U.S. Citizens’ Hunger for Canadian Drugs Recedes

The Canadian International Pharmacy Association (CIPA) reports that U.S. demand for local medicines was equivalent to some 500 million Canadian dollars (US$463 million) in 2006, or less than half the market’s value in 2004. The data—which comes after a plunge of nearly 30% in 2005—are attributed to a number of interrelated factors, but the weak U.S. dollar and improved drug coverage by the U.S. Medicare system are understood to be the most important factors. At the same time, less enthusiasm for the industry in Canada has led many “international” pharmacies to close their doors, with such outlets—including those that import from third countries—dwindling from 55 in 2004 to just 30 in 2006.

The U.S. Side of the Fence

This decline was also related to the affordability of pharmaceuticals in the United States, as well as the reluctance of U.S. regulators to assume responsibility for evaluating medicines whose origins could not be fully certified in every instance. The future for Canadian retailers in this line of business does not look bright: earlier this month, the U.S. Senate approved an amendment that would have legalised Canadian imports. But crucially, the measure demands that any imports are certified safe and effective by the U.S. FDA, and the agency has consistently refused to do this (see United States: 8 May 2007: U.S. Senate Amendment Quashes Legalisation of Canadian Drug Imports Bill).

With regard to affordability, the decline of the Canadian (re)export industry is also partly a symptom of the progress made under reforms to Medicare Part D. The changes have shielded more U.S. consumers from the full cost of drug treatment, while there is also emerging evidence that Medicare beneficiaries’ out-of-pocket expenses have declined due to the availability of cheaper generics at home (see United States: 24 May 2007: Medicare Part D Data Points to Greater Genericisation). For millions of U.S. citizens who fall into the so-called “Doughnut Hole” of pharmaceutical coverage under Part D, the costs of travel to Canada, coupled with the perceived risks of treatment with non-approved medicines, may have proved too much in view of the affordable alternatives available on U.S. soil. This factor may have been especially pertinent in the case of many previously loyal customers of Canadian pharmacies—namely the approximately 25% of U.S. senior citizens who were initially reckoned to fall outside the scope of Part D reforms. In theory, however, this demographic is at least theoretically eligible for assistance via Medicaid and various other social assistance programmes. For many needy individuals, then, the question is not one of facing the total unavailability of medicines in the United States, but rather an issue of local price competitiveness.

Cold Feet in Canada

According to the Globe and Mail newspaper, a third reason for the failure of import schemes could be that the hoped-for cost savings that various individual U.S. state authorities were hoping to make through Canadian import initiatives have not quite materialised. Several state authorities in the United States had implemented legislation enabling residents to access pharmaceuticals from Canada, or at least offered information on the issue, but administrative costs are widely blamed for wiping out any potential gains for individuals. In the currency area, too, there are strong disincentives: the U.S. dollar declined by approximately 65% against its Canadian counterpart between the start of 2004 and the end of 2006. In summary, therefore, Canadian pharmaceuticals may be imposing a greater opportunity cost on potential U.S. customers than the latter are willing to bear.

These trends coincide with a generalised dimming of enthusiasm for the cross-border trade in Canada itself. Industry concerns over the availability of basic medicines in Canada if the door to trade were opened any further played a part in local chains’ reluctance to endorse trade liberalisation (see Canada: 25 January 2007: Pharmacist Big Guns Shoot at U.S. Drug Importation Bill). The resulting flood of exports under liberalisation could—according to its critics—compromise the security of the U.S. pharmaceutical supply chain, as well as potentially raise the price of basic drugs in Canada’s government-run health system. The medical profession has also expressed unease at the ethical implications of supplying medicines to individuals without a consultation.

Outlook and Implications

It is too early to write the epitaph for Canada’s cross-border trade in price-controlled pharmaceuticals. For one matter, it is reported that purchases for individual consumption are routinely ignored by U.S. border authorities, which have at the same taken a harsh line on mail-ordered medicines. Although a sizeable population lives within a short drive of the Canadian border, the threat to the status quo of the U.S. health system appears to have receded, given the changes in the key incentives that gave rise to the trade in the first place. As such, the decline of the cross-border pharmacy business represents a substantial tactical and financial victory for U.S. pharmaceutical firms, which have witnessed an expansion in coverage while at the same time eliminating a significant threat to their margins.

Related Articles

• United States: 26 May 2006: Will Medicare Part D See the End of Cross-Border Prescription Drug Imports into the United States?