where the Americans see an untapped opportunity, Canadians need to see an urgent threat. Large-scale commerce in drugs from Canada to the United States — a country with 10 times the population — would create the fabled “giant sucking sound” that free trade opponents like Trump and Sanders normally abhor.

The impact on Canada’s health care system could be devastating. In the aftermath of a previous American proposal, a 2010 study on the potential effects of exporting Canada’s drug supply to the US concluded that “if 10% of the US prescriptions were filled from Canadian sources (manufacturer, wholesale or retail), Canada’s 2007 drug supply would be exhausted in 224 days.”

A 2018 follow-up study reached similar conclusions. Such studies are all but ignored by US clinicians who urge importing drugs from Canada, and who are strangely oblivious to the fact that supplying an American patient could mean taking that same drug away from someone who needs it in Canada.

The risk of Canada’s drug supply being drained away for export has been recognized by Canadian politicians in the past. The firmest stance was taken by the Liberal health minister Ujjal Dosanjh in 2005, when he proclaimed that “Canada cannot be the drugstore for the United States of America” and declared he was bringing forward legislation to restrict exports of Canadian drugs to the US.

Unfortunately, no such legislation was passed before the Liberal government fell to Stephen Harper’s Conservatives. A private member’s bill to similar effect was introduced by Liberal MP Carolyn Bennett, but it did not succeed. Although former Conservative Health Minister Leona Aglukkaq publicly voiced concerns about the risks of importation in 2017, the Conservatives took no steps to contain them while in power. So Canada has no legal framework in place to prevent large-scale export of even the most essential, life-or-death drugs to America.

Given how frequently both Republicans and Democrats flirt with importing drugs from Canada, and the fact the American legislative framework permitting Canadian importation is already in place and could be triggered by a simple administrative decision, it is downright negligent of Ottawa not to enact legislation that appropriately restricts drug exportation. There are several legislative options.

Canada could unconditionally prohibit bulk exports of drugs that are packaged and labelled for the Canadian market without affecting the legitimate export of medicines manufactured by Canada’s pharmaceutical firms specifically for foreign markets.

Or Canada could put in place a regulated system that would require any person using the American drug import law to first become licensed as a drug exporter in Canada, and then to apply for and obtain a federal permit for each shipment destined for the US. That would allow Ottawa to collect potentially lucrative licensing and permitting fees — thereby reaping some benefit from the large price gap between Canadian and US prices — while also keeping a hand on the tap to control the export of drugs that are especially crucial or to limit exports that could cause supply shortages in Canada.

Both these options are within Ottawa’s constitutional power to regulate international trade and are consistent with NAFTA and the General Agreement on Tariffs and Trade, which allow for exceptions from free trade when necessary to protect human or animal health.

Whatever approach Canada chooses, it cannot wait any longer. Without protections in place, Canada’s drug supply remains at imminent risk of being siphoned off by our more powerful neighbour. The result would be extremely serious drug shortages that would not only threaten lives in Canada but also undermine fledgling domestic efforts at improving affordable access to medicines for Canadians through the creation of a national pharmacare system.

To keep our pharmaceutical reservoirs from running dry, Canada needs to act quickly to ensure it has the proper plumbing installed in case it needs to turn off the flow.