of the Medicare Modernization Act of 2003, some policymakers
continue to advocate for the importation of prescription drugs into
the United States. They argue that Americans, especially seniors
without prescription drug coverage, need access to more affordable
prescription drugs-seemingly ignoring the current Medicare discount
card program and the upcoming 2006 prescription drug benefit.
Prescription Drug Discount Card program, a temporary discount card
put in place by the Medicare bill, has already proven to save
participating seniors-especially lower-income seniors who are also
eligible for subsidies-between 50 percent and 78 percent. With such significant
savings already reaching seniors, policymakers supporting drug
importation should pause and consider its consequences.
While an open,
worldwide market for drugs would have long-term economic and other
benefits, it would require wrenching policy changes in many
countries and far higher prices in many poorer countries. The issue
in the current debate, however, is whether drug importation would
be the "quick fix" for the United States that its advocates claim,
even without the necessary changes needed in other counties.
Proponents claim numerous effects that would occur as a result of
importation. But when their claims are explored further, in the
context of current international arrangements, they turn out to be
more myth than reality.
Myth #1: Importation
will lead to lower prices in the United States.
Reality: Economists, both liberal and conservative,
agree that drug prices will not drop in the United States as much
as they will rise abroad. The Congressional Budget Office concluded
that allowing importation would reduce prescription drug spending
by only about 1 percent and that importation from Canada would
result in a "negligible reduction in drug spending." Even if importation
were to lead to lower-priced drugs, the real winners might not be
consumers; wholesalers could buy drugs at lower prices but would
not necessarily pass those savings on to their customers.
Myth #2: Importation
will force other countries to pay their "fair" share.
Reality: Forcing other countries to pay higher
prices does not mean that prices in the United States will drop.
According to economist Robert Helms of the American Enterprise
Institute, the segmented marketplace in pharmaceuticals allows
manufacturers to sell their products to different consumers at
Therefore, a price increase
abroad would not necessarily cause a price drop in the United
States. Producers would lower their U.S. prices only if market
conditions in the United States forced them to do so.
differences in drug prices between the United States and other
countries are complex and not always so one-sided as importation
proponents imply. To accurately assess drug prices in the United
States and abroad, comparisons should not focus on a few select
drugs, but the broadest range of options, including generic
medications. Several studies do include such comparisons.
Interestingly, these studies found that generics tend to cost less
in the United States than they do in Canada and many other
Finally, this does
not mean that foreign countries should not be encouraged to
liberalize their markets. In a recent publication by the Institute
for Policy Innovation, Merrill Matthews substantiates former Food
and Drug Administration Commissioner Mark McClellan's argument that
other countries are not paying their fair share for pharmaceutical
research and development. The best way for foreign countries to pay
their fair share, concludes Matthews, is for those countries to
"relax their price controls and let the prices rise." The Medicare
Modernization Act includes provisions asking the Administration "to
conduct a study and report on drug pricing practices of
countries…and whether those practices utilize non-tariff
barriers with respect to trade in pharmaceuticals" and develop
strategies to address price controls in trade negotiations. Such discussions can be
an effective and positive approach to persuading these countries to
change their practices.
Myth #3: Importation
is free trade.
Reality:Under genuine free trade, buyers and sellers
negotiate to find a mutually agreeable price to buy and sell a
product. If an agreeable price is not reached, a seller has the
right to withdraw the sale and still have the confidence that their
property rights will be protected-that is, that a buyer will not
steal the seller's product if he doesn't like the price.
Unfortunately, the United States is one of the only countries left
with a free market for prescription drugs.
In Canada, for
example, pharmaceutical companies wanting to launch a product must
first receive authorization from the Patented Medicine Prices
Review Board (PMPRB), a quasi-judicial body that determines the
maximum price that can be charged for a patented drug. While the
PMPRB does not directly purchase drugs, it does influence the price
at which they can be sold. According to the PMPRB, one of its
primary roles is "to ensure that the prices charged by
manufacturers of patented medicines in Canada are not excessive." Other countries use
different techniques to affect price and access to prescription
drugs. By advocating for prescription drug importation,
policymakers are indirectly promoting the importation of price
controls into the United States.
It is true, of
course, that in principle allowing imports from countries with
price controls or subsidies would nudge the world towards freer
trade. But while that may be theoretically accurate, the leading
bipartisan proposal, S. 2328, introduced by Senator Byron Dorgan
(D-ND) and others, includes a section entitled "Restraint of Trade
Regarding Prescription Drugs." Among other things,
this section would make it unlawful for a pharmaceutical
manufacturer to charge different buyers different prices for a
drug, to deny the sale of a drug to a buyer, or to limit the supply
of a drug to a buyer. Such policies would not create a "freer"
market for pharmaceuticals, but would regulate the market even
Myth #4: Importation
Reality: The Food and Drug Administration (FDA) has
been vocal in its concern over the safety of imported drugs. The
FDA regulates the domestic market for pharmaceuticals, but not
foreign markets, and has stated on numerous occasions that it
cannot guarantee the safety of drugs obtained from foreign
Even without the legalization of prescription drug importation, the
FDA battles to keep counterfeit drugs out of the United States.
According to FDA Associate Commissioner for Policy and Planning
William Hubbard, "FDA has seen its number of counterfeit drug
investigations increase four-fold since the late 1990s."
A review conducted
by Giuliani Partners at the John F. Kennedy Airport Mail Facility
found that of approximately 40,000 packages per day suspected to
contain drugs, only about 500 to 700 are inspected. The drugs in
those inspected packages came from around the world, and many were
not FDA-approved. Some, for example, were past their expiration
dates or inappropriately packaged. Counterfeiting
pharmaceuticals is very profitable. Therefore, counterfeiters will
look for new opportunities to exploit the delivery system,
exacerbating the dangers and the current safety problems. The
Giuliani study concluded, "The limitations of our system should be
addressed before it is opened to whole importation."
government has also clarified its position: it says that Canada
cannot be responsible for the safety of products exported to U.S.
While Canada regulates its domestic supply, it does not regulate
exported drugs. Moreover, many "Canadian pharmacies" on the
Internet require customers to sign a waiver absolving the
pharmacies of any liability. States and local municipalities that
promote importation to their citizens or employees also disclaim
any responsibility for safety.
Myth #5: Importation
won't hurt research and development.
Reality: If importation forces prescription drug
prices to the lowest regulated price or if it forces prices abroad
to rise to levels that spur some governments to exploit
intellectual property rights, there could be a downward spiral of
pharmaceutical research and development. Future drug treatments and
cures-whether for diabetes, cancer, Alzheimer's, or any other
medical condition-would be at risk.
Some proponents of
importation argue that such fears are overblown because the
government, through its funding of the National Institutes of
Health (NIH), spends heavily on the research and development of
pharmaceuticals. While the NIH does conduct important research, a
2001 report from the NIH to Congress found that of 47 "blockbuster"
drugs, NIH funding was involved in the development of only four and
that much of that activity was through grants to universities.
segmented market structure for pharmaceuticals, while not
economically perfect, does give poorer countries access to modern
medicines while ensuring that research on new drugs continues
apace. Policymakers should hesitate to disrupt this balance by
allowing importation without addressing its domestic and
international consequences. For example, some countries may decide
to restrict the sale of prescription drugs to domestic consumption
only, while others, if prices were to rise, might even decide to
circumvent the existing intellectual property rights of the
manufacturers, undermining the incentive to invest in future
research and development.
The best way to
address the cost of prescription drugs in the United States is by
providing access to discounts and helping individuals obtain health
care coverage that integrates prescription drug coverage. Such a
policy relies on the private sector and the free market instead of
relying on a government to set prices. Besides the Medicare
discount card, other efforts are underway to reach those who lack
prescription drug coverage. Pfizer, for example, recently launched
a new initiative to extend discounts on Pfizer medicines to the
should resist "quick fix" policies that may sound logical but are
dangerous and potentially counterproductive. In the end, if
importation is approved but constituents do not see significant
price reductions, some policymakers will quickly respond by calling
for government-negotiated prices or directly advocating for price
controls on prescription drugs in the United States, moving the
United States one step closer to socializing the American health
Owcharenko is Senior Policy Analyst in the Center for Health Policy
Studies at The Heritage Foundation.