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Would Prescription Drug Importation Reduce U.S. Drug Spending 1 (April 2004)

handle is hein.congrec/cbo9275 and id is 1 raw text is: A series ofissue summaries from the Congressional Budget Office APRIL 29, 2004 Would Prescription Drug Importation Reduce U.S. Drug Spending? Summary The rapid growth of prescription drug expenditures is prompting consumers and policymakers to look for new ways to control drug spending. Because drug prices abroad are often lower than those in the United States, some suggest that drug spending would be reduced if drug products distributed in foreign countries could be legally imported for sale in the United States. Even if this practice was made legal, however, unique aspects of the prescription drug market would limit the additional vol- ume of prescription drugs reaching the United States. On the basis of its evaluation of recent proposals, the Con- gressional Budget Office (CBO) has concluded that the reduction in drug spending from importation would be small. Introduction In recent years, growth in prescription drug spending has outpaced that of every other category of health expendi- tures. Spending on prescription drugs grew at a real (in- flation-adjusted) average annual rate of 14.5 percent from 1997 to 2002, reaching $162 billion in 2002.1 That rapid growth raised prescription drug spending's share of total health expenditures to 10.5 percent in 2002, com- pared with 5.8 percent a decade earlier. In 1999, prescrip- tion drugs surpassed nursing homes as the third-largest category of personal health care expenditures, after hospi- tal and physician services. The prices of patented prescription drugs abroad are of- ten lower than those in the United States, even for the same product. As a result, some U.S. consumers save money by purchasing prescription drugs in Canada or Mexico.2 Many observers suggest that such savings could 1. Centers for Medicare and Medicaid Services, Office of the Actu- ary, National Health Statistics Group. Figures were adjusted for inflation using the personal consumption expenditures chain-type price index from the Bureau of Economic Analysis. be extended to the whole nation if commercial importa- tion of drugs was permitted. In July 2003, the U.S. House of Representatives passed H.R. 2427, which would have required the Secretary of Health and Human Services (HHS) to issue regulations permitting pharmacists, wholesalers, and individuals (for personal use) to import prescription drugs from 25 in- dustrialized countries. That bill did not become law, but the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 contains a provision permit- ting importation of prescription drugs from Canada con- tingent on the HHS Secretary's certification of the provi- sion's safety and its prospect of significant cost savings. To date, the Secretary has not provided that certification. As Congressional debate continues, officials in several states-including Illinois, New Hampshire, Wisconsin, and Minnesota-have expressed interest in importing prescription drugs from Canada. The Food and Drug Administration (FDA) has re- sponded to calls for importation with warnings that the safety of imported drugs cannot be guaranteed and that patients using those products face elevated health risks. While safety issues are an important concern, this CBO analysis focuses on another important question: How much would private consumers and governments save if drug importation was permitted? The Prescription Drug Market Several aspects of the prescription drug market distin- guish it from other markets. The first is the unusual im- portance of research and development (R&D) in creating new drug products. Drugmakers compete vigorously to 2. This practice is generally illegal. Usually, drug products distrib- uted in other countries are not approved for distribution in the United States, although officials rarely enforce this restriction for small amounts (up to a 90-day supply) intended for personal use.

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