Beginning of the End of Drug Re-Importation

Could this be the beginning of the end of the debate over drug re-importation (search )?

Advocates of the practice argue that American consumers, particularly seniors, could benefit from legal re-importation of prescription drugs from abroad, which in some instances are sold at lower prices than in the United States. Opponents contend these lower prices result from price controls and that allowing price controls into one of the world’s few remaining free markets for pharmaceuticals would deter investment in developing new drugs.

To date, there’s been an impasse. Re-importation is technically illegal, though many Americans buy prescription drugs from Canada and other countries. Their savings have made re-importation a rallying issue for some groups, especially senior groups who argue that the lack of an “adequate” drug benefit in Medicare has forced many seniors to look elsewhere for their medications.

But are the tides already changing? The Associated Press reports that Americans buying drugs from abroad aren’t saving what they used to. The average price of drugs purchased in Canada rose 23 percent over the past year and a half, compared to an increase of only 8 percent at U.S. pharmacies.

One small part of the problem is the weakening U.S. dollar. Also, it turns out the land of the Maple Leaf is subject to market forces, too. “Higher acquisition costs” are wrecking Canadian pharmacies’ margins, and many have responded by raising prices for foreign buyers or curtailing sales abroad altogether.

While American drug companies cannot determine what their drugs will sell for in Canada, they can control the amount of drugs they ship across the border. Many have chosen to send less to reduce available surplus that could be diverted to U.S. consumers. Fewer surplus drugs in Canada means Internet pharmacies -- major international sellers -- have to purchase drugs from bricks-and-mortar pharmacies, at prices well above wholesale, or re-import drug supplies from other countries, further increasing their costs and exposing U.S. consumers to safety risks.

Already, according to recent reports, Canadian health officials have begun to take steps to protect supplies north of the border.

Furthermore, the recent Health and Human Services Task Force on Drug Importation (search ) revealed that not only would savings from legalization be dwarfed by the costs of implementing a safe comprehensive re-importation program but also that bargains are available at home for those who shop around and substitute generics when possible.

So how does this affect the future of re-importation? Economists, both liberal and conservative, agree that, under re-importation, prices inevitably will rise abroad until they are at or near prices here, which would eliminate any advantage for Americans to shop elsewhere for their drugs.

International trade still could lead the way to cheaper drugs, according to a recent Commerce Department study on pharmaceutical price controls. The study shows that price controls in other countries raise drug prices in the U.S. and also retard future drug development. In other words, when other countries shirk their duty to pay for new drugs, U.S consumers end up bearing the burden.

That analysis points the way to better policy. Instead of banking on re-importation, which would produce only short-lived gains and offer a backhanded endorsement of price controls to boot, the U.S. should work to encourage a more competitive international market, where countries pay their fair share and relieve U.S. consumers of the heavy load of paying for the whole world’s drug development needs.

Countries such as France, Germany, and Switzerland -- all of which currently regulate pharmaceutical prices -- certainly can afford to start paying some of those research costs.

The reality is that re-importation is not the silver bullet many believe it to be. And it shouldn’t be the last word in the debate over how the U.S. can use trade policy to lower the cost of prescription drugs.

Nina Owcharenko is senior health policy analyst in the Center for Health Policy Studies at The Heritage Foundation, where Andrew Grossman is an editor.