The cross-border traffic in prescription pharmaceuticals once had Americans hooked on cheap Canadian drugs. But changes in U.S. health insurance and the rising loonie have put a tourniquet on what was once a gushing flow of greenbacks.
“It drops, flatlines, drops, flatlines,” says Ankur Arora, vice-chair of the International Pharmacy Association of B.C. It’s a graph no business person likes to see: a gut-wrenching slide in revenues. From more than $400 million in 2005, B.C. pharmacies exporting medicine to the U.S. have seen their sales sink to an estimated $200 million this year. About 15 B.C. pharmacies shipped prescription drugs across the border into the American market two years ago; 10 remain in the game, and many of those have downsized dramatically. (Some also have storefronts and sell to local customers; others do not.) Bob Rai is a co-owner of five Medicine Shoppe franchises in the Lower Mainland: one in Surrey, one in Abbotsford and three in Vancouver. From his Surrey store, a staff of six mail prescriptions to Americans; a few years ago, Rai paid 20 people to do the work. Paul Zickler, one of the founders of Surrey’s DoctorSolve Health Care Solutions, has gone from 40 employees to 28. The cross-border traffic in Canadian prescription drugs was fuelled by a huge price gap between the two countries. Prescription drug prices have been as much as 80 per cent lower in Canada than in the U.S., thanks to bulk buying by the 10 provinces and price controls on patented drugs. Since 1987 our Patented Medicine Prices Review Board has kept a lid on prices, including costs for drugs produced in the U.S. This created a paradox: Americans could buy American medicine for less in Canada than they could at home. Filling the need looked like a slam dunk for savvy Canadian pharmacies (and for years, it was), with B.C. on the front lines. This province accounts for about 30 per cent of Canada’s sale of prescription drugs to the U.S. (Manitoba leads at nearly 50 per cent.) But those heady days are over; the industry has been hit by a double whammy. The most recent blow has been the rising Canadian dollar. “The rapidity of change was a problem,” says Zickler, who blames the climbing loonie for a 12-per-cent drop in revenues in one month alone. This on top of a recent change to U.S. insurance policies that hit the cross-border flow of prescription drugs last year. For the first time, in January 2006, Americans eligible for Medicare were able to buy insurance to cover the costs of their prescription drugs. “This had much more of an impact than we thought it would have,” says Zickler. The business of cross-border meds got its start 20 years ago when busloads of seniors in the northern states began trekking to Canada to fill their prescriptions. Later, with the advent of the Internet, about 70 mail-order pharmacies sprang up in this country. It became quite convenient for Americans to buy drugs from Canada. Despite the fact that the powerful U.S. Food and Drug Administration (FDA) thundered warnings about it being against the law to import prescription drugs from Canadian pharmacies, the business exploded. To be sure, there were some major challenges along the way. In 2003, in a bid to staunch the flow of profits northward, the big drug companies in the U.S. – Pfizer Inc., Eli Lilly and Co., GlaxoSmithKline PLC, Wyeth and AstraZeneca PLC – cut off the supply of drugs to the Cana-dian Internet pharmacies that were supplying Americans. While Canada does produce some drugs, it doesn’t produce everything patients might need. So the Internet pharmacies found a work-around. They responded by looking farther afield for drugs that weren’t available here. “There are other countries where drugs are even cheaper than in Canada,” Zickler explains. “We went to countries that had reciprocal relationships, regulation-wise, with Health Canada and the FDA. We got medications from the U.K., Europe, Israel, New Zealand, Australia. These medications aren’t mailed to us. We don’t distribute them from our pharmacies. The pharmacists from our associated pharmacies in other countries send the medications directly to the patients in the U.S.” Worries that exports by Canadian pharmacies might be endangering our own supplies of vital drugs caused more troubles. At one point, Ujjal Dosanjh, while federal health minister with the former Liberal government, signalled he might legislate an end to the industry to protect our stores of pharmaceuticals. Zickler scoffs at this fear. “The availability of medication was never a threat. It was fabricated to be a threat. Our policy has always been that if there was a perceived shortage, we would stop shipping.” The industry made good on the policy in the fall of 2005, when there were concerns that Tamiflu (a drug that could be used for the prevention and treatment of avian flu) was in short supply. Members of the Canadian International Pharmacy Association voluntarily halted cross-border sales of the antiviral. Supply wasn’t the only threat. Questions of legality on both sides of the border dogged the industry. In 2004 the College of Physicians and Surgeons of B.C. raised concerns about Internet dispensing because of federal regulations requiring that drugs dispensed in Canada be signed off by a physician licensed in this country. The college took a dim view of physicians here signing prescriptions for American patients without ever laying eyes on them. Says Morris VanAndel, registrar for the college, “Ultimately, from our point of view, this is the sale of a signature. Because someone is authorized to write a prescription and his or her signature is valid to do so, we don’t think it is professional or ethical to be selling your signature – especially because it has the potential for creating significant harm for the patient.” In 2004 and 2005, the college disciplined four doctors for co-signing prescriptions for American patients. There have been no further disciplinary actions since then. VanAndel says, “Unless someone complains, we have no way of knowing that this is going on. There is no way we can turn over rocks to see what is happening.” Authorities in the U.S. were more vigilant in enforcing their rules. Canadian pharmacies knew there was always the risk of drug shipments being intercepted at the border. Legitimate pharmacies such as members of the International Pharmacy Association of B.C. (IPABC) have worked hard to distinguish themselves from the rogue operators, the fly-by-night sleazy outfits that throw up a website and spam your inbox with offers of cut-rate Viagra. IPABC members are licensed by the College of Pharmacists of B.C. Each has a real location, a working phone number and someone at the end of the phone line who you can speak to. They do not fill an order without a prescription from an American physician who has attended to the patient. They require that customers fill out medical questionnaires detailing their medical history, a list of other medications they are taking and information about their allergies. And even if the colleges of physicians and surgeons don’t like it, IPABC members have a Canadian doctor review the U.S. prescriptions and the patients’ medical records. They do not sell controlled drugs or narcotics as a matter of policy, even with a valid prescription. Ankur Arora says, “Our main concern is the potential for abuse in a distance-based setting. We just don’t want to get involved in people forging prescriptions for controlled substances.” Nevertheless, U.S. Customs and Border Protection officials confiscated about 40,000 packages of Canadian prescription drugs in 2005 and another 37,000 in the first half of 2006. To be sure, this didn’t go over well in the land of the free traders. In September 2006, a Wall Street Journal poll of nearly 2,300 adults found that 80 per cent were in favour of allowing Americans to import drugs from Canada if they were much cheaper than in the U.S. Ten per cent said they had bought drugs from Canada, either by travelling there or by ordering them online. An earlier poll in 2003 by the Stony Brook University Centre for Survey Research found that Republicans supported importing drugs from Canada just as much as Democrats did. That’s probably why, in the fall of 2006 during the heat of the congressional elections, U.S. president George W. Bush promised to ease up on enforcement. The optics of irate seniors complaining about being cut off from life-saving medicines were not good. Bringing the drugs in was still illegal. However, a memorandum allowed customs officials to use their discretion about shipments of drugs, provided they were brought in for personal use. Several bills to legalize Canadian prescription drugs have been considered by Congress, but none has been signed into law. Gabriel Levitt in White Plains, New York, runs PharmacyChecker.com, a website that vets online pharmacies. “The issue is a political firestorm,” he observes. “Legalization is doubtful, even if the Democrats take back the White House.” The industry is still on shaky ground. As recently as January 2007, federal officials in South Florida confiscated 37 packages of medicine shipped from Canada, raising fears that the campaign against Canadian pharmaceuticals could start all over again. Meanwhile the double whammy takes effect. The change to Medicare appealed to many Americans, who suddenly stopped ordering drugs from Canada. And the loonie kept rising, blowing away the purchasing power of the U.S. greenback. Still, these weren’t knockout blows, or at least they haven’t been yet. In B.C. the Internet pharmacy business currently provides more than 700 direct and 3,000 indirect jobs, according to the International Pharmacy Association of B.C. The Medicare insurance scheme turned out to have drawbacks. A Pennsylvania senior who has shopped for medicines in B.C. for three years finds it is still cheaper to buy drugs for himself and his wife in Vancouver than to enrol in the American insurance plan. (Fearing that the FDA might intercept his medications, he asked that his name not be used.) The new policy would cover his first US$2,200 worth of drugs and the same amount for his wife. But the premiums would cost them US$1,400 a year, and there are deductibles that aren’t covered. When Americans get drugs under the insurance scheme, they still have to dig into their own pockets to cover part of the costs – sometimes as much as US$90 per prescription. This quickly adds up, especially on medicines taken regularly. Another snag with the U.S. Medicare scheme is that the insurance doesn’t cover any of the patients’ expenses over US$2,200, although it kicks in again when drug costs exceed US$5,000. This gap in coverage is what Americans have taken to calling the “blackout period,” or “doughnut insurance.” Our Pennsylvanian says, “You may think you’re going to save a little money by taking that program, but when you get into that blackout period, then you’re stuck with the high U.S. prescription costs. With the premiums, the deductibles and the blackout period, we’re still saving money by not having coverage.” This 77-year-old spends about US$3,600 on Canadian drugs a year. He buys two heart medications for himself: Lipitor and Imdur. He also buys medications for his wife: Lipitor, Inderal LA, Coumadin, Plavix, Evista (an anti-osteoporosis drug) and Xalatan (to prevent glaucoma). On one prescription of 90 days’ worth of Lipitor alone, he saves more than US$100. It costs him US$217 when he imports it from B.C.; his local pharmacy would charge him US$324, or about 50 per cent more. This senior believes the U.S. is not likely to begin regulating the price of drugs anytime soon. “Maybe if I live to be a 100, I’ll see the day,” he says. Frank Kaiser is a Floridian who has been buying drugs from Canada for five years. Despite the loonie’s rise, he also thinks Canadian pharmacies offer a good deal. In fact, he says, the U.S. drug companies’ blockade of the Internet pharmacies may have helped them stay competitive. “Today, because they have been blocked by so many of the U.S. pharmaceutical companies, they have to go abroad themselves to get the pharmaceuticals they need for their U.S. customers. Our dollar losing to the Canadian dollar has pushed the price up, but going to, say, England or other places has pushed it back down.” Consolidation in the industry has boosted the fortunes of the businesses that remain. (Where we once had about 70 international pharmacies in Canada, we now have 25.) Being creative and reaching out to new customers has also kept these businesses viable.
Dawn Polley, vice-chair of the International Pharmacists Association of B.C. and owner of Granville Pharmacy in Vancouver, says, “The boomers are turning 60 and are quite comfortable ordering from our pharmacy. We’re finding a much younger population beginning to order medications from us, as opposed to just seniors who were previously our main customers. It’s a growing market.” Zickler concurs: “We are getting into a group of patients in their 50s where their company’s medical plan has been making cutbacks to the formulary and saving money.” Zickler has even added pet medications to his product line. “It’s a little more difficult because most vets have a pharmacy associated with their office. So they are not inclined to give you the prescription and let you get it elsewhere, although by regulation they are supposed to. They make the profit. However, that’s slowly changing.” In particular, Zickler says, there are crossover medications – the same drug being used for humans and pets – where his pharmacy can offer a very reasonable price. While the FDA continues to post dire warnings about the legality and safety of Canadian drugs, several U.S. governors have made it easier for their citizens to import them. In 2004 Illinois governor Rod Blagojevich created a program called I-SaveRx, allowing people in his state to buy 100 of the most common drugs from an Alberta supplier called Pegasus Health Services Ltd., at 25 to 50 per cent cheaper than they would cost in most American drugstores. The governors of Wisconsin, Kansas, Missouri and Vermont joined in so their citizens could benefit from the program too. And in March 2006, the Nevada State Board of Pharmacy began licensing Canadian pharmacies as out-of-state pharmacies. Louis Ling, general counsel for the board, says, “We treat them in the same way as a pharmacy from Ohio or Texas.” Once a Canadian pharmacy fills out an application form and passes a physical inspection, it is added to a list of approved pharmacies on a website maintained by the governor of Nevada. So far four pharmacies in B.C. – Granville Pharmacy, Somi Drugs, Health One Pharmacy and Ultra Care Pharmacy – have passed muster. Ling says, “We wanted our citizens to have some recourse if there was a problem, somewhere to go if they had a complaint.” So far there have been no errors or complaints. Dawn Polley is optimistic about the future. “We’ve reached the bottom; we’re starting to recover. It’s not yet at the level it was in the past, but we’re starting to see a little bit of growth.” Related stories: Selling Sickness by Claudia Cornwall, originally published in BCBusiness magazine in October, 2006. What do you think? Share your feedback with us on this story using the comment form below.