October 5, 2004
If you listen to drug companies like Pfizer or Merck or to Bush administration health policy officials like Tommy Thompson or Mark McClellan or to congressional leaders like Bill Frist, you will hear that it is absolutely necessary to ban drug imports from Canada in order to protect Americans from adulterated or poisoned medicines.
They are lying.
Tony Pugh of Knight Ridder Newspapers asked the Food and Drug Administration for examples of Americans who had been harmed by pharmaceuticals imported from Canada. "I can't think of one thing off the top of my head where somebody died or somebody got put in the hospital because of these medications. I just don't know if there's anything like that," Tom McGinnis, the FDA's director of pharmacy affairs, told him.
Health Canada reported that it "does not have any information that would indicate that any Americans have become ill or have died as a result of taking prescription medications purchased from Canada." Even Peter Rost, Pfizer's vice president for marketing, says he is tired of hearing colleagues say drug imports from Canada are unsafe: "The safety issue is a made-up story," he said.
On the other hand, there is a potentially more compelling argument for stopping drug imports from Canada. It runs like this: Drugs are expensive to develop, but once developed they are cheap to manufacture. As long as you have one market where you can sell the drug at a high price and recoup the development costs, it makes economic sense to develop it. And then it makes sense to sell it everywhere - even in markets where its price will be low. Canada caps the prices of drugs so that drug companies cannot recapture their development costs by selling to Canadians. If we let U.S. consumers buy at the capped Canada price, they will. Drug companies will no longer be able to cover their development costs by selling at high prices in the U.S. market. Instead, they will either stop developing new drugs - which would be bad - or they'll raise prices for everyone, which would make drugs unaffordable in many countries and cancel the benefit of importation for Americans.
How strong is this argument? How much of what drug companies claim as "development" costs are really marketing costs? If we allow competition from price-capped Canadian pharmacies, would it in fact reduce U.S. prices enough to seriously degrade the returns to drug research and development, and markedly slow the pace of drug development and innovation? Or would allowing drug imports from Canada simply add some competitive pressure to the drug market so that more Americans would get the medicines they need more cheaply?
These are all good questions.
In addition to cheaper drugs, supporters of drug importation see other benefits in the short run. They see it as a way of starting an international government-to-government process of bargaining over who is going to bear the large fixed costs of drug development. At the moment the U.S. - which gives drug companies generous monopoly intellectual property rights - pays the lion's share through high drug prices, while Canada and Europe - which control drug prices - pay little. I can't think of a reason the U.S. should bear that disproportionate share.
And supporters see drug importation as a way of curbing the political power of the drug industry. Whether you look at the provisions of the U.S.-Australia free-trade treaty, at last year's Medicare drug bill or at the FDA's phony claims that Canadian drugs are unsafe, it is hard to argue that public policy during the Bush administration has been insufficiently solicitous of pharmaceutical companies and insufficiently concerned with boosting their profits.
What are the answers to all of these questions?
I don't know for sure. The data needed for full and proper analyses are locked up inside the drug companies, and they don't like to share.
But the fact that opponents of drug importation are using the fake argument that Canadian drugs are unsafe - and that they are not using the (maybe true) argument that importation could undermine incentives for drug development - does tell us a great deal about the strength of the anti-importation arguments.