Importation of Prescription Drugs FRIA

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Food and Drug Administration

Importation of Prescription Drugs

Docket No. FDA-2019-N-5711

Final Regulatory Impact Analysis
Final Regulatory Flexibility Analysis
Unfunded Mandates Reform Act Analysis

Economics Staff
Office of Economics and Analysis
Office of Policy, Legislation, and International Affairs
Office of the Commissioner

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Table of Contents
Executive Summary ............................................................................................................ 3
I. Introduction and Summary .............................................................................................. 4
A. Introduction ................................................................................................................ 4
B. Summary of Costs and Benefits ................................................................................. 4
C. Comments on the Preliminary Economic Analysis of Impacts and Our Responses .. 6
D. Summary of Changes ............................................................................................... 17
II. Final Economic Analysis of Impacts ........................................................................... 17
A. Background .............................................................................................................. 17
B. Need for the Rule ..................................................................................................... 17
C. Purpose of the Final Rule ......................................................................................... 18
D. Baseline Conditions ................................................................................................. 18
E. Benefits of the Final Rule ......................................................................................... 19
F. Costs of the Final Rule ............................................................................................. 21
1. Costs to Federal Government................................................................................ 22
2. Costs to Section 804 Importation Program Sponsors ........................................... 23
3. Costs to Drug Manufacturers ................................................................................ 23
4. Costs to Importers and Other Intermediaries ........................................................ 24
G. Distributional Effects ............................................................................................... 25
H. International Effects ................................................................................................. 25
III. Final Small Entity Analysis ........................................................................................ 26
A. Description and Number of Affected Small Entities ............................................... 27
B. Description of the Potential Impacts of the Rule on Small Entities ......................... 27
C. Alternatives to Minimize the Burden on Small Entities .......................................... 28
IV. References................................................................................................................... 29

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Executive Summary
This final rule allows commercial importation of certain prescription drugs from Canada
through time-limited Section 804 Importation Programs (SIPs) sponsored by a State or
Indian Tribe, and in certain circumstances by a pharmacist or wholesale distributor, with
possible co-sponsorship by a State, Indian Tribe, pharmacist, or wholesale distributor. As
we lack information about the expected scale or scope of such programs, we are unable to
estimate how they may affect U.S. markets for prescription drugs. In particular, we are
unable to estimate the volume or value of eligible prescription drugs that may be
imported under the SIPs or the savings to U.S. consumers who may participate in such
programs.
Costs of the final rule may fall on the federal government, SIP sponsors, importers, and
manufacturers of eligible prescription drugs. The federal government will incur costs to
implement the final rule and conduct oversight of authorized programs. Sponsors will
face costs to prepare proposals, implement authorized programs, and produce records and
program reports. Private intermediaries, such as wholesaler distributors or pharmacists,
that contract with a SIP sponsor will face business expenses to implement a SIP. If their
drugs are imported into the U.S. from Canada, drug manufacturers will have to provide
importers with certain information. These costs depend on the number and type of
participating importation programs. We lack information to estimate these costs.
Finally, U.S. patients, as well as wholesale distributors, pharmacies, hospitals, and thirdparty payers may all experience savings, but we lack information necessary to estimate
such savings. As drug distributors realize savings in acquiring imported eligible
prescription drugs and pass some of these savings to consumers and other payers, it is
possible that U.S.-based drug manufacturers may experience a transfer in U.S. sales
revenues to these parties.

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I. Introduction and Summary
A. Introduction
We have examined the impacts of the final rule under Executive Order 12866, Executive
Order 13563, Executive Order 13771, the Regulatory Flexibility Act (5 U.S.C. 601-612),
and the Unfunded Mandates Reform Act of 1995 (Pub. L. 104-4). Executive Orders
12866 and 13563 direct us to assess all costs and benefits of available regulatory
alternatives and, when regulation is necessary, to select regulatory approaches that
maximize net benefits (including potential economic, environmental, public health and
safety, and other advantages; distributive impacts; and equity). Executive Order 13771
requires that the costs associated with significant new regulations “shall, to the extent
permitted by law, be offset by the elimination of existing costs associated with at least
two prior regulations.” This final rule has been designated as a significant regulatory
action as defined by Executive Order 12866.
The Regulatory Flexibility Act requires us to analyze regulatory options that would
minimize any significant impact of a rule on small entities. This rule does not impose
new regulatory requirements on small entities that do not participate in Section 804
Importation Programs (SIPs); however, we cannot anticipate whether sponsors will
contract with small entities to implement their authorized SIP proposals or whether,
under certain circumstances, a small pharmacist or wholesaler might become a sponsor.
We also lack information to quantify the total impacts of the final rule. Because we do
not have enough information about the effect of the final rule on small entities, we are not
certifying that the final rule will not have a significant economic impact on a substantial
number of small entities.
The Unfunded Mandates Reform Act of 1995 (section 202(a)) requires us to prepare a
written statement, which includes an assessment of anticipated costs and benefits, before
issuing “any rule that includes any Federal mandate that may result in the expenditure by
State, local, and tribal governments, in the aggregate, or by the private sector, of
$100,000,000 or more (adjusted annually for inflation) in any one year.” The current
threshold after adjustment for inflation is $156 million, using the most current (2019)
Implicit Price Deflator for the Gross Domestic Product. This final rule would not result
in an expenditure in any year that meets or exceeds this amount.
B. Summary of Costs and Benefits
This final rule allows commercial importation of certain prescription drugs from Canada
through time-limited SIPs sponsored by a State or Indian Tribe, and in certain
circumstances by a pharmacist or wholesale distributor, with possible co-sponsorship by
a State, Indian Tribe, pharmacist, or wholesale distributor. If such programs are
authorized and implemented, allowing importers to leverage drug price differences
between the U.S. and Canada for the eligible prescription drugs identified in the SIP, they
will result in cost savings for U.S. consumers.
Costs of the final rule may accrue to the federal government, SIP sponsors, importers,
and manufacturers of imported eligible prescription drugs. The federal government will
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incur costs to implement the final rule and conduct oversight of authorized programs. SIP
sponsors will face costs to prepare proposals, implement authorized programs, and
produce records and program reports. Drug manufacturers will have to provide certain
information to importers if their drugs are imported into the U.S. from Canada. SIPs may
offer cost savings to patients, as well as participating wholesale drug distributors,
pharmacies, hospitals, and third-party payers. As drug distributors realize savings in
acquiring imported eligible prescription drugs and pass some of these savings to
consumers, it is possible that U.S.-based drug manufacturers may experience a transfer in
U.S. sales revenues to these parties.
We are unable to estimate the cost savings from this final rule, because we lack
information about the likely size and scope of SIP programs, the specific eligible
prescription drugs that may be imported, the degree to which these imported drugs will
be less expensive than non-imported drugs available in the U.S., and which SIP eligible
products are produced by U.S.-based drug manufacturers.
Summary of Benefits, Costs, and Distributional Effects of Final Rule
Category
Annualized
Monetized
$millions/year
Annualized
Quantified
Qualitative

Benefits

Costs

Annualized
Monetized
$millions/year
Annualized
Quantified
Qualitative

Primary
Estimate

Low
Estimate

High
Estimate

Year
Dollars

Units
Discount
Rate
7%
3%

Period
Covered

Notes

7%
3%
Potential cost savings to
consumers and third-party
payers or entities. This
framework does not consider
the potential implications of
private and government
insurance and reimbursement
as well as other purchasers in
the supply chain including
hospitals and physicians. We
cannot predict the types and
volumes of eligible
prescription drugs that will be
imported under the final rule,
which will influence these
payers. Moreover, the prices
paid by multiple payers,
including those affected by
discounts, may be different,
unobservable, or both.
7%
3%
7%
3%
Potential costs to federal
government, SIP sponsors,

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Category

Primary
Estimate

Low
Estimate

High
Estimate

Year
Dollars

Units
Discount
Rate

Period
Covered

Notes

importers, and manufacturers
of imported eligible
prescription drugs.

Transfers

Effects

Federal
Annualized
Monetized
$millions/year
From/ To
Other
Annualized
Monetized
$millions/year
From/To

7%
3%

From:

To:
7%
3%

From: U.S. drug manufacturers

To: Importers and U.S.
Not
consumers
Quantified
State, Local or Tribal Government: Potential costs and cost savings to States or Indian Tribes
from sponsoring SIPs
Small Business: Potential costs to drug manufacturers; potential costs and cost savings to
pharmacists and wholesale distributors
Wages:
Growth:

We lack information about the likely size and scope of SIP programs, the specific
prescription drug products that may become eligible for importation and which SIP
eligible prescription drug products are produced by U.S.-based drug manufacturers, and
the degree to which these imported drugs will be less expensive than non-imported drugs
available in the U.S. to estimate the present and annualized values of the costs and cost
savings of the final rule over an infinite time horizon. Therefore, we exclude the
Executive Order 13771 summary table from this analysis. This is a deregulatory action
because the rule is opening a pathway for legal importation that is not currently allowed.
C. Comments on the Preliminary Economic Analysis of Impacts and Our Responses
On December 23, 2019, FDA issued a proposed rule to allow importation of
eligible prescription drugs from Canada (84 Federal Register 70796). We prepared a
preliminary regulatory impact analysis (PRIA) for the proposed rule. In the paragraphs
below, we describe and respond to the comments received on the PRIA. Many comments
were outside the scope of this rule. The number assigned to each comment is purely for
organizational purposes and does not signify the comment’s value, importance, or the
order in which it was received.
1. General Comments about the PRIA
(Comment 1) Some comments requested a quantitative analysis of the economic effects
of the proposed rule. A number of comments note that the PRIA does not quantify or
even affirm benefits to patients.

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(Response 1) Costs and benefits of the rule depend on a number of factors about which
we lack data and information, including the likely scope and scale of SIPs, operational
costs and mark-ups, and policy response by the Canadian government. Data received
through public comments are insufficient to conduct a quantitative analysis. For this
reason, we discuss costs and benefits qualitatively. As noted in the economic analysis,
benefits of the rule, if any, will be in the form of significant cost savings to patients and
to third-party payers or entities such as retail pharmacies and hospitals. These cost
savings would be economic benefits if they represent reductions in the prices of drugs
purchased from foreign-based manufacturers; if they instead represent reductions in
prices of drugs purchased from U.S.-based manufacturers, cost savings would be
economic transfers from these manufacturers to consumers. If the rule improves access to
drugs by lowering costs, it may also result in economic benefits from reduced morbidity
and mortality.
(Comment 2) One commenter suggested that FDA's cost-benefit analysis should say to
what extent we expect true cost savings versus transfers between domestic parties.
(Response 2) We lack data on whether imported eligible prescription drugs will be
predominantly produced by U.S. or foreign manufacturers and thus cannot estimate
reductions in revenue to U.S. drug manufacturers. Lower prices on imported eligible
prescription drugs produced by a domestic manufacturer constitute a transfer from the
domestic manufacturer to U.S. intermediaries and consumers. Lower prices on imported
eligible prescription drugs produced by a foreign manufacturer constitute a benefit to
U.S. intermediaries and consumers.
(Comment 3) Some commenters requested that FDA estimate the federal government’s
resource needs for establishing and supporting importation. Relatedly, some commenters
noted that regulatory authorities (e.g., FDA) and law enforcement would require
resources to implement importation, including foreign inspections, and address potential
consequences such as increased counterfeits.
(Response 3) Because the proposed rule is designed to give flexibility to SIP sponsors in
how to develop their programs, we expect significant variation in proposal scale and
scope and, thus, significant variability in potential federal government resource needs.
Certain fixed costs will be incurred regardless of SIP scope and scale. Some variable
resource needs may be absorbed by current operations at baseline; others may require
additional federal government spending. We do not have the information to accurately
estimate what the overall costs will ultimately be; therefore, we decline to estimate the
cost to the federal government of establishing and supporting importation.
(Comment 4) Some commenters expressed concern that the resource needs of importation
would adversely affect FDA’s effectiveness in performing its other duties, such as drug
review and oversight.

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(Response 4) In the final RIA, we note that state and local law enforcement agencies, as
well as FDA, may incur enforcement costs as a result of the rule. We do not believe that
these costs will affect FDA’s effectiveness in performing its other duties.
(Comment 5) One commenter stated that the Unfunded Mandates Reform Act (UMRA)
requires FDA to estimate the impacts of the proposed rule on state, local, and tribal
governments.
(Response 5) Under the UMRA, the economic analysis should include a written statement
of benefits and costs when mandates may result in aggregate expenditure by state, local,
and tribal governments, or by the private sector, of $100,000,000 or more in any one year
(adjusted annually for inflation). We note that the rule allows for voluntary programs and
does not impose mandates, statutory requirements, or direct compliance costs on state,
local, and tribal governments. The economic analysis qualitatively discusses potential
benefits and costs to States and Indian Tribes should they choose to sponsor or, as
applicable, cosponsor a SIP. As with the total benefits and costs of the rule, we lack the
information necessary to quantify these costs. Finally, we did not receive public
comments on the proposed rule that contained information to support a quantitative
analysis of the effects on States and Indian Tribes.
(Comment 6) One commenter requested an explanation for why the proposed rule was
originally classified as “economically significant” prior to reclassification as
“significant.”
(Response 6) The proposed rule was originally classified as economically significant in a
public listing prior to publication because the complete economic analysis and regulatory
review had not yet been conducted. After completing the economic analysis, the rule was
revised to significant because it raises novel legal and policy issues, but we did not
determine that it is likely to impose costs, benefits, or transfers of $100 million or more in
any given year or have adverse material effects. The economic analysis of the rule lacks
information to estimate quantitative costs, benefits, or transfers.
(Comment 7) One commenter suggested that FDA provide a sample analysis of the cost
to taxpayers for a hypothetical state importation program, with the caveat that costs
would vary from state to state in reality.
(Response 7) We believe that constructing a “representative” state importation program is
unlikely to be informative for net benefit-cost analysis. First, it is important to consider
the economic implications of multiple states competing for the same drugs. If multiple
states plan to import the same drugs, competing demand for a fixed Canadian supply
from a small number of foreign sellers may increase prices of those imported drugs
and/or limit the supply available to each state. Coordination between states may mitigate
such effects, but it is not clear if states will coordinate. Using a representative state for
analysis would not account for such dynamics, which could affect total cost savings
either through price effects or the cost of additional coordination.

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Second, states’ initial concept papers, comments, and proposals confirm that there will be
significant variability in distribution and population served. These different distribution
plans require different baselines for estimating cost savings. For example, Florida’s initial
concept paper aims to import drugs for consumers served by specific state/government
programs,1 whereas Colorado’s draft proposal would import drugs for sale to insured and
uninsured consumers in retail pharmacies.2 In Florida, the state government would seek
to realize cost savings relative to its existing contracts with drug manufacturers. In
Colorado, cost savings would be intended to accrue to insured consumers via reduced
premiums, deductibles, or co-pays, as well as uninsured consumers who could purchase
drugs at lower retail cash prices. While one could hypothetically compare the difference
between utilization-weighted average prices before and after importation, this approach is
unlikely to yield meaningful estimates given the substantial variation in distribution and
population served. Such an approach would also need to account for differences in
implementation costs, likely to vary substantially by state.
Moreover, while some states could prevent the sale or dispensation of imported eligible
prescription drugs outside of the state by limiting importation only to government
programs, it is not clear that this is possible when dispensing drugs at retail pharmacies.
This may result in spillover effects if imported eligible prescription drugs are purchased
by residents of neighboring states without importation programs. The economic impact
will depend in part on the markets for those drugs in the neighbor states.
2. Comments on Costs
(Comment 8) Multiple comments stated that the proposed rule would disincentivize drug
development by reducing drug makers’ revenues and allowing importers to free ride off
of manufacturers’ investments. Along these lines, a commenter expressed concern over
potential revenue loss among U.S. drug makers specifically. Other comments similarly
suggested that the proposed rule would disincentivize development of generics.
(Response 8) We note these potential effects in the economic analysis. However, we lack
information on the types and volumes of drugs that will be imported, without which we
cannot quantify expected revenue losses among drug makers. Moreover, we are also
unable to quantitatively characterize the relationship between potential incremental loss
of revenue due to this rule and decreased drug development.
(Comment 9) One commenter stated that the information the proposed rule would require
of manufacturers for authenticity and degradation testing would be costly and time
consuming to provide.
1

Agency for Health Care Administration. Florida’s Canadian Prescription Drug Importation Concept
Paper. August 20, 2019.
https://ahca.myflorida.com/executive/communications/requested_documents/Florida_Canadian_Prescriptio
n_Drug_Importation_Concept_Paper.pdf
2
Colorado Department of Health Care Policy & Financing. Section 804 Importation Program: Colorado’s
Drug Importation Program – Draft Application. March 9, 2020.
https://www.colorado.gov/pacific/sites/default/files/Colorado%20Draft%20SIP%20%20%20Version%203-9-2020.pdf

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(Response 9) The economic analysis of the proposed rule acknowledges that drug
manufacturers will face costs related to authenticity and degradation testing of imported
products. We lack information to quantify these costs for manufacturers.
(Comment 10) One commenter stated that the use of manufacturers’ trademarks as well
as proprietary trade secrets and confidential commercial information (CCI) will legally
require just compensation under the Takings Clause of the Fifth Amendment of the
Constitution. As an alternative to provision of manufacturers’ trade secrets and CCI,
compulsory product testing by manufacturers would also require just compensation.
Other commenters suggested that the proposed rule puts proprietary information and
intellectual property at risk by requiring manufacturers to disclose such information to
importers.
(Response 10) As discussed in the economic analysis, the manufacturer of a drug that is
imported will need to provide certain information regarding testing methodology to
authenticate the SIP drug as well as attestations and/or other evidence to establish that
such a drug meets all conditions in the FDA-approved new drug or abbreviated new drug
application. The manufacturer will also provide the importer with written authorization
for the importer to use, at no cost, the FDA-approved labeling of the eligible prescription
drug. Manufacturers might face a cost to transmit this information as well as possibly an
unquantifiable loss related to the proprietary value of this property, if any. In other words,
it is possible that this labeling and confidential commercial information could help the
importer capture a larger portion of the market currently held by the manufacturer and/or
any other authorized user of the proprietary name and labeling. However, as discussed in
the preamble to the final rule, FDA disagrees that this would constitute a taking for which
just compensation would be required.
(Comment 11) A number of comments raised concerns about the potential for counterfeit
products. Some comments suggested that the rule would increase the cost of healthcare
because counterfeit products will cause adverse medical events requiring treatment. Some
commenters expressed concern over the potential negative financial impact on emergency
rooms and inpatient admissions that may result from increased opioid abuse and
counterfeit drugs. Some of these commenters suggested that counterfeit products may
contain fentanyl. Finally, a number of commenters expressed concern that finalization of
the proposed rule may lead confused consumers to purchase counterfeit drugs from
fraudulent online pharmacies.
(Response 11) In the final RIA we note that state and local law enforcement agencies, as
well as the federal government, may incur enforcement costs as a result of the rule. We
expect that this enforcement activity will seek to limit the potential for the introduction of
counterfeit products. Moreover, the statute requires that the importation program not
result in any additional risk to the public’s health and safety. We note that SIP proposals
will be carefully reviewed with respect to their distribution procedures to prevent
improper use. SIP sponsors will also be required to submit regular reports and monitor

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potential issues. As a result, we expect any incremental costs from counterfeits to be
negligible.
(Comment 12) One commenter suggested that drug importation may increase drug
resistance if it is not well-managed, which could result in negative health effects for
patients, including those using antiretroviral medications for HIV/AIDS.
(Response 12) Certain categories of products that could pose potentially heightened
safety concerns are excluded from the scope of the final rule, though we note that at this
time FDA is not excluding additional categories from the rule beyond what we originally
included in the proposed rule. For products not excluded by the final rule, FDA will
determine whether a product can be imported safely in the context of a specific SIP
proposal on a product-by-product basis. A SIP sponsor will need to explain in its SIP
proposal how it will address any concerns arising from the manufacture, storage, and
transport of each eligible prescription drug, including concerns related to controlling
contamination, preserving sterility, and ensuring stability. SIP proposals will be carefully
reviewed with respect to their distribution procedures to prevent improper use. SIP
sponsors will also be required to submit regular reports and monitor potential issues. As a
result, we do not expect there to be negative health effects on population sub-groups due
to drug resistance as a result of this rule.
(Comment 13) A commenter recommended that the following costs be accounted for in
the assessment of any SIP proposal: systems for serialization of units, cases, and
logistical units, relabeling and repackaging, package artwork, data integration, call
centers, recalls, inventory management, and enforcement.
(Response 13) These costs are not only relevant for SIP proposal assessments but for net
economic effect of the rule. While the preliminary economic analysis generally discusses
costs related to relabeling and repackaging as well as monitoring and enforcement, we
incorporate additional itemized costs from this comment into our qualitative final
economic analysis. However, we note that the comment did not provide quantitative
information on these costs, and we do not quantify them due to lack of data.
3. Comments on Benefits
(Comment 14) One commenter stated that cost savings from SIPs should be measured in
actual out-of-pocket costs via co-pays, cash payments, premium reductions, or expansion
of coverage, and not using retail cash prices.
(Response 14) For the net economic effects of the rule, the necessary metrics to calculate
cost savings of the rule will depend on the scope of each SIP. Given this variation, the
economic analysis does not quantify potential benefits.
(Comment 15) A few comments expressed general support for the proposed rule,
affirming that prescription drug price differentials between the U.S. and Canada are large
and that importation would increase competition among domestic sellers.

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(Response 15) The economic analysis acknowledges drug price differentials between the
U.S. and Canada and notes that these differentials vary across drug type and class. The
economic analysis also notes that it is possible for the rule to increase domestic
competition by introducing imported products into the market.
(Comment 16) Many commenters noted the relatively small size of the Canadian drug
supply in comparison to total U.S. demand, stating that U.S. demand would exhaust
Canada’s supply of drugs within months. Several commenters stated that manufacturers
will lack incentives to increase their supply to Canada.
(Response 16) The Benefits section of the economic analysis acknowledges the
difference in size between the U.S. and Canadian prescription drug markets, as well as
the fact that drug makers may act to limit the supply available for export to the U.S.
under the rule. Without further data and information, we are unable to confirm whether
there will be significant availability of eligible prescription drugs included in SIP
proposals. We note that not all Canadian drugs will be eligible for importation under the
rule.
(Comment 17) Many commenters also expressed concern that the Canadian government
will respond to the rule by restricting or preventing prescription drug exports. Among
these, some specifically reference a 2005 Canadian bill enabling the Minister of Health to
prohibit the export of a drug or class of drugs. One comment expressed concern that a
potential Canadian prohibition on wholesale prescription drug exports could affect
current temporary importation policies used to address U.S. drug shortages.
(Response 17) The economic analysis notes that action by the Canadian government may
prevent importation and, thus, economic benefits from the rule from being realized.
(Comment 18) One commenter stated that Canadian price controls will not apply to
distributors selling into the U.S.
(Response 18) States have indicated that they believe they can achieve cost savings by
working with Canadian distributors. While the rule will afford SIPs significant flexibility
in sourcing eligible prescription drugs for importation, it is the responsibility of the SIP
sponsor to ensure cost savings. Due to uncertainty concerning the likely number, scale
and scope of authorizable SIPs and the specific eligible prescription drugs these SIPs will
import, we do not quantify expected cost savings of the rule.
(Comment 19) Some commenters stated that drug manufacturers will be able to
effectively prevent importation of their products into the U.S. from Canada. Relatedly,
commenters suggested that manufacturers could respond to the rule by raising prices in
Canada.
(Response 19) The Benefits section of the economic analysis states that manufacturers
may limit importation of Canadian supply into the U.S. It is not clear if manufacturers

12

could increase Canadian prices in the short-term. As noted in the economic analysis,
either of these outcomes will prevent economic benefits from the rule from being
realized. No comment provided information that allows us to determine the probability of
such a response.
(Comment 20) Many commenters noted that certain Canadian stakeholders have
expressed opposition to importation. One comment noted that two major Canadian
distributors listed in Florida’s importation proposal have stated their intention not to
participate in importation into the U.S. Commenters also noted that distributors may be
bound by agreements not to resell product outside of Canada.
(Response 20) We note in the RIA that agreements with manufacturers may prohibit
some or all Canadian distributors from selling eligible prescription drugs into the U.S.
States have indicated they believe they can achieve cost savings by working with
Canadian distributors. While the rule will afford SIPs significant flexibility in sourcing
eligible prescription drugs for importation, it is the responsibility of the SIP sponsor to
ensure cost savings. Due in part to uncertainty surrounding stakeholder participation, we
do not quantify expected cost savings of the rule.
(Comment 21) Many commenters suggested that the restrictions of the proposed rule will
limit cost savings. In particular, commenters noted that the rule will likely exclude many
of the most expensive drugs, such as biologics. Additionally, commenters suggested that
the rule’s supply chain restrictions (i.e., single manufacturer, foreign seller, importer,
etc.) will give suppliers market power. More generally, many comments stated that any
savings will be captured by middlemen (e.g., Pharmacy Benefit Managers (PBMs)).
(Response 21) We agree that these factors may influence potential cost savings. Due to
high uncertainty surrounding these factors, we are unable to quantify benefits. The
Benefits section of the economic analysis states that mark-ups by intermediaries will
influence potential cost savings.
(Comment 22) One commenter recommended amending the Costs and Benefits section of
the rule to require importers to provide evidence of cost reductions to the federal
government, state government, or a government agency, as opposed to patients directly.
(Response 22) We disagree with this comment. The economic analysis studies and
summarizes the costs and benefits of the final rule; it does not amend the requirements of
the rule.
(Comment 23) Many commenters suggested that the logistic and regulatory compliance
costs of importation will largely if not entirely erode any potential cost savings.
Commenters mentioned costs of repackaging, relabeling, testing, complying with the
DSCSA workaround, and developing recall and adverse event reporting systems.
Additionally, one commenter stated that pharmacies will need dual inventories to ensure
proper tracking and billing of domestic versus imported products. One commenter

13

claimed that SIP sponsors will need to save 15-20% on acquisition via importation versus
domestic channels in order to break even on regulatory and logistical expenses.
Similarly, some comments stated that the requirements of the proposed rule on SIP’s are
prohibitively burdensome. In particular, at least one state will not be able to establish a
SIP if required to specify supply chain partners in the application process. Another
commenter suggested that the testing requirements, severability clause, and the
requirement to apply for renewal after only two years will limit cost savings. Other
commenters suggested that requiring the use of labs with FDA inspection histories could
increase costs and lead to delays for imports.
(Response 23) The RIA acknowledges SIP costs as a significant factor in the realization
of any potential cost savings. As we are unable to predict the likely number, scale and
scope of authorizable SIPs and the specific eligible prescription drugs these SIPs will
import, we cannot estimate the magnitude by which these costs will decrease benefits of
the rule.
(Comment 24) Some commenters suggested that the price differences between American
and Canadian drugs are generally not large enough to support significant cost savings
from importation. Among these, some commenters noted that generics compose the
largest share of prescriptions and are generally as or more affordable in the U.S. than in
Canada.
(Response 24) As acknowledged in the RIA, the magnitude of price differences varies by
drug, with some drugs having lower prices in Canada and others having lower prices in
the U.S. The most appropriate price measure may also vary according to the intended
beneficiaries in each SIP. As we are unable to predict the likely scale and scope of
authorizable SIPs and the specific eligible prescription drugs these SIPs will import, we
do not quantify expected benefits of the rule.
(Comment 25) Several commenters referenced past studies on the costs and benefits of
drug importation. Some commenters highlighted that Congressional Budget Office’s
(CBO’s) estimates of H.R. 2427 (2004) and S. 1392 (2005) show that importation would
reduce annual spending on prescription drugs by only one percent. Commenters also
referenced CBO’s findings of minimal potential cost savings from Canadian drug
importation specifically. Relatedly, several commenters noted that past importation
programs (e.g., ISaveRx) failed to produce significant cost savings and have been
discontinued.
(Response 25) Savings from importation will be highly sensitive to the specific eligible
prescription drug products included in a SIP as well as the prices of those products, which
can fluctuate substantially over short time periods. Past analyses operated under
substantially different criteria than this rule. Moreover, the net economic effects from
national importation are likely to differ substantially from limited subnational importation
due to differences in both potential cost savings as well as costs of implementation.

14

Therefore, earlier studies will not likely yield reasonable projections of savings from this
rule.
(Comment 26) Many commenters expressed uncertainty regarding if and how imported
products might affect drug prices through government programs that involve drug rebates
or other reimbursement calculations, including Medicare, Medicaid, and 340B programs.
(Response 26) This rule is not intended to address how agencies that administer other
government programs, such as Medicaid, Medicare and 340B programs, may apply their
authorities to drugs imported under a SIP. We also cannot predict the types and volume
of eligible prescription drugs that will be imported under the final rule. We note this point
in the final economic analysis.
(Comment 27) Some commenters suggested that the draft importation plans and
proposals, for example those of Vermont and Florida, do not project sufficient cost
savings to justify the public health risks of importation.
(Response 27) These draft proposals provide lists of potential drugs for importation and
anticipated quantity, along with their domestic and Canadian prices, to demonstrate
possible cost savings. They do not provide sufficient quantitative information on the
potential costs of implementing these plans and thus their net economic effects.
Moreover, the statute requires that the importation program not result in any additional
risk to the public’s health and safety.
(Comment 28) Some commenters noted that patient savings will depend on whether and
how coupons and discounts might apply to imported drugs. One commenter noted in
particular the Centers for Medicare and Medicaid Services’ (CMS’) proposed Notice of
Benefit and Payment Parameters for the 2021 benefit year, which may limit how
insurance companies apply coupons toward enrollee cost-sharing.
(Response 28) Whether and how coupons and discounts might apply to imported eligible
prescription drugs depends on the individual SIP and how the SIP plans for imported
drugs to be distributed. Because we lack information on the scope and scale of each SIP,
the economic analysis notes the potential impact on patients and payers qualitatively.
4. Comments on Distributional Effects
(Comment 29) One commenter suggested that the mostly likely population to benefit
from the rule will be the uninsured, who purchase drugs out-of-pocket. Most patients pay
co-insurance or co-payments, rather than the drug’s acquisition cost, as part of their
insurance plans. These patients may see less direct benefit if savings are captured by the
insurer or plan, PBM, or pharmacy.
(Response 29) The most likely beneficiaries of the rule will depend on the scope and
scale of SIPs, which may target different populations through different channels and

15

payers. Because we lack details on how each SIP will operate, we cannot predict the most
likely populations to benefit from the final rule.
(Comment 30) Some comments expressed concern that the proposed rule might
negatively impact access to medicines in marginalized populations. Specifically, some
comments suggested that low-income individuals might disproportionately bear any
adverse health and safety consequences of importation if they are only able to afford
imported drugs. Another comment stated that marginalized communities may face
barriers to accessing drug available through importation programs. Some comments also
noted that importation based on state-run programs may increase gaps in healthcare
access between residents of different states.
(Response 30) In the Distributional Effects section of the final RIA, we note that the
potential for SIPs to operate in some states and not others, as well as possible differences
between SIPs, may result in different levels of benefit to residents of different states. The
statute requires that the importation program not result in any additional risk to the
public’s health and safety.
5. Comments on International Effects
(Comment 31) Many comments noted that Canada faces ongoing drug shortages, which
could be exacerbated by importation and thus harm public health in Canada.
(Response 31) The RIA acknowledges that SIPs resulting from the rule may risk
exacerbating drug shortages in Canada. As we are unable to predict the likely number,
scale and scope of authorizable SIPs and the specific eligible prescription drugs these
SIPs will import, we do not estimate impacts of the rule on the Canadian drug supply.
6. Comments on Small Entities
(Comment 32) One commenter stated that since FDA cannot estimate the impacts of the
proposed rule on small entities, we should not certify that the rule will not impact a
significant number of small entities.
(Response 32) We agree with this comment. This rule does not impose new regulatory
requirements on small entities; however, we cannot anticipate whether sponsors will
contract with small entities to implement their authorized SIP proposals or whether,
under certain circumstances, a small pharmacist or wholesaler might become a sponsor.
We also lack information to quantify the total impacts of the final rule. Because of the
uncertainties, we are unable to certify that the rule will not impact a significant number of
small entities.
(Comment 33) Some comments stated that importation will harm small domestic
pharmacies and local businesses, who may not have equal access to imported products,
particularly if insurers prefer imported products on their formularies.

16

(Response 33) We lack information to predict which pharmacies will have access to
imported eligible prescription products because distribution channels will depend on each
SIP.
D. Summary of Changes
Compared to the preliminary economic analysis of impacts, this final analysis
qualitatively notes additional factors that may affect benefits and costs, including federal
and local law enforcement activity and additional costs to importers. It also includes a
more detailed discussion of transfer payments. Finally, we have revised the Regulatory
Flexibility Analysis in section III to correspond with the fact that, due to lack of
information, we cannot certify that the rule will not impact a significant number of small
entities. There are no other changes to the preliminary analysis.
II. Final Economic Analysis of Impacts
A. Background
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 amended
section 804 of the Federal Food, Drug, and Cosmetic Act to allow for drug importation
from Canada. Section 804 directs the Secretary of the Department of Health and Human
Services (DHHS), after consultation with the United States Trade Representative and the
Commissioner of Customs (now U.S. Customs and Border Protection (CBP)), to
promulgate regulations permitting pharmacists and wholesalers to import Canadian
prescription drugs into the United States. However, implementation of section 804
requires the Secretary to certify, first, that any importation program must “pose no
additional risk to the public’s health and safety,” and, second, that importation must
“result in a significant reduction in the cost of covered products to the American
consumer.” Since section 804 was enacted, no Secretary has certified that these criteria
can be met.
Several state governments are considering or developing commercial drug importation
programs to expand access to Canadian drugs. According to the National Academy for
State Health Policy, 28 states pursued some form of legislative action related to
wholesale drug importation.3 For example, Colorado, Florida, New Mexico, and Vermont
passed laws to allow importation of prescription drugs from Canada.
B. Need for the Rule
Some prescription drug products are priced much higher in the U.S. than abroad, raising
questions about the adequacy of competition in U.S. markets for these drugs and whether
new policy approaches, such as importation under section 804, might effectively put
downward pressure on prices in U.S. markets and provide consumers with access to
lower cost products. As described in section III of the preamble of this final rule, FDA
has further considered the question of whether section 804 could be implemented in a
manner consistent with the requirements for the Secretary’s certification. FDA has
3

The National Academy for State Health Policy’s reports this information in a legislation tracker and
accompanying reports: https://nashp.org/rx-legislative-tracker-2019/. Accessed July 16, 2020.

17

determined that implementation of section 804 through time-limited programs, overseen
by states or Indian tribes (and in certain circumstances by a pharmacist or wholesale
distributor), with possible co-sponsorship by a wholesaler or pharmacist or another state
or Indian tribe, could enable importation to occur in a manner consistent with the
certification criteria. This implementation could potentially provide relief to some
American consumers from the burden of high prescription drug prices.
C. Purpose of the Final Rule
This final rule allows importation of certain prescription drugs from Canada.4 It describes
detailed procedures for time-limited commercial drug importation programs by states or
Indian tribes and, in certain circumstances, by pharmacists or wholesale distributors.
First, the final rule describes necessary procedures and precautions for the
implementation of these time-limited SIPs. The final rule will help to ensure drug safety
and efficacy through pre- and post-importation requirements, including: the provision of
detailed proposals, Pre-Import Requests, supply chain security requirements, statutorilyprescribed testing, re-labeling with FDA-approved labels, recordkeeping, recall action
plans, and adverse event reporting. Entry and arrival of a shipment containing an eligible
prescription drug is limited to the CBP port of entry authorized by FDA to import eligible
prescription drugs under section 804, so the FDA can ensure that it has adequate
resources at the port to process admissibility determinations and perform sampling of any
shipment containing eligible prescription drugs, if necessary.
Second, the final rule requires SIP sponsors to show that a program will result in a
significant reduction in the cost of covered products to the American consumer. SIP
sponsors will provide such information as part of their initial proposal, ongoing reporting,
and requests for extension. As a result, any SIPs implemented under the final rule will be
expected to result in a significant reduction in the cost of covered products to the
American consumer.
When the final rule becomes effective, states, Indian tribes and, in certain circumstances,
pharmacists and wholesale distributors, could submit SIP proposals to the Secretary of
DHHS.
D. Baseline Conditions
We adopt a baseline that reflects our best forecast of the world without the final rule. As
described above, the Secretary will allow the importation of eligible prescription drugs by
certifying that importation poses no additional risk to the public’s health and safety and
achieves significant cost savings for the American consumer.
Previously, these conditions had not been certified, and U.S.-authorized commercial
importation of Canadian drugs does not occur. Though some states have pursued
4

This final rule establishes a new part 251 of Title 21 of the Code of Federal Regulations to implement
section 804(b)-(h) (21 (USC 384(b)-(h)).

18

legislation that would allow for such importation under state law, there is no federal
program to accept proposals for importation projects. No federal government resources
are allocated to consider or authorize such proposals or to monitor adherence to any
requirements that such proposals must follow. Moreover, no resources are allocated to
facilitate, enforce, and monitor potentially authorized importation programs in a way that
ensures both safety and cost savings.
As described above, some states have developed or are developing legislation and
proposals for the wholesale importation of prescription drugs, but implementation of such
plans is not permitted in the absence of this rule. We therefore use a baseline in which no
states, Indian tribes, pharmacists, or wholesale distributors implement plans to import
prescription drugs.
The regulatory baseline is subject to uncertainty, as there is a CMS proposed rule
currently undergoing regulatory review that may, if it includes a proposed pilot program
similar to that discussed in an associated advance notice of proposed rulemaking, reduce
drug producers’ ability to price-discriminate between the U.S. and Canada. If the CMS
proposed rule is finalized, it could substantially reduce the scope of the potential impacts
of this rule, depending on the overlap between the sets of drugs eligible under the two
policies.5
E. Benefits of the Final Rule
We do not have information to allow us to estimate quantitatively the benefits of this
final rule. Benefits of the rule, if any, will be in the form of significant cost savings to
patients and to third-party payers or entities such as retail pharmacies and hospitals. To
the extent the rule improves access to drugs by lowering costs to the American consumer,
it may also result in economic benefits from reduced morbidity and mortality. Less
expensive drugs may benefit public health through increased uptake of therapies by sick
individuals with low willingness or ability to pay for prescriptions, or through increased
adherence to prescribed treatments.
It is important to note that cost savings would be economic benefits if they come from
reductions in the prices of drugs purchased from foreign-based manufacturers. The
decrease in foreign manufacturers’ revenue benefits U.S. patients and payers. If savings
5

The CMS advance notice of proposed rulemaking
(https://www.federalregister.gov/documents/2018/10/30/2018-23688/medicare-program-internationalpricing-index-model-for-medicare-part-b-drugs) targets certain Medicare Part B drugs administered in
physician offices or hospital outpatient departments and defines the set of eligible drugs as single source
drugs, biologicals, biosimilars, and multiple source drugs with a single manufacturer. In contrast, Section
804(a)(3), and thus FDA’s final rule, excludes from the definition of “eligible prescription drug” biological
products, as well as controlled substances, infused drugs, intravenously injected drugs, and drugs that are
inhaled during surgery. FDA’s final rule also excludes additional categories of drugs, including
intraocularly and intrathecally injected drugs, drugs that are subject to Risk Evaluation and Mitigation
Strategies (REMS), and drugs that do not meet the definition of a “product” for purposes of section 582 of
the FD&C Act. The CMS proposed rule is currently undergoing regulatory review
(https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201910&RIN=0938-AT91). Accessed July
14, 2020.

19

represent reductions in prices of drugs purchased from U.S.-based manufacturers, cost
savings would be considered economic transfers from U.S.-based manufacturers to
consumers. In other words, the reduction in price is a redistribution of monetary
payments between domestic parties, potentially including intermediaries in the supply
chain.
Developing estimates of such economic benefits from SIPs and distinguishing them from
transfers would require information about the likely scale and scope of authorizable SIPs
and the specific manufacturers these SIPs will involve, among other information.
FDA is aware of several studies estimating the potential savings from commercial drug
importation [1] [2] [3]. However, these studies consider importation at a much broader
scope than the final rule, analyzing national aggregates for prescription drugs in general
as opposed to subnational programs involving specific drugs and distribution channels.
In addition, savings from specific programs will be highly sensitive to the eligible
prescription drug products included in a SIP as well as the prices of those products, which
can fluctuate substantially over short time periods. Therefore, earlier studies will not
likely yield reasonable projections of savings from this final rule. We note that in 2017
the CBO issued a one-page report with preliminary estimates of S.469, the Affordable
and Safe Prescription Drug Importation Act6 [4]. S.469 is generally much broader in
scope than this final rule, including importation of prescription drugs from other highincome countries in addition to Canada. The estimates thus consider a much larger
quantity of potential drug imports than will be possible under this final rule. Because of
these issues, we do not consider results outlined in these studies applicable to this final
rule.
In this section, we note the factors influencing potential benefits.

6

x

U.S.-Canada drug price differences:
Existing price differences for some drugs can be large. Several studies indicate
relatively large differences in prices between the U.S. and other countries,
including Canada [5] [6] [7]. These studies note, however, that the magnitude of
international price differences typically varies with the specific set of drugs
studied and that many drugs are not available in the same dosage form and
strength in different pairs of countries. Estimated price differences can also vary
according to how comparable products are identified (e.g. the definition of a drug)
and how prices are measured (e.g. per milligram, dose, or package). The point of
sale at which prices are captured (e.g. manufacturer, wholesale, retail) may also
mask likely markups, discounts, and rebates. Finally, the most appropriate price
measure for forecasting savings may vary according to the intended beneficiaries
in each SIP.

x

SIP costs and mark-ups:
By contracting with SIP sponsors, importers and private intermediaries will face
costs to implement SIPs and use markups to cover these costs and profit. Existing

The full text of the bill is available at https://www.congress.gov/bill/115th-congress/senate-bill/469/text.

20

prices may provide a limited basis for forecasting savings to consumers without
information on the likely markups applied at each stage in the supply chain. These
markups depend on the management of individual SIPs and the eligible
prescription drugs authorized for import.
x

Canadian drug supply and potential regulatory response:
Increases in competition in U.S. prescription drug markets may be limited. The
Canadian drug supply is smaller than the U.S. drug supply7 [8] [9], and the
Canadian supply of eligible prescription drugs for import is controlled by the
same manufacturer as controls the U.S. supply. In addition, Canadian regulatory
agencies and/or manufacturers may also limit supply to be exported to the U.S.,
for example, via agreements with Canadian distributors prohibiting distribution in
the U.S. For all these reasons, there is a question as to whether this final rule
could yield non-zero benefits.

x

Affected drug manufacturers:
We lack data on whether imported eligible prescription drugs will be
predominantly produced by domestic or foreign manufacturers and thus cannot
estimate potential reductions in revenue to domestic drug manufacturers that may
occur with importation. This information is necessary to distinguish economic
benefits from transfers. Lower prices paid by U.S. intermediaries and consumers
for imported eligible prescription drugs produced by a domestic manufacturer
would come at the expense of the domestic manufacturer. In other words, some of
the revenue the domestic manufacturer would have received without importation
transfers to intermediaries, payers, and consumers through lower prices. We
cannot estimate potential reductions in revenue to U.S. drug manufacturers.
Lower prices paid by U.S. intermediaries and consumers for imported eligible
prescription drugs produced by a foreign manufacturer constitute economic
benefits to the U.S.

There are many payers in the U.S market, but this framework does not consider the
potential implications of private and government insurance and reimbursement as well as
other purchasers in the supply chain including hospitals and physicians. We cannot
predict the types and volumes of eligible prescription drugs that will be imported under
the final rule, which will influence these payers. Moreover, the prices paid by multiple
payers, including those affected by discounts, may be different, unobservable, or both.
Finally, this framework does not consider the response of the manufacturer with regard to
supplying the Canadian market.
F. Costs of the Final Rule
We do not have information to allow us to estimate quantitatively the costs of this final
rule. Costs of the final rule may accrue to the federal government, SIP sponsors,
importers, and the manufacturers of imported eligible prescription drugs. Developing
7

In 2018, roughly 700 million prescriptions were dispensed from Canadian retail pharmacies, compared to
5.8 billion in the U.S.

21

estimates of such costs from SIPs would require information about the likely number,
scale, and scope of authorizable SIPs and the specific eligible prescription drugs these
SIPs will import, including whether the manufacturers of these imported eligible
prescription drugs are domestic or foreign.
Though we note that 28 states have pursued some form of legislative action related to
wholesale drug importation,8 we cannot predict how many states or Indian tribes might
submit authorizable SIP proposals. We additionally do not know if and when pharmacists
or wholesale distributors might submit proposals. We also lack information to predict the
potential timing of proposal submissions, implementation, and extensions. Moreover, we
note that the final rule is designed to give flexibility to sponsors in how to develop their
programs. Not only will the number and timing of proposals vary, but the scope and scale
of proposals may be subject to significant variability. Due to these information
constraints, we discuss costs qualitatively.
1. Costs to Federal Government
To implement the final rule, FDA will incur costs related to set-up prior to importation,
proposal review and management, and compliance, monitoring, and enforcement.
Because the final rule is designed to give flexibility to sponsors in how to develop their
programs, we expect significant variation in proposal scale and scope and, thus,
significant variability in potential resource needs.
x

Pre-importation set-up:
To prepare for importation by authorized SIPs, FDA will incur costs to alter
existing import computer systems and educate importers on procedures for filing
entry of SIP drugs. FDA will also face costs to establish necessary monitoring and
compliance resources at the specified port of entry.

x

Proposal management and review:
All SIP sponsors will go through a review process to ensure that SIPs pose no
additional risk to public health and safety and result in significant cost savings to
the American consumer. This assessment will include corresponding with SIP
sponsors and importers as well as reviewing SIP proposals, Pre-Import Requests,
quarterly reports, SIP proposal and/or Pre-Import Request updates, and extension
requests. Review costs could be incurred even if no SIP is ultimately authorized.

x

Import compliance, monitoring, and enforcement:
Upon finalization of the rule and authorization of a SIP, FDA will face costs
associated with the compliance, monitoring, and enforcement of these importation
programs. FDA staff will perform review of testing plans and activities during the
pre-importation and importation stages. Such responsibilities include reviewing
the importer’s testing plan in the Pre-Import Request, reviewing testing results

8

The National Academy for State Health Policy’s reports this information in a legislation tracker and
accompanying reports: https://nashp.org/rx-legislative-tracker-2019/. Accessed July 16, 2020.

22

from the importer or manufacturer including complete laboratory records, and,
potentially, performing testing of eligible prescription drug samples collected by
FDA. Staff at the port of entry will perform admissibility review and make
admissibility determinations of entries containing an eligible prescription drug.
FDA will also undertake a variety of monitoring and compliance activities,
including label review and post-marketing surveillance, audits of SIP sponsors
and participants, potential appeals processes, recall review and effectiveness, and
monitoring of adverse event reporting. As part of its ongoing compliance efforts,
FDA may conduct inspections of foreign sellers, qualifying laboratories, and
relabelers. FDA will draw on all of this information about individual SIPs and
imported eligible prescription drugs to monitor and evaluate the overall impacts
of importation under Section 804. Finally, FDA will conduct surveillance for
entries falsely submitted as entries of compliant prescription drugs under a SIP, as
well as monitor for any potential unintended consequences related to
implementation of the final rule.
2. Costs to Section 804 Importation Program Sponsors
SIP sponsors will face set-up costs such as reading the final rule, SIP proposal
development and submission, and contracting with importers and foreign sellers. Once a
program begins, sponsors will face possible costs of extension and an annual reporting
burden for each year the SIP operates. SIP sponsors will also incur costs of educating
affected consumers and other parties in the drug supply chain about the SIP and
developing a system for reporting adverse events and effectuating recalls. State and local
law enforcement agencies may face costs to interdict counterfeit prescription drug traffic.
Some non-federal governmental entities may face a cost of developing and passing
legislation before developing a SIP proposal. However, we recognize that some sponsors
may choose to contract the development of proposals to a third party and thus incur costs
related to contracting. Alternatively, some government entities may sponsor a proposal
with a wholesaler, a pharmacist, or other non-federal governmental entities. Because we
lack information to predict how each SIP might operate, we cannot quantify these costs to
sponsors. Some of these impacts—such as costs of SIP proposal development and
submission by early adopters—will be incurred even if no SIP is ultimately authorized.
We note that the net financial impact on sponsors may be positive or negative. As
undertaking a SIP is a voluntary activity, sponsors interested in reducing their own
expenditures on prescription drugs will likely undertake SIPs only if they anticipate
ultimately recovering all program costs directly from the resulting cost savings. Hence,
the rule will likely leave such sponsors with net financial benefits. However, a nonfederal governmental entity might also choose to develop a SIP as a public service to
reduce the prescription drug expenditures of its residents. In this case, the sponsor may
deliberately incur costs of developing and implementing the program that it does not plan
to recover, thus operating at a net financial loss.
3. Costs to Drug Manufacturers

23

As U.S. drug distributors realize savings in acquiring imported drugs and pass some of
these savings to consumers and other parties in the drug supply chain, it is possible that
U.S. drug manufacturers may experience declines in U.S. sales revenues. It is also
possible that U.S. manufacturers of imported eligible prescription drugs may incur certain
compliance costs if their drugs are imported into the U.S. from Canada.9 Because we lack
information on the type and quantity of eligible prescription drugs that will be imported
through SIPs, we cannot predict which manufacturers, domestic or foreign, might face
these costs.10
The final rule requires the U.S. manufacturer to provide importers with certain
information regarding testing methodology, as well as an attestation and other
information, to authenticate the eligible prescription drug, to ensure that it is not
degraded, and to establish that it meets all conditions in the FDA-approved new drug or
abbreviated new drug application. Alternatively, the manufacturer could choose to
conduct the required testing itself and may incur costs for this additional testing.
Manufacturers will have to provide the information regarding testing methodologies or
conduct the testing and provide attestations and other information throughout the course
of the program. Manufacturers may incur costs to conduct this testing and/or provide
these attestations and information to the importer. However, the magnitude of these costs
may depend on the eligible prescription drugs imported in each SIP.
The manufacturer of an eligible prescription drug that is imported will also need to
provide the importer with written authorization for the importer to use, at no cost, the
FDA-approved labeling of the eligible prescription drug. Manufacturers might face a cost
to transmit this information as well as possibly an unquantifiable loss related to the
proprietary value of this property, if any. In other words, it is possible that this labeling
and confidential commercial information could help the importer capture a portion of the
market that is currently held by the manufacturer and/or any other authorized user of the
proprietary name and labeling.
4. Costs to Importers and Other Intermediaries
Private intermediaries, such as wholesaler drug distributors or pharmacists, that contract
with a SIP sponsor to implement a SIP will face business expenses, including but not
limited to the purchase of drugs from Canadian foreign sellers, systems for serialization
of units, cases, and logistical units, relabeling (including affixing the product identifier),
repackaging, compliance with proposal, pre-importation, and importation requirements,
data integration, call centers, recalls, and testing by third-party laboratories. Importers’
9

We note that foreign drug manufacturers face the same costs, but we do not consider foreign
manufacturers in our account of costs to U.S. society.
10
SIPs that significantly reduce the profits of drug manufacturers globally may disincentivize investment in
research and development of new drug products. Any benefits of such investment (e.g., patients whose
lives are extended or improved by new therapies) will be lost to society as a cost of the final rule. Because
SIPs will be limited both in scope and duration, we believe the potential for effects on research and
development will also be limited. We did not receive public comments or feedback on the potential for
research literature on optimal patent length to be matched with an analysis of which pharmaceuticals have
the most import potential.

24

annual reporting burdens will include submission of Pre-Import Requests and fulfilling
importation requirements. Importers will also face recordkeeping burdens to demonstrate
compliance with secure supply chain and post-importation requirements.
However, importers will only undertake these costs if they ultimately expect to profit
from the sale of imported eligible prescription drugs. An importer’s expenses reduce the
portion of cost savings passed on to the American consumer. However, this net transfer
should be positive because the importer recovers its expenses and earns some profit by
selling the drug down the supply chain.
We lack information about the potential number of participating importers, given that a
single importer could contract with multiple SIPs, as well as the potential costs and
profits importers might face. We describe these considerations in the benefits section.
While we thus cannot include estimated importer costs quantitatively, we note that
incurring these costs should always result in a net positive impact to the importer.
G. Distributional Effects
To the extent that this final rule is effective at leading to importation of eligible
prescription drugs that will be sold at less than current U.S. prices, it may provide
benefits to American consumers unable and/or unwilling to pay for their prescribed
medications. Depending on the program details of authorized SIPs, the rule may result in
different levels of benefit to residents of different states or Indian tribes. If wholesale
distributors or pharmacists sponsor a SIP in certain circumstances, patients of these
sponsors would benefit while non-patients would not.
We lack data on whether imported eligible prescription drugs will be predominantly
produced by U.S. or foreign manufacturers and thus cannot estimate reductions in
revenue to U.S. drug manufacturers. Lower prices on imported eligible prescription drugs
produced by a domestic manufacturer would be a transfer from the domestic
manufacturer to U.S. intermediaries and consumers. Lower prices on imported eligible
prescription drugs produced by a foreign manufacturer constitute economic benefits to
the U.S.
As noted earlier, we are not able to estimate the scale and scope of importation under
authorized SIPs, and thus we are unable to assess distributional effects quantitatively.
H. International Effects
The final rule will have potentially adverse effects on manufacturers selling drugs in
Canada and on Canadian consumers.

25

As with other members of the supply chain, we assume that a Canadian foreign seller will
not enter into an agreement with an importer unless it is profitable to do so.11 The
Canadian foreign seller will thus capture some portion of the manufacturer’s initial U.S.
sales revenues. The foreign seller’s additional profit is a cost of the final rule if imported
eligible prescription drugs are produced by a U.S. manufacturer.
Any SIPs resulting from the final rule may risk creating or exacerbating drug shortages in
Canada.12 If the Canadian government responds to shortages by relaxing price controls,
Canadian consumers may face higher drug prices. Due to lack of information regarding
the types and volumes of eligible prescription drugs that potential future SIPs might
successfully import into the U.S., as well as the scope of possible responses by the
government of Canada (e.g., a ban on wholesale prescription drug exports13), we cannot
quantify potential impacts on Canadian consumers. In general, any costs imposed on
Canadian consumers may be larger on an individual basis than corresponding benefits
received by U.S. consumers, due to the comparative magnitudes of U.S. demand and
Canadian supply with respect to most, if not all, drugs.
III. Final Small Entity Analysis
FDA has examined the economic implications of the final rule as required by the
Regulatory Flexibility Act. If a rule would have a significant economic impact on a
substantial number of small entities, the Regulatory Flexibility Act requires agencies to
analyze regulatory options that would minimize any adverse impact of the rule on small
entities.
This rule does not impose new regulatory requirements on small entities that do not
participate in SIPs; however, we cannot anticipate if sponsors will contract with small
entities to implement their authorized SIP proposals or whether, under certain
circumstances, a small pharmacist or wholesaler might become a sponsor. We also lack
information to quantify the total impacts of the final rule. As noted in Section I.C.6,
(Comments on Small Entities), because we do not have enough information about the
effect of the final rule on small entities, we are unable to certify that the rule will not
11

Each foreign seller must register its name and place of business with the Secretary. It must provide the
name of the SIP sponsor with which it works and relevant contact information. It must also register the
name of its United States agent and follow all specified requirements for wholesalers. Additionally, the
foreign seller will have to ensure that a section 804 serial identifier (“SSI”), which is a unique
alphanumeric serial number of up to 20 characters, is affixed or imprinted to each package and
homogenous case of drugs for import. Foreign sellers will also incur costs from FDA inspections.
12
In 2019, for example, the Canadian Pharmacists Association discussed the current issue of drug shortages
in Canada: https://www.pharmacists.ca/news-events/news/drug-shortages-have-greatly-increased-over-thepast-3-5-years-say-canadian-pharmacists/?lang=en. Moreover, the Health Canada Minister held a
roundtable with healthcare industry stakeholders in August 2019, at which there was consensus that the
proposed rule would exacerbate drug shortages in Canada.
13
In 2007, following a proposal in Congress to import prescription drugs from Canada, the Canadian
government introduced a bill to restrict exportation of drugs marketed in Canada. While neither the
American nor Canadian bills were passed, the Canadian government could respond similarly to the final
rule. Other possible responses include creating a licensing and permitting process or collecting fees from
SIPs or entities participating in a SIP, which would increase the costs of participating in a SIP.

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impact a significant number of small entities. This analysis, as well as other sections in
this document, serves as the Final Regulatory Flexibility Analysis, as required under the
Regulatory Flexibility Act.
A. Description and Number of Affected Small Entities
The final rule will commence agency review of SIP Proposals submitted for
authorization, initially by states and Indian tribes. According to the Bureau of Indian
Affairs, there are currently 573 federally recognized American Indian and Alaska Native
tribes and villages.14 According to the most recent (2017) Census of Governments,
among “general-purpose local governments” there are 3,031 county governments, 19,495
municipalities, and 16,253 townships. We expect state governments to be the most likely
non-federal governmental entities to prepare proposals, and hence to incur any direct
costs from the submission of proposals.
Pharmaceutical manufacturers, drug wholesalers, pharmacies, and drug stores may also
be affected by the rule. Under the current (2017) Small Business Size Standards
published by the U.S. Small Business Administration, pharmaceutical preparation
manufacturing firms (NAICS code 325412) qualify as small businesses if they employ
fewer than 1,250 employees. According to the most recent (2016) Statistics of U.S.
Businesses (SUSB), at least 939 of 1,017 firms classified in the pharmaceutical
preparation manufacturing industry employed fewer than 1,250 workers. We observe that
at least 92% of firms in this sector qualify as small businesses, which is understated due
to data limitations. Similarly, at least 95% of drug wholesalers (NAICS code 424210), or
6,542 out of 6,833 firms, fall under the threshold of 250 employees to qualify as small
businesses. According to data from the 2012 SUSB survey, the most recent to include
revenue information, at least 98% of pharmacies and drug stores (NAICS code 446110),
or 18,490 out of 18,852 firms, fall under the revenue threshold of $27.5 million dollars
and thus qualify as small businesses.
B. Description of the Potential Impacts of the Rule on Small Entities
If any SIP proposals are submitted and authorized, resultant programs may possibly
affect wholesalers and pharmacies to the extent that these parties profit from access to
lower-cost, imported eligible prescription drugs, are undercut by others with such access,
or sponsor a SIP proposal themselves. Any authorized SIP that successfully introduces
lower-cost, imported eligible prescription drugs may also decrease the profits of
pharmaceutical manufacturers.
We do not have information to quantitatively estimate the impacts of the final rule on
small entities. Namely, we cannot predict how many states or Indian tribes, or in certain
circumstances pharmacists or wholesale distributors, might submit authorizable SIP
proposals. We also lack information to predict the potential timing of proposal
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submissions, implementation, and extensions. Moreover, we note that the final rule is
designed to give flexibility to sponsors in how to develop their programs. Not only will
the number and timing of proposals vary, but the scope and scale of proposals and their
intended distribution channels may be subject to significant variability.
C. Alternatives to Minimize the Burden on Small Entities
As described above, we lack information with which to quantitatively estimate the
impacts of the final rule. We therefore cannot estimate the impacts of any regulatory
alternatives that may minimize the burden to small entities. One potential alternative to
minimize the burden on small entities would be to exempt drugs produced by small
manufacturers from importation. However, because the majority of pharmaceutical
manufacturers are small entities, this alternative was not selected because it might
exclude a significant number of drugs from being imported under a SIP. Another possible
alternative could be to delay implementation of the rule to a later date. This alternative
was not selected because it would delay the rule’s potential benefits.

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IV. References
[1] Congressional Budget Office, "Would Prescription Drug Importation Reduce U.S.
Drug Spending?," Economic and Budget Issue Brief, 2004.
[2] U.S. Department of Health and Human Services Task Force on Drug Importation,
"Report on Prescription Drug Importation," U.S. Department of Health and Human
Services, 2004.
[3] P. M. Danzon, S. J. Johnson, G. Long and M. F. Furukawa, "Commercial Importation
of Prescription Drugs in the United States: Short-Run Implications," Journal of Health
Politics, Policy and Law, vol. 36, no. 2, pp. 295-316, 2011.
[4] Congressional Budget Office, "Preliminary Estimate - S. 469, the Affordable and Safe
Prescription Drug Importation Act (as introduced)," 2017.
[5] P. M. Danzon and M. F. Furukawa, "International Prices And Availability Of
Pharmaceuticals In 2005," Health Affairs, vol. 27, no. 1, pp. 221-233, 2008.
[6] P. Kanavos, A. Ferrario, S. Vandoros and G. F. Anderson, "Higher US Branded Drug
Prices And Spending Compared To Other Countries May Stem Partly From Quick
Uptake Of New Drugs," Health Affairs, vol. 32, no. 4, pp. 753-761, 2013.
[7] The Patented Medicine Prices Review Board, "Patented Medicine Prices Review
Board Annual Report 2017," 2017.
[8] IQVIA, "Pharmaceutical trends: Retail Prescriptions Dispensed in Canada, 20142018," [Online]. Available: https://www.iqvia.com/-/media/iqvia/pdfs/canada/2018trends/retailprescriptionscanada_en_18.pdf?la=en&hash=76E385798EF31FF6563645
D0284CBF04. [Accessed December 2019].
[9] IQVIA, "Medicine Use and Spending in the U.S.: A Review of 2018 and Outlook to
2023," IQVIA Institute for Human Data Science, 2019.

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