By: HUB’s EB Compliance Team

Last December, the Food and Drug Administration (“FDA”) received significant press coverage for its proposed rules allowing importation of prescription drugs from overseas, particularly Canada. However, there are significant hurdles to implementing these programs. At least for now, the consensus seems to be that these programs are unlikely to actually lower drug costs. Additionally, most employers are not eligible for such programs due to a variety of other applicable compliance constraints.

Brief Overview of Proposed Programs

The proposed rules laid out two programs.  

  • Category one: The first would allow states and other non-federal governmental entities to import drugs from Canada. The drugs that can be imported are limited. Controlled substances, biological products, and many other drugs are specifically excluded. Additionally, the drugs imported would have to be tested and labeled in accordance with FDA’s requirements. The importing entity must actively monitor for possible drug recalls. The importing plan is also subject to a review process at the FDA.
  • Category two: The second would allow drug manufacturers to import FDA-approved drugs that are also approved for sale in a foreign country. These are known as “multi-market” approved, or MMA, products. Although more drugs could be imported under this proposal, the manufacturer would still have to take additional steps to ensure a secure and traceable supply chain before obtaining a green light to import. Other FDA regulations relating to the safety of the drug would also apply.

Challenges

Commentators have pointed out several challenges to the above proposals. In particular:

  1. The additional supply chain, safety, labeling, and other requirements could reduce (or potentially eliminate) any cost savings. As safety is an important, and top, priority of the FDA, it is not surprising that these rules should apply, but the reality is they will likely reduce the cost savings because of the costs of these regulatory hurdles. Additionally, they will add time lag from when the drug is manufactured to when it is available.
  2. Canada will likely fight this proposal. Health Canada, which regulates pharmaceuticals in Canada, has said their top priority is ensuring that Canadians have sufficient access to prescription drugs. As a result, Canada may add additional hurdles that will make importation from it more difficult (if not impossible).
  3. Manufactures do not have much incentive to participate. Given that this would likely reduce their profit margins, many commentators believe manufacturers do not have an incentive to participate. Additionally, they are unlikely to sell additional, lower cost drugs to Canada to facilitate additional U.S. demand.

Impact on Employers

As HUB so often says in these situations, these rules are only proposed at this point. That means they are not available to use now. It also means they could change.

Even if the rules change, the impact on most employers (other that, perhaps, governments, tribes, etc.) will be indirect. If the program succeeds in lowering drug costs, it may put price pressure on manufacturers and PBMs. This would, in turn, lower costs for employers. At this time, we do not expect these rules to result in meaningful additional compliance obligations for most employers.

Until the FDA unambiguously opens the door to importation, employer importation anywhere in the USA remains problematic at best, particularly due to ERISA considerations. As employers know, ERISA defines the scope and offers an exclusive framework for employee benefits operations under federal law. As ERISA requires employers and plan fiduciaries to follow all applicable law, any violation of federal law represents a fiduciary problem for the plan. Because the FDA does not allow employers to import drugs from overseas, any employer importation of drugs raises compliance concerns.

As such, employers should be aware that these new rules would not allow employer-sponsored programs (other than, potentially, those run by states and other governments) to import drugs individually. We are aware some providers are offering programs like that to employers. The regulatory issues around those programs are beyond the scope of this article.  Suffice it to say, however, that these proposed rules (even if finalized as-is) would not allow employers to import drugs from overseas.

Employers should keep an eye on these developments and HUB will too. If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.