Bargain fares on Rx express?

By ACSH Staff — Apr 18, 2005
This article first appeared in the Washington Times.

This article first appeared in the Washington Times.

The Senate plans a hearing today on a bipartisan pharmaceutical drug import bill (Pharmaceutical Market Access and Drug Safety Act, S334) to, among other things, legalize drug imports from Canada and other countries. The bill is expected to pass easily. Why? Americans want cheaper drugs.

And they have no understanding of either the reason pharmaceuticals cost less in other countries or how mass imports will chill the pharmaceutical industry's incentive to develop the block-buster drugs of tomorrow.

The ignorance-fueled enthusiasm for drug importation became apparent to me when I asked a few dozen random people -- cabdrivers, neighbors, physicians, sales persons and others -- why they think the price difference exists.

Some told me Canadian drug companies keep production prices down. Others thought the Canadian drug regulators were not as strict as ours and approved new drugs more quickly, thus lowering costs. Still others thought the Canadian government manufactured the drugs and sold them at cost. Most of those I asked admitted they did not know.

It is imperative we all clearly understand why such a significant price disparity exists between U.S. drug costs and those in most other developed nations. If we don't understand the factors underlying the price gap, we might support the pending irrational Senate legislation -- sponsored, among others, by Sens. Byron Dorgan, North Dakota Democrat, and John McCain, Arizona Republican -- which would cripple the U.S. pharmaceutical industry, regarded as the world's most innovative. This would deprive us, and our children and grandchildren, of the blockbuster drugs of the future.

Today's new lifesaving, life-enhancing pharmaceuticals, almost all developed and produced in the U.S., are cheaper in Canada because international law treats prescription drugs differently than other consumer products. U.S. pharmaceutical companies are required under a 1994 treaty to sell their drugs at drastically cut prices to countries with drug price controls. Any pharmaceutical company that fails to comply risks losing its patent protection -- its drugs can be stolen and copied.

To comply with this treaty, pharmaceutical companies slash prices for countries with price controls -- most countries in the developed world. The purchasing countries in this "deal" are supposed to agree not to turn around and resell the drugs to Americans. Technically, drug importation is now illegal, but the law is almost never enforced.

As the American demand for "Canadian" drugs has increased, the Canadian supply has dwindled because U.S. companies, to stem their losses, sell just enough drugs to meet the purchasing countries' needs, and so avoid having the excess resold to America at cut-rate foreign prices. As a result, Americans' demands for "Canadian" drugs increasingly cannot be met. And that dissatisfies American bargain-seekers.

The new Senate bill seeks to increase American drugs sold to Canada so more can be re-imported here. The bill not only officially legalizes drug importation but includes a breathtaking provision that "would make it an unfair and discriminatory" for drug companies to limit their sales. U.S. drug companies would thus be legally required (under threat of significant monetary penalties) to meet Canada's demands for artificially cheap drugs, no matter how much Canadians demand and though the drugs will often a round-trip back to the United States.

To envision the absurdity (and probable unconstitutionality) of this proposal, consider requiring General Motors to sell unlimited numbers of automobiles at deeply discounted prices to Canadians, who then, in turn, can sell them back to Americans at below-market cost.

In defending the legislation, sponsors argue it would not import price controls into the United States (it would, though well disguised in a Trojan horse promising cheap drugs), will not cut into revenue needed to fund research on new drugs (it will), will not chill innovation efforts (naive -- price-control countries produce few, if any, new drugs) and is justified because the industry spends too much on marketing and advertising anyway (other industries are not asked to justify marketing strategies).

We should all hope there is at least one senator -- representing the interests of American consumers, not the pharmaceutical industry -- who makes the case that importing price controls by sleight-of-hand and other quick fixes will only kill the pharmaceutical gooses that lay today's -- and hopefully tomorrow's -- golden prescription medicine eggs.

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