The HHS Importation Proposed Rule

Last month the US Department of Health and Human Services (HHS) published a new notice of proposed rulemaking (NPRM) related to the importation of finished drugs from foreign supply chains–initially, only Canada but expandable in the future to other countries. The proposal is the result of President Trump’s initiative to lower the price of some medicines and it would invoke Section 804 of the Food, Drug and Cosmetics Act (FD&C)–inserted in the early 2000s–that envisions importation programs, under certain strict conditions. Programs under Section 804 can only be implemented if the Secretary of HHS certifies that the they will pose no additional risk to the public’s health and safety, and will result in a significant reduction in the cost of covered products to the American consumer (see “Can Trump/Azar/Sharpless Eliminate Parts of the DSCSA to Enable Importation?” and “Here We Go Again. Florida Flirts With Opening Door To Counterfeits“). Those are high bars. So high, that no Secretary of HHS has been willing to pursue Section 804 Importation Programs (SIPs) until the current one. Will the HHS proposed rule result in programs that pose no increased risk to American consumers? Let’s take a look and see if we can find the answer.


The HHS NPRM is long and technical. At nearly 170 pages, and about as technical as the Drug Supply Chain Security Act (DSCSA), it’s not surprising that most people I’ve talked to have not read much of it. I have studied it because I wanted to understand how commercial importation could be implemented in light of my understanding of the DSCSA. It seemed to me that the DSCSA would block the kind of paths that drugs would need to take in any commercial importation program. I found the answer on page 65:

” Because the DSCSA did not include an exemption for drugs imported under section 804, such drugs are subject to the requirements in section 582. We recognize, however, that certain requirements in section 582 may be difficult or impossible for such drugs to meet. Accordingly, under the authority provided by section 582(a)(3)(A)(iii) of the FD&C Act, FDA proposes to exempt from section 582 certain transactions for drugs imported under section 804.”

The DSCSA section referenced in that passage, 582(a)(3)(A)(iii), reads this way:

‘‘(A) IN GENERAL.—Not later than 2 years after the
date of enactment of the Drug Supply Chain Security Act,
the Secretary shall, by guidance—


“(iii) establish a process by which the Secretary
may determine other products or transactions that
shall be exempt from the requirements of this section.”

The DSCSA allows the FDA to exempt whatever they think is appropriate from the DSCSA. In the case of this NPRM, the FDA proposes to exempt products imported through SIPs from the product tracing requirements of the DSCSA–at least until they arrive on US soil.


In lieu of the product tracing requirements of the DSCSA for SIP imported product, the NPRM lays out new product tracing requirements that HHS intends to be “comparable” to those of the DSCSA that are being exempted. This is why the NPRM is so long and technical. The NPRM imagines that creating requirements that are “comparable” will result in no increased risk to patients because the DSCSA results in such a safe and secure supply chain.

The NPRM would create two new licensed participants in the supply chain: Foreign Sellers and Importers. A Foreign Seller would be a Canadian company that is licensed by the Canadian government to distribute drugs in Canada, as well as licensed by the US FDA to fill the role of a Foreign Seller in SIP programs. There are lots of requirements for these companies to be accepted into the program, designed to make sure these companies are legitimate.

Importers are US-based companies that are currently licensed–as required by the DSCSA–as either wholesale distributors, or a pharmacist.

Product to be imported to the United States through a SIP program must start out its life being labeled by the original manufacturer for the Canadian market. That is, the manufacturer would intend that these products will be consumed by Canadians under Canadian regulations and must be approved by Health Canada’s Health Products and Food Branch (HPFB). Canada does not currently have a serialization requirement for drugs and they have their own product identifier–known as a Drug Identification Number, or “DIN”– that is different, but “comparable” to the National Drug Code, or “NDC” that is required in the United States. Of course, Canada has their own labeling requirements beyond the DIN, just like every country does.

Drugs under SIP programs must have marketing approval in both Canada and the United States at the identical dosage form and strength. Foreign Sellers must buy SIP-eligible drugs directly from the original manufacturer and keep stock destined for a US SIP program segregated from stock that will be sold to actual Canadian consumers.

One of the key “comparable” requirements of the Foreign Seller is that they must serialize any product they intend to sell to an Importer under a SIP program. That is, the Foreign Seller must affix or imprint an upto 20-character, alphanumeric serial number that is unique to each package or homogeneous case of product. This is known as a Section 804 Serial Identifier (SSI). When affixing or imprinting the SSI, using a stamp or sticker and under applicable Good Manufacturing Practice (GMP), the Foreign Seller must not obscure any existing labeling information, including the manufacturer-labeled Canadian DIN that was on the package and homogenous case at the time the Foreign Seller received the product from the manufacturer. This step is referred to as “relabeling” in the NPRM, which his distinct from “repackaging” as described below.

Once serialized, the Foreign Seller-applied SSI on HPFB-approved drugs becomes the stand-in for the manufacturer-applied Standardized Numerical Identifier (SNI) on what the proposal refers to as “FDA-Approved drugs”. Those familiar with how the SNI works under the DSCSA will understand what this means…sort of. The problem is, the SSI is just a serial number, where the SNI is a product identifier combined with a serial number. The definition of the SSI is not “comparable” to that of the SNI so its use would not be “comparable”. But the difference is not recognized in the NPRM.

Importers under a SIP would be bound to a Foreign Seller for the product covered by the SIP application. Drug manufacturers who make drugs that become part of a SIP program would be forced to provide Importers with documentation of all shipments of that product to the Foreign Seller so the Importer can investigate any possible discrepancy. Of course, since these drugs would not be serialized, the documentation provided would be only at the lot-level. Only discrepancies in quantity could be investigated.

Drugs acquired by Importers from Foreign Sellers would have to be tested for authenticity, degradation, and other statutory testing requirements by a qualifying laboratory before they can be processed further. Here the original manufacturer has a choice. They can either choose to provide all of the technical documentation necessary for the lab chosen by the Importer to determine authenticity and efficacy, or, if they don’t want to give that sensitive information to third-parties, they can perform the necessary testing for the Importer themselves. Left unstated in the NPRM is the obviously intended third choice a manufacturer of SIP-eligible product would have, and that is to lower their price so that their drug no longer qualifies for a SIP program.

Once the drug passes the testing requirement, Importers would be required to fully repackage the product before it can be distributed within the US supply chain. Here the Importer would fill the role of a traditional DSCSA Repackager, so many of the DSCSA repackager requirements would be applied to Importers. The repackaging step can be outsourced, but the Importer would retain the responsibility for regulatory compliance. This repackaging step includes applying a fully US FD&C-compliant label with an NDC based on the Importer’s FDA Labeler Code and including a DSCSA-compliant SNI.

The Importer would have to retain records of the acquisition of the drugs from the Foreign Seller, the repackaging operation, and the linkage between the SSI and the new package’s SNI.

The result of the repackaging operation would be that two different NDC’s would be on the US market that refer to drug packages that would contain the identical drug/dosage form/strength made by the same manufacturer. One would be the “FDA-Approved” product, and the other would be the “HPFB-Approved” product that has been repackaged. If everything goes as intended with no violations, consumers would not be able to tell the difference once the dose is removed from the packaging, because there wouldn’t be any differences.

If/When the Importer sells repackaged “HPFB-Approved” products to customers inside the US supply chain, they would be required to pass documentation that is “comparable” to the DSCSA Transaction Information (TI) and Transaction Statement (TS). These documents are logical redefinitions of those originally defined in the DSCSA with SIP-specific contents. Even though the product would have a transaction history prior to the Importer, there doesn’t appear to be a requirement for anything “comparable” to a DSCSA Transaction History (TH) document. However, Section 804 requires Importers to provide documentation to the FDA about each product acquisition from a Foreign Seller and the Foreign Seller’s acquisition from the manufacturer.


According to the NPRM, once the final rule is issued, the current Secretary of HHS is prepared to certify that the program will not result in higher risks to US patients, as long as program applicants are able to “…demonstrate to the FDA that they could import drugs from Canada at no additional risk to the public’s health and safety consistent with the requirements in section 804 and [the] proposed rule.”

Is that even possible? “No additional risk”? I don’t think so. The biggest problem is the additional risks that are clearly introduced when non-serialized drugs are shipped from the manufacturer to the Foreign Seller, who then applies their own serial number. The NPRM assigns the same level of trust to properly and reliably serialize their drugs to the Foreign Seller as the DSCSA does to the original manufacturer. Drug manufacturers deserve this trust because it is their reputations that are at stake. It is their name that is on the product and they risk huge investments in time and resources if they get it wrong. A Foreign Seller simply risks their license to participate in future SIP programs.

The NPRM includes a discussion of the penalties for drug Manufacturers and Importers who knowingly fail to comply with their Section 804 obligations. Failure could lead to imprisonment of not more than 10 years and/or a fine. I did not see any penalties listed for Foreign Sellers who are caught knowingly falling short of their requirements and obligations. That’s probably because they will be Canadian citizens living in Canada (well, at least they are unlikely to be US citizens living in the United States).

The NPRM makes an attempt to strengthen the security of the handling of the product before it arrives in the United States but these efforts fail to lower the risks to the level we see today under the DSCSA. This is done by requiring the manufacturer and the Foreign Seller to provide documentation of their shipments and receipts. Even if the Importer and the FDA were required to make investments in analytic software to process this data, it would still be possible to hide the introduction of illegitimate drugs through this channel since the product is not serialized. Nothing in the NPRM mandates the use of this kind of analysis. What do you think happens to all that data dumped on a US government agency that doesn’t have the resources to do anything with it? Nothing, of course. Security is not added just by sending data to the government unless the mandate comes with new funds to pay for its processing and analysis.

Remember that an Importer can be either a licensed wholesale distributor, or a licensed pharmacist. The SIP program is likely to be very attractive to pharmacists. The NPRM allows the Importer to perform the repackaging operation themselves, under GMP. How many pharmacists have any clue what GMP is and how vital it is under a repackaging operation to avoid deaths caused by human errors? I’m very skeptical that pharmacists would even know how to predict the costs they would face to implement GMP. FDA would need to keep close watch on these Importers–something the agency is unequipped to do. Do state inspectors know GMP processes when they see them (or when they don’t see them)?

Under the DSCSA, drug manufacturers are required to respond to requests made by other members of the supply chain and authorized government agencies to “verify” drugs at the package level using the SNI. This verification is a way to establish that the NDC, serial number, lot and expiration date all match a product that the manufacturer packaged and shipped into the supply chain. These manufacturer verifications will occur after November whenever saleable drugs are returned to a wholesale distributor who intends to redistribute them, or today whenever product in the supply chain is found to be suspect product. The NPRM replaces this requirement with one where the Importer must “verify” that the product matches one that they repackaged, and have serial number-based records that extend back to the Foreign Seller in Canada, and lot-based shipment data back to the manufacturer. These are far from equivalent and they are not “comparable” either. The NPRM verification approach results in more risk to patients than the DSCSA verification approach because it is much less definitive. Verification under the NPRM is built on a house of cards.

The SSI is poorly defined in the NPRM, probably because there is some complexity necessarily involved. It will be important for every serial number applied to HPFB-Approved product by a Foreign Seller be globally unique. The “serial numbers” must have some element that ties them to the Foreign Seller. The Foreign Seller cannot just use the Canadian DIN plus a serial number because some other Foreign Seller might choose the identical serial numbers for their SIP product. And, if/when Canada eventually adds a serialization requirement of their own, the original manufacturer will need to define serial numbers relative to their DIN. These “serial numbers” must be held in reserve for that possibility. A GTIN plus a serial number might work as long as the GS1 Company Prefix used is registered to the Foreign Seller, and as long as the Foreign Seller ensures the serial numbers for each product are unique across any other SIP programs they participate in.

I’ve spoken with some people who seem to think that product imported through a state-sponsored SIP program will be distributed only within that state. I do not see anything in the NPRM that limits where these drugs will be distributed. What I see is that Importers are welcome to sell these products to any licensed wholesale distributor or dispenser. Those sales must meet the requirements of the DSCSA. What this means is that SIP drugs will be available nationwide as soon as products begin to flow from Canada. In fact, it would be difficult to put geographic restrictions on these products and enforce those restrictions. If the HHS Secretary declares these drugs to have no greater risk than “FDA-Approved” drugs, why would they?

What I think is likely to happen with the importation of any drug that is cheaper at wholesale than the “FDA-Approved” drug will lead insurance companies to adjust their formularies to only reimburse patients for the “HPFB-Approved” product. This will quickly shift the demand away from the “FDA-Approved” product to the imported product. No doubt, the architects of this NPRM are salivating over this likely outcome because they are looking only at lowering prices, but all Americans will be forced to accept the increased risk that the Secretary of HHS failed to see, not just those who live within the state that approved the program.

Think about what this will look like from a Canadian point of view, the Canada-based SIP Foreign Seller will need to buy almost 10 times as much of the SIP-covered products than they would need to supply the entire Canadian market. Based on the volumes alone, for these particular drugs, the Canadian market may become “secondary” to the Foreign Seller. This shifting of importance could complicate how product flows are managed by the supply chain in Canada.

Now think about how this will look from the perspective of the brand name drug company whose product would go through all these extra gyrations (extra shipment, relabeling, then repackaging) and still be significantly cheaper than their “FDA-Approved”, DSCSA-compliant version. I wonder what they will do when their shipments to Canada skyrocket and their shipments into the US plummet by a corresponding amount? Do you think their first thought will be to lower the price of the US drug?

The NPRM is currently a proposal and the HHS is seeking comments on its specific provisions until March 9, 2020 (see “Importation of Prescription Drugs“). I hope people take a close look at the risks and not just to the hoped-for cost savings. There have to be better ways to lower the cost of drugs to Americans than to trade off supply chain security for a few dollars.


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