DECEMBER 1, 2003

Drug importation at first glance seems to be about free trade, healthy competition, and saving taxpayers money. True advocates of limited government, less regulation, and more freedom of choice ought to oppose drug importation.

 

During the past several weeks, Conrad F. Meier (managing editor of Health Care News) and I have voiced our criticism of drug importation on radio and television and in stories and letters appearing in newspapers nationwide. When we get attention like this for our ideas, I expect criticism from those who like their government big and powerful. But this time around, criticism also has come from people who generally share my libertarian instincts.

One long-time Heartland supporter wrote, “I think your arguments put you on the side of bigger government, increased regulation, and decreased freedom of choice.” My own parents import some of their prescription drugs from Canada and think it’s perfectly safe. One of my brothers, who loathes government as much as I do, even grilled me on this topic during a Green Bay Packers football game.

It has been illegal since 1987 to import prescription drugs from Canada, although the Food and Drug Administration (FDA) does not prosecute purchases made for personal use. No one has come forward with evidence of a person dying after ingesting a contaminated drug imported from Canada. And as a matter of principle, I believe consumers should be free to buy legal products from willing sellers. So why not allow more drugs to be imported from Canada?

The Safety Problem

The FDA and its Canadian counterpart, Health Canada, both say they cannot ensure the safety of drugs that cross the border from Canada to the U.S. A Web site that claims to be located in Canada may not be, and the drugs it is selling may look like the real thing, but even experts are often unable to distinguish a safe and effective pill from a counterfeit, substitute, contaminated, or expired pill. Drugs flow into Canada from Saudi Arabia, Iran, China, and Bangladesh, and these drugs are then transshipped to consumers in the U.S. Canada does not inspect drugs when they enter or leave the country, and the FDA says it inspects fewer than one in 1,000 packages entering the U.S.

The ban on imported prescription drugs–except from a small number of FDA-inspected factories–is our country’s first line of defense against terrorists or criminals intent on violating the integrity of the nation’s drug manufacturing and distribution system. We know that criminals and terrorists working from bases in North Korea and Lebanon are actively trying to infiltrate the U.S. drug supply. It may not be possible to keep all of their fakes and poisons from entering the U.S.–thanks to the Internet and UPS, they can reach every home in America–but the ban on imports makes it possible to keep them out of U.S. pharmacies and hospitals.

No Savings

Expanding drug importation won’t save consumers or taxpayers money. Drug companies have already announced plans to limit their exports to Canada. Since Canada’s market is only 5 percent the size of the U.S. market, and since it imports most of the drugs it needs for its own residents, within a year or two the price differential would disappear.

Many drugs aren’t any cheaper in Canada than in the U.S., and generics are generally more expensive north of the border. Many new drugs simply aren’t available in Canada, while others for various reasons aren’t suitable for shipment over long distances. The cost of postage and the inconvenience of mail order also cancel out some of the savings.

Overshadowing the whole price issue is the potential cost of litigation and responding to contaminated drugs. Canadian Web sites routinely carry disclaimers saying they can’t be held liable if one of their products turns out to be fake or poisonous. Lawsuits are likely to consume any marginal savings a state could hope to see from institutionalizing importation.

The cost of repairing America’s drug system after it has been damaged could be enormous. Recall the Tylenol tampering scare of 1982, when someone tampering with just seven or eight bottles of an over-the-counter pain reliever led to the recall of 31 million bottles of medicine at a cost to Johnson and Johnson of at least $100 million. Large-scale importation would pose similar risks every day.

Price Discrimination

The ban on imports allows drug companies to comply with price controls in Canada while charging enough in the U.S. to cover their research and development costs. The ban, in effect, substitutes for Canadian enforcement of contractual restrictions on the resale of U.S. drugs sold to Canadians. Some libertarians find this objectionable, but I think drugs are a special case.

As Morton Kondracke wrote recently, “Canada, Germany and other countries control the prices drug companies may charge, using the power of a clause in the Uruguay Round world trade agreement that would allow them to violate the patent of any drug whose manufacturer refused to sell it to them. So, the drug companies are forced to cut their prices dramatically to just above the cost of manufacturing the drug in most cases or see the market flooded with cheap imitations.”

Some people believe it is just plain wrong for a company to charge more than one price for its products. They must not be paying attention. Do their neighborhood restaurants charge children and senior citizens the same prices as nonelderly adults? Does the car dealer not offer discounts to college graduates or people with safe driving records? Don’t hospitals charge uninsured persons more than people covered by HMOs? Is there an airline in the country that doesn’t charge business flyers more than tourists by requiring a “Saturday stayover” to get the cheapest fares?

Price discrimination is ubiquitous in a competitive economy. It exists because it benefits consumers: More products get sold to willing buyers than if a single price were offered. It even benefits the poor and people of modest means most, since price discrimination invariably forces the wealthy to pay more than they otherwise would.

There Are Alternatives

Drug prices can be lowered and made affordable for low- and moderate-income consumers in the U.S. without resorting to importation. First, consumers simply need to shop around. The price difference between Canadian and U.S. drugs is often less than the difference in price between pharmacies at your neighborhood Walgreens and Wal-Mart. Similarly, in many cases greater utilization of less-expensive generics and pill splitters would reduce spending more than importation could.

Drug prices would also be lower if federal and state governments adopted class-action lawsuit reform, implemented some reasonable utilization review procedures, and encouraged consumers to be more price-sensitive by expanding eligibility for Medical Savings Accounts and other consumer-driven health insurance plans. The federal government recently revised its patent rules to allow generics to come to market sooner, and could do more by speeding up the drug approval process.

Drug importation at first glance seems to be about free trade, healthy competition, and saving taxpayers money. On closer inspection, it is none of those things. True advocates of limited government, less regulation, and more freedom of choice ought to oppose drug importation.

Joseph L. Bast is president of The Heartland Institute. His email address is[email protected].

 

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