No Reimportation
Drug reimportation is a terrible idea. 30 million Canadians cannot supply enough drugs for 300 million Americans. Leaving alone the safety issue (re-imported drugs are not produced under the auspices of the FDA), doing it wouldn’t even save American consumers that much, after all the necessary bureaucracy is put in place. Two excellent articles on this theme, one from Rick Weiss in the Washington Post, and one from Laura Gilcrest at CBS Marktewatch, go into more depth. The more details emerge, the more it looks like generic drugs, US-made, are the way to go.
posted by Money Politic$ at 3:15 PM
46 Comments:
I don't think importing price controls from Canada is the answer to bringing down America's drug costs. Any initiative that squeezes drug companies profits could have the unintended consequence of hindering the incentives to develop new drugs. I would love it if this argument were refocused on two fronts:
1) making the FDA more efficient and thereby less costly for the pharmaceutical companies to get new drugs approved; and
2) putting more pressure on foreign governments that are controlling the prices of drugs in their respective countries to start paying their fair share of the R&D costs of existing drugs. As it stands now, Americans are paying a much higher percentage of the R&D costs for most drugs than the rest of the world, especially more than countries like Canada that do not allow drugs companies to operate in a free market.
These two initiatives would each allow drug companies to reduce the price of their drugs in the U.S. without negatively impacting drug companies' profit margins and without reducing the incentives for drug companies to develop new drugs.
In Canada, there is a $250,000 limit on pain and suffering awards. As a consequence, drugs are cheaper in Canada. In Mexico, it is unheard of to sue the drug companies. As a consequence, drugs are 50% cheaper in Mexico. If Bush’s tort reform bill was passed, it would have a dramatic effect on drug prices.
I suspect that the costs of drugs in Canada will go up as well. Because american drug companies won't give Canada such good deals anymore.
Lawrence, great to have you with us. This is off thread.
Were you offered a position with the Bush economic team?
This is my economic dream team, what do you think?
Arthur Laffer, at the Fed.
Steve Forbes, at Treasury
AND LAWRENCE KUDLOW, director of the entire economic team at the White House.
Mr. Kudlow - I really admire your work. On drug reimportation: if allowed, will it not discourage Canadian (and other nations) price controls? If owners of new drugs withold such drugs from Canada unless they allow market prices, will they not be pressured to allow prices to be free? Prices might be marginally higher in the US in the near term, but the pressure on the Canadian govt would be great.
I guess the argument against this is the pirating or reverse-engineering of the IP (intellectual property) in other nations. If other nations do not enforce our IP rights, there is not a lot we can do.
Great site, Larry!
I wish your site had a way to e-mail you, because I really think you'd enjoy this article on tax fairness:
http://brain-terminal.com/articles/politics/chain-gang.html
He's one of my favorite columnists. I e-mailed him about your blog and it turns out he's a big fan of yours. He posted a link to your site:
http://brain-terminal.com/journal/#a154
---Steve R.
Larry - I agree with your conclusion, but would ask
a follow up question.
Market price is influenced by changes in supply at the margin. Couldn't a small increase in supply (from Canada) affect the price of drugs in the U.S.?
Sad to see such uninformed commentary on this important subject. I sincerely believe that this debate should stay focussed on US policy and it's affect on US pricing.
Rather then mis-characterize the Canadian Drug Distribution system as some kind of evil, government price control system. I think the debate might want to stay focussed on the "free" market system which supposedly sets prices to US consumers.
With a largely Government run and taxpayer funded healthcare system our "buying group" represents a pretty big individual client for the drug companies. Prices are negotiated by a committee representing this buying group, not dictated, and no US company is forced or controlled into participating. It is exactly a free market system in action.
In fact, our government introduced a generous patent protection system for Multi-National drug companies to the detriment of our local original and generic manufacturers after much lobbying by these companies. They asked for this system.
Compare that with a system in which it appears that in return for putting up with the onerous costs imposed on the drug giants for supporting the FDA approval system and the equally outrageous costs associated with living and working in an incredibly litigious society, the drug majors pricing structure is supported and protectd by import restrictions, largely disguised as local doctor prescribing requirements, FDA approval guidelines and labeling restrictions. Government sponsored protectionism is the equal of any "price controls".
It is quite insulting to hear government officials and politicians refer to Canada as a source of unsafe drugs of unknown origin or quality. Instead of scape-goating other countries, it might be useful to call a spade a spade and just admit that high prices in the US for drugs are a direct result of excessive government oversight, excessive awards in frivolous lawsuits and large companies doing what they are supposed to do, charging what the market will bear.
There is much to admire about America, and I personally am an unabashed America fan, fingerpointing to deflect criticism and preclude self analysis is not generally a worthwhile endeavour.
Tom
Unionville, Ontario
Here is an interesting report from the Institute for Policy Innovation and the Beacon Hill Institute. It suggests that reimportation would dramatically reduce the number of drugs put into the market, hurting strong biotech area like Massachusetts.
The Report
I say let's all buy our drugs from Canada. Let us 300 million Americans suck their shelves dry and collapse the Canadian health care system. It would be such a great learning experience -- and am I the only one who thinks that would be hilarious? -Kevin
Shouldn't we let the market take care of this?
If we allow americans to buy drugs from canada that were sold to canadian companies by american companies then won't the american companies stop selling to the canadian companies thus decreasing the available supply of drugs that can be sold to americans?
Also, wouldn't this cause shortages in canada as the middlemen would see higher profits (assuming that when they sold for lower than u.s. prices they were still able to sell for higher than canada pricess) and thus move more of their inventory towards american consumers?
Wouldn't we eventually just end up with a situation were there no drugs for americans to buy from canada?
Perhaps I'm just thinking this way cause I haven't read the NYTimes for so many years .... :-)
I,m sorry maybe i will be accused of being cold hearted for saying this, buti think drug reimportation is justice at last. Yes it does hurt the Canadian people and Canadian budget. On the other hand where was the outcry for the all the U.S. farmers and ranchers when Canda unfairly expported heavily subsidised agricultural products to the U.S.? Finally justice is served for N.A.F.T.A.
Canada put price controls on American drugs. If American drug companies refused to play ball, Canada threatened to declare the American patents null and void. The American drug companies said, "what the hell" and caved in, figuring Canada had a miniscule market anyway.
But now, if these price controlled drugs are shipped back to the US, the whole stinking edifice collapses. It will never happen. The Canadian government is against it as are, of couse, the US drug companies.
But let's just make one thing perfectly clear. The fine citizens of Canada who are buying these cheap drugs which are being extorted from America by the Canadian government, are doing so off the backs of the American consumer. Socialized medicine indeed.
I think it's an excellent idea. We should allow drug imports from Canada. The drug companies aren't stupid. They will not allow Americans to buy cheap drugs through the back door, thus undercutting their profit margins. Instead, they will raise the prices of Canadian drugs to be the same as American prices.
That's a good thing. Why in the world should Americans be subsidizing Canadian socialism????
Can you, Mr. Kudlow or someone on this site recommend a book on economics in the US. For instance how are interest rates raised? How is that decision made? What does gold have to do with it?
I think the PPH is at a good entry point for long-term investors.
Drug reimportation is the free-market solution -- and the ONLY solution.
http://www.cato.org/pub_display.php?pub_id=2305
Most of your posters have missed the point entirely with their thoughts on Drug Reimportation. The problem of high cost drugs in the US will not be solved by FDA approval or tort reform. The problem is that the drugs are astronomically expensive to develop and the U.S. carries the development costs for the rest of the world.
Typically it costs over a billion dollars to produce the first pill sold; subsequent pills may be produced for pennies. The billion dollar cost is spread out over every pill that is sold during the life of the patent on the drug compound. You get what you pay for and if there is no profit for the pharmaceutical company their investors will find better uses for their money.
The Canadian Government limits its drug costs by buying in bulk with the threat of a (low cost) mandatory license of patents that protect the pharmaceutical company’s intellectual property rights if the price is too high. The reason a generic drug is cheaper than a branded drug is because the generics do not invest billions of dollars in research and development. Intellectual property rights (the patent system) were developed to protect and encourage R&D Investments, and benefit each of us.
Another anonymous states: "Rather then [sic] mis-characterize the Canadian Drug Distribution system as some kind of evil, government price control system. I think the debate might want to stay focussed [sic] on the "free" market system which supposedly sets prices to US consumers."
The Canadian Drug Distribution system is not a free market system. It receives cut rate prices by threat of government action. When this happens in the U.S. we call it a 'taking' when it happens in China we call it piracy.
If the people of the United States want to have new drugs available for the cure of everything from viral infections and leukemia to impotence we need to realize that we will pay the development costs. Immense developments are on the horizon and now is not the time to hobble the U.S. pharmaceutical industry.
China is in the process of developing a legal system which respects the intellectual property rights of foreign nationals. Why is it unreasonable to expect Canada and Western Europe to do the same?
I find it very interesting that it's all "OK" for the big corperations do outsourse jobs because of "cheaper labor" etc, but if some americans decide to go get their drugs from Canada because they are cheaper there,..these same companies have a friggin fit, like its' a big damn scandal. Seems to me they cannot take any of their own medicine.
Potential future K&C topic
Now that "Old Russia" holdouts realize they have lost the cold war (thanks to President Reagan's vision and leadership) are they embarking on a new non-military strategy that uses "surrogates" to threaten USA (i.e. Putin's apparent support for Iran's nuclear effort and eventual benefit for radical islamic terrorists) ???
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