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CBO ANALYSIS OF SAVINGS FROM PRESCRIPTION DRUG IMPORTATION

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Title: CBO ANALYSIS OF SAVINGS FROM PRESCRIPTION DRUG IMPORTATION


1
CBO ANALYSIS OF SAVINGS FROM PRESCRIPTION DRUG
IMPORTATION
  • Colin Baker
  • Margaret Nowak
  • Anna Cook
  • June 8, 2004

2
Overview
  • Discuss estimated savings from drug importation
    under the Medicare Modernization Act and H.R.
    2427
  • Explain CBOs methodology for estimating savings
    from drug importation
  • Summarize factors leading to small estimated
    savings from drug importation to date

3
Drug Importation Under the Medicare Modernization
Act
  • Previously, a drug could be imported into the
    U.S. only by its manufacturer
  • The Medicare Act (MMA) allows drug importation
    from Canada only, after certification by the
    Secretary of HHS
  • CBO estimated savings to the federal government
    of less than 50 million over 10 years under MMA

4
Drug Importation under H.R. 2427
  • Would permit drug importation from 25
    industrialized countries
  • CBO estimated total U.S. drug spending would fall
    by 40 billion (1) over 10 years
  • Federal direct spending would fall by 2.9
    billion (about 0.5)
  • Federal spending falls by a lower amount in
    percentage terms many federal programs already
    get low prices.

5
Steps for Estimating Savings
  • Estimate average price differences between the
    U.S. and source countries
  • Account for importers costs (re-packaging,
    liability insurance)
  • Calculate the potential supply from source
    countries relative to the U.S. market
  • Consider actions by manufacturers, FDA, and
    foreign governments that may limit supply

6
Considerations in Making International Price
Comparisons
  • Which U.S. drug prices do you use?
  • Should both generic and brand-name drugs be
    included?
  • How well can drug products across countries be
    matched?
  • How is the price comparison weighted?

7
International Price Differences
  • CBO concluded manufacturer prices of patented
    brand-name drugs average about 35 to 55 percent
    less in other industrialized countries, relative
    to the U.S.
  • That range is based partly on international price
    comparisons of patented brand-name drugs by
    Canadas PMPRB
  • Danzon and Furukawa (2003) found that prices on
    patented products ranged from 26 lower in the UK
    to 49 lower in France and Italy.

8
Parallel Trade
  • CBO looked to the European experience in parallel
    trade
  • Parallel trade is the legal movement of products
    across borders without the explicit consent of
    the manufacturer
  • Parallel trade within the EU is facilitated by a
    single regulatory body that can be used for drug
    approvals (EMEA) as well as favorable EU court
    decisions

9
Sizing the Market
  • The volume of world supply outside the U.S. is
    about twice the size of the U.S. market.
  • About 5 to 6 percent of the volume in low priced
    countries is traded to higher priced countries
    within Europe
  • If parallel trade were as free of impediments as
    it is in Europe today, such trade could supply
    about 10 to 15 of the U.S. market

10
Restrictions on Supply
  • FDA Imported drugs must be manufactured in an
    FDA inspected facility and meet labeling
    standards
  • Manufacturers limit supply through contracts
    with wholesalers shift production away from FDA
    inspected facilities
  • Foreign governments could restrict exports to
    U.S. (if supply shortages occur or if
    manufacturers threaten to raise prices)

11
Estimated Savings
  • Given supply restrictions, much less than 10 to
    15 of the U.S. market would be supplied through
    parallel trade under current proposals
  • Price differences must also account for
    intermediary costs liability insurance,
    repackaging and relabelling
  • Overall, under H.R. 2427, CBO estimated that U.S.
    drug spending would fall by 1, federal spending
    by 0.5

12
Conclusion
  • Limitations on supply have played a key role in
    CBOs estimates of drug importation to date.
  • Savings from importation will vary by purchaser
    type (different purchasers pay different prices
    in the U.S.)
  • CBO is currently evaluating new drug importation
    proposals

13
Conclusion
  • CBO Issue Brief on drug importation and cost
    estimate of H.R. 2427 available at
  • www.cbo.gov
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