On July 24, 2020, President Trump issued a series of Executive Orders to address prescription drug costs, one of which specifically focuses on facilitating drug importation, a longstanding goal of the Trump Administration. That Executive Order, Executive Order 13938, instructs the Department of Health and Human Services (HHS) to:
(1) Facilitate Waivers for Individual Importation of Drugs and Devices – The Executive Order instructs HHS to facilitate waivers under Section 804(j)(2) of the Federal Food, Drug, and Cosmetic Act (FDCA) for individuals who seek to engage in personal importation of drugs and devices from foreign countries, on the condition that the waivers pose no risk to consumers, result in cost savings, and are “appropriate and consistent with applicable law”;
(2) Authorize Re-Importation of Certain Insulin Products – The Executive Order instructs HHS to authorize the re-importation of insulin products upon a finding by HHS that re-importation is required for emergency medical care under Section 801(d) of the FDCA, provided doing so is “appropriate and consistent with applicable law”; and
(3) Finalize FDA’s Proposed Rule that Would Allow State Importation of Certain Drugs from Canada – The Executive Order instructs HHS to complete the rulemaking process that the Food and Drug Administration (FDA) announced in December 2019 that would allow for States, working with co-sponsors (e.g., wholesalers and pharmacists), to import drugs from Canada under Section 804 of the FDCA, “as appropriate and consistent with applicable law.”
Despite the election year pomp, Executive Order 13938 does not itself create significant policy changes because the directives can only be implemented “as appropriate and consistent with applicable law.” That clause renders the Executive Order all bark and no bite. The first and third directives cannot be implemented unless Section 804 of the FDCA is in effect, and that section can go into effect only if the Secretary of HHS certifies that its implementation will “(A) pose no additional risk to the public health and safety; and (B) result in a significant reduction in the cost of covered products to the American consumer.”[1] As explained below, we are skeptical that HHS can provide a sufficient factual basis to support such certification in the context of either its individual or state importation proposals. Moreover, the implementation of the second directive, regarding the importation of insulin, turns on a finding that re-importation of insulin is required for emergency medical care, and it is unclear whether there is a factual basis to support that determination either. In any event, even if the Administration were to assert that the requisite factual bases exist to implement the directives, it could take months, if not years, for the directives to actually be implemented, given the need for fact development and the likely legal challenges that would follow the implementation of any of the directives.
That said, the Executive Order successfully expresses the Trump Administration’s frustration with prescription drug costs generally, and insulin costs specifically, and it underscores the ongoing tension within the Trump Administration regarding the appropriate scope of individual drug importation. Indeed, in its December 2019 Notice of Proposed Rulemaking (NPRM), FDA explicitly refused to implement the personal importation provisions established in Section 804(j). At that time, FDA emphasized that the risks associated with personal importation were too high. But now, less than a year later, Executive Order 13938 instructs HHS (the Executive Branch Department in which FDA is housed) to re-evaluate the issue of personal importation. Given widespread public support for drug importation, this is an important area to watch. Even if HHS and FDA decide not to expand their approach to drug importation right now, the debate over personal importation likely is just getting started.
I. Overview of Executive Order 13938
Executive Order 13938 states as follows:
The Secretary of Health and Human Services shall, as appropriate and consistent with applicable law, take action to expand safe access to lower-cost imported prescription drugs by:
- facilitating grants to individuals of waivers of the prohibition of importation of prescription drugs, provided such importation poses no additional risk to public safety and results in lower costs to American patients, pursuant to section 804(j)(2) of the [FDCA], 21 U.S.C. 384(j)(2);
- authorizing the re-importation of insulin products upon a finding by the Secretary that it is required for emergency medical care pursuant to section 801(d) of the FDCA, 21 U.S.C. 381(d); and
- completing the rulemaking process regarding the proposed rule to implement section 804(b) through (h) of the FDCA, 21 U.S.C. 384(b) through (h), to allow importation of certain prescription drugs from Canada.[2]
- The Legality of the Directives Regarding Individual and State Importation Is Questionable
The first and third directives—regarding individual importation and State importation, respectively—are predicated on Section 804 of the FDCA being in effect. Section 804 of the FDCA was enacted as a part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.[3] That section was designed to facilitate the importation of certain prescription drugs from Canada. However, the section can only be implemented if the Secretary of HHS certifies that its implementation would (1) “pose no additional risk to the public’s health and safety,” and (2) “result in a significant reduction in the cost of covered products to the American consumer.”[4] For years, no Secretary of HHS has been willing to make that certification due to concerns about the safety of imported drugs and the limited potential for cost savings given drug supply constraints in Canada. As explained below, it is unclear whether the Secretary of HHS has a factual basis to certify that either the State importation directive or the individual importation directive will pose no additional risks and significantly reduce consumer costs.
- The State Importation Directive
In July 2019, 16 years after Section 804 was enacted, HHS published its “Safe Importation Action Plan,” which announced the Department’s intention to implement Section 804 (see K&S Client Alert: A Gimmick No More? HHS Moves to Authorize Prescription Drug Importation, Aug. 6, 2019). Then, on December 23, 2019, FDA published an NPRM outlining its proposal to implement Section 804 and establish a detailed regulatory framework for State importation of certain prescription drugs from Canada.[5] The rule proposed in that NPRM, if finalized, would allow States (with their co-sponsors, i.e., wholesalers and pharmacists) to submit drug importation plans to HHS for review and approval. Notably, once an importation plan is approved by HHS, importers would have to provide documentation to FDA certifying that each batch of drug shipped has been appropriately sampled and tested for authenticity and degradation, among other things.
Soon after the NPRM was issued, K&S expressed concern that FDA did not have the statutory authority to implement the proposed rule as drafted because it seemed unlikely that the Administration had a factual basis to certify that the rule, when finalized, would result in significant cost savings to consumers. Indeed, in the NPRM itself, FDA conceded that it was “unable to estimate the volume or value of drugs that may be imported under the SIPs [i.e., State Implementation Plans] or the savings to U.S. consumers who may participate in such programs.”[6] Moreover, the Canadian government had already made clear that it would not allow U.S. demand to create drug shortages for Canadians; thus, the volume of drugs that Canadians can supply, at least in the short-term, until manufacturers would be able to ramp up operations, may be limited. Further, K&S was concerned that the testing and relabeling requirements in the proposed rule would increase the cost of the drugs being imported. (For more on the NPRM, see K&S Client Alert: FDA Issues Proposed Rule and Draft Guidance on Drug Importation, Jan. 7, 2020, and Law360, HHS Drug Import Proposal Is Unlikely to Succeed, Jan. 16, 2020.) Yet, despite the fact that the legality of the proposed rule is questionable, the Administration, with Executive Order 13938, has doubled down and directed FDA to finalize it.
- The Individual Importation Directive
The legality of the directive regarding individual importation is similarly questionable. Again, implementation of the importation provisions in Section 804 is prohibited unless the Secretary of HHS certifies that implementation would pose “no additional risk” and would provide consumers with “significant” cost savings. In its December 2019 NPRM, FDA decided not to implement the individual importation provision under Section 804(j) because it would expose consumers to significant risk.[7] By way of example, FDA in the NPRM highlighted risks associated with Canadian internet pharmacies. FDA explained that “consumers go to these websites believing they are buying safe and effective medications, but often they are being deceived and put at risk by individuals who put financial gain above patient safety.”[8] FDA noted that it was a Canadian internet pharmacy that was responsible for the distribution of counterfeit Avastin and Altuzan (the Turkish version of Avastin) to healthcare providers in the United States. FDA also cited data collected from International Mail Facilities in the United States, demonstrating that many “Canadian” internet pharmacies do not actually sell prescription drugs from the Canadian drug supply chain:
A 2005 FDA analysis of drugs imported through International Mail Facilities revealed that while nearly half of imported drugs claimed to be Canadian or from Canadian pharmacies, 85 percent of those drugs originated elsewhere and were fraudulently represented as Canadian. Typically, these products are smuggled into the United States after being transshipped to third party countries, such as Canada, in an effort to avoid detection and create a more trustworthy appearance. Given these risks . . . the proposed rule, if finalized, would not implement personal importation provisions under section 804(j) of the FD&C Act.[9]
Despite making these detailed statements outlining the risks associated with personal importation as recently as December 2019, the Administration, with Executive Order 13938, is directing FDA to re-evaluate the risks and cost-savings associated with individual importation. If FDA responds to the Executive Order by adopting a rule that allows personal importation, then, under well-settled principles of administrative law, it will have to explain why it is departing from its earlier position.[10] If FDA does not have a reasoned explanation for the shift, then the rule likely will be struck down by a court as being arbitrary and capricious.
- Implementation of the Directive Regarding the Re-Importation of Insulin Requires a Factual Finding
As mentioned, Executive Order 13938 also directs HHS to authorize the re-importation of insulin products upon a finding by the Secretary that such re-importation is required for emergency medical care, pursuant to Section 801(d) of the FDCA. Notably, this directive is simply a restatement of Section 801(d) of the FDCA, which specifically prohibits the re-importation of drugs “composed wholly or partly of insulin” (among other drugs) unless the Secretary expressly authorizes re-importation because it is “required for emergency medical care.”[11] Although the directive arguably requires HHS to evaluate whether re-importation of insulin is, in fact, now “required for emergency medical care,” HHS cannot actually take action to implement the directive unless and until it makes such a finding. Developing the requisite factual bases to implement this directive could take months, if not years.
II. Conclusion and Take-Aways
For the reasons discussed above, Executive Order 13938 does not create significant policy changes. Although the Executive Order serves as a convenient vehicle in an election year for President Trump to voice support for individual and State importation of certain prescription drugs, its bark is more noteworthy than its bite. The ability of HHS (and FDA) to implement the individual and State importation directives in the Executive Order still turns on the Secretary of HHS’ ability to certify that such importation does not pose any additional risks and significantly reduces consumer costs—just as it has since 2003, when Section 804 of the FDCA was first enacted. Executive Order 13938 has no bearing on whether factual bases to support such certification exist or not, but it arguably puts pressure on HHS to find them. Moreover, the implementation of the second directive, regarding the importation of insulin, turns on a finding that re-importation of insulin is required for emergency medical care, and it is unclear whether there is a factual basis to support that determination either.
In short, given that additional facts likely need to be developed before any of the directives can be implemented, and given that any attempt to implement them almost certainly will be met by legal challenges, we do not expect Executive Order 13938 to effect policy change any time soon. That said, Executive Order 13938’s rhetoric is noteworthy in that it articulates the Trump Administration’s frustration with the cost of prescription drugs, and it underscores the ongoing tension within the Trump Administration regarding the appropriate scope of individual drug importation. Certainly, we should continue to watch this space.
[1] 21 U.S.C. § 384(l)(1).
[2] Executive Order 13938, Increasing Drug Importation to Lower Prices for American Patients, 85 Fed. Reg. 45,757 (July 29, 2020).
[3] See Medicare Prescription Drug, Improvement, and Modernization Act, Pub. L. No. 108-173, 117 Stat. 2066 (2003).
[4] 21 U.S.C. § 384(l)(1).
[5] See FDA, Proposed Rule, Importation of Prescription Drugs, 84 Fed. Reg. 70,796 (Dec. 23, 2019).
[6] Id. at 70,798.
[7] See id. at 70,800.
[8] Id.
[9] Id.
[10] See, e.g., Encino Motorcars, LLC v. Navarro, 136 S. Ct. 2117, 2125-26 (2017) (holding that when an agency departs from its existing policy, it “must at least display awareness that it is changing position” and provide a “reasoned explanation” for the shift); Air Alliance Houston v. EPA, 906 F.3d 1049, 1066-69 (D.C. Cir. 2018) (setting aside an EPA rule as arbitrary and capricious because EPA failed to adequately explain the agency’s departure from its previous conclusions).
[11] 21 U.S.C. § 381(d)(1), (2).
