CBO ANALYSIS OF SAVINGS FROM PRESCRIPTION DRUG IMPORTATION Colin Baker Margaret Nowak Anna Cook June...
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Transcript of CBO ANALYSIS OF SAVINGS FROM PRESCRIPTION DRUG IMPORTATION Colin Baker Margaret Nowak Anna Cook June...
CBO ANALYSIS OF SAVINGS FROM CBO ANALYSIS OF SAVINGS FROM PRESCRIPTION DRUG IMPORTATIONPRESCRIPTION DRUG IMPORTATION
Colin BakerMargaret 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 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
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.
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 new drug importation proposals
Conclusion
CBO Issue Brief on drug importation and cost estimate of H.R. 2427 available at:
www.cbo.gov