Importing Prescription Drugs: Objectives, Options, and Outlook

Importing Prescription Drugs:
Objectives, Options, and Outlook
Updated January 26, 2007
Susan Thaul
Specialist in the Regulation of Prescription Drugs and Biologics
Domestic Social Policy Division

Importing Prescription Drugs:
Objectives, Options, and Outlook
Can purchases from abroad lower the cost of prescription drugs to U.S.
consumers? Current law allows pharmacists and wholesalers to import prescription
drugs from Canada commercially, and codifies the Food and Drug Administration’s
(FDA) current practice of allowing imports of prescription drugs by individuals under
certain defined circumstances. There is, however, one proviso. The Secretary of
Health and Human Services (HHS) must first certify that the drugs to be imported
under the program would “pose no additional risk to the public’s health and safety;
and result in a significant reduction in the cost of covered products to the American
consumer” — a step no Secretary has been willing to take.
FDA has argued that it is impossible to monitor the millions of transactions and
guarantee that these drugs would be safe. Meanwhile, some states and
municipalities, looking at ways to control their expenditures for prescription drugs,
have created websites to direct U.S. consumers to Canadian sources, and several state
Governors have proposed pilot import programs. In October 2006, Congress took
limited action regarding personal-use importation. The Department of Homeland
Security Appropriations Act, 2007, blocks Customs and Border Protection from
using those funds to stop an individual’s importing, for personal use, a limited supply
of a drug that meets FDA standards.
Drug importation was addressed in three pairs of comprehensive bills in the
109th Congress, none of which saw legislative action. To date, two revised versions
have been introduced in the 110th (S. 242/H.R. 380 and S. 251). All would allow
commercial and personal-use imports and replace the need for HHS Secretary
certification with different ways to assure safety and effectiveness, among them
requiring tamper-resistant and anti-counterfeit packaging; inspecting samples of
imported drugs; requiring registration of importers, exporters, and Internet
pharmacies; and enforcing extensive chain-of-custody monitoring and
documentation. They also present different approaches for influencing industry
response. Updates of this report will address bills and continuing discussions in the

110th Congress.

Opponents of the legislation raise concerns about safety, added costs, the
feasibility of imports as a long-term solution to high domestic prices, and whether,
beyond the short term, U.S. consumers would pay less for their prescription drugs.
Other points of contention include issues of patent law and international trade
This report examines these issues, spells out how they are treated from bill to
bill, and refers to the following alternatives to importation that might ease the burden
of prescription drug costs on consumers: use of generics and disease management
techniques; research and development incentives to industry; study of the drugs’
comparative effectiveness and judicious application of the findings to benefit
package and prescribing decisions; and assumption of some of the consumers’ cost.

In troduction ......................................................1
Background ......................................................2
Distributing Prescription Drugs: The Current System.................3
Influence of the Prescription Drug Marketing Act of 1987..........3
Department of Homeland Security Appropriations Act, 2007........4
Importing Prescription Drugs: The Current System...................5
FDA’s Practice Concerning Personal-Use Imports................5
CBP Practice Concerning Personal-Use Imports..................6
The Medicine Equity and Drug Safety Act of 2000................6
The Medicare Prescription Drug, Improvement,
and Modernization Act of 2003...........................7
Current Situation..................................................8
Price Differentials.............................................8
Drug Import Volume...........................................9
Encouragement from States and Municipalities.....................10
Opposition from FDA and the Pharmaceutical Industry...............13
Selected Legislative Proposals.......................................13
Issues for Congressional Consideration................................14
Drug Safety and Effectiveness...................................14
Product Integrity..........................................14
Drug Eligibility and FDA-Approval Status.................15
Permitted Countries...................................16
Ensuring Drug Identity.................................17
Registration .....................................17
Recordkeeping ...................................17
Product Testing and Facility Monitoring
and Inspection...............................17
Regulating Internet Pharmacies..........................19
Controlling Advertising and Credit
on Online Search Engines..........................20
Packaging and Labeling................................21
Appropriate Use..........................................22
Program Feasibility...........................................24
Costs of a New Import Regulatory Program....................24
Drug Industry Behavior....................................25
Limiting Supplies.....................................25
Changing Formulations................................27
Corporate Investment..................................27
Influencing Behavior with Rewards and Penalties...........27
Patent, Intellectual Property, and Trade Issues..................28

Market and Competition...................................30
Government Influence on Pricing............................32
Industry Pricing..........................................32
Congressional Options for Controlling Drug Costs.......................32
Appendix. Drug Regulation in Canada................................33
Safety and Effectiveness.......................................33
Cost and Price...............................................35

Importing Prescription Drugs:
Objectives, Options, and Outlook
In 2003, U.S. consumers bought more than $1 billion in prescription drugs from
Canada — twice as much as the year before, by some estimates.1 Although the 20042
and 2005 increases slowed, congressional efforts to allow American consumers to
buy prescription drugs from foreign sellers did not. Many U.S. residents use the
Internet or mail-order pharmacies; others simply go to a drug store when they travel
outside the United States, especially to Canada or Mexico.3 The reason is clear.
Brand-name prescription drugs often cost less abroad — particularly for the
uninsured and many of the elderly who pay retail prices.4
Under current law, only the manufacturer of a prescription drug may legally
bring it into the United States. The law allows U.S. pharmacists and wholesalers to
do so only if the Secretary of Health and Human Services (HHS) first certifies that
those drugs would be safe and that the program lowered drug costs for U.S.
consumers. After issuing that certification, the Secretary must issue regulations
allowing individuals to import prescription drugs. Because no HHS Secretary has
ever taken that step, consumers, pharmacists, and wholesalers are prohibited from
importing prescription drugs.

1 IMS Health, “IMS Reports 11.1 Percent Dollar Growth in ’03 U.S. Prescription Sales,”
press release, Feb. 17, 2004, at []. Later that year, the report from
the Department of Health and Human Services (HHS) Task Force on Drug Importation put
its estimate at about $700 million. HHS, Report on Prescription Drug Importation, Dec.

2004, at [].

2 In 2005, Internet pharmacy sales from Canada to the United States totaled $349 million,
down from $456 million in 2004. IMS Health, “IMS Reports 8.3 Percent Dollar Growth in
2004 U.S. Prescription Sales,” press release, Feb. 14, 2005; and IMS Health, “IMS Reports

5.4 Percent Dollar Growth in 2005 U.S. Prescription Sales,” press release, Feb. 22, 2006;

both at [].
3 Testimony of William K. Hubbard, Senior Associate Commissioner for Policy, Planning,
and Legislation, and John M. Taylor, III, Associate Commissioner for Regulatory Affairs,
Food and Drug Administration (FDA), in U.S. Congress, House Committee on Energy and
Commerce, Subcommittee on Oversight and Investigations, A System Overwhelmed: the
Avalanche of Imported, Counterfeit, and Unapproved Drugs in the U.S., 108th Cong., 1st
sess., hearings, June 24, 2003 (hereafter “Hubbard, June 24, 2003").
4 David Gross, Prescription Drug Prices in Canada, AARP Public Policy Institute Issue
Brief, Washington, DC, American Association of Retired Persons, June 2003. (See Figure
3: Summary of Published Estimates of Canada-U.S. Drug Price Differences, 1990 to

Given the difference between prices in the United States and elsewhere, many
Americans, including some Members of Congress, want legislation eliminating the
restrictions on imports.
This report does not address whether drug prices are too high or unfair.5 It does
focus on the issues recent legislative proposals raise in attempting to help U.S.
consumers — themselves or through importing pharmacists and wholesalers — gain
access to safe and less expensive Food and Drug Administration (FDA)-approved
prescription drugs from abroad.
The report begins with an overview of the domestic drug distribution system and
how Congress has handled prescription drug importation.6 It then discusses the
current situation following its upsurge in the volume of drug imports, state and local
government initiatives, the drug industry and FDA’s reactions, and the legislative
proposals introduced to consider this issue. It goes on to examine three broad sets
of issues surrounding importation. The first involves ensuring drug safety and
effectiveness, by attending to product integrity and appropriate use. The next set
explores whether a drug import program would be feasible administratively and in
the context of international trade and pharmaceutical research and development. The
report concludes by discussing the likelihood that a drug import program would save
U.S. consumers money. (A separate CRS report provides a detailed side-by-side
comparison of current law and selected major importation bills introduced but not
passed during the 109th Congress. Other CRS reports focus in more detail on legal
and drug price issues.7)
Since 1938, the Federal Food, Drug, and Cosmetic Act (FFDCA, P.L. 75-717)
has required that drugs sold to U.S. consumers be safe. With its 1962 Kefauver-
Harris Amendments (P.L. 87-781), all drugs had to be proven effective as well. The
FFDCA is the major law that set up the current U.S. system of drug regulation;
subsequent legislation amends it. In the last 17 years, congressional and FDA actions
have addressed the importation of prescription drugs by, in turn, limiting imports,

5 For a discussion of health care costs, see CRS Report RL32545, Health Care Spending:
Context and Policy, by Jennifer Jenson.
6 The term “reimportation” has been used to mean an FDA-approved drug that was exported
from the United States by a U.S. manufacturer and then imported back into this country.
The law applies to those drugs and to others, such as a drug produced by a U.S.-licensed
drug manufacturer outside of the United States and then imported or one produced by a
foreign manufacturer. In this report, the term “importation” applies to all these activities.
7 CRS Report RL33175, Importation of Prescription Drugs: A Side-by-Side Comparison of
Current Law, S. 109 / H.R. 328, S. 184 / H.R. 753, and S. 334 / H.R. 700, by Susan Thaul
and Donna U. Vogt. See also CRS Report RL32191, Prescription Drug Importation and
Internet Sales: A Legal Overview, by Jody Feder; and CRS Report RL33781,
Pharmaceutical Costs: An International Comparison of Government Policies, by Gretchen
A. Jacobson.

establishing exceptions to those restrictions, and attempting to broaden access to
Distributing Prescription Drugs: The Current System
FDA supervises the approval, production, and distribution of prescription drugs.
It works to prevent unsafe, ineffective, subpotent or adulterated drugs from reaching
retail pharmacies in the United States — whether on purpose or inadvertently.8
Before it approves a prescription drug for sale, FDA requires that a
manufacturer demonstrate that its product is safe and effective for its intended use,
that directions on the label are clear and appropriate, and that the drug has been
manufactured in specific production lines that have been registered and approved by
FDA. After approval, the manufacturer must continue production according to FDA-
approved “good manufacturing processes.”9 The drug companies must periodically
open their production facilities to rigorous FDA inspection.
After production, the manufacturer sends the drug to FDA-registered U.S. drug
wholesalers or secondary drug wholesalers for further distribution. States license or
authorize the pharmacists and wholesalers who sell and distribute pharmaceuticals
within their borders and also license the physicians and dentists who prescribe the
Influence of the Prescription Drug Marketing Act of 1987. The
structure of today’s distribution system is based on changes made in the 1980s when
Congress determined that the drug distribution system was not sufficiently “closed”
to prevent abuse of drug samples. The Prescription Drug Marketing Act of 198710
(PDMA, P.L. 100-293) banned the sale, trade, and purchase of drug samples;
mandated storage, handling, and accounting standards for drug samples; and required
that drug wholesalers be licensed by the states. To enforce the law, the FDA drafted
regulations that would require drug companies to maintain a detailed “chain of
custody” (known as a pedigree) for every pharmaceutical product sold in this country.
By imposing strict recordkeeping requirements, FDA hoped, among other things, to
ensure the safety and quality of all drugs that are exported and later imported back

8 For a fuller discussion, see CRS Report RL32797, Drug Safety and Effectiveness: Issues
and Action Options After FDA Approval, by Susan Thaul.
9 A drug production term used by FDA and the pharmaceutical industry. See, for example,
FDA, Guidance for Industry: Q7A Good Manufacturing Practice: Guidance for Active
Pharmaceutical Ingredients, August 2001, at [

4286fnl.htm]; FDA, Pharmaceutical cGMPs for the 21st Century: A Risk-Based Approach,,

Sept. 2004, at []; and
FDA, “Guidance for Industry: Quality Systems Approach to Pharmaceutical CGMP
Regulations,” Sept. 2006, at [].
10 U.S. Congress, House Committee on Energy and Commerce, Prescription Drug
Marketing Act of 1987, H.Rept. 100-76, 100th Cong., 1st Sess. Washington, GPO, Apr. 30,

1987, p. 7.

into the country.11 The recorded pedigree would allow manufacturers to trace back
suspected counterfeit shipments.
However, the law excluded manufacturers’ authorized distributors from this
recordkeeping requirement. Because most drugs are sold from authorized
distributors into secondary drug wholesale distribution markets (not authorized
distributors of record), the recordkeeping requirement created a dilemma. Because
secondary distributors (authorized and unauthorized) receive no records or pedigree
with the drugs they purchase, they do not have the information necessary to show a
chain of custody. For that reason, when FDA published final regulations to
implement this section of the PDMA in December 1999, the Small Business
Administration petitioned the agency, arguing that enforcement of the provision
would drive 4,000 or more secondary distributors out of business. Subsequently,
FDA delayed the effective date of this provision’s enforcement repeatedly,12 most
recently because it believed that industry voluntary conversion to an electronic
pedigree was imminent, in which case the rule would be superfluous. In 2006, seeing
that industry’s progress toward the technology change was slow, FDA announced and
then finally implemented the rule on December 1, 2006. One week later, a court
issued a preliminary injunction to prohibit FDA’s implementing key pieces of the
rule. 13
Department of Homeland Security Appropriations Act, 2007. For the
past few years, Members have tried to use the agriculture appropriations bill (which
includes FDA) to get around administrative blocks to prescription drug importation.
The House-passed FY2007 agriculture appropriations bill would prohibit FDA from
using funds to prevent individuals, pharmacists, or wholesalers from importing14
prescription drugs that comply with the core requirements of the FFDCA. The
Senate-reported bill contains no similar provision.
Importation’s supporters had more success in applying this strategy to the
Department of Homeland Security FY2007 appropriations bill that became law. It
prohibits the use of those funds by CBP to prevent “individuals not in the business

11 FDA, “The Prescription Drug Marketing Act: Report to Congress,” 2001, at
[ h t t p : / / www.f d a.go v/ oc/ pdma/ r e por t 2001/ r e por t .ht ml ] .
12 FDA, “Prescription Drug Marketing Act of 1987; Prescription Drug Amendments of 1992;
Policies, Requirements, and Administrative Procedures; Delay of Effective Date,” Federal
Register, Feb. 23, 2004 (21 CFR 203). For PDMA history, see [
pdma/report2001/report.html], p. 7.
13 FDA, “Addendum to FDA’s ‘Guidance for Industry: PDMA Pedigree Requirements —
Questions and Answers’ Related to the Preliminary Injunction ordered 12/5/06 in RxUSA
Wholesalers, Inc. v. HHS,” Dec. 15, 2006; and FDA, “Prescription Drug Marketing Act
Pedigree Requirements under 21 CFR Part 203 Compliance Guide and Guidance for
Industry: Prescription Drug Marketing Act Pedigree Requirements Questions and Answers;
Notice of availability and guidances,” Federal Register, Nov. 15, 2006 (21 CFR 203 and


14 Section 749, H.R. 5384 in the 109th Congress.

of importing a prescription drug” from importing a prescription drug that complies
with the FFDCA.15
The Senate Committee on Commerce, Science, and Transportation of the 109th
Congress reported its Federal Trade Commission (FTC) reauthorization bill (S. 1392)
and included the text of Senator Dorgan’s separate drug importation bill (S. 334).
Although the bill did not see further activity in that Congress, the Congressional
Budget Office (CBO) issued cost estimates of the import provisions that provide
additional data for the ongoing debate.16
Importing Prescription Drugs: The Current System
The PDMA limits importation of a prescription drug into the United States to
the manufacturer. Further, when importing a drug, the manufacturer must present
records indicating that the product is the same as an FDA-approved drug being
distributed in the United States, that the imported product was handled properly and,
if necessary, is re-labeled for the U.S. market. When drugs are imported into the
United States — whether they are shipped commercially, carried by travelers, or
arrive by mail — the Bureau of Customs and Border Protection (CBP) (formerly the
U.S. Customs Service) and the FDA have broad authority to detain and deny products
that “appear” to violate U.S. law or regulatory standards.17
FDA’s Practice Concerning Personal-Use Imports. Since the PDMA’s
restrictions went into effect, the FDA has chosen to leniently enforce that ban and has
allowed individuals to bring into the United States a small amount (i.e., a 90-day18
supply) of non-FDA-approved drugs for personal use. This FDA enforcement
policy requires that those individuals affirm in writing that the drugs are for their own19
use, and provide the name and address of their treating physician.
When FDA’s personal use import policy began, it was not envisioned as a way
for consumers to bring lower-priced prescription drugs into the United States.
According to FDA’s policy statement on importing drugs for personal use:
... the intent of the personal use importation guidance is to save FDA resources
and to generally permit, through the exercise of enforcement discretion, medical
treatments sought by individuals that are not otherwise available in the United

15 P.L. 109-295, Section 535.
16 Congressional Budget Office (CBO), “Cost Estimate: S. 1392, FTC Reauthorization Act
of 2005,” Sept. 8, 2006, at [].
17 FDA, “Information on Importation of Drugs,” prepared by Marvin A. Blumberg, Division
of Import Operations and Policy, Office of Regulatory Affairs, FDA, HFC-170, Apr. 3,
1998, at [] (hereafter “FDA, ‘Information on
Importation of Drugs’”).
18 FDA, “Information on Importation of Drugs.”
19 FDA, “Coverage of Personal Importations,” Regulatory Procedures Manual, Office of
Regulatory Affairs, FDA, Jan. 11, 2003, at [
ref/rpm_new2/ch9pers.html ].

States (where such treatments are not promoted/commercialized in the United
States). Thus foreign-made chemical versions of drugs available in the United20
States are not intended to be covered by the policy.
But where the policy once compassionately let a few people import — for personal
use — cancer or AIDS drugs that were not available for sale in the United States,
today that policy is used by consumers seeking lower foreign prices for FDA-
approved drugs available in the United States.
CBP Practice Concerning Personal-Use Imports. The U.S. Customs
and Border Protection (CBP) is responsible for enforcing the FFDCA prohibition on
prescription drug importation. Hence, despite FDA’s continuing “exercise of
enforcement discretion” regarding personal-use importation by individuals, from
November 2005 until October 2006, CBP could implement a policy to detain
prescription drugs entering U.S. international mail branches. In a notification letter,
CBP would ask the intended recipient to choose between abandoning the shipment
or requesting “an admissibility determination from the FDA.”
In October 2006, CBP amended this policy and stopped detaining these drugs,
referring all identified imports to FDA. (FDA would, presumably, continue its
practice of enforcement discretion.) CBP, in conjunction with this change, planned
to focus its actions on “high risk threats to the health and safety of the American
public.”21 The revised CBP policy specified that CBP would not block an individual
personally carrying from Canada a 90-day supply of a prescription drug that
otherwise met FFDCA requirements. The policy does not apply to mail shipments,
imports from countries other than Canada, or any controlled substances (drugs, such
as narcotics, covered by the Controlled Substances Act).
The Medicine Equity and Drug Safety Act of 2000. With drug costs
rising and more and more consumers importing less expensive prescription drugs for
their own use, the 106th Congress passed the Medicine Equity and Drug Safety
(MEDS) Act (P.L. 106-387) in an effort to take advantage of the lower prices drug
manufacturers charged in other countries. The MEDS Act of 2000 amended the
FFDCA to authorize a five-year program allowing pharmacists and drug wholesalers
to import less costly prescription drugs from foreign suppliers.22 Pharmaceuticals
imported under the act could come only from specific industrial countries, and the
agency could suspend importation immediately if a pattern of counterfeiting emerged.
HHS did not implement the import program. The act required that, before
publishing implementing regulations to put the import provisions into effect, the
Secretary must first:

20 FDA, “Information on Importation of Drugs.”
21 Darren Mackaly, CBP Congressional Liaison, personal communications, Dec. 10, 2006.
22 Part of the FY2001 agriculture appropriations bill (P.L. 106-387), the MEDS Act added
new Section 804 to the FFDCA. The import provision does not cover controlled substances,
biologics, infused drugs, intravenous drugs, and drugs inhaled during surgery.

... demonstrate[s] to Congress that the implementation of this section will (1)
pose no additional risk to the public’s health and safety; and (2) result in a
significant reduction in the cost of covered products to the American consumer.
(Section 804(l).)
In 2000, then-Secretary Donna Shalala announced that she could not implement the
MEDS Act because it allowed drug companies to deny U.S. importers legal access
to the FDA-approved labeling required for reimportation; did not prohibit drug
manufacturers from requiring distributors to charge higher prices, limit supply, or
treat U.S. importers less favorably than foreign purchasers; and the five-year “sunset”
provision would have a chilling effect upon private-sector investment in the testing
and distribution systems required under the law.23 In 2001, her successor, Secretary
Tommy G. Thompson, declined to implement the law as well, stating that to import
drugs under the MEDS Act would make it impossible to adequately guarantee the24
safety of prescription drugs. Moreover, the Secretary argued that the costs
associated with the documenting, sampling, and testing of imported drugs, as the
statute required, would make it very difficult for consumers to recognize any
noticeable price savings. Consequently, FDA has never implemented that section of
the law, and there is no legal program in effect for importing prescription drugs other
than by the manufacturer.25
The Medicare Prescription Drug, Improvement, and Modernization
Act of 2003. The 108th Congress also addressed consumer burden. Provisions in
the Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(hereafter referred to as the MMA for Medicare Modernization Act, P.L. 108-173)
entirely replaced the 2000 MEDS Act language in the FFDCA (Section 804). This
new Section 804, however, requires conditions for implementing a prescription drug
import program that are similar to the 2000 MEDS Act. It, too, states that before
promulgating regulations concerning importation the HHS Secretary must certify to
Congress that “the implementation of this section will (A) pose no additional risk to
the public’s health and safety; and (B) [will] result in a significant reduction in the
cost of covered products to the American consumer.” Until that certification, drug
imports are illegal unless imported by the manufacturer of the drug. Now, therefore,
neither a pharmacist nor a wholesaler may import prescription drugs. The law does
not allow an individual to import a drug for personal use.

23 Letter from Donna E. Shalala, Secretary of Health and Human Services (HHS), to
President William J. Clinton, Dec. 26, 2000. Available from CRS.
24 U.S. Department of Health and Human Services, “Secretary Thompson Determines That
Safety Problems Make Drug Reimportation Unfeasible,” HHS News, press release, July 10,

2001, at [].

25 Letters from FDA, written on behalf of HHS Secretary Michael Leavitt, decline state and
municipal requests for importation waivers under MMS, citing, among other arguments,
Secretaries Shalala and Thompson’s declining to offer this certification of safety and cost
savings (e.g., letters dated Nov. 2005 and March 2006 from Randall W. Lutter, FDA
Associate Commissioner for Policy and Planning, at [
hottopics/importdrugs/duncan110805.html] and [
importdrugs /saxe031706.html ]).

If the HHS Secretary were to give Congress the required safety and cost savings
certification, then all the mechanisms of Section 804 would go into effect. The
Secretary would have to promulgate regulations that:
!allow a pharmacist or a wholesaler to import prescription drugs from
!waive the law’s restrictions on personal use imports, so an individual
could import a 90-day supply of a prescription drug from Canada;
!continue the ban on the importation of personal-use drugs from any
other country unless the Secretary granted, by regulation or on a
case-by-case basis, personal-use waivers to individuals.26
The MMA directed the HHS Secretary to study and report to Congress on the
importation of prescription drugs into the United States. This requirement was
addressed when the HHS Task Force on Drug Importation released its Report on
Prescription Drug Importation in December 2004.27
Current Situation
Although Congress passed the MMA with provisions to permit drug imports from
Canada, the act contained the requirement that, to implement the program, the
Secretary first must certify that all imports would be safe and at reduced cost to U.S.
consumers. (See Appendix, Drug Regulation in Canada.) The current Secretary
refused to make this determination, therefore, absent a change in his position, the
program cannot take effect.
Price Differentials
A 90-day supply of 20 mg. Lipitor, a statin drug used to control high cholesterol,
sells in the United States for about $346 and is available from Canada for about28
$165. This type of discrepancy is not unique. A recent compilation of U.S. and
Canadian drug-price comparisons showed that, on average, brand-name drug prices
charged by manufacturers, wholesalers, and retailers were higher in the United States,

26 The Secretary could choose, for example, to allow one specific individual or any
individual to import, for personal use, (1) an FDA-approved prescription drug from a
specified country other than Canada; or (2) a drug not available in the United States (and not
FDA-approved) from Canada or another country.
27 HHS Task Force on Drug Importation, Report on Prescription Drug Importation, Dec.

2004, at [].

28 Estimates compiled from [], [], and
[], visited Jan. 14, 2007.

most recently by about 70%.29 This was consistent with the Canadian pharmaceutical
pricing board’s 67% finding.30 The differentials between Canadian and U.S. retail
prices are much less for generic drugs31 and, not surprisingly, they constitute only a
small portion of what individuals import to the United States from Canada.32
Advocates for legalizing drug imports, including many Members of Congress,
feel that U.S. consumers have shouldered the rising cost of prescription drugs for too
long. This is unfair, they say, particularly for consumers who lack health insurance
and are forced to pay higher retail prices at pharmacies, while consumers in other
countries, especially those with national health plans, have access to the same
pharmaceutical products at much lower prices. Consumer dissatisfaction is
magnified, they argue, because some of these drugs were developed through research
supported by U.S. taxpayers. If foreign suppliers offer FDA-approved
pharmaceuticals at prices significantly lower than in this country, advocates insist
that consumers, pharmacists, and wholesalers must have a safe, viable, and legal way
to import these drugs.33
Drug Import Volume
Growing Internet use by individuals contributed to the dramatic upsurge in 2003
in the importation of prescription drugs through links to pharmacies abroad. The
typical importer used to be an individual traveling to a Canadian pharmacy and
carrying a personal supply back into the United States; now, it is becoming a U.S.

29 Gross, 2003.
30 Abigail Zugar, “Rx:Canadian Drugs,” New England Journal of Medicine, vol. 349, no. 23,
Dec. 4, 2003, pp. 2188-2190.
31 Patricia M. Danzon and Michael F. Furukawa, “Prices and Availability of
Pharmaceuticals: Evidence from Nine Countries,” Health Affairs Web exclusive, Oct. 29,

2003, at [], visited Mar. 8,

2004; “U.S./Canada Price Gap Closing Thanks to Generics, Express Scripts Says,” The Pink
Sheet, Mar. 8, 2004; and Mark B. McClellan, Commissioner of Food and Drugs, FDA,
statement before the U.S. Congress, Senate Committee on Commerce, Science and
Transportation, Mar. 11, 2004.
32 Comparing prices across products, places, or purchasers is a complex activity.
Complicating the debate are the government, industry, and consumer affiliations of some
of the analysts and varying definitions. In a simple transaction chain, the price at which a
manufacturer sells a drug to a wholesaler (point A) differs from the price at which that
wholesaler sells that drug to a neighborhood drug store (point B), which will differ from the
price the store charges the individual for whom the drug was prescribed (point C).
Comparing prices at point A in Canada to prices at point C in the United States would
muddle the question. Adding markups by secondary wholesalers, chainstores or other
shared purchasing arrangements, rebates, discounts, differences in shipping costs or charges,
and health insurance payments yields more price points. Although these difficulties weaken
the usefulness of some price comparison reports, other reports appear to be based on
reasonable and defined methodologies.
33 Donald L. Barlett and James B. Steele, “Why We Pay So Much for Drugs; How the
Clamor for Cheap Canadian Imports is Heating Up the 2004 Campaign and Giving
Washington a Headache,” Time Magazine, Feb. 2, 2004.

consumer ordering from an online mail-order pharmacy that ships the prescription
drug to the United States.34 Looking at 2005 and 2006 data, however, IMS Health
reports that the rate of increase of U.S. Internet drug purchases from Canada was
slowing. Its analysts attribute some of this to the new Medicare prescription drug
benefit.35 The Canadian news media mention additional reasons for the decrease: the
strong Canadian dollar, manufacturers’ actions to restrict supply, and package
seizures by U.S. border agents.36
Encouragement from States and Municipalities
Several states and municipalities are looking at ways to control expenditures for
prescription drugs in their Medicaid budgets and for employees and retirees. They
are pursuing legislative, judicial, and administrative approaches.
In 2004, state legislators introduced 51 bills and resolutions — in 24 states plus
the District of Columbia — that addressed state importation of prescription drugs,
with most focusing on imports from Canada.37 The count in 2005 was 56 bills and
resolutions in 22 states; in 2006, it was 29 in 13 states.38 One 2004 measure in
Louisiana would make illegally importing drugs a crime; and, in 2005, a Virginia law
prohibited sales by nonresident pharmacies not registered with the Commonwealth.
Other states’ proposals generally encourage importation by asking Congress to
legalize the practice or explore its feasibility or by authorizing purchases from
Canadian mail-order pharmacies. Connecticut, Mississippi, Vermont, and West
Virginia Governors signed bills into law in 2004, and the Mayor of the District of
Columbia signed a bill that needs ratification by the U.S. Congress; and a Rhode

34 FDA letters to the Kullman Firm, Feb. 12, 2003; and FDA warning letters to Rx Depot,
Mar. 21, 2003 and to CanadianDiscountDrugs, June 30, 2003, at [http://www.accessdata. scripts/wlcfm/ subj ect.cfm?FL=I] .
35 Because no comprehensive surveillance of drug importation activity exists, estimates vary.
Numerous news accounts refer to the volume and dollar value of drugs that individuals in
the United States import from Canada. These include $1.3 billion (Christopher Rowland,
“Canada Looks to Curb Drug Exports,” Boston Globe, June 30, 2005); $1.5 billion (Judith
Graham, “Canada to ban bulk drug imports, allow Internet sales,” Chicago Tribune, June
30, 2005; and Steve Hymon, “Council Considers Offering Data on Canadian Drugs,” Los
Angeles Times, Feb. 17, 2005). IMS Health has reported a range of figures, including “the
equivalent of $1.1 billion U.S. dollars (based on U.S. prices) last year” [2003]; for Internet
pharmacy sales from Canada, $346 million in 2005, and $456 million in 2004. IMS Health,
“IMS Reports 8.3 Percent Dollar Growth in 2004 U.S. Prescription Sales,” press release,
Feb. 14, 2005; and IMS Health, “IMS Reports 5.4 Percent Dollar Growth in 2005 U.S.
Prescription Sales,” press release, Feb. 22, 2006; both at [].
36 “Minnesota-based Internet drug company shuts down,” Canadian Press NewsWire, Dec.

28, 2006.

37 National Conference of State Legislatures, “2004 Prescription Drug State Legislation,”
revised Nov. 2006, at [].
38 National Conference of State Legislatures, “2005 Prescription Drug State Legislation,”
revised Nov. 15, 2006, at []; and
NCSL, “2006 Prescription Drug State Legislation,” updated Jan. 3, 2007, at
[ programs /health/drugbill06.html ].

Island bill became law without the Governor’s signature. Governors of Maine,
Nevada, Texas, Vermont, and Washington signed laws in 2005. In 2006, the only
enacted law was in California.
On another front, the Minnesota Attorney General (AG) is investigating whether
GlaxoSmithKline (GSK) violated state anti-trust laws when it blocked sales to
Canadian pharmacies selling prescription drugs to U.S. consumers. The AG has
asked the court to compel GSK to release the Minnesota-requested documents that
are located in Canada and England, which GSK has refused to do, citing the Ontario
Business Records Act.39 Other states are using the courts in attempts to change a
larger range of pharmaceutical industry pricing practices.40
Some states — such as Minnesota and Wisconsin — have created websites to
direct U.S. consumers to Canadian sources; several Governors have proposed pilot
import programs to gain information about the savings benefits.41 FDA opposes
these activities, arguing they are both illegal and unfeasible. An FDA letter to
Minnesota Governor Pawlenty, for example, opposed the state government’s
endorsement of Canadian Internet sites, arguing that U.S. consumers could enter into
a “‘buyer beware’ gray zone” and risk receiving counterfeit drugs. The letter also
“noted the potential tort liability that a state could be subject to if a citizen purchases
an unapproved, illegal drug on your advice, and suffers an injury as a result.”42
Earlier, in response to the Illinois Governor’s report on importation of drugs for state
employees, an FDA official wrote that the state substantially overstated the likely
effect of an importation program by omitting costs for pharmacists, shipping, and
liability.43 As of January 2007, the states of Illinois, Kansas, Missouri, Vermont, and

39 State of Minnesota Office of the Attorney General, “Hatch Takes Dual Action on
Pharmaceutical Industry Front,” press release, Sept. 30, 2003; and David Phelps, “Hatch
Says Glaxo Is Hindering Probe,” Star Tribune (Minneapolis, MN), Nov. 18, 2003, p. D1;
and John Carreyrou, “Seizures of Canadian Drugs Rise as Congress, Customs Spar,” Wall
Street Journal, July 24, 2006.
40 Reed Abelson and Jonathan D. Glater, “New York Will Sue Two Big Drug Makers On
Doctor Discount,” The New York Times, Feb. 13, 2003, p. A1.
41 Letter from William K. Hubbard, Senior Associate Commissioner for Policy, Planning
and Legislation, FDA, to Deputy Attorney General Gregory Gonot, state of CA, responding
to questions on the importation of prescription drugs into CA, Aug. 25, 2003. Minnesota
RxConnect Online, at []
and the state of Wisconsin Prescription Drug Resource Center, at
[], both visited Mar. 19, 2004.
42 Letter from William K. Hubbard, FDA Associate Commissioner for Policy and Planning,
to Governor Tim Pawlenty of Minnesota, Feb. 23, 2004, at [
opacom/hottopics/importdrugs/pawlenty022304.html], visited Mar. 25, 2004. Also see
“FDA Sends Wisconsin Letter Over Use of Canadian Internet Pharmacies,”, July 26, 2004. Some legal experts observe that it is not at all clear that
a state would be liable in tort (“Trial lawyer threat is latest FDA ploy to stop Rx
reimportation,” Inside Washington Publishers, Feb. 27, 2004).
43 Letter from William K. Hubbard, FDA Associate Commissioner for Policy and Planning,
to Ram Kamath and Scott McKibbon, Special Advocates for Prescription Drugs, Chicago,

Wisconsin participate in the I-SaveRx program “that allows consumers to purchase
safe and affordable prescription refills from licensed, inspected pharmacies in Canada
and the United Kingdom.”44
Cities, too, have set up programs to facilitate the purchase by employees and
retirees of drugs from Canada. One — Springfield, Massachusetts — reported saving
about $3 million a year.45 In December 2003, Montgomery, Alabama, reported
saving up to $500,000 so far that year by allowing its 4,100 city employees and
retirees to buy drugs from Canada.46 In July 2004, the Mayor of Boston launched a
pilot program to permit about 14,000 city employees and retirees to purchase
prescription drugs from Canada. By waiving copayments for selecting the Canadian
option, but keeping copayments for domestic orders at $10, the city creates only a
small incentive for individuals to participate.47
Some states are exploring other avenues to influence their drug costs. North
Dakota has proposed a “Prairie Prescriptions Pilot Project,” asking the HHS
Secretary to waive the current legal restrictions and allow pharmacies to import less
expensive drugs from Canadian pharmacies. Senator Dorgan, a proponent of this
proposal, has stated that the project could save the state $81 million annually by
licensing Canadian pharmacies and wholesalers, and selling imported drugs only
within the state.48 Illinois, Iowa, and New Hampshire have also sought waivers under
the MMA from HHS for drug importation programs.49

43 (...continued)
IL, Nov. 6, 2003.
44 I-SaveRx: Safe and Affordable Prescription Drugs, at [
45 When Springfield ended its own health insurance coverage for municipal employees and
retirees, enrolling them, instead, in Massachusetts’s state plan, it ended its Canadian drug
importation program. See Christopher Rowland, “Mass. city ends drug plan that defied US;
Springfield joins state, halts Canadian imports,” Boston Globe, Aug. 26, 2006; Christopher
Rowland, “FDA Tells Supplier to Halt Canadian Drug Orders; Springfield Mayor Defiant
on Import of Prescriptions,” The Boston Globe, Sept. 17, 2003, p. D1; and Jarrett T. Barrios,
Massachusetts State Senator, remarks to health leaders seminar, National Conference of
State Legislators, Washington, DC, Dec. 10, 2003.
46 Julie Appleby, “More Cities, States Opt for Canadian Drugs,” USA Today, Dec. 23, 2003;
and Kim Chandler, “Montgomery’s been quietly buying drugs from Canada,” Birmingham
News (Alabama), Dec. 31, 2003.
47 Christopher Rowland, “City Launches Program to Buy Imported Drugs Impact is Seen as
Mainly Political,” The Boston Globe, July 22, 2004, p. A1.
48 “Sen. Dorgan Pushes for Drug Import Pilot Program in North Dakota,” Inside Health
Policy, Apr. 1, 2004.
49 Cyril Zaneski, “Support Grows on Hill to Allow Drug Imports,” Baltimore Sun, June 3,

2004, at [].

Opposition from FDA and the Pharmaceutical Industry
Both FDA and the drug industry have continued to oppose the idea of unlimited
importation of drugs. FDA officials assert that FDA cannot vouch for the safety and
effectiveness of imported drugs that come from unregistered and uninspected
facilities, particularly those overseas. Without the safety net of FDA’s “closed”
distribution system, they believe U.S. consumers would not be able to verify where
a drug is made, would not be notified if there is a recall of the product, and could
easily be defrauded with counterfeit drugs. Furthermore, they argue that importing
drugs would have a minimal impact on domestic drug prices while opening the
borders to potential counterfeit products.50
Selected Legislative Proposals
In the first week of the 110th Congress, Members introduced drug importation
bills: S. 242 and H.R. 380, the Pharmaceutical Market Access and Drug Safety Act
of 2007 (introduced January 10, 2007, by Senators Dorgan and Snowe and
Representatives Emanuel and Emerson); and S. 251, the Pharmaceutical Market
Access Act (introduced January 10, 2007, by Senator Vitter). Members of the 109th
Congress had introduced three pairs of bills, none of which was reported. Because
numerous academic and policy panels, news and professional journals, and
committee hearings discussed them, this report uses the provisions in the bill pairs
of the 109th in its presentation of issues that this Congress faces.51 As public
discussions of the bills introduced in the 110th Congress build, updates of this report
will reflect them. The bills from the 109th Congress are:
!The Pharmaceutical Market Access Act of 2005: S. 109,
introduced by Senator Vitter on January 24, 2005, and H.R. 328,
introduced by Representative Gutknecht on January 25, 2005;
referred to in this report as the Vitter-Gutknecht bills.
!The Safe Importation of Medical Products and Other Rx
Therapies Act of 2005, or the Safe IMPORT Act of 2005: S. 184,
introduced by Senator Gregg on January 26, 2005, and H.R. 753,
introduced by Representative Bradley on February 10, 2005; referred
to in this report as the Gregg-Bradley bills.

50 Tom McGinnis, FDA, comments made Feb. 27, 2004 at a session on the “Reimportation
Debate” at the National Medicare Prescription Drug Congress, Washington, D.C., Feb. 25-
27, 2004. On June 30, 2004, FDA and Pfizer began alerting pharmacists and the public
about confirmed counterfeit Viagra sold at two California pharmacies (FDA, “FDA is
Alerting the Public to Counterfeit Viagra Found in Two California Pharmacies,” FDA
Statement, June 30, 2004, at [])
[It is not clear whether the Viagra was imported]; and Hubbard, June 24, 2003.
51 See CRS Report RL33175, Importation of Prescription Drugs: A Side-by-Side
Comparison of Current Law, S. 109 / H.R. 328, S. 184 / H.R. 753, and S. 334 / H.R. 700, by
Susan Thaul and Donna U. Vogt.

!The Pharmaceutical Market Access and Drug Safety Act of

2005: S. 334, introduced by Senator Dorgan on February 9, 2005,

and H.R. 700, introduced the same day by Representative Emerson;
referred to in this report as the Dorgan-Emerson bills. On July 21,
2005, Senator Dorgan successfully offered the drug importation
provisions as an amendment to the Federal Trade Commission
reauthorization bill (S. 1392) approved by the Senate Commerce,
Science and Transportation Committee (but there was no further
action on that bill).52
All the bills seek to balance the availability of imported prescription drugs — for
both commercial and personal use — with the assurance that those imports would be
safe and effective. The underlying goal is to reduce or restrain the growth of the
financial burden that prescription drugs place on U.S. consumers. They all would act
primarily by replacing or amending Section 804 of the FFDCA. A striking difference
between these bills and current law is their elimination of the provision that has so
far been the chief obstacle to imports: HHS Secretary certifications about risk and
cost. Throughout the following discussion of issues, this report refers to provisions
in these bills.
Issues for Congressional Consideration
An individual imports a drug for personal use. A pharmacist or wholesaler
imports a drug for commercial use. A manufacturer imports one of its own drugs.
Each of these situations involves two issues that are at the heart of congressional
!Can we ensure that imported drugs — and how they would be used
— would be safe and effective; and
!If Congress chooses to proceed, how could it craft an
administratively feasible statutory and regulatory drug import
framework that results in U.S. consumers’ gaining access to lower
priced prescription drugs.
Drug Safety and Effectiveness
Health concerns, summarized as safety and effectiveness, focus on two domains.
The first is product integrity — Is the product what the seller purports it to be? The
second is appropriate use — Does this individual need this drug at this time?
Product Integrity. Would an import program make it easier to sell to U.S.
consumers drugs that are adulterated, misbranded, of inaccurate or variable dose,
counterfeit, or not manufactured safely? Opponents of legalization say it would.
They are concerned, as well, that, with the current level of regulatory scrutiny and

52 Elaine S. Povich, “Drug Importation Tacked to FTC Bill,” July 21, 2005, at
[http://nationalj] .

oversight of overseas manufacturing, FDA could not guarantee the integrity of each
shipment, particularly those that arrive by mail. As the volume of imported drugs has
greatly increased in recent years, some commentators have cautioned that inspectors,
who cannot closely examine each and every package, will find it more and more
difficult to keep counterfeit pharmaceuticals out of the country, especially if they
look exactly like FDA-approved drugs and appear to comply with all U.S.
regulations. While less concerned with drugs obtained from Canadian pharmacies,
they worry that some counterfeit drugs produced elsewhere could be shipped to
Canada and then on to U.S. consumers.
Aside from such intentional acts, FDA is concerned with actions that might
inadvertently affect the safety and effectiveness of imported drugs. It cautions that
the labeling of some drugs may not be in English or otherwise lack adequate
directions for use; not have been packaged and stored under conditions appropriate
to prevent degradation; or not have been made under current good manufacturing
practices — all related to requirements for FDA-approved products. If the drugs are
subpotent or ineffective, patients “may suffer complications from the illnesses that
their prescriptions were intended to treat, without ever knowing the true cause.”53
Although each of these circumstances could adversely affect a U.S. consumer, the
FDA has — or could be given — options with which to address many of these threats
that are less drastic than a total ban on drug importation. It could define and require
appropriate labeling in English; it could set a certification standard; it could enforce
the law’s requirement that prescription drugs require prescriptions, adding that the
prescriber must be licensed in the United States; and it could encourage
anticounterfeiting technology or increase border and mail inspections. The expense
of these activities, however, would diminish the apparent price differential between
U.S. and foreign-dispensed drugs. To what degree is a matter of debate.
All this raises the question: To ensure the safety and effectiveness of drugs sold
to U.S. consumers, how can the Congress and FDA decide which drugs could be
eligible for import?
Drug Eligibility and FDA-Approval Status. Most proposals would require
that the drugs be FDA-approved, meaning that they have gone through the rigorous,
FDA-required and substantiated process of safety and effectiveness testing and are,
therefore, approved by the FDA for sale in the United States. These bills would
prohibit the importation of biologics and controlled substances; imported
pharmaceuticals that do not meet these U.S. standards and are not manufactured
under FDA regulatory oversight would be considered “unapproved” drugs and could
not be imported legally.
Current law and the Vitter-Gutknecht and Gregg-Bradley bills explicitly require
that an imported drug be approved for sale by the FDA. The Dorgan-Emerson bills

53 Testimony of FDA Associate Commissioner for Regulatory Affairs John Taylor, in U.S.
Congress, Senate Committee on Health, Education, Labor, and Pensions, Importation of
Prescription Drugs, hearings, 108th Cong., 2nd sess., May 20, 2004 (hereafter “Taylor, May

20, 2004”).

allow different administrative requirements for importation, while maintaining the
substantive elements of FDA approval prior to importation. The Dorgan-Emerson
bills require that a manufacturer notify the HHS Secretary when a drug that could be
imported differs from the version FDA had approved for sale in the United States
(the “U.S. label drug”). They require extensive information about whether the
difference, if it were to be made to a U.S. label drug, would require a supplemental
application to FDA and whether FDA would require that the application be processed
before the drug could be marketed.
The Gregg-Bradley bills require that imported drugs be labeled as imported and
not be commingled with actual FDA-approved drugs. A U.S. drug store could then
have two supplies of one pharmaceutical: the imported drug and the one that came
through the U.S. distribution system. Some have characterized this as a “two-tiered
system,” implying an actual or perceived difference in quality.
Permitted Countries. With product integrity in mind, legislators could look
to limit permitted countries to those with regulatory approval systems similar to those
in the United States. The three bill pairs and current law vary in the countries from
which they would permit importation. The most inclusive are the Vitter-Gutknecht
bills,54 which include Australia, Canada, Israel, Japan, New Zealand, South Africa,55
Switzerland, members of the European Union, Iceland, Liechtenstein, and Norway.
They also allow the Secretary to designate additional countries that have equivalent
regulatory requirements regarding safety and effectiveness or to remove a country
that does not.
The Dorgan-Emerson bills differ from the Vitter-Gutknecht bills by excluding
Israel, South Africa, and members of the European Economic Area that are not also
members of the European Union (excluded are Iceland, Liechtenstein, and Norway),
and, for European Union countries, by adding a reference to their Annex to the Treaty
of Accession that essentially disqualifies the ten countries admitted to membership
in May 2004 (excluded are Cyprus, the Czech Republic, Estonia, Latvia, Lithuania,
Hungary, Malta, Poland, Slovenia, and the Slovak Republic).
The Gregg-Bradley bills include Canada and allow the Secretary, three years after
enactment, to designate as eligible any members of the European Union as of
December 2003. Current law, subject to the Secretary’s certification, includes only
Canada, although it allows the Secretary to grant waivers permitting personal-use
importation from other countries.

54 In one of the very few differences between S. 109 and H.R. 328, the Gutknecht bill
restricts European Union members to those included as of December 31, 2003.
55 When the importation bills were drafted in 2003 and early 2004, the 15 member countries
of the European Union were Austria, Belgium, Denmark, Finland, France, Germany, Greece,
Ireland, Italy, Luxemburg, Netherlands, Portugal, Spain, Sweden, and the United Kingdom.
On May 1, 2004, ten additional countries joined: Cyprus, the Czech Republic, Estonia,
Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, and the Slovak Republic.

Ensuring Drug Identity. What procedures might help verify that the drugs are
what they say they are? The approaches vary and include registration, testing,
monitoring and inspections, packaging and labeling, recordkeeping that could include
chain-of-custody pedigrees, and penalties, in varying degrees.
Registration. All three bill pairs require that commercial participants (be they
owners, operators, agents, wholesalers, pharmacies, or pharmacists) register with
FDA, providing information such as the name and address of the importer and what
they are importing, the name and addresses of every place of business of the exporter
that relates to the drugs, including each warehouse or other facility owned or
controlled by, or operated for, the exporter. The Vitter-Gutknecht bills require that
only exporters register; the Gregg-Bradley and Dorgan-Emerson bills would have
both exporters and commercial importers register. These registration requirements
would enable regulatory enforcement and establish responsibility for consumer and
government inquiries.
Recordkeeping. To ensure that imported drugs come from safe sources, the
legislative proposals require extensive recordkeeping of transactions involving a
drug. Current law contains elaborate requirements: drug importers would have to
provide the name and amount of the active ingredient of the drug, the dosage form
of the drug, the date the drug is shipped, the quantity shipped, information about its
origin and destination, the price paid by the importer, the original source of the drug,
the amount of each lot received from that source, the manufacturer’s lot or control
number, and the importer’s name, address, and license number. There are other
tracking records that must be kept. The importer is required to provide any other
information that the Secretary determines is necessary to ensure the public health.
The Vitter-Gutknecht bills have almost identical requirements to current law.
The Gregg-Bradley and Dorgan-Emerson bills require that chain-of-custody records
be kept for two years. They also require that the wholesale distributor of record
provide to the recipient of an imported drug, information regarding all previous sales,
purchases, or trades of the drug including the identity of the distributors and provide
information such as dates and names and addresses of all parties to each transaction.
The wholesaler must also maintain for Secretarial inspection for two years records
of all previous and all subsequent transactions. The point of this required detailed
information is to make it more difficult for counterfeit drugs to slip into the
distribution chain. The Dorgan-Emerson bills also require that the Secretary
randomly review records of exports to individuals for personal use.
Product Testing and Facility Monitoring and Inspection. The Customs and
Border Protection Service (CBP) is responsible for checking all imported goods
coming into this country. When CBP officials suspect that an FDA-regulated product
is being illegally imported either by mail or in personal baggage, they often refer the
package to FDA border officials. FDA officials report that the monitoring of even
the current wave of drug products has become a tremendous enforcement problem
for both CBP and FDA inspectors.56

56 Taylor, May 20, 2004.

To demonstrate how difficult enforcement has become, FDA released on January
27, 2004, a report on a second import “blitz” it conducted with the U.S. Bureau of
Customs and Border Protection (CBP) in six courier hubs and mail centers around
the country. They examined almost 2,000 mailed packages (about 80% of them came
from Canada) that appeared to contain FDA-regulated products and found that 87%
did. The FDA reported finding recalled drugs, foreign-versions of FDA-approved
drugs, drugs requiring close physician monitoring, and addictive controlled
substances.57 The FDA and CBP press statements did not provide sufficient detail
to allow an assessment of the validity of the operation’s methodology or the
agencies’ conclusions. Without that, the extent to which these products were indeed
a health threat to U.S. consumers is unclear. What is clear is that any pharmaceutical
product imported by anyone other than the manufacturer is considered to be an
unapproved drug. Therefore, since only FDA-approved drugs can be sold in the
United States, all drugs currently being imported for personal use or that would be
imported under some of the state initiatives would be unapproved and deemed illegal.
Current law requires that the importer or manufacturer certify that the drug is
FDA-approved, properly labeled, not adulterated, and not misbranded, provide
laboratory records of authenticity testing, including data, and evidence that testing
was conducted in an approved U.S. laboratory. The Vitter-Gutknecht bills reflect
similar requirements to current law, and also include that the importer certify that the
drug is FDA-approved and provide laboratory records of authenticity testing if the
drugs were not in counterfeit-proof packaging.
The Gregg-Bradley and Dorgan-Emerson bills approach this differently. Rather
than call for laboratory testing of drug samples, they start with the assertion that the
FDA-approved manufactured product has passed inspection as safe and effective and
then require chain-of-custody documentation covering every transfer until the drug
reaches the importer. Enforcement includes ongoing and onsite physical monitoring
of a drug’s manufacturer, registered exporters and importers, and records of all
transactions involving the drug.
The Dorgan-Emerson bills require that the exporter permit the Secretary to assign
one or more employees to conduct day-to-day on-site continuous monitoring of
warehouses or other exporter owned, controlled, or operated facilities that relate to
qualifying drugs; to have day-to-day access to records including financial records; to
verify the chain of custody of each qualifying drug, monitor markings, and sample
the exported drugs to assure compliance; and to carry out other functions that the
Secretary determines necessary regarding compliance. The Secretary may allow
periodic, rather than day-to-day, inspections of a business with sufficient history of
In addition, both bill pairs would authorize the federal government to sample and
inspect drugs to prevent the importation of adulterated, misbranded, or
non-FDA-approved drugs from entering the country. The Gregg-Bradley bills also

57 U.S. Food and Drug Administration, “Recent FDA/US Customs Import Blitz Exams
Continue to Reveal Potentially Dangerous Illegally Imported Drug Shipments,” press
release, Jan. 27, 2004, pp. 4-7.

allow the Secretary to form an agreement with another federal agency or a state for
its employees to conduct examinations and investigations to enforce compliance.
However, the Secretary would also need to give adequate training and
reimbursement, with required reporting to Congress of the joint activities.
Regulating Internet Pharmacies. Use of the Internet — which poses
challenges for all kinds of drug distribution — creates some special difficulties when
it comes to imports.58 Existing laws that govern mail-order, out-of-state, or
nonresident pharmacies cannot effectively protect consumers because some “rogue”
pharmacies and distributors operate one day and disappear the next. Online
questionnaires can jeopardize the legal privacy protections of a patient’s medical
records and could lead to a misdiagnosis.59
Current law does not address use of the Internet to sell or purchase imported
prescription drugs. The Vitter-Gutknecht bills have no provisions specifically related
to Internet pharmacy procedures, but include qualified Internet pharmacies among
other registered exporters and the extensive associated requirements. The Gregg-
Bradley and Dorgan-Emerson bills do address Internet sales. Their provisions
address registration, posted information, prescriptions, and relationship to medical
The Gregg-Bradley bills present an extensive statutory and regulatory structure
for Internet pharmacies, placing it in the FFDCA but set apart from the importation
sections. In addition to registration, the bills require that Internet pharmacies provide
specific professional services, including confidential patient medication profiles,
“interactive and meaningful consultation by a licensed pharmacist,” and verification
of prescription validity. They require advance notice of commercial shipments of
prescription drugs and include a licensing fee. Providers of interactive computer
services are liable if they accept advertising for a prescription drug from an
unlicensed Internet pharmacy or accept advertising stating that a physician’s

58 The Internet is a potent modality for the efficient sale and purchase of all types of
merchandise, including pharmaceuticals. Advantages include cost savings because of
comparative shopping for consumers and bulk purchases by mail order pharmacies;
consultations with the pharmacist in the privacy of the home; privacy of prescriptions sent
over secure lines; alternative source for information about a drug; and, potentially, more
accurate records. For consumers, the comfort of anonymity in purchasing certain drugs is
a plus as often is the range of products offered over those of the local pharmacy. For
websites, the same anonymity works to the retailer’s advantage as does the ability to interact
with many more consumers. Many analysts believe the movement toward electronic
prescribing meshes well with Internet sales. Electronic prescribing has given physicians,
pharmacists, and consumers convenience by saving the time it takes to answer calls and
faxes to verify unclear prescriptions; reducing the number of prescribing errors with the use
of computer software programs that can check for conditions that contraindicate certain
medications, patient history of allergic reactions, adverse drug interactions, and confusion
between similarly named drugs; quickly determining if the drug is on an insurer’s formulary
(an approved list of drugs for reimbursement); and eliminating problem handwriting
59 See CRS Report RS21711, Legal Issues Related to Prescription Drug Sales on the
Internet, by Jody Feder.

prescription is not needed to obtain a prescription drug. The Gregg-Bradley bills also
require policies and procedures to prevent payments for unlawful Internet pharmacy
requests. FDA would establish a fee system based on anticipated costs of enforcing
these requirements.
The Dorgan-Emerson bills require that detailed information be accessible on the
Internet site, covering pharmacist credentials, address and telephone contacts, and the
name and professional licensure information of the person, if any, who provides for
medical consultations through the site for purposes of providing prescriptions. No
one can dispense or sell a drug if the purchaser or patient communicated through the
Internet did not have a valid U.S. prescription. The dispenser must also have a
“qualifying medical relationship with the patient.”
Several other bills were introduced in the 109th Congress to ensure the integrity
of drugs purchased over the Internet.60 Not all of these deal specifically with imports.
Controlling Advertising and Credit on Online Search Engines. Some
online search engines, such as Yahoo, Microsoft’s MSN, and Google, announced in61
2003 that they would not accept advertising from certain Internet pharmacies. The
House Energy and Commerce Committee asked credit card and courier companies,
such as Visa, MasterCard, FedEx, and UPS, to investigate ways to stop illegal
marketers from using their services.62 The Gregg-Bradley bills make providers of
advertising services on the Internet liable if they accept advertising for a prescription
drug from an unlicensed Internet pharmacy or accept advertising stating a physician’s
prescription is not needed to obtain a prescription drug. The bills require regulations
for a payment system that could prevent or block restricted transactions and exempt
from liability any actions blocking or refusing to honor a restricted transaction. They
also require that FDA develop regulations to prevent payments for unlawful Internet
pharmacy requests and set up a system through grants or contracts to identify
unlicensed Internet pharmacy websites or those in violation of federal or state laws.
Finally, they require that FDA promulgate regulations consistent with the National
Association of Boards of Pharmacy Verified Internet Pharmacy Practice Sites
program, known as VIPPS, which certifies, based on on-site inspections and record

60 Bills in the 109th Congress: H.R. 578 (Prescription Drug Affordability Act, introduced
by Rep. Paul on Feb. 2, 2005); H.R. 840 (Ryan Haight Internet Pharmacy Consumer
Protection Act of 2005, introduced by Rep. Davis on Feb. 16, 2005); H.R. 3608 (Internet
Drug Sales Accountability Act, introduced by Rep. Sweeney on July 28, 2005); and S. 399
(Internet Pharmacy Consumer Protection Act or the Ryan Haight Act, introduced by Sen.
Coleman on Feb. 16, 2005).
61 Gilbert M. Gaul and Mary Pat Flaherty, “Google to Limit Some Drug Ads; Web Giants
Asked to Help Discourage Illicit Online Pharmacies,” The Washington Post, Dec. 1, 2003,
p. A1.
62 Gilbert M. Gaul and Mary Pat Flaherty, “Firms Pressed on Internet Drugs: Senate Panel
Writes to Credit Card Companies, Shippers,” The Washington Post, Dec. 10, 2003, p. A4;
and “Credit Card Firms, Shippers Willing To Help Stop Illegal Online Rx Sales,” Mar.

2004, at [].

reviews, that a pharmacy meets state licensure and registration requirements and
follows procedures appropriate for Internet practice.63
The Dorgan-Emerson bills state that a provider of an interactive computer service
or of advertising services would not be held liable for the selling or dispensing of
drugs in violation of this section if that provider does not own or exercise corporate
control over the person selling or dispensing drugs. They also direct the Secretary
to review practices of public and private entities that certify Internet businesses.
Authorizing appropriations, they direct the Secretary to have the Clearinghouse on
Internet Prescribing identify sites that appear to violate drug dispensing laws.
Packaging and Labeling. To reduce risks to safety such as adulterated and
counterfeit drugs, some suggest requiring tamper-resistant and anti-counterfeit
packaging, along with proper use instructions on the labeling. Others suggest that the
agency also educate the public on counterfeit packaging detection. Critics of these
proposals argue that the pharmaceutical industry would pass the cost of the new
packaging requirements to consumers, cutting down the amount saved from
The HHS-appointed Counterfeit Drug Task Force explored a multi-pronged
approach to the use of technologies that can better identify, deter, and combat the
counterfeiting of prescription drugs. The major recommendation in its February 2004
final report was for the use of an electronic pedigree using radio frequency
identification (RFID) technology to “track and trace” drugs from manufacturing plant65
to local pharmacy. RFID places electromagnetic chips and tags containing a unique
serial number onto cartons and individual drug products.66 FDA is encouraging, not
requiring, use of RFID, which in addition to blocking counterfeit drugs could help
companies more accurately manage their inventories.67 Drugmakers are considering68

whether to adopt the technology, albeit cautiously because of its cost.
63 Testimony of Executive Director/Secretary Carmen A. Catizone, National Association of
Boards and President and CEO Craig Fuller, National Association of Chain Drug Stores, in
U.S. Congress, House Committee on Government Reform, Mar. 18, 2004.
64 Comments made by Ronald Guse, Registrar, Manitoba Pharmaceutical Association,
National Association of Pharmacy Regulatory Agencies (Canada) at a conference on “Safety
and Security in North American Trade,” Center for Strategic and International Studies, July

16, 2003.

65 “HHS takes new steps to protect consumers from counterfeit drug threats,” HHS News,
Feb. 18, 2004; and FDA, “Combating Counterfeit Drugs: A Report of the Food and Drug
Administration,” Feb. 2004, at
[http://www.fda.go v/ oc /initiatives/counterfeit/report02_04.html ].
66 “Protecting Consumer From Counterfeit Drugs,” FDA Consumer, May-June 2004.
67 John Wilkerson, “FDA Won’t Require ‘Paper Pedigree’ Under New Plan To Combat
Counterfeit Drugs,” Feb. 18, 2004 at [].
68 “FDA Sees Promise of RFID Technology; Drugmakers Question Feasibility,” Mar. 2004,
at [].

Several bills require that medications from overseas come in anti-tampering and
anti-counterfeit packaging. The Vitter-Gutknecht bills include extensive prescription
drug packaging — not only for imports.69 The Gregg-Bradley bills take a different
tack. They require the drug container to have a prominent and conspicuous label that
includes the lot number; the name, address, and phone number of the drug
importation facility; a statement that the drug was imported, naming the country from
which it came; and a unique, identification code indicating that the drug has been
imported, based on the national drug code of the prescription drug. In addition, it
requires that the FDA establish a “Counterfeit Alert Network” to notify health
professionals and the public of counterfeit drugs; develop, publish, and keep
up-to-date an Internet accessible reference document to identify prescription drugs
marketed in the United States, Canada, and other countries as the Secretary permits.
The Dorgan-Emerson bills mandate that the FDA, during inspections, verify the
chain of custody of a statistically significant sample of the drugs that are to be
imported. This sampling and compliance with the chain-of-custody requirements
may be accomplished by the use of anticounterfeiting or track-and-trace technologies.
In addition to their concern about packaging costs being transferred to the
consumer, critics argue that this technological solution may take years to implement.
Appropriate Use. At hearings and in letters, FDA has raised a concern about
the growing number of patients, particularly those now using Internet links to
pharmacies based either in the United States or overseas, who are buying and taking
medications without the traditional safeguards of a medical diagnosis and a doctor’s
prescription. The FFDCA defines a prescription drug as one that, “because of its
toxicity or other potentiality for harmful effect, or the method of its use, or the
collateral measures necessary to its use, is not safe for use except under the
supervision of a practitioner licensed by law to administer such drug.”70 FDA has
outlined the risks to consumers who get drugs without the knowledge of a physician,
such as through Internet purchases from illegitimate pharmacies. For example, the
“patient may be practicing what amounts to self-diagnosis. Consequently, the risk
of negative outcomes such as harmful drug interactions, contraindications, allergic71
reactions or improper dosing is potentially magnified.” Furthermore, persons who
unknowingly take an ineffective product forgo the opportunity to receive the72

appropriate treatment.
69 The Vitter-Gutknecht bills require manufacturers to incorporate overt optically variable
counterfeit-resistant technology or those equally effective. The technologies employed must
provide visible identification of the product and be similar to those used by the Bureau of
Engraving and Printing to secure U.S. currency. Also, manufacturers must incorporate the
technologies into multiple elements of the packaging for prescription drugs, and shipping
container labels must incorporate technologies that enable inspectors to verify the
authenticity of the shipment.
70 Section 503(b) of the Federal Food, Drug, and Cosmetic Act.
71 William K. Hubbard, Associate Commissioner for Policy and Planning, FDA, statement
before the U.S. Congress, House Committee on Government Reform, Mar. 18, 2004.
72 The Internet Pharmacy Consumer Protection Act (H.R. 3880) would, among other things,
prohibit sales when the patient did not have a valid U.S. prescription before communicating

Safe and effective drugs can be unsafe or ineffective if they are not taken
appropriately. This potential danger accompanies any medication used without
adequate instruction and follow-up, even if dispensed domestically according to a
valid prescription. If an import program inadvertently were to give individuals easier
access to prescription drugs through the Internet, its design, many feel, should
prevent unsupervised or otherwise inappropriate use of those safe and effective
Even though since 1988 it has been technically illegal for anyone other than the
manufacturer to import prescription drugs, a large number of people (especially
seniors, according to popular belief) are doing it. Congress declared in the MMA
that the Secretary should use discretion when enforcing the current legal prohibition
against persons importing drugs or devices. The MMA also added to current law a
requirement to take effect if the Secretary certifies the safety and cost savings of the
commercial importation sections. It would then require FDA to grant waivers, by
regulation, so persons can import for personal use up to a 90-day supply of an
FDA-approved prescription drug from a licensed pharmacy in Canada, so long as the
drug’s final dosage form was made in an FDA-registered facility, came from a
registered Canadian seller, was accompanied by a valid prescription, and was
imported under conditions that ensure public safety. The Secretary may also grant
waivers in other circumstances.
The Vitter-Gutknecht bills also use the waiver mechanism for personal-use
imports, but they require the Secretary to do so within 180 days of enactment without
the certification requirement. Rather than using a waiver, the Gregg-Bradley and
Dorgan-Emerson bills allow an individual to import up to a 90-day supply of a
qualifying drug if the drug is accompanied by: a copy of a prescription that is valid
under federal and state laws and was issued by a practitioner who, under the law of
the state in which the individual resides, is authorized to administer drugs. To
prevent duplicative filling by another pharmacist, all prescriptions must be marked
to indicate they have been filled. The Gregg-Emerson bills also allow an individual
to import a 90-day supply prescription drug from Canada or a permitted country for
their personal use if the drug is purchased from a licensed pharmacy and is
accompanied by a copy of a valid prescription signed by a prescribing physician in
a state. The Gregg-Emerson bills add that the prescription must be cosigned by a
prescribing physician in Canada or the permitted country. If the imported
prescription drug is an over-the-counter (OTC) drug in the country of purchase, then
the purchaser would have to have a valid prescription signed by the pharmacist in
Canada or a permitted country. This bill pair is the only one that mentions
“compassionate use,” permitting an individual to import up to a 90-day supply of a
drug that is not approved by FDA if it is to be used to continue treatment begun in
a foreign country for a serious medical condition.

72 (...continued)
with the Internet dispenser and when the prescriber did not have a qualifying medical
relationship with the patient, which must include at least one in-person medical examination.

Program Feasibility
Design of a successful import policy would need to overcome several obstacles,
chiefly those involving cost and pharmaceutical industry response.
Costs of a New Import Regulatory Program. An import program would
entail initial costs of rulemaking and continuing costs of managing the product and
information from both exporters and importers. HHS would need to develop two sets
of oversight protocols. The first would help legitimate consumers get safe and
effective medications as prescribed by their physicians. The second would prevent
and deter individuals from purchasing drugs that FDA has not monitored — and for
whose safety and effectiveness it cannot, therefore, vouch — for unsupervised use.
At a March 2004 congressional hearing, one FDA official estimated that a drug
import program’s cost would compare to what FDA spends on regulating food
imports under the bioterrorism law which amounts to several hundred million
dollars.73 Another FDA official reportedly stated at a May 2004 congressional
hearing that FDA’s estimated costs for a program are “hundreds of millions of dollars
to ... ensure the safety of products coming into the U.S.”74 According to one FDA
official, the cost of a program could be much greater than anticipated. He contends
that FDA would need enough funding to inspect all 55,000 U.S. pharmacies and75

7,000 U.S. wholesalers that would have to register with the agency.

Current law includes no explicit funding mechanism other than authorizing
appropriations of such sums as necessary to implement the prescription drug
importation provisions, and FDA uses appropriated funding to inspect and monitor
imports. Alternative funding options to cover inspection, recordkeeping, and quality76

control costs include fees charged to the exporter and the importer.
73 “$58 million for Canadian Rx Reimportation Based on Outdated Estimate,” Inside
Washington’s FDA Week, Mar. 19, 2004. At a House Appropriations subcommittee hearing
regarding the President’s proposed FY2005 FDA budget, FDA’s deputy commissioner
estimated it would cost FDA $58 million to start a program to ensure import safety (Lester
M. Crawford, Deputy Commissioner, FDA, response to questions at House Appropriations
Committee hearing, Mar. 11, 2004; and John Wilkerson and Veena Menon, “Crawford Says
Drug Importation Program Would Cost $58 Million,” Daily
Updates, Mar. 11, 2004).
74 Comment was made by John Taylor, FDA Associate Commissioner for Regulatory Affairs
at the Senate Health, Education, Labor and Pensions Committee hearing on May 20, 2004
(Lise Richwine, “Drug Import Plan Would Be Costly — Officials,” Reuters, May 20, 2004,
at []).
75 “Rx Import Plan Would Require Funds to Inspect All U.S. Pharmacies — FDA,” The Pink
Sheet, vol. 66, no. 25, June 21, 2004, p. 35.
76 These costs are for monitoring foreign facilities; developing, implementing, and
maintaining a system to mark shipments to indicate registration compliance; and conducting
inspections within the United States to determine compliance with required conditions for
importers and for imports for personal use.

The Vitter-Gutknecht bills not only authorize appropriations but also would
provide for exporter fees to cover the cost of administering the import provisions.
The Gregg-Bradley and Dorgan-Emerson bills provide for both exporter and
commercial importer fees designed to cover all costs of the program.
All three bills link the aggregate total of all fees to the estimated costs of the
importation program, setting a limit of 1% of the total price of drugs imported. The
Secretary would collect from each exporter (and importer, except in the
Vitter-Gutknecht bills) both a flat registration fee and a fee calculated to represent the
estimated proportion of the aggregate amount for which the individual importer or
exporter’s activity accounted. The bills require that these fees be used only for the
administration of the importation provisions that the bills would add.
Supporters argue that the broader based user fee system could give the agency
resources necessary to police the imports. Critics contend, however, that the fee
proposals are excessive and likely to preclude the participation of many small
pharmacies.77 Furthermore, the importers who do pay registration costs and annual
fees may pass these costs on to consumers.
Drug Industry Behavior. Pharmaceutical companies have opposed proposed
legislation permitting drug imports, claiming that the safety of these drugs cannot be
assured. How would they react to the new laws?
Limiting Supplies. Several companies have begun to manipulate the supply
of drugs, particularly to Canada, which some see as actions to circumvent the purpose
of any legislation.78 In May of 2004, the Minnesota Seniors Foundation filed a class
action suit in federal court against nine pharmaceutical companies (Abbott
Laboratories, Boehringer Ingelheim, GlaxoSmithKline, AstraZeneca, Pfizer, Eli
Lilly, Merck, Novartis, and Wyeth) claiming they were curtailing the supply of
pharmaceuticals to Canadian wholesalers and pharmacists and had acted together to
impede the importing of brand drugs from Canada to keep prices high for American
consumers.79 In September 2005, a federal judge dismissed that suit, although a

77 In comments made public, former FDA Commissioner, David Kessler, concluded that the
1% could result in up to $100 million in new resources which would double FDA’s current
drug center field budget (“Kessler: Kennedy Bill Would Give FDA Enough Money to Run
Rx Imports,” Daily Updates, June 3, 2004 [Letter from David
Kessler, M.D., Dean, University of California San Francisco School of Medicine, to Senator
Edward M. Kennedy, May 19, 2004, available from CRS]).
78 John E. Calfee, “The High Price of Cheap Drugs: the House Is Tempted by a Terrible
Idea,” Weekly Standard, July 21, 2003; “Drug Dealing,” editorial in Washington Post, July
24, 2003, p. A20; “Merck Targets Drug Reimports,” Washington Post, Jan. 21, 2005; Al
Swanson, “Analysis: Govs lobby for cross-border Rx,” UPI, Jan. 20, 2005; David Gram,
“Vt. may sue pension funds in fight for Canadian drugs,” Associated Press, Nov. 30, 2004;
and “Reimportation: Canadian pharmacy, patient groups call for ban,” American Health
Line (National Journal Group, Inc.), Oct. 19, 2004.
79 Tom Majeski, “Seniors Sue Drug Makers; Federal Suit Seeks Class-Action Status,” Saint
Paul (Minnesota) Pioneer Press, May 20, 2004.

similar lawsuit filed by the Minnesota attorney general is still pending in state court.80
According to reports, when these companies calculate that the amount of drugs
Canadian wholesalers (and pharmacies) are ordering is above the normally needed
supply to the Canadian market, they cut or withhold from future shipments the
percentage they feel is destined to fill prescriptions from American consumers.81
Perhaps in response to a threat to their supply of pharmaceuticals, the Canadian
International Pharmacy Association decided in December 2003 that its 27-member
mail-order pharmacy association would not sign formal agreements with U.S. states
and cities.82 The Minister of Health in the previous Canadian government proposed
a legislative package to ban Canadian commercial exports of prescription drugs and
to more tightly regulate sales to foreign individuals.83 New bills are pending in
Canada, but the current government is waiting to act until it sees that Canadian
supplies are threatened.84 If drugmakers do restrict or tighten supplies of
pharmaceuticals to Canadian suppliers, some anticipate that a U.S. drug import
program could, inadvertently, cause drug prices to rise in Canada and reduce
Canadian residents’ access to some drugs.
The Vitter-Gutknecht and Dorgan-Emerson bills would restrict drug companies
from controlling their sales to foreign pharmacies. Some argue that these provisions
would be unconstitutional and would probably violate both the takings clause of the
Fifth Amendment and the patent clause of Article 1 of the Constitution.85 The Gregg-
Bradley bills also would permit the Secretary to decide after three years whether
supplies are the hindering factor for imports, and to permit drug imports from the 15-
member European Union three years after enactment.
The American Association of Retired Persons (AARP) believes that provisions
in the Dorgan bill would hinder the ability of drug companies to limit the supply of
pharmaceuticals to foreign pharmacies and that the Gregg bill would not. AARP has,
therefore, come out with strong support for the Dorgan bill.86

80 David Phelps, Tom Buckingham, and staff writers, “Business Insider; Inside Track,” Star
Tribune (Minneapolis, Minnesota), Sept. 5, 2005.
81 “Pfizer Halts Supply to Canadian Pharmacies Reimporting Drugs to U.S.,” Drug Industry
Daily, vol. 1, no. 28, Mar. 3, 2004 at [].
82 “Large Scale Reimportation Efforts Rebuffed by Canadian Mail-order Group,”
Washington Drug Letter, vol. 36, no. 1, Jan. 5, 2004.
83 David Struck, “Canada to Restrict Exports to U.S. of Prescription Drugs; Bulk
Prescription Sales Would Be Banned,” Washington Post, June 30, 2005; and Alan Freeman
and Gloria Galloway, “Congress planning new stab at drug legislation; Bill would allow
importation from Canada, Europe,” The Globe and Mail (Canada), Dec. 23, 2006.
84 Michelle Macafee, “Groups ask Ottawa to ban drug exports before U.S. Congress
legalizes trade,” Canadian Press, Nov. 23, 2006.
85 “Gregg Reimportation Bill Enters Fray,” Medicine and Health, June 7, 2004.
86 “AARP Backs Prescription Drug Import Legislation,” at [
l e gi s l a t ive/prescriptiondrugs/ rxprices/watchdog/ A r t i c l e s / a 2004-06-29-importlegi slation.
html]; and “Prescription Drug Importation: Can it Help America’s Seniors?,” speech by
AARP CEO William Novelli, June 22, 2005, at [

Changing Formulations. Pharmaceutical companies have other ways to
circumvent what they view as the adverse financial impact of legal importation. For
example, companies may export drugs that have different nonpharmacologic
characteristics (e.g., color, size, shape, or dosages) than the FDA-approved
counterpart product intended for retail distribution in the United States. Because
these exported products would, literally, appear different from their FDA-approved
domestic counterparts, they would be deemed unapproved and therefore not qualify
for import under current law and regulations.
The Vitter-Gutknecht and Dorgan-Emerson bills would make it unlawful for a
manufacturer to make a drug for distribution in a permitted country so that it differs
from the drug made for U.S. distribution “for the purpose of restricting importation
of the drug....” Provisions describe involvement of the FTC and the state attorneys
general. The extensive notification requirements in the Dorgan-Emerson bills
regarding differences between a drug a manufacturer produces for sale in a permitted
country and the drug it produces for U.S. distribution could serve, in addition to
addressing safety, to influence industry decisions.
Corporate Investment. Other concerns have been that the larger
manufacturers might curtail their investments in research and development. Industry
spokespeople have not sought to allay those fears, stating, for example, “It is widely
understood that these policies will limit patient choices and stifle the incentives for
research and development of the innovative medicines patients need to treat diseases
like Alzheimer’s, diabetes, heart ailments and cancers.”87 Some economists point out
that while substantial lost income would lead to lower investment, the tipping point
is unknown and difficult to estimate because industry data and internal discussions
are not public. One approach to alter manufacturers’ incentives is tax penalties
pegged to certain actions. None of the currently pending bills includes such88
provisions; bills of the 108th Congress did.
Influencing Behavior with Rewards and Penalties. Implementation of
the importation provisions in current law is restricted by the requirement that the
Secretary certify safety and cost savings. Even were the Secretary to issue the
certification necessary to begin the drug importation section in the FFDCA, many
analysts and Members of Congress anticipate manufacturer resistance.

86 (...continued)
comparisons/prescription_drug_affordability_importation_and_sa.html], visited Oct. 25,


87 Alan F. Holmer, President and CEO, Pharmaceutical Research and Manufacturers of
America, statement on the introduction of importation legislation by Sen. Charles Grassley,
Apr. 8, 2004, at [].
88 S. 2307 of the 108th Congress, introduced by Sen. Grassley, provided for a research and
development tax incentive.

Patent, Intellectual Property, and Trade Issues. A host of questions have
been raised concerning how importation relates to a patent holder’s rights. Variables8990
concerning patent law and international trade agreements may influence decisions
despite being seemingly unrelated to FDA’s responsibility for drug safety and
efficacy and some Members of Congress and the public’s concerns about drug cost
to consumers. The interplay of all the diverse factors will affect importation policy91
and practice.
In February 2005, the negotiations concluded on the U.S.-Australia Free Trade
Agreement. The language of the agreement raised concerns among certain Members
of Congress that the agreement would be used to prevent the importation of
prescription drugs into the United States by limiting a source of supply of drugs and92
possibly setting a precedent for other international free trade agreements.
Australia is listed as a “permitted country” in two of the three pairs of import bills
discussed in this report. The FTA specifically contains a protection for the rights of
patent holders over their patented products including pharmaceuticals. The
agreement reads:
Each Party shall provide that the exclusive right of the patent owner to prevent
importation of a patented product, or a product that results from a patented process,
without the consent of the patent owner shall not be limited by the sale or
distribution of that product outside its territory, at least where the patentee has
placed restrictions on importation by contract or other means. [Article 17:9:4].

89 CRS experts in foreign trade and law have produced reports relevant to this discussion;
for example, CRS Report RL32400, Patents and Drug Importation, by John R. Thomas; and
CRS Report RS21129, Pharmaceutical Patent Term Extensions: A Brief Explanation; CRS
Report RL30756, Patent Law and Its Application to the Pharmaceutical Industry: An
Examination of the Drug Price Competition and Patent Term Restoration Act of 1984 (‘The
Hatch-Waxman Act’), and CRS Report RL32377, The Hatch-Waxman Act: Legislative
Changes Affecting Pharmaceutical Patents, by Wendy H. Schacht and John R. Thomas.
90 Although there were strict requirements in the recent World Trade Organization
agreement on the humanitarian import of generic versions of patented pharmaceuticals to
prevent shipments of these generic drugs from entering developed countries, some have
questioned whether these arrangements are enough to prevent cross-shipments of these
drugs from being imported into the United States.
91 An Aug. 2003 World Trade Organization (WTO) General Council decision seeks to
ensure that intellectual property rights do not keep countries lacking the capacity to produce
medicines for themselves from obtaining them from abroad. Under the agreement, countries
that provide medicines covered by this decision are expected to limit production of these
generic drugs to amounts needed for public health dangers such as HIV/AIDS, malaria, and
tuberculosis, and not use the opportunity for commercial ventures. This decision was
incorporated as an amendment to the WTO Trade Related Aspects of Intellectual Property
Rights (TRIPS) agreement in December 2005. WTO News, “Decision Removes Final Patent
Obstacle to Cheap Drug Imports,” press release 350, Aug. 30, 2003, at [
english/news_e/pres03_e/pr350_e.htm]. See also CRS Report RL33750, The WTO,
Intellectual Property Rights, and the Access to Medicines Controversy, by Ian F. Fergusson.
92 See CRS Report RL32375, The U.S.-Australia Free Trade Agreement: Provisions and
Implications, by William Cooper.

This provision means that no drug can be imported to the United States from
Australia without permission of the U.S. patent holder.93 If pharmaceutical
companies contractually or otherwise place restrictions on sales, a common industry
practice, they would have the right to control the sales of their drugs within and
outside the United States. The Vitter-Gutknecht and Dorgan-Emerson bills would
prohibit such behavior.
Australia subsidizes the cost of pharmaceuticals to its residents. To control its
own costs, the government, through its Pharmaceutical Benefits Scheme (PBS),
selects the lowest priced brand among competing producers of a specific drug in a
therapeutic class and pays only that amount. Australia’s PBS already prohibits
export of the prescription drugs it subsidizes (about 90 to 95% of Australian drug
purchases).94 Only for U.S.-patented drugs that PBS does not cover would this
agreement add restrictions. Of broader concern, though, is the precedent that this
FTA may set in prohibiting certain kinds of imports.95
A 2004 CBO report describes the purpose of patents. While the manufacturer
holds the patent on a new product, it is allowed to set the price high where feasible
and adjust the price in response to price sensitivities elsewhere.96 In a 2001 court
case, Jazz Photo Corporation v. International Trade Commission, the judge in the
U.S. Court of Appeals for the Federal Circuit ruled that if a company has a U.S.
patent on a product and sells it abroad, the company retains its U.S. patent rights.97
The ruling might prevent importation of drugs under the proposed bills because,
under it, drug companies would be able to sue another importer for patent
infringement if the importer was bringing in U.S. patented drugs first sold abroad.
This principle would apply to either U.S. patented drugs made here or those made
under license in foreign manufacturing facilities. According to FDA estimates,
foreign-made FDA-approved drugs account for about 40% of the drugs sold here.98

93 In reaction to reports that the draft agreement would “prohibit the re-importation to the
United States of medicines covered by Australia’s pharmaceutical benefits scheme,” Senator
Grassley charged, in Feb. 2004, that by including this language in the agreement, the
executive branch “intruded on the congressional debate over access to drugs for U.S.
seniors” (Martin Vaughan, “Grassley Says Australian Drug Provision Intrudes on Hill
Debate,” Congress Daily, Feb. 10, 2004). The U.S. free trade agreements with Morocco and
Singapore have similar provisions.
94 “U.S.-Australia Trade Pact Lacks Language Banning Drug Exportation,” The Pink Sheet,
Mar. 15, 2004, p. 5; and telephone conversation with Lisa Cohen, Office of the U.S. Trade
Representative, July 2004.
95 John Wilkerson, “Reimportation Ban in Australia Pact Could Affect Domestic Policy,”
Inside Health Policy, Feb. 10, 2004, at [
96 CBO, “Would Prescription Drug Importation Reduce U.S. Drug Spending?” CBO
Economic and Budget Issue Brief, Apr. 29, 2004, at [].
97 264 F.3d 1094 (Fed. Cir. 2001).
98 “Rx Drug Importation Foes Argue Plan Would Cause U.S. Job Loss,” Inside Health

Consequently, unless legislative proposals to import drugs address this patent issue,
implementing them might be difficult.99
The Vitter-Gutknecht and Dorgan-Emerson bills address the issue and would
reverse judicial precedent holding that sales of patented goods outside the United
States do not exhaust the U.S. patent. Under the bills’ provision, goods that were the
subject of authorized foreign sales by the U.S. patent holder may be imported into the
United States without regard to the U.S. patent. Currently, the owner of the U.S.
patent can sue if a product first sold abroad is imported without the consent of the
patent holder. Critics complain that this would deny these companies recourse to the
courts if drug imports were made legal.100 The Gregg-Bradley bills would not
penalize pharmaceutical companies for discriminating against foreign pharmacies
who export drugs to U.S. consumers.
Cost Savings from Drug Importation
Would an import program save U.S. consumers money? Would it increase access
to lower priced foreign drugs? Would it actually lower prices in the months that
follow implementation? Would these prices remain lower a year or two or 10 from
now? It is unclear at this point to what extent these changes in the law if
implemented would have a long-term impact on the cost of pharmaceuticals to U.S.
consumers primarily because the determinants of drug prices are so diverse,
interdependent, and labile.
Market and Competition. Proponents of a more tolerant policy assert that a
drug import program would not only widen U.S. consumers’ access to lower-priced
drugs abroad, but would also increase competition among drug suppliers and lead to
lower domestic prices. Critics argue that an import program is unfeasible, given
industry and FDA opposition. Other critics assert that there is no guarantee that any
savings would be passed on to consumers.
Whether an import program would succeed in lowering the financial burden on
U.S. consumers poses a difficult set of concerns. Even some economists who
support lowering the ban on drug imports believe that prices here and abroad would
converge, leaving U.S. consumers somewhat better off in the intermediate time frame101
and foreign consumers worse off. Potential changes in drug development policy
and longer term markets are hot topics of debate.
It is unclear how much a new program might lower prices of pharmaceuticals for
U.S. consumers — or if it would. Any program would create greater transaction
costs for all drug importers. Studies of the parallel import trade in the European

98 (...continued)
Policy, May 11, 2004, at [].
99 See CRS Report RL32400, Patents and Drug Importation, by John R. Thomas.
100 Letter from Biotechnology Industry Organization, to Sen. Bill Frist, M.D., June 7, 2004.
101 Roger Pilon and John E. Calfee, remarks at debate, “Resolved: Congress Should Remove
the Ban on Drug Reimportation,” The CATO Institute, Washington, DC, Mar. 30, 2004.

Union show that traders, rather than consumers, profit most from the transactions.102
The recent CBO study concluded that any cost savings to U.S. consumers would
likely be minimal because some of the difference in prices would accrue to
wholesalers and other intermediaries to pay for new packaging and labeling, and to
pay insurance for liability risks associated with the safety and quality of the shipped
drugs. Foreign governments may limit the supply of drugs that could be exported
and the drug industry could limit the volume shipped and exercise other maneuvers.
CBO, therefore, estimated that the savings from a new import program would be
“modest,” reducing total drug spending by about 1% ($40 billion over 10 years).103
Others estimate significant savings to U.S. consumers. Using the 2004 CBO
estimate that Americans over age 65 will spend $1.8 trillion on prescription drugs
over the next 10 years, Representative Gutknecht estimated a 10-year savings of $630
billion (35%) by importing drugs.104 Other estimates include Americans’ saving
$59.7 billion if, during 2004, they purchased all brand-name drugs at Canadian
pri ces. 105
Because Senator Dorgan successfully amended the FTC reauthorization bill (S.
1392) that the Committee on Commerce, Science, and Technology reported in 109th
Congress, CBO cost estimates of that bill included the prescription drug importation
provisions that he had first introduced in his stand-alone bill (S. 334). CBO
estimated that the provisions, if enacted, would lower total U.S. spending on
prescription drugs from 2006-2015 by $50 million (about 1%), a small proportion of
which would be savings to federal programs.106
At least one economic analysis challenges the widespread expectation that
drugmakers would cut supplies to Canada rather than allow U.S. customers access
to Canada’s lower prices. It describes two kinds of purchases under a legalized
import program: drugs that the consumer had been and would have continued buying
at U.S. market prices, and drugs that the consumer would begin to purchase at the
lower price but had forgone or would forgo at the U.S. price. If the second group
accounts for 45% of U.S. consumer purchases in Canada, the drug manufacturers’
loss from the first group would be balanced by the gain from the second.107 The
authors anticipate that manufacturers would not cut supply. If this source of revenue

102 Mattias Ganslandt and Keith E. Maskus, “The Price Impact of Parallel Trade in
Pharmaceutical Products: Evidence from the European Union,” World Bank Policy Research
Working Paper 2360, July 2001, cited by Jim Furniss at session on “Drug reimportation:
Learning from the experience in Europe,” National Medicare Prescription Drug Congress,
Washington, D.C., Feb. 27, 2004 (available from CRS).
103 CBO, Apr. 29, 2004.
104 Rep. Gutknecht includes this estimate in material on his website, at [http://www.gil. Issues/PDrugs/pdrugs.htm] .
105 Alan Sager and Deborah Socolar, “Do Drug Makers Lose Money On Canadian Imports?”
Data Brief No. 6, Boston University School of Public Health, Apr. 15, 2004, at
[http://www.healthreform/progr] .
106 CBO, “S. 1392: FTC Reauthorization Act of 2005,” Sept. 8, 2005.
107 Sager and Socolar, 2004.

is available, others question, why has the pharmaceutical industry not adjusted
domestic prices to take advantage of the demand?
Government Influence on Pricing. Comparisons of U.S. prices to those in
Canada and, more recently, Australia are complicated by differences in approach to
regulation. In Canada, the federal and provincial governments play key roles in
negotiating or setting prices. Australian policy differs: the government decides what
price it would be willing to pay and then subsidizes purchasers to that amount. As
the United States — whose consumers account for one-half of worldwide
pharmaceutical sales — makes small or large adjustments in its approach to
international drug markets, other countries may well adjust their policies in the
interest of their consumers.
Industry Pricing. In a country where the government works to control prices,
the seller has some leeway in setting the price. One recent study, comparing U.S.
drug prices with those in eight other countries, found that the wealthier the country,
the higher the price of drugs. The authors discuss whether this reflects buyers’
sensitivity to price, something manufacturers may include in pricing decisions.108
Congressional Options for Controlling Drug Costs
Clearly, the high cost of prescription drugs affects the purchasing power of
individual consumers and public and private entities. Also, the trend is toward the
development of evermore sophisticated drugs, with complex dosing schedules and
intense patient-monitoring requirements, which cost more to make and to administer
medically. Together, these factors are ratcheting up overall healthcare spending
(particularly in the United States, which has not traditionally controlled utilization).
In addition, the new outpatient prescription drug benefit for Medicare beneficiaries
began on January 1, 2006. It is too early to draw conclusions about its long-term
prospects for reducing drug cost burden on U.S. consumers (Medicare-covered and
others). What impact it will have on costs for the elderly is uncertain; it will provide
coverage that many have not had. Because the government will now be paying for
a larger proportion of drugs used by people in the United States, many believe that
the government will have a stronger interest in the comparative costs, safety, and
effectiveness of various available drugs.
If Congress wants to lower the cost of drugs to U.S. consumers, there are options
— some more feasible than others — other than importation. These include
encouraging the use of generics and disease management techniques, providing
research and development incentives to industry, studying the comparative
effectiveness of similar drugs and applying that information judiciously in benefit
package and prescribing decisions, instituting price controls or other regulatory
measures on prescription drugs in this country, encouraging more market action (such
as with purchasing agreements), encouraging reciprocal arrangements with other
nations’ regulatory authorities, and promoting or providing insurance coverage for
pharmaceuticals to a wider population than have it today. Such steps are beyond the
scope of this report.

108 Danzon and Furukawa, 2003.

Appendix. Drug Regulation in Canada
Current law and the various pending bills designate Canada as the first or only
country from which U.S. consumers or commercial importers could import if the
program were implemented.
Safety and Effectiveness
Canada’s drug regulatory requirements are quite similar to those of the United
States, and Health Canada and FDA operate with similar procedures when ensuring
the safety and efficacy of pharmaceutical products.109 In a February 12, 2004 letter
to Health Canada, then FDA Commissioner McClellan stated that:
... we have no reason to doubt the safety of Canadian drugs regulated by Health
Canada and distributed within the regulated distribution systems in Canada. Rather,
it is the practice of cross-border Internet pharmacies in Canada that primarily, or
entirely, serve Americans — not Canadians — and the associated gaps between our110
two drug regulatory systems that remain of great concern to us.
Canadian officials seem to concur that there is a gap between the two countries’
responsibilities. Health Canada has already said that it does not assume regulatory
oversight of drugs exported to U.S. addresses and is therefore neither willing nor able
to guarantee the safety of those drugs.111 On November 18, 2003, the United States

109 CRS Memorandum, Questions Concerning the U.S. and Canadian Regulatory Systems
for Approving and Distributing Prescription Drugs, by Blanchard Randall IV and Donna
Vogt to Rep. Bernard Sanders, available at
[], visited Mar. 5, 2004.
110 Letter from Mark B. McClellan, Commissioner of Food and Drugs, FDA, to Diane C.
Gorman, Assistant Deputy Minister, Health Products and Food Branch, Health Canada, Feb.

12, 2004.

111 In the letter, Commissioner McClellan confirmed his commitment to work with Canada
on inspections, enforcement, information, and risk communication and expressed concern
about the regulation of Canadian Internet pharmacies that primarily serve Americans. The
letter commented on findings of Minnesota pharmaceutical officials who had inspected eight
Canadian pharmacies that supply U.S. citizens with drugs and that agreed to pre-arranged
inspections by state officials. It cited practices that Minnesota officials found that would
violate current Minnesota standards. The Minnesota pharmacy surveyors also found that
some of the Canadian pharmacies “should be as good or better than the U.S. mail order
pharmacies that we currently license” (Michele Mattila and Stuart Vandenberg, Pharmacy
Board Surveyors, memorandum to David Holmstrom and Minnesota Board of Pharmacy
Members, “Visits to Canadian Pharmacies; Summary of Findings,” Dec. 24, 2003, at
[], visited Mar. 19, 2004). The
Minnesota Board of Pharmacy, after considering these documents, noted in its minutes that
“since the importation of prescription drugs from Canada remains a violation of federal law,
the Board cannot recommend that anyone use pharmacies outside of the United States for
obtaining prescription medications” (Minutes of the Minnesota Board of Pharmacy, Jan. 6-7,

2004 meeting, at [], visited Mar. 19,

2004). Using the same information from the Minnesota pharmacy surveyors, the state’s
pharmacy program manager wrote to the Minnesota Commissioner of Human Services with
details and his first, second, and third choice rankings of Canadian pharmacies that the state

and Canada signed a Memorandum of Understanding to share information on (1)
pharmacies that export drugs to either nation, (2) quality defects or product recalls,
(3) new regulations or policies regarding drugs, and (4) post-market surveillance
results. 112
Canadian pharmacies are regulated by provincial and federal authorities and are
required to have licenses. These pharmacies cannot dispense a prescription drug
without a prescription written by a physician licensed in Canada. Even though
legitimate Internet or mail-order pharmacies require faxed or e-mailed prescriptions
from a U.S.-licensed health care provider, there are some Canadian pharmacies
(called “rogue” by FDA) that have apparently been set up only to dispense
pharmaceuticals by mail.113 For some of these, Canadian physicians rewrite a U.S.
prescription or initiate a Canadian original, not necessarily following whatever
regulations Canada might require nor being available for the level of monitoring
required in the United States.114
Canadian pharmacies may soon find it difficult to hire physicians to write
prescriptions for U.S. patients. The Canadian Medical Protective Association, a large
malpractice insurance company for physicians (about 95% of the doctors licensed to
practice in Canada are members), has notified Canadian doctors that it would no
longer provide coverage to “risky activity” meaning if the physician did not originate
the prescription but instead co-signed it for Americans in search of cheaper drugs
without examining the patients in person.115 The co-signing has been denounced by
provincial and territorial licensing bodies.116 It also is illegal, according to Canadian

111 (...continued)
should consider for the Minnesota Program (Cody Wiberg memorandum to Kevin Goodno,
“Report on the Survey of Canadian Pharmacies,” undated copy, available from CRS).
112 “Memorandum of Understanding Between the Food and Drug Administration,
Department of Health and Human Services, of the United States of America and the Health
Products and Food Branch, Health Canada, of Canada Regarding Sharing and Exchange of
Information About Therapeutic Products,” Nov. 18, 2003, at
[ h t t p : / / www.f d a.go v/ oi a/ agr eement s / HCFDAMOU111803.pdf ] .
113 John Henkel, “Buying Drugs Online: It’s Convenient and Private, but Beware of ‘Rogue
Sites,’ FDA Consumer, Jan.-Feb. 2000, updated Mar. 2001, at [
fdac/features/2000/100_online.html], visited Aug. 3, 2004.
114 Paul Pringle, “Not-So Corner Drugstore; Canadian Web firms are supplying low-cost
prescription to many elderly Americans. But manufacturers and regulators are chafing,” The
Los Angeles Times, Feb. 21, 2003, p. A1; Bernard Simon, “Pressure on Canada’s Online
Drug Sellers,” The New York Times, Dec. 10, 2003, p. W1; and “Health Canada says it
cannot ban sale of Rx drugs to U.S. consumers,”, May 6, 2004..
115 James Sproule, “CMPA assistance in Internet and cross-border prescribing to non-
patients — General principles,” Canadian Medical Protective Association Information
Sheet, Feb. 2004 (IS0440E), at [], visited Jan. 15, 2007; and
“Cross-Border Prescriptions Put MDs at Legal Risk,” Feb. 3, 2004, at
[ h t t p : / / www.t h e gl obe a ndma i l . c o m] .
116 Marc Kaufman and Gilberg Gaul, “Canadian Group Seeks Drug Export Ban,” The
Washington Post, Nov. 15, 2003, p. A6; The Nova Scotia College of Pharmacists, “Council
Position Statement [on] Internet/Mail-Order Pharmacy Services: International Prescription

law, for any Canadian entity to import drugs in finished dosage form from a foreign
country for the purpose of subsequent export, according to the Canadian International
Pharmacy Association.117
Cost and Price
U.S. and Canadian pharmaceutical markets are significantly different. For
example, approximately 98% of Canadian citizens over the age of 65 have some form
of prescription drug coverage, mainly through their provincial government health
programs.118 This allows the government to negotiate bulk purchasing contracts for
pharmaceutical products. By federal law, Canada’s Patented Medicine Prices Review
Board keeps drug costs in check by regulating a drug’s price based on guidelines
involving the cost of alternate drugs, cost of the same drug in other developed
countries, and changes in the Consumer Price Index. In addition, both public and
private benefit plans actively manage costs using price and cost-effectiveness data,
international price comparisons, reference pricing, substantial generic substitution,
and pharmacy reimbursement policies.

116 (...continued)
Industry,” updated Dec. 2002, National [Canada] Association of Pharmacy Regulatory
Authorities, at []; “Joint Statement of the American Pharmacists
Association (APhA) and the Canadian Pharmacists Association (CPhA),” May 13, 2003,
at [], visited Apr. 19,
2004; “Position Statement on Cross-Border Prescription Drug Trade,” Canadian Pharmacists
Association, Feb. 2004.
117 “Canadian Pharmacy Group Says Transshipment Illegal in Canada,”, June 3, 2004. The Canadian International Pharmacy Association
was created in Nov. 2002 to promote the growth and viability of the Canadian Internet
pharmacies that provide international services; see [].
118 Gross, 2003.