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SUSAN DENTZER: Bill Lacker, 75, has had two heart attacks and quadruple bypass surgery. Now he’s practically a walking advertisement for the Medicare prescription drug benefits enacted by Congress last year. Along with Lipitor a cholesterol-lowering drug, he takes three other medications for high blood pressure and angina but the new Medicare drug coverage won’t take effect until 2006.
BILL LACKER: I look up the….
SUSAN DENTZER: So in the meantime Lacker does what about a million other Americans also do. He buys drugs from Canada. From his home in rural Virginia, he taps into a Canadian Internet pharmacy called RxNorth.com.
BILL LACKER: I go to their Web site. For example, this is Lipitor. I run down the list of 10 milligrams which is what I take. There’s a 90-day supply; $144.58 for the 90-day supply.
SUSAN DENTZER: How much does that save you?
BILL LACKER: That saves me about a dollar a pill — maybe a little more even. It’s almost $400 a year on that one prescription.
SUSAN DENTZER: And about 1,800 miles away, in a tiny town in Manitoba, Canada, the staff of Mediplan, which operates the RxNorth Web site, is only too happy to fill Bill Lacker’s prescription. It’s just one of about 2,000 prescriptions from Americans that Mediplan fills each day.
SPOKESPERSON: Do you have that doctor’s phone number?
SUSAN DENTZER: Rod Blagojevich, the Democratic governor of Illinois, wants to buy drugs in Canada, too.
He’s presiding over a state in a severe budget crunch — in part, he says, because Illinois will spend $1.8 billion this year on prescription drugs. Blagojevich says importing drugs from the north would slash the state’s costs.
GOV. ROD BLAGOJEVICH: If we are given permission from the FDA to do this, we can save $91 million dollars for the taxpayers here in our state.
SUSAN DENTZER: Technically, Lacker and his fellow American importers are lawbreakers…
RxNORTH EMPLOYEE: I’ll just grab the total for you.
SUSAN DENTZER: Since federal legislation prohibits such drug imports. But the federal Food and Drug Administration has for the most part declined to enforce the law against individuals bringing in drugs. Blagojevich does not want to break the law — so he’s asked the FDA to approve a “pilot project” to allow Illinois to try out importation legally. Yesterday outgoing FDA Commissioner Mark McClellan, who’s now been nominated to oversee the Medicare and Medicaid programs, told a Senate committee that a task force he heads would review the Illinois’ request. The review would be part of a congressionally mandated study on importation.
MARK McCLELLAN: Congress gave us a number of tasks. They required us to do a careful analysis of the mechanisms for doing importation, the impact on prices, the impact on research and development, the cost to different parties in the system. We have public meetings and input from public stakeholders scheduled over the next six weeks or so to do this and we’ll certainly work as quickly as we can.
SUSAN DENTZER: Welcome to the great national debate over drug importation. It’s now sweeping statehouses and cities like Boston, much as it’s roiled Congress here for several years. The debate hinges on two key issues. One is drug prices — why drugs cost less in other countries than in the U.S. The other is drug safety — would it be possible to assure the safety of drugs imported into the United States?
SUSAN DENTZER: We decided to explore that first issue — drug prices — by tracking one of Bill Lacker’s drugs, Lipitor, as it moves through the U.S. and Canada.
Produced by U.S. pharmaceutical giant Pfizer, Lipitor has been the world’s top-selling drug for several years.
Much of Pfizer’s Lipitor output is made here, in Vega Baja, Puerto Rico. The island has become a major production center for a number of U.S. pharmaceutical manufacturers, in part because of generous federal tax breaks.
John Kelly is the Pfizer Vega Baja plant manager.
JOHN KELLY: We manufacture Lipitor in four strengths, 10, 20, 40 and 80 milligram, primarily for the U.S. market. Some of the 80 milligram product would be manufactured here for other countries such as Canada.
SUSAN DENTZER: The only difference between the Lipitor bound for the U.S. and that bound elsewhere is the packaging. Most of the Lipitor made here is packaged for the U.S. market according to FDA requirements. The Lipitor bound for Canada is actually shipped first to Germany, where it’s packaged in French and English for the Canadian market.
Once the drugs arrive in the U.S. or Canada, they’re handled in remarkably similar ways — moving from manufacturers’ distribution centers, to wholesalers to pharmacies.
It’s in Canadian pharmacies that you notice the most striking difference — the prices charged consumers.
MICHELE FONTAINE: Right now we do have Lipitor in stock. I’ve got a box here of the 80 milligram. A 90-day supply would be three boxes, and it’s about $246 in Canada.
SUSAN DENTZER: Pharmacist Michele Fontaine owns and operates a pharmacy in Winnipeg, Canada. The price she quoted us for Lipitor, in Canadian dollars, is equal to about $186 in the U.S.
Contrast that with the retail price of almost $338 posted on this CVS Web site. That’s more than 80 percent above the prevailing Canadian price.
On the whole, retail prices for top brand-name drugs in Canada are about a third or more below those in the U.S. To find out why, we asked Tom Brogan; he’s a former Canadian government official who helped create a federal Canadian board that reviews drug prices. He now consults with private pharmaceutical companies, including Pfizer.
Brogan told us there are several main reasons for the price differences between the U.S. and Canada. One is that Canada’s national income per capita is about 20 percent lower than that of the U.S. So manufacturers do price drugs lower in Canada because that’s what the market there will bear.
Another reason for lower prices is what pharmaceutical companies often call price-fixing — but which the Canadians describe as efforts to moderate drug prices. One example is the body that Brogan helped set up — the so-called Patented Medicine Prices Review Board, which reports to the federal health department, Health Canada.
TOM BROGAN: The Patented Medicine Prices Review Board, as the name suggests, monitors and reviews the price of every patented medicine in Canada. The — it has guidelines to determine what is an acceptable price under certain conditions.
SUSAN DENTZER: So with Lipitor, the board required a price that was in line with other cholesterol-lowering drugs already on the market.
Brogan says another major force holding drug prices down in Canada are the nation’s … provinces, which are roughly equivalent to America’s states. They operate the health insurance programs that provide drug benefits for Canada’s senior citizens and the poor. In effect, they pay for about 45 percent of all drugs purchased in Canada.
TOM BROGAN: The provincial governments have very large buying power, and have set up a system, partly by design, that encourages price competition for new chemicals coming to market.
SUSAN DENTZER: Specifically, the provinces have lists of drugs they will pay for, called formularies. To get on a formulary, a drug has to be both effective and reasonably priced. Brogan says Pfizer knew this, so it set a price for Lipitor that would appeal to the provinces. The drug quickly made it onto the formularies, and sales skyrocketed.
SUSAN DENTZER: At a recent Capitol Hill conference on drug importation, proponents argued that importing drugs from Canada would enable Americans to take advantage of Canada’s methods of lowering drug prices.
Arizona Republican Sen. John McCain argued that backdoor approach was needed — especially, he said, since a provision of the new Medicare law explicitly bars government price negotiations with drug companies.
SEN. JOHN McCAIN: Remarkably, remarkably, a prohibition, a prohibition, for Medicare to negotiate with drug companies for lower drug prices. I mean, if there was ever needed stark testimony to the power and influence of the pharmaceutical companies in this town, it is that provision.
SUSAN DENTZER: But on the other side, importation opponents argue that broad efforts to import drugs would be impractical. One reason is that Canada, with 31 million people, consumes just 2 percent of the world’s drug supply; contrast that with the United States, with nearly 300 million in the population, it consumes 44 percent of the global supply of drugs.
TOM BROGAN: There is no way our market would be able to supply even large cities in the U.S. and continue to supply our own population.
SUSAN DENTZER: In fact, companies like Pfizer and Eli Lilly have already taken steps to clamp down on the supply of drugs in Canada that could be exported back to the U.S. Opponents of importation also contend it could hurt the pharmaceutical industry’s profitability — and the companies’ ability to research and develop new drugs.
Pfizer CEO Hank McKinnell says low Canadian prices are already having that effect.
HANK McKINNELL: A better policy for Canada, for the government, for the provinces, for patients in Canada would be to abolish the combination of federal price controls and provincial formulary access that frankly conspire to push prices to a level which would not sustain continuing investment in research for the products that we need for future medical needs.
SUSAN DENTZER: The FDA’s McClellan — who’s a Ph.D. economist, as well as a medical doctor — says Americans are already shouldering a disproportionate burden of drug research and development by paying such high drug prices. He says that, behind the scenes, officials of other countries agree.
MARK McCLELLAN: We’ve been having this conversation at the level of senior government officials over recent months, and I think that there is getting to be a growing recognition that we are all in this together, that it’s not going to be sustainable for some countries to try to free ride on others when it comes to covering the costs of medicines.
SUSAN DENTZER: So McClellan has proposed other approaches that could spread the R&D burden and still help other countries save money on drugs. But any such changes are clearly a long way off. And meanwhile, for Bill Lacker and other amateur importers, those cheaper Canadian drugs are just a mouse click away.
JIM LEHRER: We’ll have a second report from Susan on this subject soon. It’s about safety concerns within the importation debate.