This article appeared on the site IntellectualConservative.com.
This week the Senate, following an earlier vote by the House, stands on the verge of passing legislation that will legalize and promote the importation of cheap prescription drugs from countries like Canada. Many Americans will rejoice, seeing this as a victory for the little consumer over Big Pharma. Unfortunately, however, the green light for drug importing will prove in the long run 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. U.S. pharmaceutical companies are required under a 1994 international treaty to sell their drugs at drastically cut prices to comply with an importing country's price controls. Any company that fails to comply 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 in this "deal" 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, and thus avoid having the excess resold to the U.S. at cut-rate prices. 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.
To envision the absurdity (and probable unconstitutionality) of this, imagine a parallel proposal requiring General Motors to sell an unlimited number of autos at deeply discounted prices to Canadians, who in turn sell them back to us at below-market price.
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 legislation is the introduction of pharmaceutical price controls into the U.S. Pharmaceutical companies in countries with price controls have no incentive to research and develop new drugs. With price controls -- by means of importation -- in the U.S., the outcome will be no different. The question of whether to institute price controls in the United States -- 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.
