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Licensed Unlicensed Requires Authentication Published by De Gruyter December 25, 2013

In Whom We Trust: The Role of Certification Agencies in Online Drug Markets

  • Roger Bate , Ginger Zhe Jin and Aparna Mathur EMAIL logo


This article uses an audit sample and a consumer survey to study the intriguing market of online prescription drugs facing US customers and assesses the role that certification agencies play in online drug markets.

On the supply side, we acquire samples of five popular brand-name prescription drugs from three types of online pharmacies: tier 1 are US-based and certified by the National Association of Boards of Pharmacy (NABP) or, tier 2 are certified by or the Canadian International Pharmacy Association but not by NABP or LegitScript, and tier 3 are not certified by any of the four agencies. Most tier-2 and tier-3 websites are foreign. We find that 37 of the 365 delivered samples are different from the products we ordered and, therefore, non-testable. Conditional on testable samples, Raman spectrometry test finds no failure of authenticity except for eight Viagra samples from tier-3 websites. After controlling for testability and authenticity, tier-2 websites are 49.2% cheaper (p<0.01) and tier-3 websites are 54.8% cheaper (p < 0.01) than tier-1 sites. These differences are driven by non-Viagra drugs. For Viagra, failing samples are cheaper, but there is no significant price difference across tiers once we condition on testability and authenticity.

To study the demand side, we designed a survey that was distributed by RxRights. Among the 2,522 respondents who have purchased prescription medication and are concerned about the price of US pharmaceuticals, results show that 61.54% purchase drugs online and mostly from foreign websites, citing cost saving as the leading reason. Conditional on shopping online, 41.11% check with a credentialing agency.

Both samples convey a consistent message that certification agencies deliver useful information for foreign websites and online consumers. Further, while these findings confirm the Food and Drug Administration warning against rogue websites, they do suggest that a blanket ban against all foreign websites may deny consumers substantial savings from certified tier-2 websites.

JEL Classification: D18; D8; I18


The Searle Freedom Trust provided funding for the initial collection and spectrometry assessment, the Legatum Institute funded the second collection of medicines and spectrometry, and a grant from the Social Sciences and Humanities Research Council of Canada provided subsequent funding to cover analysis of survey results. Kimberley Hess, Robert Brush, and Lorraine Mooney assisted with spectrometry analysis, NABP and PharmacyChecker provided valuable information, and Julissa Milligan, Matt Jensen, Justin Huang, Chenyi Wang, and Ben Zou provided excellent research assistance. Frank Pleticha, Lee Graczyk, and Melissa Maki assisted with survey design and implementation. A previous version was circulated under the title “Unveiling the Mystery of Online Pharmacies: an Audit Study.” All errors are ours.


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  1. 1

    IMS Institute, April 2011. “The Use of Medicines in the United States: Review of 2010.” Accessed March 20, 2012.

  2. 2
  3. 3

    GAO (2011) shows that retail price of 100 commonly used prescription medications increased at an average annual rate of 6.6% from 2006 to 2010. The annual price rise is particularly high in brand-name drugs (8.3%) as compared to generic drugs (–2.6%). The pain of high price is real and substantial: According to the Commonwealth Fund, 48 million Americans did not fill a prescription due to cost in 2010, up 66% since 2001 (

  4. 4

    We compute these numbers based on tables presented in GAO (2001).

  5. 5

    This number has adjusted for currency equivalency. Skinner (2005) also reported that the 100 top-selling generic drugs are on average priced 78% higher in Canada than in the US. This explains why most cross-border sales from Canada to US concentrated on brand-name drugs.

  6. 6

    Orlando Sentinel, May 2, 2012. “It’s Illegal, but desperate Americans are buying drugs online from Canada.” Accessed March 20, 2012.

  7. 7

    In numerous actions, the FDA has confiscated parcels at customs and discovered various problems with foreign online pharmacies: First, drugs that are claimed to be of Canadian origin could come from 27 different countries (“FDA Operation Reveals Many Drugs Promoted as ‘Canadian’ Products Really Originate From Other Countries” December 16, 2005. Accessed February 29, 2012. Second, some parcels have counterfeit or substandard drugs which contain no active ingredients, or the wrong active ingredients or incorrect amounts of the active ingredients and could generate serious health problems if consumed by human beings (“The Possible Dangers of Buying Medicines over the Internet”, updated January 26, 2011. Accessed February 29, 2012.; third, even if the drugs are authentic, they may not be adequately labeled in English to help assure safe and effective use. Even the belief of cost savings can be misleading: FDA’s examination of foreign mail shipments finds that about 45% of imported products are already available in the US as an FDA-approved generic drug and about half of these generic drugs can be obtained from national pharmacy chains at the relatively low cost of $4 each (FDA announcement “FDA Finds Consumers Continue to Buy Potentially Risky Drugs Over the Internet”, July 2, 2007. Accessed February 29, 2012.

  8. 8

    NABP news “NBAP Applauds LegitScript and KnujOn for Spotlighting Exploitation of Internet Ad Programs by Rogue Internet Drug Outlets”, August 18, 2009. Accessed September 19, 2012.

  9. 9
  10. 10

    FDA “Travelers Alert” updated on June 30, 2012. Accessed February 29, 2012.

  11. 11
  12. 12

    One may argue that foreign websites could specify different prices for US and local customers; hence, their US price need not be subject to local demand or local regulations. Unfortunately, we do not have any first-hand experience on this, but some websites do post price online for all potential consumers around the world and this could limit their ability to price discriminate against US customers.

  13. 13

    The Wall Street Journal Online/Harris Interactive Health-Care Poll (2004) Six Million People Have Bought Prescription Drugs Online; Most Are satisfied. The Wall Street Journal Online 3(6).

  14. 14

    The internal AEI ethical review conducted for the early part of this project in 2009 concluded that no websites would be named.

  15. 15

    Checking with CIPA involves entering the website name in the name-check box on PharmacyChecker does not offer such an interactive checking process on its own website, so checking with PharmacyChecker involves email exchange with Gabriel Levitt, the Vice President of PharmacyChecker.

  16. 16

    In February 2010, Google has stopped using PharmacyChecker as the certification agency for online pharmacies listed in Google search results and switched to contract with LegitScript in April 2010. In August 2011, Google and the US Department of Justice settled for the investigation of Google advertising for illegal pharmacies, with Google paying $500 million for the settlement.

  17. 17

    The lead author did the testing after being trained by a spectroscopist from the company that owns the spectrometer platform. In addition to the company’s assistance, all testing was completed in the observation of a professional outside our research team.

  18. 18

    Indeed, for a truly thorough analysis, myriad techniques including dissolution analysis, and tandem mass spectrometry, would be required to monitor all types of problems.

  19. 19

    Each medicine made by each manufacturer has a unique Raman signal. The signals will be close in similarly approved products, but will rarely be identical. There are allowances in production, so that a generic manufacturer does not have to use the same binding agents and dyes as the brand-name product. This means that two generic products could have different signals from each other and different from the brand. Since there is only one brand, by instructing pharmacies to provide it we should always have the same Raman signal from legitimate products. If we included generics we could not be sure if a product “failed” the Raman authentication because the product was a fake or just simply a different generic. This is why we demanded brand only products.

  20. 20

    Historical CPI table for all urban consumers as of February 17, 2012. Accessed March 13, 2012.

  21. 21

    When we purchased from tier-2 websites, everyone of them required prescription.

  22. 22

    “FDA Operation Reveals Many Drugs Promoted as ‘Canadian’ Products Really Originate From Other Countries,” Accessed February 29, 2012.

  23. 23

    See more on Pfizer’s pricing strategy at a December 1, 2012 Times article “Lipitor Already Cheaper after Patent Expiration” by Josh Sanburn. Accessed March 14, 2012.

  24. 24

    We create drug source dummies for Europe, Asia/Pacific, and Canada. We omit US and missing drug source, because all US sourced drugs are in tier 1 and all drugs with missing source are in tier 3.

  25. 25

    In our sample of tier-1 pharmacies, only four out of eight have retail stores. Having a retail store could signal that the company is an established brand, and this might be one reason why consumers are willing to pay higher prices for tier-1 drugs. However, in Table 5, we explicitly control for the presence of a retail store, and the coefficient is not significant in either the testability or price regressions.

  26. 26

    The question does not specify a time frame for drug purchase. But later on, another question about purchase frequency on the Internet shows that most respondents buy every month or once a year.

  27. 27
  28. 28

    This figure is conditional on the respondents who provided valid answer in zipcode. Of the 2,522 respondents in our final sample, 105 (4.16%) are missing in zipcode.

  29. 29

    Citations of these surveys are provided in Footnotes 2 and 3.

  30. 30

    Google has contracted with LegitScript since April 2010 to filter pharmacy websites on Google.

Published Online: 2013-12-25
Published in Print: 2014-01-01

©2014 by Walter de Gruyter Berlin / Boston

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