Cheap Canadian Drugs: Good Politics, Bad Medicine

By ACSH Staff — Dec 12, 2005
The following editorial appeared on As 2005 draws to a close, one of the most debated health issues of the year, drug importation to reduce the cost of prescription drugs, remains in limbo.

The following editorial appeared on

As 2005 draws to a close, one of the most debated health issues of the year, drug importation to reduce the cost of prescription drugs, remains in limbo.

Democrats and Republicans alike, including Senators Byron Dorgan (D-N.D.) and Edward Kennedy (D-Mass.) as well as Reps. Gil Gutknecht (R-Minn.) and Anne Northup (R-Ky.) have advocated importation as a means to clear the way for cheaper drugs. President Bush appears fickle on the issue, signing an advisory permitting importation but at the same time vaguely protesting this move. Is drug importation really the ticket to affordable drugs now and for the future?

Unfortunately, the answer is no.

While many see the issue as a victory for the consumer over Big Pharma, legalized drug importation will prove to be bad news for all of us, depriving us of the blockbuster drugs that would otherwise be in our future.

Understanding why drug importation is a lose-lose situation for industry and consumers requires answering two basic questions: Why are drugs so much less expensive in Canada? Isn't it good old- fashioned, free-market competition to let them flow through the borders?

Ask a few friends these questions and they'll likely tell you that drugs are cheaper in Canada because the drug companies up there are more efficient and less greedy, or that the approval process there is quicker, keeping costs down. And, they will add, it is good for American companies to have some competition in the marketplace.

Actually, however, Canadians produce almost none of their own drugs. They import them from the U.S. The same is true worldwide: the American pharmaceutical industry designs and produces almost all new drugs.

Drugs are cheaper in Canada because international law treats prescription drugs differently from other consumer products. American drug makers are required under a 1994 international treaty to sell their medicines at drastically reduced prices to comply with an importing country's price controls. Any company that fails to do so risks losing its patent protection: its drugs can be stolen or copied. Thus, to comply with this treaty, U.S. companies slash prices for countries with price controls -- including most countries in the developed world. The purchasing countries are supposed to agree not to turn around and resell the drugs back to the U.S. But the pending Senate legislation will make this sell back legal.

It gets even worse. 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 to meet the purchasing countries' needs. As a result, Americans' demand for cheaper drugs from Canada increasingly cannot be met. And that dissatisfies American bargain-seekers. Various versions of pending Senate bills would legalize importation and include a breathtaking provision that would make it ``unfair and discriminatory'' for drug companies to limit sales. U.S. companies would thus be legally required (under threat of penalties) to meet Canada's demand for artificially cheap drugs no matter how great the demand and despite the fact that the drugs would be destined for a roundtrip back to the U.S.

Imagine a parallel proposal requiring General Motors to sell an unlimited number of autos at deeply discounted prices to Canada, which in turn could sell them back in the U.S. at below-market prices.

Pharmaceutical companies protesting importation have frequently claimed that it increases the possibility that bogus or unsafe drugs will slip into the U.S., and indeed, that is a possibility. But the real issue here is that drug importation represents the introduction of pharmaceutical price controls into the U.S. The question of whether to institute price controls here -- and the inevitable decline in innovation that will result -- is an issue that needs serious Congressional debate. Price controls should not be hidden in a congressional Trojan horse that appears to offer cheap drugs.

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