Drug Reimportation = Back Door Price Controls

Ronald Bailey | August 3, 2007

The House of Representatives has just passed the National Subsidies Act of 2007. OK that's not what it is actually called--that would be far too honest a title. In any case, besides handing out farm subsidies, the act would also allow the reimportation of pharmaceuticals from abroad.

According to the Associated Press:

The House passed legislation Thursday effectively permitting the importation of lower-cost prescription drugs from places such as Canada, Australia and Europe....

Supporters of the idea say it would save consumers great sums by allowing them to purchase U.S.-made medications from other countries where they often sell for much lower prices than in the U.S. Under current law, consumers are permitted to buy a 90-day supply in Canada.

Overseas, drugs can cost two-thirds less than they do in the United States, where prices for brand-name drugs are among the highest in the world. In many industrialized countries, prices are lower because they are either controlled or partially controlled by government regulation.

Setting aside the real problem of counterfeit drugs, is this a good idea? Well, perhaps temporarily. But if I were a drug company executive, I would seriously begin to think about cutting supplies to foreign countries that price control drugs.

Right now, drug companies comply with price control regimes in foreign countries because they can still sell drugs in those countries at higher than their marginal costs. Think of it this way, when you add up all the research, testing and regulatory compliance costs that means that the first pill of a new medicine costs $1 billion. Making the next pill costs only a few cents.

So if a pharmaceutical company can recoup its sunk costs by charging higher prices in the U.S., it can still make money by selling drugs above their marginal costs in price-controlled countries. So long as U.S. (free) markets can be kept isolated from foreign (price-controlled) markets, this can work. What the new legislation does is, in effect, establish a back door way to price control drugs in the U.S. Price controls will starve companies of the cash they use to finance drug discovery and will eventually lead to fewer new drugs for us all.

As far as I know, no pharmaceutical companies have yet threatened to cut off drug supplies to countries that allow reimportation to the U.S., but it sounds like a good idea to me.

Disclosure: Yeah, yeah, yeah. As any H&R reader must know by now, I own minor amounts of stock in various biotech and pharma companies. And yes, I would like to see their profits go up--after all that's why one owns stock in any company. But more importantly, I want biotech and drug companies to develop new effective treatments as fast as possible. Living a longer healthier life is much more important than my stock valuations.

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brian|8.3.07 @ 1:44PM|#

Pharm companies charge lower rates in other countries even in the absence of price controls simply because they can make more money that way. It's called price discrimination--and it's not always because of the government.

I don't see a problem with allowing the importation of drugs.

Grotius|8.3.07 @ 1:44PM|#

Ronald Bailey,

Are there any studies out there that demonstrate the increase in lifespan, quality of life, etc. from new drug treatments? Particularly those drugs which don't fall under the rubric of antibiotics or anti-virals?

Grotius|8.3.07 @ 1:48PM|#

As far as I know, no pharmaceutical companies have yet threatened to cut off drug supplies to countries that allow reimportation to the U.S., but it sounds like a good idea to me.

It should be noted that a significant number of pharmaceutical companies aren't U.S. companies. If I recall correctly both Novartis and Sanofi-Aventis are headquartered in Europe.

SIV|8.3.07 @ 1:49PM|#

So long as U.S. (free) markets can be kept isolated from foreign (price-controlled) markets

WTF?

If the market is "isolated"(from secondary markets) in what sense is it free?

|8.3.07 @ 1:49PM|#

Setting aside the real problem of counterfeit drugs, is this a good idea?

Yes.

But if I were a drug company executive, I would seriously begin to think about cutting supplies to foreign countries that price control drugs.

And this is why.

|8.3.07 @ 1:51PM|#

Grotius: Yes. How about heart disease and strokes and cancer deaths?

CJB|8.3.07 @ 1:53PM|#

I have to agree with MikeP and SIV. I think the outcome is more likely the raising of prices to the other markets not the cutting off of the flow of drugs. This should result in a more even price distribution across the world market, I would think anyway. If I was in one of the price controlled markets I would think this is bad, but I am not so it is good for me.

Grotius|8.3.07 @ 1:53PM|#

Ron Bailey,

I meant a comprehensive study.

Before looking at the link I will write that I thought that the majority of the decrease in deaths to cancer was due to decrease in tobacco use?

|8.3.07 @ 1:53PM|#

Grotius: And just where do you think that Novartis, Sanofi-Aventis and GlaxoSmithKline sell their drugs at full price? And just where do they do the majority of their research?

|8.3.07 @ 1:54PM|#

I could grow all the medicine I need in my backyard if the govt wouldn't throw me in jail for it.

Sorry, Ron. Big pharma's hands are soaked in the blood of wod victims. Fuck them.

Big pharma stands in the way of my well-being as I see it. Hope your stock gains value, but I just can't find much sympathy for an industry that is given the ultimate govt. protection: outright prohibition of DIY alternatives.

Grotius|8.3.07 @ 1:56PM|#

Ron Bailey,

Of the "Factors" listed in the first link is the list weighted in ascending order, with the first point being of greatest importance?

|8.3.07 @ 1:56PM|#

Grotius: You really should look at the links. But you are correct that the decline in tobacco use accounts for a good bit of the decline in cancer and heart disease deaths, but statins and anti-hypertensives have played a big role in reducing cardiovascular disease deaths and various anti-cancer therapies such as Herceptin and Tamoxifen have substantially reduced breast cancer deaths.

|8.3.07 @ 1:57PM|#

By disallowing reimportation of drugs, the US is essentially enforcing a contract between a drug company and, say, Canada.

If Canada wants to enforce its own damn price control contract, then it can forbid reexportation and enforce that. As it stands today, the US government is subsidizing Canada's choice for price controls, costing US consumers both coming and going.

I watched them talking about riders to this bill on C-SPAN yesterday, it was hilarious. The chairwoman was giving everyone like a minute a piece and they were running off at the mouth like auctioneers trying to get boll weevils or whatever eradicated by the federal government.

|8.3.07 @ 1:59PM|#

On the one hand, if our trade is truly "free," then any willing seller should be able to transact business with any willing buyer. Period. 'Nuff said.

On the other hand, it does seem cowardly for our congress to rely on socialist policies (price controls) in other countries to lessen the heat they would otherwise face to do something positive to lower drug (and other medical) costs in this country. Of course, when most people think Congress should "do something," they almost invariably think of establishing our own, home-grown price controls. But I think that a lessening (or in many cases, outright elimination) of regulation would achieve the same effect more healthfully for our economy and the body politic.

Grotius: Recall that your question was: Are there any studies out there that demonstrate the increase in lifespan, quality of life, etc. from new drug treatments? Particularly those drugs which don't fall under the rubric of antibiotics or anti-virals?

I believe the two studies to which I linked have answered you. There are plenty more such studies if you care to look.

Grotius|8.3.07 @ 2:02PM|#

Ron Bailey,

For the latter question that would probably depend on the company, but I suspect that they all do a lot of their research in Europe.

As for the first question, where they can.

|8.3.07 @ 2:03PM|#

What the new legislation does is, in effect, establish a back door way to price control drugs in the U.S. Price controls will starve companies of the cash they use to finance drug discovery and will eventually lead to fewer new drugs for us all.

Either that, or force drug companies to pressure foreign governments to abolish those controls. Which would also be a good thing.

But one other thing - there are certainly drug companies in countries where price controls are operative that have produced innovative treatments. Are you aware of any studies which compare the rate of innovation of drug companies which operate in free economies, vs. the ones that operate in countries with price controls?

I bring it up because I once used that argument in a debate with an advocate of price controls. He challenged me to provide support for my argument, and I had to admit I couldn't produce any. Any assistance would be appreciated.

|8.3.07 @ 2:04PM|#

Calif Med Mar patient: I didn't say Pharma was perfect, e.g., they use FDA regulation as a barrier to entry by competitors. I should disclose that I'm a dues paying member of both the Marijuana Policy Project and the Drug Policy Alliance.

Grotius|8.3.07 @ 2:05PM|#

Ronald Bailey,

Also, here is a list of Sanofi-Aventis' research centers around the planet: http://en.sanofi-aventis.com/rd/sites/p_rd_centres.asp

Note that the majority of them are outside the U.S. Of course that doesn't say much directly about how much research is done at each facility, but it may good proxy for such.

|8.3.07 @ 2:07PM|#

Big pharma will do what it has always done to offset the lack of profits on existing drugs:

Create new medical conditions.

Think: ADD, Restless leg syndrome, anxiety disorder, hair loss...

I totally agree that this is back-door price fixing by the feds, but again I cannot find much sympathy in my heart for an industry that is given the ultimate protection: the wod.

Grotius|8.3.07 @ 2:08PM|#

Ronald Bailey,

GSK's worldwide locations: http://www.gsk.com/research/about/about_locations.html

|8.3.07 @ 2:09PM|#

Pig Mannix: Take a look at this report from April 2007 Nature Reviews "Price controls seen as key to Europe's drug innovation lag." Grotius might find it interesting too.

Grotius|8.3.07 @ 2:10PM|#

Ronald Bailey,

Anyway, thanks for the links. Quite illuminating.

|8.3.07 @ 2:11PM|#

Price fixing = less innovation.

Maybe if a few more Canucks start shitting the bed early due to lack of meds they will see the light.

No, I am not kidding or being sarcastic.

Episiarch|8.3.07 @ 2:12PM|#

MikeP is correct. The Canucks and others are free riding off of the US; we are subsidizing their drug prescriptions. We can't force them to stop it, but the drug companies can refuse to sell, and one positive outcome of this is it might get the drug companies to do it.

California Med Mar patient makes a damn good point, too. I thought I recalled info at Reason about the drug companies supporting the WOD?

|8.3.07 @ 2:14PM|#

Episiarch: If they aren't supporting the wod they are fucking idiots.

Grotius|8.3.07 @ 2:17PM|#

The question is, say that some of the pharmaceutical companies did drop out of certain markets? What's to say that they (meaning the nation where the drug is no longer sold) simply won't produce the drug on their own?

|8.3.07 @ 2:20PM|#

Grotius, Not to be Bailey's bitch here but...

He does mention that production of pills is cheap. So, of course Doug and Bob McKenzie could go into the drug-knock off business.

It is the innovation and study that costs big and often leads nowhere.

Anyone can reverse engineer a pill. It is the original engineering that costs so much.

robc|8.3.07 @ 2:22PM|#

Grotius,

What's to say that they (meaning the nation where the drug is no longer sold) simply won't produce the drug on their own?

That is reason #5146789 why the war in Iraq is a bad thing. We needs the troops at home so that we can send them to Canada to support patent treaties.

|8.3.07 @ 2:23PM|#

If we told the Canadians what their timber companies could charge for wood,or the French whine,sorry,wine and cheese what would be their reaction?Price controlls have never worked.'It's not from the kindness of the butcher,baker and brewer we recieve or daily sustinance,but through their own self interest'.Adam Smith

Grotius|8.3.07 @ 2:23PM|#

robc,

Heh.

|8.3.07 @ 2:24PM|#

Drug reimportation should be allowed as long as the drug companies continue to sell at lower prices in other countries. If they are willing to sell at a lower price in foreign markets, they should not be forcing Americans to pay more.

robc|8.3.07 @ 2:25PM|#

Grotius,

I wasnt kidding.

Well, not much. I consider that a (possibly) legimate function of the military, to uphold our treaties. I would hope it would never come to that, that Canada would uphold the treaties before we had to invade, but its not like we havent invaded Canada before.

Grotius|8.3.07 @ 2:26PM|#

Nice little article on drug price controls from CATO.

SIV|8.3.07 @ 2:27PM|#

Several commenters (hard to tell-could be one)
think the WoDs benefits the Pharmaceutical Industry. Drug restrictions limit what they can sell and to whom.Money spent by consumers to access the drugs through gatekeepers could be spent on product.Faster to market would allow for more time under patent. The business model would change a bit but "Big Pharma" could earn more in a free market in drugs-as long as they continued to innovate.

Grotius|8.3.07 @ 2:27PM|#

robc,

Well, if I recall correctly the treaty dealing with the overseas sale of drugs requires those sales to be at the levels which the drug price controls of foreign locales dictate.

jimmydageek|8.3.07 @ 2:28PM|#

Think: ADD, Restless leg syndrome, anxiety disorder, hair loss...

I was talking about RLS a couple weeks back to my fiance. I said, "You know, before all of these commercials for RLS drugs came out, I wonder how many cases of this 'disorder' were actually out there. I mean, I had never even heard of RLS before these medicine commercials. I bet there are people out there right now, watching this commercial, and saying, 'hmmm...maybe I have RLS', and now they will go to the doctor and get diagnosed for something that might have been a small nuisance before, but now is a 'serious medical condition'. Hell, they probably didn't even think twice about their 'condition' before these commercials came out."

robc|8.3.07 @ 2:30PM|#

Grotius,

Im not talking about that. Im talking about a Canadaian company producing the drug if our companies refuse to sell to them. That would be a violation of patent treaties (I assume their is some sort of general international treaty to acknowledge patents).

|8.3.07 @ 2:31PM|#

If I am a pharma exec, and I know approximately that there are 1 million people in Canada who can use my heart drug. And there are 10 million people in the United States that need my heart drug.

Lets further say I charge $1 in Canada and $5 in the US, so I am currently earning $51 million in revenue.

After re-importation is allowed, I suddenly see demand for 11 million people in Canada using my drug and 0 in the US. Now my revenue is $11 Million.

The rational thing for me to do would be to restrict exports of my drug to Canada to 1 million units. To restore the prior revenue condition.

That is why a pharma exec would restrict the amount exported. Another possibility is that I simply earn $11 Million from now on, reduce my workforce, income, stockholder value, R & D etc...

Drug reimportation should be allowed as long as the drug companies continue to sell at lower prices in other countries.

Not to be pedantic... but drug reimportation should be allowed even if drug companies sell at higher prices in other countries. This is not something that requires a legislative or administrative decision based on some condition. Trade should simply be free.

If they are willing to sell at a lower price in foreign markets, they should not be forcing Americans to pay more.

But this is outright wrong. If the price the market bears in the US is higher than the price the market bears in China, there is no reason that the company should not charge less in China. If the drug company wants to make sure those cheaper drugs don't end up in the US, then the company can enter into contracts with Chinese distributors to guarantee or insure against that.

Check brian's comment, the first on the thread.

|8.3.07 @ 2:32PM|#

Cecil, CMMp, et al.-

The issue isn't sympathy for the pharma industry; the issue is what's best for consumers. Bailey stated: "Price controls . . . will eventually lead to fewer new drugs for us all." Opposing something that will benefit society because it might also benefit the pharma industry is cutting off your nose to spite your face.

You can rebut Bailey's assertion that drug re-importation is actually good for consumers, but "fuck the pharma industry" isn't a very persuasive argument.

(Disclosure: my firm represents a major pharma company. That being said, if they're not sued on a regular basis I'm out of a job, so my feelings toward the industry are ultimately neutral.)

Yeah, if big pharma could they'd produce Totally Sweet Alabama Liquid Snake. It would rock everyone's world.

Grotius|8.3.07 @ 2:33PM|#

jimmydageek,

Well, we have designer jeans why not "designer diseases?" If that is in fact what exists I doubt that we are unique in that regard. As many 18th and 19th century writers supposedly had "consumption" I've often wondered whether if it was simply fashionable to have the disease amongst a certain class of society.

Grotius|8.3.07 @ 2:36PM|#

ClubMedSux,

I don't think anyone (here) was claiming that price controls are a good thing.

|8.3.07 @ 2:38PM|#

The Libertarian position on this seems pretty clear to me. The US Government has no right to stop me from buyting a drug from whatever damn country I want. Yeah, it sucks that Canada imposes price controls, but what does that have to do with me? If Big Phrama doesn't like what Canada is doing, they should stop selling drugs there. Or finance an invasion force to topple the Canadian government. This isn't our problem.

|8.3.07 @ 2:40PM|#

"So, of course Doug and Bob McKenzie could go into the drug-knock off business."

I'll say! Bob and Doug are still around, popping up most recently in a video vignette that was shown at a Rush concert I attended. (There was, later on, a great little South Park vignette, too.) So, given that they are a going concern, line extension into drug knock-offs seems a natural evolution of their enterprise. Good day, 'eh.

SIV|8.3.07 @ 2:40PM|#

As many 18th and 19th century writers supposedly had "consumption" I've often wondered whether if it was simply fashionable to have the disease amongst a certain class of society.

Tuberculosis, it is still around.
There may have been misdiagnosis of other respitory diseases as consumption.

|8.3.07 @ 2:41PM|#

Bailey stated: "Price controls . . . will eventually lead to fewer new drugs for us all."

That's a true statement.

The statement of Bailey's that is being questioned is this one:

What the new legislation does is, in effect, establish a back door way to price control drugs in the U.S.

There have been at least three ways pointed out in the comments to keep reimportation from imposing what are effectively price controls in the US.

What the current regime does is place the costs of price control enforcement on the US government, where it most definitely does not belong. The alternatives place those costs on the actual beneficiaries of the price controls -- a more economically efficient solution.

thoreau|8.3.07 @ 2:42PM|#

Once again, I agree with MikeP.

|8.3.07 @ 2:43PM|#

ClubMedSux: I can be against price fixing and hate the industry being targeted by the fixing, can't I?

|8.3.07 @ 2:45PM|#

Michael Pack,

You're funny, we do tell Canada what to charge for timber: Canada's complained for years to the WTO, the ITC and recently, NAFTA dispute resolution boards about US "antidumping" tariffs on softwoods - primarily pine wood plywood for home building. This has been going on since before NAFTA was passed.

http://www.cbc.ca/news/background/softwood_lumber/

Grotius @ 2:17, I'm not going to complain about say Ranbaxy or Dr Reddy making pirate copies of certain western drugs. Until 2005, India maintained (in the face of strong pressure to change) a perfectly rational, semi-buddhist in outlook, legal stance against patenting of products based on living things. I've always applauded that stubbornness. Unfortunately, participation in the modern WTO precludes that long historical tradition.

Grotius|8.3.07 @ 2:46PM|#

SIV,

Oh yes, there certainly were. I've wondered (however) whether people simply pretended to be consumptive. Given all the starry-eyed notions associated with the disease at the time amongst the literary scene it wouldn't suprise me.

|8.3.07 @ 2:47PM|#

Ron,
Thanks.

Mike Laursen|8.3.07 @ 2:52PM|#

I assume that under this act it would still be illegal to import into the United States a drug that was manufactured without the patent holder's permission.

Grotius|8.3.07 @ 2:54PM|#

Mike Laursen,

I would assume that is part of the treaty language that covers the international sale of drugs.

|8.3.07 @ 2:57PM|#

I can be against price fixing and hate the industry being targeted by the fixing, can't I?

Sure you can. My point was just that disdain for the pharma industry isn't relevant to the argument at hand (whether drug reimportation = back door price controls). I guess my comment was mainly directed at California Med Mar patient; sorry for throwing you in there as well.

|8.3.07 @ 3:01PM|#

Restless leg syndrome is real, and it blows. I and a couple other family members have it, although I had it much worse when I was a kid - it made sitting through Catholic mass an absolute hell. Before they had drugs specifically designed to treat it, I was just prescribed general muscle relaxants so I could get a little sleep on nights when it was bad. (You might say I was RLS when RLS wasn't cool/I was RLS from my hat down to my uncontrollably twitchy boots.) But it's gotten much better with age, and now it's not even bad enough for me to go get one of these new prescriptions.

Which is not to say that jimmydageek isn't right about a lot of folks suddenly coming down with RLS now that they're pushing the drugs so much. Isn't that what's happened when autism became the latest fad for diagnosing kids who don't behave well in school? Some number of people actually have this condition that's difficult to clearly define because it can manifest itself in many ways and to varying degrees, but more people than that are diagnosed with it because that diagnosis is convenient or helpful to someone involved.

|8.3.07 @ 3:05PM|#

I know all about the Canadian wood dipute.Notice the double standard they apply to us?Yet they see no problem in us subsidising the health care.WTO protections don't apply in many cases and some countries[Inda]claim national intrest and void patants so their companys can prduce many drugs with no research cost.Plus,name another product exported then reimported at a lower cost.

|8.3.07 @ 3:19PM|#

It was Cato that first, and surprisingly, convinced me that permitting reimportation is the free market solution. It is fun to have one's automatically accepted preconceptions busted like that.

But this WSJ piece from Roger Pilon back in May is a little scary...

But there, precisely, is where this Senate measure intrudes. It would lift the ban on reimporting drugs from a limited number of developed countries, where drug safety is not an issue. But rather than let markets sort the matter out thereafter -- whether they'd remain segmented, or prices would tend toward equilibrium, we don't know -- this bill would prohibit American companies from defending themselves against parallel markets. They would be prohibited from charging foreign exporters higher prices than they charge foreign firms that do not export. And they would be prohibited from limiting supplies to foreign firms that reshipped those lower-priced drugs back to the U.S. That's how Congress, unwilling itself to directly impose price controls on drugs, is trying to do so indirectly, by "importing" foreign price controls.

In other words, the bill that was in play back in May would lift the ban on reimportation but would disallow any other mechanism for controlling reimportation, thus nullifying what I said above:

There have been at least three ways pointed out in the comments to keep reimportation from imposing what are effectively price controls in the US.

What the current regime does is place the costs of price control enforcement on the US government, where it most definitely does not belong. The alternatives place those costs on the actual beneficiaries of the price controls -- a more economically efficient solution.

Does anyone know whether the current legislation simply allows free reimportation? Or does it also ban defensive measures against effective price control importation?

jimmydageek|8.3.07 @ 3:53PM|#

Sorry, Sparky, I didn't mean to imply at all that RLS wasn't a real medical condition, even though it did come off that way.

|8.3.07 @ 4:03PM|#

No worries, jimmydageek, I didn't think that's what you were saying in your post, and I didn't mean to make it sound like I was offended. And like I said, I think you're probably right that some people suddenly decided they had this condition that hadn't really bothered them before they saw the commercials.

Besides, RLS isn't all bad - all my twitchiness and nervous energy help me maintain my girlish figure. Now if only I was a girl....

|8.3.07 @ 4:46PM|#

I dunno jimmy, I see EDS commercials constantly and 'lil JW still works just fine.

Information = good. What you do with it = good or bad.

Ayatollah Usoe|8.3.07 @ 4:58PM|#

In a dynamic if unfree market, the foreign government sets the price of the drug. The drug company can't simply raise the price. It can withdraw from the market instead. More likely, the company manages the size of the foreign market, limiting its growth to last year's volumes plus inflation and population growth. The market response would be to sell all quantities of the drug as export back to the high sales price market in the US, leaving the local market in the same situation as though the manufacturer withdrew from the market. At that point, the foreign government allows patent infringement, and we end up with counterfeit drugs for sale in the US. It seems a trade dispute issue, not a market price issue.

Tim|8.3.07 @ 5:14PM|#

I've got to agree with most of the commenters and call bullshit on Bailey. He should rename the post "Libertarians Against Free Trade."

|8.3.07 @ 5:19PM|#

The market response would be to sell all quantities of the drug as export back to the high sales price market in the US, leaving the local market in the same situation as though the manufacturer withdrew from the market. At that point, the foreign government allows patent infringement, and we end up with counterfeit drugs for sale in the US.

Uh... Why wouldn't the foreign government simply prohibit reexportation?

|8.3.07 @ 6:20PM|#

"So if a pharmaceutical company can recoup its sunk costs by charging higher prices in the U.S., it can still make money by selling drugs above their marginal costs in price-controlled countries. "
I'm not sure I understand this argument. Is it that the Pharma companies can't make the huge profits that may be needed to fund R&D for innovative drugs in nations whose governments protect their citizens with price controls, but since they charge the living hell out of us more market oriented Americans they end up with enough for R&D, so that if we undercut their prices here by allowing for importation of the price controlled drugs they would no longer get the very profit from us that makes it feasible for both R&D and to sell at such low prices over there?
Is that right, because isnt this saying, hey, I realize I charge you way more for product x than I do your neighbors, but if I didn't then I would not be able to afford selling product x to your neighbors at such a low cost, and to fund the research that will make product y (which I will continue to charge you much more for once it comes out). Nice to know we American consumers are taking it in the ass for the sake of both continued innovation and easily affordable medecine for other nations...

I wonder why 'free market' advocates have a problem with generic knock-off drugs. People could easily choose to buy them, or to buy the 'genuine' drug. Companies would be free to research new drugs or not. I am not too concerned with paying more in the U.S. just so the pharmas can find some slight change in their top sellers so they can keep generic replacements off the market longer.

|8.3.07 @ 6:36PM|#

What free market 'advocates' do?

|8.3.07 @ 7:32PM|#

So if a pharmaceutical company can recoup its sunk costs by charging higher prices in the U.S., it can still make money by selling drugs above their marginal costs in price-controlled countries. So long as U.S. (free) markets can be kept isolated from foreign (price-controlled) markets, this can work. What the new legislation does is, in effect, establish a back door way to price control drugs in the U.S.

Nonsense. What the bill does is get the U.S. government out of the price control enforcement business. The best possible result is that price controls collapse. But even if that doesn't happen, it's still an improvement.

metalgrid|8.3.07 @ 7:46PM|#

We're obviously missing something here. There is hardly ever a bill that screws an industry that lobbies as heavily as pharma to benefit the general public.

So I have to ask, what other industry lobby benefits from this?

perilisk|8.3.07 @ 8:13PM|#

The sad thing is, the same people who are horrified that poor third worlders can't get health care are eliminating one method of helping them to get. A drug company has nothing to gain by denying drugs to someone who can pay the marginal cost of producing another dose, even if they can't pay a full share of the research fees required to produce the drug initially. Every little bit helps, basically. Assuming the amount of utility generated for that unit of drug is quite high relative to the cost to produce it, maximimizing usage is both the most economically and most morally desirable outcome.

However, that only applies if the drug company can ensure that other customers pay a higher cost for the same good to offset the up-front costs (effectively, if it can ensure that there is no free market). If there is a market, then there is a single price. If there is a single price, then it will price poor people out of the market, even when they can technically pay to produce the drug and provide respectable marginal profit besides.

@metalgrid: An influx of cheap, imported, possibly unsafe drugs would certainly provide a lot of fodder for tort lawyers if/when a contaminated batch kills a bunch of people.

|8.3.07 @ 8:29PM|#

If there is a market, then there is a single price.

This is patently wrong. Have you bought an airline ticket lately?

If there is a single price, then it will price poor people out of the market, even when they can technically pay to produce the drug and provide respectable marginal profit besides.

As you note for most of your comment, it is absolutely in the seller's interest to figure out a way to discriminate prices between different consumers. Then you conclude that they are destined to fail. In general, however, they will fail only if the government sets them up to fail.

Chavez is a thug|8.3.07 @ 9:10PM|#

"Are there any studies out there that demonstrate the increase in lifespan, quality of life, etc. from new drug treatments? Particularly those drugs which don't fall under the rubric of antibiotics or anti-virals?"

Seriously, is this supposed to be a legitimate one, or some sort of joke?

And if it was serious, you should have asked joe instead. He's the resident expert on everything.

Goldthwait|8.3.07 @ 9:12PM|#

Chavevz is a thug|8.3.07 @ 9:24PM|#

"Before looking at the link I will write that I thought that the majority of the decrease in deaths to cancer was due to decrease in tobacco use?"

Tobacco is linked to a very small degree of cancers, lung cancer being the most obvious. Pharmaceuticals have had a much wider impact. I believe Mr. Bailey listed a few, but one of the most notable anti-cancer drugs is gleevec, developed by Novartis. I am well acquainted with the drug, as I have patients who use it and I also use it myself for the treatment of liposarcoma. There are a whole host of other drugs out there that have had a noticable positive impact on both expectancy and quality of life.

Sy Sperling|8.3.07 @ 10:03PM|#

"Create new medical conditions.

Think: ADD, Restless leg syndrome, anxiety disorder, hair loss."

If you think those conditions are a fabrication of "Big Pharma", I seriously weep for you. But you must be happy. You know what they say: "Ignorance is bliss"

Well the hair loss one is obvious

Big Pharma can't offer a solution like I can.
Now that ADDHD is a crock of shit- just an excuse to push speed on kids.

|8.3.07 @ 11:24PM|#

There are a whole host of other drugs out there that have had a noticable positive impact on both expectancy and quality of life.

Warfarin's a good one.

Robert|8.4.07 @ 12:30AM|#

Patents and trademarks are different things. Just because another jurisdiction doesn't enforce a patent doesn't mean the makers of the knock-offs have to violate the trademark too and make counterfeit goods.

|8.4.07 @ 3:45AM|#

> There are a whole host of other drugs out there that have had a noticable positive impact on both expectancy and quality of life.

Warfarin's a good one.

Aspirin? :)

Alwyn Thomson|8.4.07 @ 7:13AM|#

This might be a credible argument if drug companies spent their research money on developing drugs to treat serious conditions.

Unfortunately, they tend to put their money into drugs for treating lifestyle illnesses - drugs to make fat people thin, hyper people calm, moody people happy etc.

As long as the drug companies make huge profits from the over-prescribing of lifestyle drugs in the US market they will continue to focus their R&D budgets on creating those kinds of drugs.

And if they feel they are running short of R&D funding they could always redirect some portion of their huge advertising budgets.

|8.4.07 @ 9:07AM|#

Ron's right of course that economic theory predicts that the less profits the drug companies get then the less they will re-invest in research and development. And this point is no less correct even if drug companies do dump most of their profits into marketing or even coke & hookers. If they even dump back 10% of the profits then its only common sense that 10% of say 100 billion profits, then that is more than 10% of say 20 billion. Lower profits will probably mean lower re-investment in research (I say probably because economic assumptions do not always hold up, people are either not always rational or there are ways of being rational we did not understand at the time of deducing what is "rational" for the actor to do).
But the story does not end there. We want to see further innovation, but we also have a problem here with many people unable to afford critically neccesary medecine that has already been developed. Perhaps sacrificing these folks on the altar of future innovation is the correct thing to do (and I don't mean that necessarily snarky, innovation can save lives, and even if it is "just lifestyle" drugs developed these drugs can make many peoples lives better), but lets not pretend this is an easy choice automatically demanded by economic theory.
Let's also not see it as simple as those who favor a policy that undermines price controls, even those of other nations, are for liberty and those who are against are not. For one thing, as many here have pointed out, there is the liberty of the consumer here to order stuff from other nations (even ones that have price controls). But for another thing, people who cannot afford critically necessary and existing drugs are hardly enjoying much liberty. Their lives and choices are constrained by being ill all the time and/or knowing they need to sacrifice to pay for the pills. Some of us care not only about the liberty of drug makers to set prices but about those sick folks too. Again, as noted above, restricting the drug makers liberty to set prices may hurt those consumers in the long run by denting future innovation. But its a balance between two liberties we have to carefully consider imo...

|8.4.07 @ 10:32AM|#

Research and development costs so much because of other types of government drug regulation.

Allowing reimportation would put pressure to reduce those costs to because of the lower profits.

Opening markets is almost always good in the long run.

Though in the long run, as Keynes noted and I concede, we are all dead, here especially from the absence of drug development in the intervening period of adjustment of regulations.

|8.4.07 @ 11:47AM|#

Ron's right of course that economic theory predicts that the less profits the drug companies get then the less they will re-invest in research and development.

Not exactly. Assuming access to capital markets, the investment will depend only on expected profit, and past profit is irrelevant except insofar as it is predictive.

We want to see further innovation, but we also have a problem here with many people unable to afford critically neccesary medecine that has already been developed. Perhaps sacrificing these folks on the altar of future innovation is the correct thing to do (and I don't mean that necessarily snarky, innovation can save lives, and even if it is "just lifestyle" drugs developed these drugs can make many peoples lives better), but lets not pretend this is an easy choice automatically demanded by economic theory.

This part I agree with.

Adam J. Fein|8.4.07 @ 12:11PM|#

Wow, fascinating debate on this site!

Here's my $0.02: I oppose importation because manufacturers and patients would bear most of the risks and costs of importation, but would get little of the supposed price savings.

Here's why:

1) Importation from Canada is diversion -- selling a product intended for one market into another market to take advantage of price differences.

This happens all the time. (Have you ever "diverted" candy into a movie theater instead of paying their high prices?)

2) Unfortunately, drug diversion is the primary way that counterfeit drugs get into legitimate pharmacies. Criminals hop onto the unrestricted flow of drugs, meaning that importation will open up new gateways for counterfeits.

3) Most of the cross-country arbitrage profits will be absorbed by middlemen.

I've written extensively about the facts behind these statements on my blog. See this recent post and its back links:

http://www.drugchannels.net/2007/07/canadian-dreamin.html

Adam

Robert|8.4.07 @ 2:12PM|#

So "diversion" in this sense means violation of a covenant against or restricting resale?

|8.4.07 @ 4:13PM|#

I oppose importation because manufacturers and patients would bear most of the risks and costs of importation, but would get little of the supposed price savings.

That's interesting. I support importation because manufacturers and patients would bear most of the risks and costs of importation. I fully expect that they would get little of the supposed price savings.

The supposed price savings are mythical. After all, the manufacturers will do what they can to maintain the total revenue such that they receive the profits they desire. Whether this takes the form of easing foreign price controls and leveling prices or the form of maintaining price discrimination through private contract or through foreign government enforcement is an open question.

Getting the US out of the business of enforcing other countries' price controls is simply more free and more economically efficient than what happens today.

Xmas|8.4.07 @ 7:57PM|#

Of course, no one has mentioned that some other government, let's say Canada, may have some problems with drug reimportation through their pharmacies. The US market is so much larger than the Canadian market it wouldn't take much re-importing before the price-regulated Canadian pharma market starts getting screwy. The government-run Canadian health-care system may not take too kindly to the diversion of drugs meant for their citizens.

Also, their is nothing preventing the pharma companies from lobbying foreign governments to make re-exportation of drugs illegal or even heavily tariffed.

|8.4.07 @ 8:56PM|#

Of course, no one has mentioned that some other government, let's say Canada, may have some problems with drug reimportation through their pharmacies.

I assume that by "no one" you mean "almost every one".

|8.5.07 @ 9:15AM|#

Seems bizarre for a libertarian to advocate not taking advantage of the marketplace. Sure, if the drug executives "cut supply" to countries that regulate, then perhaps those countries will deregulate. I can't imagine that the US subsidizing (that's what it is, isn't it?) the rest of the world's pharmacological intake is a pro-libertarian standpoint.

|8.5.07 @ 9:34PM|#

One point that has not been picked up by anyone so far is the fact that the international pharma market has a great many companies operating profitably with very low market shares. This is not a situation found with any other international market. What this means is that profits are able to be achieved inefficiently. If the free market were able to rule there would be amalagamations because drug prices would drop. At present too many companies compete profitably in relatively small market segments. This only happens because their situation is protected too strongly both by unnecessary patents for look alike products and because a free market does not exits.

Adam J. Fein|8.6.07 @ 8:01AM|#

Xmas -- Canadian pharmacists realize the issues and do not necessarily want to be our "medicine cabinet." See this article from CBC News: "We can't afford to be the medicine cabinet for the U.S."

Ironically, many advocates of drug importation are actually against free trade in other products. Check out the statements of Senator Dorgan regarding beef imports vs. drug imports, which I highlighted in the Spring: Consistent Inconsistency

I am a staunch free-trader, but I believe the risks are simply too high in this case. There is a clear market failure because consumers have no way to know if a pharmacy is sourcing from legitimate sources. How can I (the principal) guarantee that my agent (the pharmacy) is acting in my best interests given that I do not have perfect information about the pharmacy's sourcing behavior? IOW, how do I know that my pharmacy is minimizing my risk of getting a counterfeit product when I pick up my prescription?

|8.6.07 @ 11:53AM|#

There is a clear market failure because consumers have no way to know if a pharmacy is sourcing from legitimate sources.

How can you be sure you are not getting counterfeit product now?

If you trust the manufacturer and you trust your pharmacy -- which you presumably must, or the reimportation issue is a red herring -- then it is frankly trivial for them to track the medicine by individually identified sealed container from manufacturer to pharmacy. The fact that they cross national borders is inconsequential to the issue of authentication of the contents.

Goldthwait|8.6.07 @ 1:42PM|#

"We can't afford to be the medicine cabinet for the U.S."

In response, US drug companies should stop sending drugs to Canada until they eliminate their price controls. Then we will see who is being the medicine cabinet for whom. Or perhaps the Canadian pharmaceutical industry could develop their own drugs. Oh wait...

Adam J. Fein|8.6.07 @ 6:29PM|#

MikeP: I can't be sure right now -- that's what worries me! A lot of progress has been made, so I suggest you stay within traditional channels, i.e., don't buy from an internet pharmacy in "Canada." Read the book Dangerous Doses for a good journalistic look at how the U.S. system broke down in Florida in the late 1990's.

BTW, you should also know that drug wholesalers, retail pharmacies, and pharmacists are all licensed and regulated by individual State boards of pharmacy, not the FDA. (Yes, there are few exceptions, such as drug samples.) Basically, we have 50 different state rules. For example, "pedigree" differs substantially between Florida (implemented in 2006) and California (scheduled for 2009).

So here's another sobering thought: the "safety" and "pedigree" provisions of the importation bills (H.R.380 and S.242) would be a massive power grab from the states to the Federal government. I doubt that many libertarians would welcome such preemption. I'm not a lawyer, but I also presume that a Supreme Court challenge by U.S. States to the importation regulations would follow.

Adam J. Fein|8.6.07 @ 6:38PM|#

One more thing...The AP story cited in the original post was not quite accurate. See my blog for details:

Drug Imports are not here...yet

Adam

|8.6.07 @ 6:51PM|#

Actually, it didn't occur to me to care who was regulating drug wholesalers, pharmacies, or pharmacists or whether that regulation was occurring at the state or federal level. My position relies on the fact that is entirely in the private interest of everyone in the pharmacopeia channel to see that counterfeit drugs are not delivered to the consumer. And while it may be an annoyance to them that they need to start incorporating protections, the mechanisms to guarantee authenticity are not at all difficult.

As you note, I should buy from the likes of Walgreens and not anonymouspharmacyincanada.com.mx. But so long as I am modestly choosy in my pharmacy, I should have little to worry about.

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