FDA Outlines Key Principles for "Significant" Cost Savings in Section 804 Programs

The FDA held a high-level meeting with representatives from several states and Native American tribes to advance the implementation of the Section 804 Importation Program (SIP) on Friday.¹ This program, authorized under the Federal Food, Drug, and Cosmetic Act, provides a legal pathway for states to import certain prescription drugs from Canada with the primary objective of achieving significant cost reductions for American consumers.¹

The meeting represents the latest administrative effort to fulfill Executive Order 14273, titled "Lowering Drug Prices by Once Again Putting Americans First," which was issued on April 15, 2025.² FDA Commissioner Marty Makary, MD, MPH, emphasized the agency's dual commitment to reducing financial burdens on patients while maintaining rigorous public health and safety standards.¹

“We are committed to lowering prescription drug prices for Americans, building on recent MFN wins,” Makary said.¹ “We’re moving forward to implement the president’s executive order as we continue the crucial work of helping states and Indian tribes import reduced cost prescription drugs, while protecting public health and safety.”¹

To facilitate this, the FDA has introduced several enhancements designed to streamline the complex application process for states.

What Are the Analytical Standards for Drug Cost Savings?

A central focus of the meeting involved the technical requirements for "SIP Proposals." Sponsors must provide a detailed explanation of how their specific importation plan will result in a "significant reduction" in drug costs.² At the meeting, Aaron Kearsley, a Senior Regulatory Economist at the Department of Health and Human Services (HHS), outlined the "General Analytic Principles" that should guide these proposals, emphasizing transparency and the reproducibility of findings.²

Proposals are required to present two distinct projections: a "Baseline Scenario," which estimates expenditures if the program is not implemented, and a "Plan Scenario," which projects costs under the proposed importation program.² The difference between these two scenarios constitutes the projected cost savings. These projections must cover at least a two-year period and include granular data, such as per-unit price estimates and anticipated quantities for each imported drug.²

Importantly, the FDA clarified that simply identifying a price discrepancy between the US and Canada is insufficient for approval. SIP sponsors must demonstrate they can leverage these differences while accounting for all secondary costs, including importer price markups, transportation, logistics, and the costs associated with mandatory drug testing and sampling.²

How Will the FDA Streamline the Path to Approval?

Recognizing the administrative burden these requirements place on states, the FDA has introduced several "enhancements" to the program. In January 2026, the agency launched a Section 804 Importation Program Quality Assurance (QA) tool, which provides sponsors with practical considerations, tips, and lessons learned from previous submissions to help ensure their proposals meet regulatory expectations upon first submission.¹

Furthermore, the FDA is now offering states the option to utilize a "static baseline" approach for their cost-savings analysis. This allows states to simplify their economic modeling by using constant assumptions for volatile variables, such as foreign exchange rates, domestic and foreign price trends, and tariff rates.² For instance, states may now choose to assume that tariffs have a neutral impact or omit them entirely from their cost-savings demonstrations to reduce the need for ongoing, exhaustive analysis.²

How Will the FDA Address Market Uncertainty?

To help states manage the unpredictability of the pharmaceutical market, the FDA suggested that SIP proposals include specific "margin of savings" clauses.² Under this framework, a state could specify that it will only proceed with a purchase if a drug provides a predetermined level of savings at the time of sale.² This strategy allows for a "meaningful evaluation" of cost savings while providing states with a safeguard against fluctuating market conditions.

The agency also noted that if a proposal successfully demonstrates cost savings during the initial review, the state or tribe will not be required to update that data while the proposal remains under active FDA review, further accelerating the timeline toward authorization.²

The recent meeting served as a forum for information exchange between the FDA, HHS, and the National Academy for State Health Policy. The FDA is currently offering individual states and tribes the opportunity to submit draft SIP proposals for pre-review, allowing for initial feedback and consultation before a formal submission is made.¹

As the FDA continues to implement these program enhancements, the focus remains on creating a viable, safe, and efficient channel for international drug importation. For stakeholders in drug pricing and access, these developments signal a shift toward a more pragmatic regulatory environment intended to lower the high cost of prescription medications in the United States.

References

• US Food and Drug Administration. FDA holds meeting with states on importation of lower cost drugs. Published March 6, 2026. https://www.fda.gov/news-events/press-announcements/fda-holds-meeting-states-importation-lower-cost-drugs
• Kearsley A. Section 804 Importation Program: projecting cost savings for the American consumer. Presented at: FDA Meeting with States on Importation of Lower Cost Drugs; March 3, 2026. https://www.fda.gov/media/191430/download?attachment