CBO ANALYSIS OF SAVINGS FROM
PRESCRIPTION DRUG IMPORTATION
Colin Baker
Margaret Nowak
Anna Cook
June 8, 2004
Overview

Discuss estimated savings from drug
importation under the Medicare Modernization
Act and H.R. 2427

Explain CBO’s methodology for estimating
savings from drug importation

Summarize factors leading to small estimated
savings from drug importation to date
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
importation
from
Canada
only,
certification by the Secretary of HHS

CBO estimated savings to the federal
government of less than $50 million over 10
years under MMA
drug
after
Drug Importation under
H.R. 2427

Would permit drug importation
industrialized countries
from
25

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.
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
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?
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 Canada’s 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.
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
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
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)
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%
Conclusion

Limitations on supply have played a key role
in CBO’s 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
importation proposals
new
drug
Conclusion

CBO Issue Brief on drug importation
and cost estimate of H.R. 2427 available
at:
www.cbo.gov