Wednesday, February 23, 2005

Importing Medicines from Canada

Of course it sounds good and many organizations such as AARP (see AARP) are suporting such a policy but does it make economic sense? If a drug manufactured for sale in the US is twice the cost of the same drug (same pill, same safety standards) made for sale elsewhere (eg. Canada) why not allow American consumers to have it shipped here?

Because drug companies like all businesses tailor their pricing structures to the markets. It's called the free market. Think that delicious Big Mac costs the same in downtown Manhattan as in Tijuana, Mexico? No because MacDonald's bases its pricing on what the local market will bear. Same with the drug companies. I'm sure however, that MacDonald's isn't worried about New Yorkers importing their burgers from Mexico but Pfizer is sure worried about you buying Lipitor from Canada at their local prices.

Now you might ask, shouldn't the free market allow the consumer to buy their medications from anyone that will sell them? My response is yes and no. The free market isn't absolute and governments do put breaks upon it in certain circumstances. If I want to manufacture and sell "John's Lipitor Knock-off" in my garage, as a society, most of us wouldn't have too many objections to the feds stopping me. The public's safety is an overiding concern.

If the public could freely buy American-made medications from outside the country, our standards of purity, safety, etc. cannot be guaranteed. If a Canadian pharmacy switched things around, our government could do nothing to stop it or prosecute it. This may appear "protectionist" but clearly there is an American public interest as our standards (for better or worse) are higher than just about anywhere in the world.

That is not to say that those are the underlying motivations for the opposition American drug companies have voiced against free importation of such drugs. They don't want us buying Viagra at a dramatic discount by mail from other countries when they could be required to buy it in the U.S. at American prices. And why limit imports to Canada? Why not allow your favorite anti-AIDS drug to be imported from Somalia where I'm sure it's much cheaper even than in Canada (although Somalia's standards may be far worse than Canada's)?

Again, the pharmaceutical industry, while voicing these arguments can be assumed to have a "hidden" agenda, ie. a cut in profit margin. But consider other consequences of allow free importation from a country such as Canada:
  • Since the U.S. market is so much larger than Canada's, American companies may very well say fine, we just won't offer our meds to Canada (or anywhere in the third world for that matter).
  • Companies might artificially limit exports to Canada in an attempt to squeeze them into restricting sales to Canadian residents.
  • Companies might boost the price in the U.S. to make up for the lost revenue thus penalizing in-country purchasers.
The point I'm making is that changing the law to permit previously illegal importation of medicines from Canada may not yield the expected economic benefit and may make things MORE expensive for most American drug consumers. In addition, such changes would limit our ability to scrutinize issues of unsafe, impure or counterfeit medications.

The argument can certainly be made that if we truly have faith in a free market, than free market forces should be allowed to exert themselves and sort things out. All I'm saying is that the results may not be what you wish for.

9 Comments:

Anonymous Anonymous said...

Very interesting. I sincerely hope you stay active as I will be a regular....Would like to know if you have any opinion as to the over prescribing, underprescribing or just right prescriping of pills given by all Doctors in this age....Tks...

February 23, 2005 7:07 PM  
Blogger Henry Stern, LUTCF said...

I'd like to echo anon's sentiments: it's refreshing to find a kindred spirit vis-a-vis our health care delivery system.

I come at it from a different viewpoint: as an independent insurance agent who specializes in medical coverage, my perspective is an interface between the provider, the consumer, and the 3rd party payor (insurer).

IMHO, the most important part of this post is the law of unintended consequences:

the reason that pharm co's are able to sell "below market" in Canada is because the gummint subsidizes them. But these prices are geared for a Canadian market which is MUCH smaller than ours. When we start buying up those cheap Canadian drugs, Ontario (or Toronto, whichever) loses money. Why would the Canadian gummint want to subsidize Joe Shmo from Kokomo? I think we know the answer...

February 23, 2005 7:58 PM  
Blogger W. said...

Checked your blog on the advice of Hugh Hewitt. Good job. Will be back soon. Mine is www.eagleandelephant.blogspot.com.

February 24, 2005 12:09 AM  
Blogger MaoBi said...

Fighting re-importation on the basis of quality is a red herring. Are you saying that the Canadian government would give its people less safe things? Are you further saying that the US FDA has the most stringent quality standards when it comes to enforcement of pharmaceutical products? Of all kinds? These would have to be your assumptions to defend your argument.

I think the more fair argument is that the liberal socialist(then again you live in California...heh) government artifically allows the national price of drugs to be lowered by allowing cartelling against the drug companies.

Let's take your big mac analogy. Assume it cost a gazillion dollars in R&D to develop a Big Mac. In fact, worse still, assume it took you a thousand different big macs before you found one you could sell. Then assume you only had X number of years to sell that big mac before everyone could rip it off. Thats the problem big pharma has.

So what it does now is it take more money from US patients (whos health insurance covers it, who then pay more health insurance premiums, who then lead to crap like HMOs) so that folks like us who live outside the US and have national health care cartels can buy those drugs for cheaper.

A good way of looking at it is that the first pill costs a gazillion dollars and every next pill costs maybe a quarter to make. If I can recover my gazillion dollars from the US market I make money even if I sell the pill for 50 cents in Canada/Somalia/Pakistan.

So the world's thanks all suckers in America who pay more for drugs. It also thanks all doctors who prescribe new drugs to their patients int he hope that it helps them. It also thanks all the trial lawyers who put the fear of god into doctors who can face malpractice for not prescribing. It thanks all the insurance companies for selling insurance so that the doctors can continue to be useful idiots and it thanks all patients who then have to pay exorbitant costs passed on to them.

Once again America, the world owes you a debt even if it is you who winds up with a national debt as a result :)

February 24, 2005 2:53 AM  
Blogger Phil Marrow said...

Thanks to Hugh Hewitt for your blog. Pfizer has a division in Mexico which produces drugs like piroxicam and helps to keep it at a fraction of the cost which we for it. Their problem has not been purity, but quality management. Some of the batches may be 100% active ingredient (an exaggeration) and another all inactive (not an exaggeration). The medication is the same formula as in the US and the FDA has seen a purity problem, however. Your economics doesn't hold true with all products. For instance, the cars that are produced in Mexico (GM, Ford, VW, etc.) are mostly found to be more expensive. One of the reasons that Mexicans flock to the border towns is to buy goods that are cheaper (and better quality).
The trade off for health care providers who are 20 years or more out of medical school is that the experience (positive and negative) is invaluable. Mentoring with an older partner cannot be over emphasized as a method from which each can learn. The older provider can be introduced to more evidence based medicine and the younger can glean some of the wisdom of his mentor. Thank you for your thoughts and willingness to share with us. P. Marrow

February 24, 2005 8:04 AM  
Blogger Phil Marrow said...

Thanks to Hugh Hewitt for your blog. Pfizer has a division in Mexico which produces drugs like piroxicam and helps to keep it at a fraction of the cost which we for it. Their problem has not been purity, but quality management. Some of the batches may be 100% active ingredient (an exaggeration) and another all inactive (not an exaggeration). The medication is the same formula as in the US and the FDA has seen a purity problem, however. Your economics doesn't hold true with all products. For instance, the cars that are produced in Mexico (GM, Ford, VW, etc.) are mostly found to be more expensive. One of the reasons that Mexicans flock to the border towns is to buy goods that are cheaper (and better quality).
The trade off for health care providers who are 20 years or more out of medical school is that the experience (positive and negative) is invaluable. Mentoring with an older partner cannot be over emphasized as a method from which each can learn. The older provider can be introduced to more evidence based medicine and the younger can glean some of the wisdom of his mentor. Thank you for your thoughts and willingness to share with us. P. Marrow

February 24, 2005 8:04 AM  
Blogger viacalx said...

I haven't seen discussion in the MSM or blogs regarding the clouding of liability due to importation or re-importation. Can a user successfully sue Pfizer (et.al.) when the drug in question came from outside the American system?

Seems a reasonable defense for a drug company to ask that the plaintiff prove the drug in question was supplied entirely from within the U.S. system, or demonstrate what percentage of the drug was provided from within the U.S. system to allocate damages? Given the differing controls outside the U.S., wouldn't it seem reasonable to throw out entirely a case where total U.S. sourcing couldn't be proven, since ALL the harm may have originated with the imported drugs?

I'm suprised the trial lawyers haven't weighed in on this one yet.

February 24, 2005 8:35 AM  
Blogger SWBarns said...

The only reason that drugs in Canada are cheaper than in the United States is the U.S. carries the development costs for the rest of the world. Canadians and Western Europeans are ‘free riders’ on the USA’s R&D investment.

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.

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?

February 24, 2005 8:59 AM  
Blogger Foster said...

You make some good points, but not in regards to the prices of drugs reflecting what the markets will bare. I don't think that there is a big difference between Chicago and Toronto's economies and cost of living, and that big mac's probably sell for similar amounts in both cities, but branded drugs do not. Maybe in a sense you are correct in the prices are what the market will bare, but not due to free markets, but due to government's interference in free markets. I agree that if we import drugs from Canada, that might not lead to lower prices here in the long term, but instead lead them to prevent the export of drugs or be forced to pay higher prices. But I do think that it is unfair that Canadians have devised a system to not pay their share of the development costs of these new medicines, and I do believe that is what is going on here. I am in favor of importing drugs from there not because I think that will lead to lower prices here, but because I think will end their free ride. After that, then maybe we should do the same with countries in Europe that probably have similar price controls as Canada does. But if the goal is for lower drug prices, I agree that none of this will probably work - what we need is to get back to patient's paying for their drugs instead of the government and insurance companies, and that will create price pressure when drugs will have to compete against alternative drugs on price vs. their benefits, which would be a true free market system.

February 26, 2005 6:07 PM  

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