February 5, 2025
According to a RAND Corporation study conducted in 2022 with funding from the federal Department of Health and Human Services, U.S. prices of brand name and generic drugs were nearly 2.78 times higher than prices in comparison countries. Prescription drug costs continue to rise, driving many plan sponsors to explore international sourcing—known as personal importation—as a potential cost-saving measure.
Sourcing medications from other countries, such as Canada and certain European nations, to cut pharmacy costs by 20-30% may seem appealing, but it’s crucial to understand the full financial implications. Unforeseen expenses can outweigh the benefits.
What are the Complexities of International Sourcing?
International sourcing seems like a win-win: cheaper drugs for employees and lower costs for employers. However, it has many challenges, including legal, safety and supply chain concerns. As international sourcing has gained popularity, it has led to shortages in exporting countries, increasing prices and causing concerns about the availability of essential medications for their citizens.
What Plan Sponsors Need to Know
While their goal is to provide the most appropriate and affordable medications that improve employees’ health outcomes, plan sponsors may fail to account for the net cost of drugs when considering international sourcing. The following key financial factors can erode savings or lead to higher overall costs.
Rebate Losses:
One of the most significant financial impacts of international sourcing is the loss of manufacturer rebates. Drugs sourced from outside the U.S. no longer qualify for these rebates, and without proper assessment, the net cost of the drug may end up being higher.
Program Fees:
Administering an international sourcing program isn’t free. These charges can quickly accumulate, often exceeding the savings generated by lower drug prices. When combined with the loss of rebates, this could leave plan sponsors with higher overall costs.
Shifting Costs:
International sourcing programs often remove any out-of-pocket responsibility for the employee, setting the member’s cost at $0. While this might appear to be an added benefit for employees, it usually means that the costs normally covered by the member at a U.S. network pharmacy are shifted to the plan sponsor, further reducing expected savings.
Formulary Alignment:
International sourcing programs typically come with their own list of medications, which may not align with the plan sponsor’s formulary and plan design decisions. It’s common to see lists containing brand name medications where a generic or similar alternative is already available through the domestic pharmacy benefit at a lower cost. This misalignment can lead to wasteful spending.
How should plan sponsors proceed?
While international sourcing may appear to be a viable cost-saving strategy, it’s essential to approach it with caution and proper detailed review. The potential savings on a small subset of drugs may be overshadowed by the hidden costs associated with loss of rebates, program fees and shifts in cost responsibilities. Furthermore, the risk of misalignment with the plan sponsor’s formulary can result in unnecessary spending.
With the recently announced tariffs on imports from Canada, Mexico and China, it’s unclear what the impact will be on international sourcing of prescription drugs. While the tariffs will impact the overall cost of drugs in the U.S., medications that are individually sent to patients from other countries may or may not be affected.
Innovative Rx Strategies provides pharmacy benefit consulting services to assist you with evaluating whether or not international sourcing is right for your plan. Contact us for a no-risk pharmacy benefits plan assessment. We examine critical areas of PBM contracts and plan performance and partner with you to identify cost-saving opportunities.
Be sure to watch our recent free webinar, “Behind the Curtain: 2025 Top Pharmacy Trends”! We cover key topics that may impact pharmacy benefit plans and costs in 2025, including pharmaceutical innovations like GLP-1s and the latest legislative changes.
