Buying Canadian

Paul Leary is a retired salesman for a Budweiser distributor in Boston. A round-faced, heavyset man, Leary is prone to pneumonia and has a weak right leg due to polio he contracted as a 4-year-old. He uses a walker to maneuver about his one-bedroom apartment in Arlington. Leary says his annual income of $22,000 from Social Security and a pension does not stretch far enough to pay for prescription-drug insurance.

In January, Leary, who is 65, saw something in the newspaper about an American Drug Club offering low-price drugs from Canada. Leary followed up, reaching Robert Mulcahy, who runs an American Drug Club outlet on Massachusetts Avenue in Arlington. When Leary asked about ordering a three-month supply of Lipitor, a cholesterol-lowering drug, Mulcahy said the medicine would cost $143.79 through his Canadian supplier (about half the price he had been paying at a local pharmacy) and arrive by mail. Mulcahy even agreed to make a house call. "He came over with the paperwork, filled it out, and sent it along," Leary says. "The next thing I know, the [Lipitor] arrives two weeks later."

If getting medicine through Mulcahy is about as convenient as calling out for pizza, ordering prescription drugs through Chris Prior is not much harder. As another independent sales representative for the American Drug Club, Prior solicits customers in eastern New Hampshire and relays their orders for prescription drugs to the company's affiliated pharmacy in Winnipeg, Manitoba.

Considering that federal law bars Americans from importing virtually all prescription drugs from Canada, what is extraordinary about the American Drug Club is how ordinary its business seems. Prior's kiosk is a blond-wood affair deep within the Fox Run Mall in Newington, New Hampshire. The kiosk is down a marbled anywhere-in-the-USA concourse of familiar stores: J. C. Penney, Au Bon Pain, Sprint PCS.

Americans who buy drugs from Canada more typically shop for them on the Internet, where dozens of Canadian mail-order pharmacies have websites. But the American Drug Club is one of several Canadian companies that have established a beachhead in the US market by developing a sales force inside the country. So far, the Drug Club's presence is small -- 55 independent sales agents scattered in 26 states, according to the company. (In addition to Mulcahy's storefront in Arlington, there is a second Massachusetts American Drug Club location in Agawam, near Springfield.) But having sales representatives inside the United States extends the company's market, especially by reaching customers who are not computer savvy, many of them elderly.

Driving this boom is a single statistic: Prescription drugs cost anywhere from 20 percent to 80 percent less in Canada than in the United States, which is why an estimated 1.5 million Americans are now buying their medications from our neighbor to the north. The rush to Canada is causing consternation at the US Food and Drug Administration, which says drug imports are illegal and unsafe. Last year, the FDA sued Rx Depot Inc., a company similar to the American Drug Club, on the grounds that it was unlawfully causing drugs to be imported into the United States. Rx Depot was a fast-growing network of 85 US storefronts that operated as prescription-drug sales agents for Canadian pharmacies. On November 6, 2003, the US District Court in Tulsa, Oklahoma, issued a temporary injunction, forcing Rx Depot to shut down. The case is pending.

Meanwhile, last November, Congress passed a controversial prescription-drug benefit under Medicare that will take effect in 2006. A growing number of elected officials are trying to respond to a public outcry over the rising cost of medicines by supporting the legalization of prescription-drug imports from Canada. In the US Senate, for example, Edward M. Kennedy of Massachusetts, who had opposed legalization as unsafe, switched his position this year and joined with two other Democrats and three Republicans to propose a federal drug-import regulatory system. Boston's Mayor Thomas M. Menino is pushing even harder, proselytizing for drug importation from Canada. Defying federal officials, who say Menino would be violating US law, the mayor is moving ahead with a pilot program that would enable some of the city's workers and its retirees to order prescription drugs from Canada starting July 1. Undaunted by objections voiced by Boston's powerful biotechnology industry to his rabble-rousing over drug prices, Menino has been prodding other New England mayors to join the effort.

"It's the issue of the day," says Menino. "You talk about Iraq and all those other issues, but this is the issue that hits home."

ACCORDING TO THE FDA, federal law prohibits -- with rare exceptions -- any individual or company from importing prescription drugs or causing them to be imported to the United States. But for all its sweeping language, the law has had limited effect on drug imports from Canada. It has not been enforced against Canadian pharmacies that ship drugs to the United States or against individuals who bring small quantities of prescription drugs across the border for their personal use. The Rx Depot case signaled the FDA's determination to act against commercial drug importers in the United States.

The Canada drug option works as a sort of pressure valve, its supporters say, providing an escape from high prices in the United States and a way for many Americans to buy medications that they would not otherwise be able to afford. There is no way to know how many of the estimated 1.5 million Americans who buy drugs from Canada do so out of desperation or merely to save a buck. Seventy to 80 million -- roughly one in four -- Americans have no prescription-drug insurance, and they are largely low-income working people, according to Alan Sager, the codirector of the health-reform program at the Boston University School of Public Health. People 65 or older constitute about one-fifth of those who lack prescription-drug benefits, Sager estimates.

Canada, like virtually all industrialized countries except the United States, limits the prices that pharmaceutical manufacturers may charge for patented medications. In the United States, drug manufacturers are free to charge what the market will bear, even though they are granted patents that protect new products from competition.

Prescription drug sales have more than doubled in five years, from $107 billion in 1998 to $216 billion last year, according to IMS Health, a consulting company based in Fairfield, Connecticut.

The pharmaceutical industry argues that allowing manufacturers free rein to set prices -- and reap large profits -- promotes a high level of investment in the kind of risky, expensive research that leads to lifesaving new drugs. But critics counter that drug breakthroughs often stem from government-financed research and development and that the manufacturers then squander much of their revenue developing low-benefit "copycat" drugs and marketing and advertising their products irresponsibly.

From Canada's standpoint, the high prices of American medicines have an upside, because they are nurturing the country's mail-order drug industry and generating jobs. Canada's drug exports to the United States totaled $800 million last year, according to a Canadian-industry source. Even if Canada shipped all of its prescription drugs to the United States, that would satisfy only 4 percent of the American demand for such drugs.

The emergence of Canada's mail-order industry has nonetheless triggered a backlash from drug manufacturers. Several are acting forcefully to stem the cross-border trade, saying that the lower prices come at the cost of safety. Like the FDA, they say that the leakage of drugs from Canada into the "closed" regulatory system that protects American consumers is undercutting US safeguards and inviting drug counterfeiting.

CAROLINE KENNEY and her husband, Walter, live in a spotless four-bedroom, garrison-style house in Somersworth, New Hampshire. She is 73 years old, petite, has a no-nonsense manner, and wears her dark-brown hair cropped below the ears.

Everything about the Kenneys suggests that they are rock-solid American citizens. Walter is a US Navy veteran; Caroline attends church regularly. Even though she knows that the federal government "doesn't like it," Caroline Kenney is buying her prescription drugs from a Canadian pharmacy, with the help of Chris Prior.

Kenney takes metoprolol tablets (for high blood pressure), Fosamax (for osteoporosis), and, like Paul Leary, Lipitor. For the three-month supply of the three drugs that she ordered from Prior in February, she spent $218, plus an $11.25 shipping fee. If Kenney had bought the three-month supply from a local Wal-Mart, which she considers her cheapest alternative to the Canadian pharmacy, it would have cost a total of about $475 -- after the store's "senior" discount – more than double the $218 she paid.

Caroline Kenney relies on Medicare for her health-care needs. Her husband has prescription-drug insurance through the Department of Veterans Affairs, but she is not covered under that plan.

She might have purchased prescription-drug coverage from a private insurer as part of an overall health-insurance supplement to Medicare. But in New Hampshire, the extra insurance for a woman her age would have cost a minimum of $2,136 a year for a policy that would have covered 50 percent of out-of-pocket drug expenditures, up to $1,250 -- a plan that she considered too expensive.

The new prescription-drug benefit under Medicare might help once it takes effect in 2006, but whether the voluntary plan will advantage people like Kenney is a matter of sharp debate. The standard plan will cost about $420 a year, with the beneficiary paying a $250 annual deductible and 25 percent of drug costs from $251 to $2,250 a year. Above that, the patient will have to pay 100 percent of his or her drug costs, up to $3,600. At that point, catastrophic coverage kicks in, covering the bulk of costs.

In February, Kenney placed her first order with Prior; two weeks later, her pills arrived in the mail. Labels on the bottles refer to the Point Douglas Pharmacy in Winnipeg and a "Dr. R. Mann."

Buoyed by part-time jobs they have kept into their 70s, the Kenneys' financial circumstances are favorable. The couple's combined income from all sources, including Social Security, was $55,000 last year, according to Walter Kenney. Caroline Kenney says that if she had to pay US prices for her medications, she might buy only a one-month supply at a time. Then again, she says, she might skip one of the drugs altogether, perhaps Fosamax, which she reckons she could live without. "With the help of God," she says, "we're in good health."

"I TOOK IT YESTERDAY and today. So far, so good," the silver-haired woman in the navy-blue windbreaker is saying. She is talking to Chris Prior at his kiosk in the Fox Run Mall. She is with her husband, who is carrying a chrome cane. The woman is talking about Nexium, an acid-reflux drug that Prior had ordered for her from Canada a few weeks ago.

"Well, you're here," Prior says. "That's a good sign."

It is a brisk, sunny morning in March. Handsome and crisply dressed in a tattersall shirt and khaki trousers, his curly hair freshly combed, Prior looks collegiate and younger than his 30 years. "You paid $195 for 84 [Nexium] pills," Prior tells the woman. "That's almost a three-month supply, a $200 difference. Not bad for a day's work." The husband answers: "Not when you're living on a fixed income." The woman is Prior's first customer of the day. She is holding her husband's prescription for Prevacid (another acid-reflux drug) in an unsteady hand. "Right now, I'm going to save about $260 on a three-month supply," she says, handing Prior the prescription. "That means a lot."

Before he set up shop in the mall, Prior decided to check out the safety of the American Drug Club's operation. A quick trip to Winnipeg in January persuaded him that everything was, he says, "on the up and up."

WINNIPEG IS HALFWAY across Canada and an hour's drive from North Dakota. The downtown Exchange District, the commercial hub of Canada's grain trade early in the last century, stands as a faded reminder of past glory. There is, for example, the once stately and now peeling yellow-brick building where the American Drug Club and its sister company, Canadameds. com, have refurbished corporate offices on the second floor. The two companies have the same goal: marketing prescription drugs to Americans. The American Drug Club does it through its network of sales representatives, and Canadameds. com does it through the Internet.

If you travel 1 mile up Main Street to the city's seedy North End, you'll find the home of the mail-order pharmacy that fills orders for Canadameds and the American Drug Club. Daren Jorgenson, who is 36 years old, founded Canadameds.com four years ago in the back of his Point Douglas Pharmacy. The business took off. To relieve crowding at the mail-order operation -- the facility employs 140 people, up from 25 two years ago -- Canadameds is expanding into three adjoining storefronts. A glossy sign showing the red-and-black Canadameds logo now spans a half-block strip of facade along Main Street.

Jorgenson has hired two managers, Mike Hicks and Dave Schioler, to run Canadameds and his American Drug Club, respectively, and now spends most of his time at his office in the ski-resort town of Banff in western Canada. One day in early April, however, the bespectacled, blunt-spoken Jorgenson turns up at Canadameds' office in Winnipeg.

"When we got into it," he recalls, responding to a question about the company's early days, "we thought, 'Hey, we'll do about 50, maybe 100 more prescriptions a day.' We never imagined how big it would get."

No Canadian pharmacy had set up a website to pitch prescription drugs to Americans over the Internet until Jorgenson tried it in early 2000. As a beneficiary of Canada's price-control regime, he knew that he could undersell the American market, which would have the effect of exporting the Canadian government's price-control policy to his American customers. He was familiar with the FDA's record of looking the other way as Americans, particularly those living in states near the border, crossed over to buy Canada's lower-priced drugs for personal use. So Jorgenson gambled that the FDA's response would be the same if the drugs journeyed across the border to the United States by mail.

"At first," Jorgenson recounts, "I took out an ad in the newspaper in Grand Forks, North Dakota, and got a big response from the regulatory authorities on both sides of the border. Right away, they were telling me to stop doing it. And I just kept saying, 'Tell me why I can't do it, and I'll stop.' And they could never really tell us the answers."

So Jorgenson didn't stop. And the FDA didn't prosecute -- not when he ran newspaper ads, not when Canadameds.com enabled him to vastly expand his clientele, and not when a parade of Canadian pharmacies successfully copied his example.

The FDA has not pursued Canada's mail-order pharmacies, experts say, because US legal jurisdiction does not extend to acts committed on foreign soil. The pharmacies have gone to great lengths to insulate themselves from the reach of US jurisdiction -- Canadameds, for example, stipulates in its customer agreement that all its services "are being received in Canada." By filling the orders and processing the customers' payments in Canada, the company eludes US laws.

According to William K. Hubbard, the FDA's associate commissioner for policy and planning, attempts by the United States to intercept all of the pharmaceuticals pouring across the border by mail or in the possession of Americans returning from drug-shopping trips to Canada would pose a huge logistical problem. And boarding buses to "take all those little ladies' drugs away" would be "hardhearted," he says in an interview -- as well as politically thorny.

Of Canada's roughly 140 mail-order pharmacies, about 75 are located in Manitoba, estimates David MacKay, executive director of the Winnipeg-based Canadian International Pharmacy Association, a lobbying group for Internet and mail-order pharmacies. Manitoba accounts for as much as 50 percent of Canada's mail-order drug business, according to MacKay. As Canadian mail-order sales have boomed, they have created another constituency: American consumers. Their experience -- Jorgenson calls it a "real big test case" -- proves that Canada-drug imports are "safe and effective and affordable," Jorgenson says.

IN DECEMBER 2003, Minnesota's Governor Tim Pawlenty was gearing up to launch a website that would function as a sort of shopper's guide for people ordering prescription drugs from Canada. The website's list of recommended pharmacies would include only the ones that his staff deemed safe and suitable for the Minnesota program. Three officials, Cody Wiberg of the state Department of Human Services and two surveyors from the Minnesota Board of Pharmacy, were dispatched to investigate nine pharmacies in four Canadian cities. Among the four pharmacies the officials vetted in Winnipeg was Canadameds.

Wiberg wrote a report summarizing his findings, in which he generally gave good marks to Canadameds: "This busy pharmacy appears to be clean and orderly, and it appears to operate in an efficient manner." Some of Wiberg's observations, however, seemed to support the FDA's argument that Canada-drug importation falls into a sort of regulatory no-man's land. Wiberg noted that the Canadameds product line included insulin and several other drugs requiring refrigeration. But the pharmacy's refrigerator "had no thermometer to verify the storage requirements were being met, as is required in Minnesota," according to Wiberg's report. The drugs needing refrigeration were packed in ice and sheathed in two layers of plastic wrap and a lining of styrofoam before being shipped. The investigators found that Canadameds was "uncertain how long such drugs might be in the mail, especially if held up" by US Customs and Border Protection.

When I bring up the matter with Jorgenson, he defends his company's safety record in handling insulin and other drugs requiring refrigeration. He adds, however, that Canadameds has voluntarily discontinued shipping such drugs to defuse "one of the FDA's main arguments."

When I convey this information to the FDA's Hubbard, it brings a sharp retort: "Every time we have done a gotcha on [Canadian mail-order pharmacies], they have immediately said, 'We won't do that anymore.' . . . That happens all the time. In this country, 'We'll do better next time' isn't a good answer. A company in this country that doesn't do right is shut down."

At Canadameds and other Canadian mail-order pharmacies, there is an extra layer of scrutiny in that they have a Canadian doctor -- "a second set of medically trained eyes," in the words of Canadameds's CEO, Mike Hicks -- review an American doctor's prescription, along with a patient's medical profile, for possible errors. The procedure is not voluntary. Canadian law provides that a pharmacy may fill a prescription only if it is signed by a Canada-licensed doctor.

But identifying the eyes -- and determining, for example, whether the doctors who possess them have been subject to regulatory sanctions -- is difficult. When Wiberg asked Canadameds for the names of the doctors who cosign the prescriptions it fills, the company declined to provide them without a guarantee of confidentiality, according to the Minnesota official's report.

Given that some Canadian health officials say that doctors who cosign the prescriptions of patients they've never seen are violating medical standards, Canadameds's reticence is not surprising. In Manitoba, for example, the authority that regulates physicians has, in effect, barred them from working as cosigners for the mail-order companies.

Although Canadameds declines to identify its cosigners, the company says all are licensed in Canadian provinces other than Manitoba and that they collect $7 to $10 Canadian for each prescription order reviewed.

"LATELY IT'S STARTING to move," Tom Menino says, "because you can see the pressure." It's a Tuesday afternoon in early April, and Boston's mayor is assessing the prospects of the pending legislation that would legalize Canadian drug imports. Menino, silver-haired and natty in a pink shirt and red tie, is sitting on a couch in his spacious office on the fifth floor of the concrete fortress that is City Hall.

The prospects of a Canada-drug bill passing Congress are improving this year, the mayor explains. In 2003, the House voted 243-186 to repeal the import ban. Despite resistance in the Senate, the proposal has been gaining support from an emerging bipartisan coalition. The White House, which has been staunchly opposed, says it is reexamining the matter.

Menino responds to a question about why he latched on last year to the drug-import issue: "Everybody should share in the ability to have fair drug costs and fair profits. The scale shouldn't be lopsided, where the [drug companies'] stocks are going up and consumers' costs are going ever higher. The scale . . . needs to be more balanced."

Even though FDA officials have informed the mayor that his pilot program to encourage some municipal workers and retirees to buy drugs from Canada through a city program would violate federal law, Menino is undeterred. He says his aim is not really to cut the city's expenditures -- the estimated savings could total $1.5 million -- but to protest the US import ban by having his city defy it in a noisy way.

The mayor would like other cities to follow suit, a goal that he promoted by orchestrating a Boston meeting on the issue with 11 other New England mayors in February. Peter Clavelle of Burlington, Vermont, and Timothy P. Murray of Worcester have already instituted drug-import programs in their cities, and several of the other nine mayors are said to be considering it.

Menino is the first big-city mayor to endorse the idea, but not the first mayor. First was Michael Albano, the former mayor of Springfield. Last July, Albano inaugurated a voluntary drug-import program for Springfield's municipal employees and retirees, which slashed their copayments while saving the city millions of dollars a year. When Albano conceived his plan, he was grappling with a severe shortfall in his city's budget.

"Knowing what I know now,'' Albano says, "I have a passion for the issue." As a trailblazing drug-import advocate, he has appeared on CBS's 60 Minutes and has testified in the Rx Depot case on the company's behalf.

In the public debate over drug imports, questions about safety persist. Menino's answer is to call for a reciprocal US-Canada system that would regulate the cross-border drug trade, as many of the bills before Congress provide. Menino views drug importation as an imperfect way to attack high prices. He opposes Canada-like controls and instead suggests that the federal government condition manufacturers' access to government-funded research on their consent to cut prices.

"My endgame is to reduce the cost of prescription drugs," Menino says. "That's all. No secret. No Einstein theory."

Joseph Rosenbloom is a senior correspondent at The American Prospect and a contributing editor at Inc.