Earlier this month, the Health and Human Services (HHS) Secretary published the final rule for state importation of prescription drugs from Canada. To receive federal approval for their Section 804 importation programs (SIPs), the six states with laws enabling importation (VT, FL, ME, CO, NM, and NH) must meet the rule’s safety and cost-savings requirements and also navigate the rule’s implementation challenges.
While HHS made some of the states’ requested changes in the rule’s final version, such as giving states the flexibility to designate the agency responsible for administering a SIP, several concerns that states raised in their comments on the draft rule to ensure efficient and effective programs, were not reflected in the final rule.
Key among those concerns are issues relating to the role of the “foreign seller” (Canadian wholesaler) that purchases eligible prescription drugs from manufacturers in order to sell to the state “importer” in the United States. The final rule specifies that a SIP may work with just one foreign seller initially. Though the logic of the rule is to maintain a tight supply chain, limiting SIPs to just one foreign seller creates the risk that a manufacturer opposed to state importation may cut off its supplies to a single foreign seller that would be easily identified due to its increased demand for prescription drugs to supply a SIP.
Limiting SIPs to one foreign seller may also preempt normal forces of market competition that would otherwise help states maximize savings from importation.
Additionally, though the final rule gives states up to six months to identify a foreign seller after submitting their importation program applications to HHS, states may still be required to identify their foreign seller prior to federal approval of their SIPs. States had requested that the step of identifying a foreign seller come after program approval because foreign sellers may not choose to participate in a program that has not yet gained federal approval, especially when their participation may put them in a drug manufacturer’s crosshairs.
The final rule is scheduled to go into effect Nov. 30, 2020 – at which time a legal challenge from drug manufacturers is widely anticipated. Despite states’ request, the final rule did not include a severability clause – a provision that allows a law to stand even if a portion of the law is struck down by the courts. As a result, the federal framework for Canadian importation is vulnerable to being struck down if drug manufacturers successfully challenge even a minor provision of the rule.
Determined to achieve savings on prescription drugs for consumers despite the challenges presented by the final rule, states are continuing to do the groundwork necessary to design effective SIPs. For example, earlier this month, both Colorado and New Mexico convened stakeholder meetings in order to share information, solicit feedback, and answer questions. Four states – Vermont, Colorado, Maine, and Florida – had already submitted SIP applications for federal approval prior to publication of the final federal rule in order to meet timelines specified in their state statutes.
Florida issued an “Invitation to Negotiate” (ITN) to start the process of contracting with a vendor for a $30 million, three-year contract to manage its SIP. That contract was scheduled to be awarded in December 2020, however, Florida withdrew the ITN last week because no organizations responded to the ITN. While Florida sought a single contractor to fill multiple roles required to implement its SIP, Colorado, which is currently designing its own ITN for release in December, is taking an alternate approach by allowing diverse roles to be fill by multiple contractors as needed. The fact that Florida’s importation program is limited to public payers may have also made the contract less appealing to bidders from a market perspective, whereas Colorado’s program is directed at the commercial market. Florida also released its ITN prior to publication of the final federal rule, another consideration that may have inhibited potential respondents.
The National Academy for State Health Policy is continuing to work with states to advance their SIP plans and will provide updates about their progress.