September 12, 2000

September 12, 2000 | Commentary on Health Care

The Folly of 'Reimporting' U.S. Drugs

Congress is under tremendous election-year pressure to "do something" about prescription drug prices. Unfortunately, the only solution on which there is widespread bipartisan agreement-allowing U.S.-made drugs to be "reimported" into the United States from foreign countries where prices are lower-is no solution at all. Not only would it fail to lower drug prices, but it would threaten the quality of medicines many Americans depend on.

By lopsided majorities, both houses of Congress voted this summer to allow reimportation, and a congressional committee is now deciding the fate of the legislation. Since drugs tend to be cheaper in places such as Canada and Mexico, where some American seniors who live in bordering states go to buy them, proponents argue that permitting those drugs to re-enter the United States in large quantities will result in lower prices here.

It sounds logical at first. But in reality such a price drop would not occur.
To understand why, put yourself for a moment in the shoes of an American drug manufacturer. You have spent years and hundreds of millions of dollars developing your product, and you are ready to go out and market it. You find that in some countries you must sell your product at a lower price than you do here. Of course, you wouldn't sell it at a loss, but you would accept the fact that your profit margins in some places outside the United States might not be as high.

Because you are selling your product in, say, Mexico or Australia or Italy for less than you do in the United States, you obviously would need to protect yourself from those who might undercut your market here through reimportation. If distributors in foreign countries could get hold of your product, turn around and flood the U.S. market with cheaper prices, your investment would be ruined-and your ability to research and design other drugs severely compromised.

So what would you do? In your licensing agreement with a foreign distributor, you would expressly forbid that company to export your product back into the United States. (Note: Under current law, individual U.S. citizens can go into a foreign country to buy drugs for themselves, although they are limited to a 90-day supply. The issue here is large-scale reimportation, which licensing agreements would forbid but the current legislation would allow.)

If the legislation allowing reimportation becomes law, don't expect U.S.-based drug makers to simply shrug their shoulders and accept the loss. Private industry sources have already said that, in order to minimize the threat of reimportation, they would simply make sure they sell foreign distributors only as much of a particular drug as their countries need (i.e, no surplus). And if certain distributors still exported drugs back to the United States after that, they would stop selling to those distributors altogether.

But let's assume for argument's sake that drug manufacturers are not rational in their pursuit of profits, and that reimportation could bring down prices. Is such a practice safe? Not according to the 11 living former FDA commissioners, who recently told PhRMA, a U.S.-based group representing dozens of the nation's pharmaceutical companies, that reimportation is dangerous for U.S. drug consumers.

"When prescription drugs are presented for importation by anyone other than the original manufacturer, risks increase that the medicines are counterfeit, adulterated or sub-potent," said Dr. Michael Friedman, FDA commissioner from 1997-1998. "This is because no single entity is accountable to determine that the medicines are authentic."

Peter Barton Hutt, a former FDA general counsel, also expressed grave reservations about the safety of reimported drugs, noting that the potential and the incentive for fraudulent record keeping is so great as to practically guarantee a substandard product. The fact is, once a drug leaves the country, what happens to it-from improper handling and storage to disguised expiration dates-is anyone's guess.

It's worth noting, incidentally, as Congress ponders the reimportation legislation, that only uninsured Americans feel the need to go to Canada or Mexico for their prescription drugs. Members of Congress and their staffs don't have to. That's because, as federal employees, they are covered by a system that offers dozens of plans that pay 80 percent to 90 percent of an individual's drug costs.

Whether America's seniors will ever enjoy such gold-plated coverage remains to be seen, but one thing's for sure: Reimportation is a prescription for trouble.

James Frogue is a former health care policy analyst at The Heritage Foundation (www.heritage.org), a Washington-based public policy research institute.

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