The Prescription Drug Import Provisions of the FY2001 Agriculture Appropriations Act, P.L. 106-387

The Prescription Drug Import Provisions of the FY2001 Agriculture Appropriations Act, P.L. 106-387

Order Code RS20750
Updated January 10, 2001
CRS Report for Congress
Received through the CRS Web
The Prescription Drug Import Provisions of the
FY2001 Agriculture Appropriations Act,
P.L. 106-387
Donna U. Vogt
Blanchard Randall IV
Domestic Social Policy Division
Summary
The FY2001 Agricultural Appropriations bill [P.L. 106-387] included two
amendments to the Federal Food Drug and Cosmetic Act (FFDCA): one that would
have required the Food and Drug Administration (FDA) to establish a 5-year drug import
program that would allow pharmacists and wholesalers to import FDA-approved
prescription drugs into the United States; and a second that placed conditions on FDA
sending warning letters regarding the importation of drugs for personal use. When
the106th Congress was unable to reach a consensus on a new a prescription drug benefit
under Medicare, it looked for other ways to increase the availability of lower cost
prescription drugs. Under the new law, pharmacists and drug wholesalers who import
drugs would have to provide FDA with specific information that would allow the agency
to monitor the program. All imported drugs would have to be FDA-approved, tested for
authenticity, and be properly labeled before they could be distributed. Drug companies
would be prohibited from entering into contracts and agreements that would limit or
interfere with the program’s implementation. The import program could not begin until
the Secretary of Health and Human Services (HHS) certified to Congress that its
implementation would pose no additional public health risk and would significantly
reduce the cost of drugs for American consumers. However, on December 26, 2000,
Secretary Shalala advised the President that she could not implement the program
because of what she termed “serious flaws and loopholes” in the legislation.
Nevertheless, the conditions on warning letters are effective immediately. This report will
be updated as events warrant.
Introduction
The cost of prescription drugs, particularly for the elderly and the uninsured, became
a major concern of the 106th Congress. The issue grew contentious when U.S. consumers
began asking why they were paying more for prescription drugs than citizens in other
countries. According to an editorial in the New England Journal of Medicine, Americans
Congressional Research Service ˜ The Library of Congress

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regularly pay up to twice as much as Europeans and Canadians for the same drug.1 This
anomaly has led some Americans to travel outside the United States, particularly to
Canada, to purchase prescription drugs.2 Some believe that these price disparities are
unfair, and are a major contributor to the rising cost of health care in America.3 The U.S.
pharmaceutical industry argues, however, that U.S. patients benefit from a steady flow of
new therapies, and asserts that revenues generated from drug sales are necessary to
support drug research and development, which benefit all consumers world-wide.4
Background
Under the Federal Food, Drug, and Cosmetic Act (FFDCA), all drugs must be proven
safe and effective before they are approved for marketing in the United States. All
imported drugs, whether they are originally made in the United States or manufactured in
another country, must be FDA-approved and be properly labeled. Also, imported drugs
must come with information indicating where they were made, the name of the importer,
and evidence that they were made following good manufacturing practices. Imported
pharmaceuticals that do not meet U.S. standards are considered “unapproved” drugs and
cannot be imported legally. To reduce the risk of adulterated or subpotent drugs from
reentering this country, Congress in 1987 made it illegal for anyone other than the
manufacturer to import a drug into the United States.5
FDA’s Personal Use Import Policy. Even though the FFDCA prohibits non-
approved drugs from entering the United States, for years the FDA has maintained a policy
that allows patients to bring a 90-day supply of prescription drugs for their personal use.
The reason for this policy was to let patients with serious diseases (such as AIDS) bring
non-FDA approved therapies into this country, so that they could continue to be treated
by their own physician.6 Under the policy, patients must affirm in writing that the drug is
for their own use, provide the name and address of their attending physician, or provide
evidence that the medication is necessary to continue treatment. Today, drugs brought in
for personal use are often purchased in person, by mail, or through the Internet. At the
time the personal use import policy was adopted, it was never intended as a way for
1 Angel, Marcia. The Pharmaceutical Industry – To Whom Is It Accountable? New England
Journal Of Medicine, v. 342, no. 25, June 22, 2000. p. 1902-1904.
2 Patented Medicine Prices Review Board. Trends in Drug Prices and Expenditures, Figure 8,
Average Foreign-to-Canadian Price Ratios All Patented Drug Products in 1999. 1999 Annual
Report, Canada.
3 Pear, Robert. Rise in Health Care Costs Rests Largely on Drug Prices. The New York Times.
November 14, 2000. p. A12.
4 Pharmaceutical Research and Manufacturers of America. Why do Prescription Drugs Cost so
Much? [http://www.phrma.org/publications/publications/brochure/questions/] October 19, 2000.
5 Prescription Drug Marketing Act of 1987, P.L. 100-293.
6 U.S. Food and Drug Administration. Information on Importation of Drugs Prepared by the
Division of Import Operations and Policy. [http://www.fda.gov/ora/import/pipinfo.htm]. FDA
usually refrains from taking enforcement actions when: the drug is for a serious condition and no
domestically approved treatment exists; the drug has not been advertised in the United States; and
the product poses little or no risk.

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patients to purchase lower priced drugs in foreign countries. Recently, however, the
number of patients who are importing drugs for personal use under this policy has been
growing.7 This policy was not changed by the FY2001 Agriculture Appropriations Act.
Changes in the Law to Allow Drug Imports
During consideration of the FY 2001 agriculture appropriations bill, Congress agreed
on two amendments to the FFDCA that would ease restrictions on imported drugs. The
first amendment, called the Medicine Equity and Drug Safety Act of 2000, required FDA
to promulgate regulations implementing a new drug import program which would allow
pharmacists and drug wholesalers to import prescription drugs from certain countries. The
second amendment, called the Prescription Drug Import Fairness Act of 2000, prevents
FDA from sending warning letters to individuals who import drugs for personal use unless
the agency specifies how the imported drug violates the law.
The following points summarize the legislation’s major clauses as enacted:
Regulations and Limitations. Under the Act, the Secretary of Health and Human
Services (HHS)8 must promulgate regulations allowing pharmacists and wholesalers to
import prescription drugs (referred to as “covered products” in the Act) into the United
States. The statute does not specify a time frame for establishing these regulations. Before
these rules can be published, however, the Secretary must consult with the U.S. Trade
Representative and the Commissioner of Customs. The Act requires that all drugs
imported under the new law must meet the same safety and efficacy standards as drugs
approved in the United States. In addition, imported products cannot be adulterated or
misbranded. Furthermore, the Act allows the Secretary to adopt rules as necessary to
protect public health or to facilitate the import program.
Records Maintained by Pharmacists and Wholesalers. The Act requires that all
records regarding imported prescription drugs must be kept for whatever period the
Secretary determines as necessary. The records must also be made available for inspection
purposes. Nothing in the Act, however, requires these records be made available to the
General Accounting Office (GAO) to conduct the study required by the law. (See
“Studies and Reports” below.)
Importation. Importers must provide FDA with records that include: the name and
amount of the drug, its active ingredients and dosage, the date on which it was shipped,
and information about its origin and destination. They must also supply information about
the drug’s resale price, the quantity of each lot, and the manufacturers’ control number.
Certain other requirements must be met before drugs can be reimported. For drugs
entering the United States directly from the first holder of the drug overseas, there must
be documents indicating who has had control over the drug, that it is the same quantity of
a drug that was originally received, and verification that each batch of the drug has been
7 If U.S. patients want to get their drug prescriptions filled in Canada, they must first get a
prescription from a Canadian physician before it can be filled by a Canadian pharmacy.
8 The Secretary of HHS delegates to the FDA the responsibility for carrying out the statute.

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statistically sampled and tested in the United States for authenticity and degradation prior
to importation. Subsequent shipments of these drugs must also be tested for authenticity
and degradation, and be certified as FDA-approved and be properly labeled.
For reimported drugs that are not coming directly from the first foreign holder, the
imports must have documents accompanying them that demonstrate that a batch of the
product has been statistically sampled and tested for authenticity and degradation. The
importer or manufacturer must also certify that the product is FDA-approved and meets
all U.S. labeling requirements. In addition, there must be documents verifying that the
required authenticity testing was conducted in an approved U.S. laboratory.
Testing. Either the manufacturer or the importer can conduct the required testing.
Manufacturers must supply to the importing pharmacist or wholesaler information needed
to authenticate the product and its labeling. Testing information must be kept in
confidence, and the Secretary may adopt rules to protect commercial or financial
information, and confidential and privileged trade secrets.
Imports from Designated Countries. Prescription drugs covered by the law can be
imported only from: Australia, Canada, Israel, Japan, New Zealand, Switzerland, South
Africa, and the European Union. Additional countries can be added to the list at the
Secretary’s discretion.
Suspension of Importations and Enhanced Penalties. If FDA discovers a pattern of
counterfeit or violative products, the agency can suspend importation of a specific product
or a specific importer. The suspension stays in effect until the agency completes an
investigation and determines that the public is adequately protected. Those who knowingly
violate the terms of the Act can receive up to 10 years in prison and fines not to exceed
$250,000 or both.
Prohibited Contract or Agreements. Manufacturers of imported drugs may not enter
into contracts or agreements that include provisions to prevent the sale or distribution of
imported products.
Studies and Reports. FDA is required to evaluate drug importers’ compliance with the
new regulations. In doing this, the agency has to compare the number of counterfeit,
misbranded, or adulterated imported drugs with the number of drugs shipped domestically
that are counterfeit, misbranded, or adulterated. After consulting with the U.S. Trade
Representative and the Commissioner of Patents and Trademarks, the study must evaluate
the effect the imports have had on trade and patent rights under federal law. Two years
after the effective date of its implementing regulations, FDA has to give Congress a report
describing the study’s findings. In addition, 18 months after the program goes into effect,
GAO must submit to Congress a report that evaluates whether the program has been
effective in lowering drug prices for consumers.
Definitions. Under the Act, the term “covered product” refers to imported prescription
drugs. However, the scope of the definition does not include Schedule I, II, and III
controlled substances (drugs with a high abuse potential), nor biological products
regulated under the Public Health Service Act. Also, donated drugs, or free drugs supplied
to foreign-based charitable organizations or foreign governments cannot be imported.
Further, parenteral (injectable) drugs may not be imported if FDA feels that they may be

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a “threat to the public health.” Under the Act, in addition to manufacturers, only licensed
pharmacists or wholesalers may import drugs. All labs that qualify for testing have to be
approved by the Secretary.
Conditions. Before the import program can begin, the Secretary must demonstrate to
Congress that its implementation will pose no additional risk to public health and safety,
and will result in a significant reduction in the cost of drugs for U.S. consumers.
Sunset Provision. The import program is set to expire 5 years after FDA issues its final
implementation regulations.
Appropriation. Congress appropriated $23 million for implementation of the Act in
FY2001. However, this appropriation becomes available only when the President submits
an official budget request and justification to Congress.
Warning Notices. A second amendment (Section 746) prevents FDA from sending
warning notices to individuals who import prescription drugs for personal use unless the
agency provides a detailed explanation of why the warning notice is being sent.9
Issues and Concerns Raised by the New Statute
On December 26, 2000, Secretary of HHS, Donna Shalala, said in a letter to the
President that she could not request the $23 million that was conditionally appropriated
to implement the drug reimportation program because of flaws and loopholes in the
legislation that she claimed would not provide cost savings for consumers and could pose
unnecessary risks to public health.10
Costs of Prescription Drugs. By expanding the supply of drugs available to U.S.
consumers, the drug reimportation program might, through increased competition, reduce
the cost of some prescription drugs. However, some have questioned this assumption. It
has been argued that since the program has no built-in price guarantees, consumers may
never actually benefit from lower priced drugs. For example, there was no provision in
the law that required importers to pass savings on to consumers. Further, some
questioned whether drug wholesalers and pharmacists would choose to invest in the
required authenticity testing unless they could pass their added costs through to the
consumer. In addition, broad categories of drugs frequently prescribed in the United
States, such as controlled substances, parenterals and biologics, were exempt under the
Act. In her letter advising against the law’s implementation, Secretary Shalala asserted
that a drop in drug prices would be unlikely because the law did not prohibit manufacturers
from requiring distributors to charge higher prices, limit supply, or otherwise treat U.S.
importers less favorably than foreign purchasers.
Prohibited Contracts and Agreements. The Act prohibited manufacturers from
entering into contracts or agreements with foreign buyers that would interfere with the sale
9 Section 746 established Section 801(g)in the FFDCA. This provision was introduced as the
Drug Import Fairness Act of 2000 (H.R. 3240) and passed the House on June 29, 2000. Its
provisions were incorporated into the FY2001 agriculture appropriations bill during conference.
10 Donna E. Shalala, Letter to President William J. Clinton, December 26, 2000.

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or distribution of reimported drugs. Supporters of the Act felt this prohibition would
prevent drug companies from circumventing congressional intent and rendering the
program ineffective. Critics noted, however, that drug manufacturers could simply get
around the prohibition by demanding that distributors promise to sell only the drug at the
more expensive U.S. price.11
Limit Supplies. Another concern was that drug companies could choose to reduce
the amount of drugs they export in order to limit the number of drugs available for
reimportation. Further, some suggested that manufacturers could also thwart the intent
of the statute by exporting prescription drugs made with different identifying features
(such as color, size, shape, or dosage) than those approved for sale in the United States.
Because these drugs would not be exactly like their FDA-approved counterparts, from a
regulatory perspective, they might be considered “non-approved” and be ineligible for
reimportation. It was Congress’ belief, however, that the strong penalties imposed by the
Act – $250,000 or 10-years in jail or both – would deter such occurrences.
Drug Testing and Labeling. When pharmacists and wholesalers conduct the testing
required for imported products, the Act required that drug manufacturers to supply them
with the information needed to authenticate the drug, and confirm that it was properly
labeled. The Act, however, does not entitle reimporters to use manufacturers’ FDA-
approved labeling so that their imported drugs could be sold legally in the United States.
Since most drug manufacturers consider their brand names and formulas to be proprietary
under copyright and trademark laws,12 there would be a good chance that they might seek
remediation in the courts if they were required to make this kind of information available
to drug importers.
Product Integrity and Inspections. The statute contained provisions that intended
to create a more diversified and open program for importing prescription drugs. For this
reason, some raised concerns that the import program would make it easier for
adulterated, misbranded, sub-potent, or counterfeit drugs to enter the U.S. distribution
pipeline and eventually end up in retail pharmacies. There were also concerns that FDA’s
already overloaded drug import monitoring system, even with a $23 million increase in
funding, would be stretched even further if the agency had to monitor additional testing
and conduct more inspections of overseas facilities.
Sunset Provision. Another controversial issue was the law’s 5-year sunset
provision. According to Secretary Shalala, this time limitation would have given drug
companies little incentive to invest in the required testing and distribution systems without
some positive long-term financial return. Nor did the law provide much incentive for the
U.S. government to set up a monitoring system for drug imports, if it would not result in
lower cost drugs for consumers. It is unclear whether Congress and the Bush
Administration will interpret these requirements differently.
11 “White House, Dems: Label, Contract Loopholes Weaken Drug Import Bill.” Inside
Washington’s FDA Week, v. 6, no. 41, October 13, 2000. p. 1 and 14-16.
12 Claiming that the person holding a patent has the “exclusionary right” to decide whether or not
to sell the product under patent or even to set conditions for a sale, some feel that the clause in the
drug import legislation prohibiting contracts may be challenged under the “takings clause” of the
Constitution.