False Solution: Why Drugs from Canada Won't Cut Prices

By Calfee, John | Consumers' Research Magazine, November 2002 | Go to article overview

False Solution: Why Drugs from Canada Won't Cut Prices


Calfee, John, Consumers' Research Magazine


Drug prices are often cheaper in Canada, sometimes quite a bit cheaper. That is partly because Canadians are poorer, which is one reason why they also pay less for automobiles and computer software. But Canada also controls the prices of pharmaceuticals. That inspired Congress to pass a law in 2000 permitting drugs from American manufacturers to be reimported back to the U.S. from Canada at Canadian prices. That law never went into effect because the Department of Health and Human Services could not certify that mass reimportation would reduce costs without compromising safety. The FDA, which is part of HHS, said it would not be able to assure that reimported drugs would meet U.S. safety and labeling standards--or any other nation's standards, for that matter.

Earlier this year, the U.S. Senate passed another drug reimportation bill with even less safety protection, but the House of Representatives declined to go along. Reimportation is still an issue and a new bill will probably be introduced in 2003. In the meantime, AARP, along with some managed-care organizations and large pharmacies, have said they will tolerate or even encourage consumers to purchase drugs from Canada.

Consumers should understand how reimportation would work if it were actually put in place, because it would be a classic example of unintended consequences. In the short run, reimportation would do almost the opposite of what its supporters expect. In the long run, reimportation could curtail the very research success that has made our pharmaceuticals the envy of the world.

There are two ways to import Canadian price controls. One is simply to require manufacturers to sell their medicines in the United States at the lower Canadian price. Most politicians do not support the idea of letting another nation dictate what prices our manufacturers can charge, however. Congress has pursued a second approach, which is to permit large-scale reimportation of drugs from Canada at Canadian prices. (This would require undoing a consumer protection law passed in 1987 to prohibit reimportation of drugs from Canada and elsewhere.) Either way, the idea is to get U.S. prices down to Canada's prices.

These plans raise four very big problems. First, drug safety could be seriously compromised, unless inordinate amounts are spent on monitoring drug imports. Second, U.S. prices would not drop to anything close to Canadian levels. Rather, Canadian prices would increase almost to U.S. levels. Hence reimportation would fail to achieve its primary goal, but it would have the side effect of upsetting our Canadian neighbors, whose health care system is perpetually in fiscal crisis. Third, frustrated congressional advocates of lower drug prices would look beyond Canada to other price-controlled nations, threatening to link our prices to theirs and triggering the same dynamics that raised Canadian prices and health care costs.

That in turn could easily lead to attempts to bring the U.S. health care system closer to European and Canadian systems--and their pervasive controls over drug prices. Finally, the specter of price controls would descend upon the U.S. pharmaceutical research enterprise, blunting incentives to spend the billions of dollars necessary to solve such tough problems as preventing Alzheimer's and curing cancer.

Safety. The most obvious problem with mass drug reimportation is safety. The FDA flatly says it cannot guarantee the safety of products whose precise origins and manufacturing facilities cannot be determined. Canada has a very competent drug authority, of course, along with responsible wholesalers, pharmacies, and health care providers, which is why drugs are safe in Canada. But if reimportation does what its supporters want it to do, the quantity of drugs moving through Canada will increase massively, by a factor of two or much more, because the U.S. population is nearly 10 times that of Canada. Canada has made clear that it will not monitor the huge shipments headed back to the United States, nor can it stop the movement through Canada of large quantities of drugs from other nations. …

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