Drug Innovation Lives

The Washington Times


Facing the November election, a bipartisan Congress in October passed a bad bill establishing a highly questionable drug-import scheme that ostensibly dealt with the “crisis” of high prescription-drug prices. President Clinton was only too happy to sign the legislation Oct. 28.

What appeared to be a dubious claim in October was confirmed as such this week. On Tuesday, Secretary of Health and Human Services Donna Shalala, who was required by the law to demonstrate to Congress that the import scheme was both safe and cost-effective before it was to be implemented, informed President Clinton that the scheme could satisfy neither of those two goals. Miss Shalala’s welcome assessment effectively killed the program for now.

That’s good news because the only “equity” the so-called Medicine Equity and Drug Safety Act was likely to provide in the pharmaceutical market was a significant reduction in drug innovation. According to several former Food and Drug Administration commissioners appointed by both Republican and Democratic presidents, the bill would have also created significant safety risks.

In reality, the much-ballyhooed legislation was little more than a back door effort to establish price controls in the U.S. pharmaceutical industry. Currently, the United States, unlike Canada, is one of a few countries that does not impose draconian price controls on prescription drugs. With great fanfare, many congressmen in northern border states have recently been accompanying busloads of senior citizens to Canada in order to purchase lower-priced prescription drugs, many of which, but by no means all, typically sell for 30 to 50 percent below U.S. prices.

The bipartisan legislation passed last year would have permitted drug wholesalers and pharmacists to reimport from foreign nations drugs that were manufactured in the United States and exported. Because of price controls and other restrictions, U.S.-made drugs are frequently sold in other nations at prices significantly below prices charged by U.S. manufacturers in their home market. To those unschooled in basic economics ? most notably Vice President Al Gore and the class-warfare associates in his party ? such price differences ipso facto proved “price gouging” by U.S. drug makers. In fact, foreign governments that impose price controls on U.S.-made drugs are classic “free riders.” U.S. manufacturers are willing to sell their products to foreign nations at such reduced prices because they still exceed the marginal cost of production and, hence, help to defray the massive research and development costs that are incurred. But the miracle drugs would never have been developed in the United States if U.S. pharmaceutical companies were unable to finance the bulk of the research and development costs to which foreign sales contribute such a minuscule amount.

Importing Canada’s price controls would have been disastrous to the long-term health of U.S. consumers and, ironically, the free-riding Canadians as well. The incoming Bush administration presumably understands this basic economic fact of life. Indeed, it would be far better to subsidize the elderly poor who are unable to pay for their life-enhancing and lifesaving prescription drugs than to destroy the industry responsible for developing those miracle drugs, which would then be unavailable to anyone, including Canadians, at any price.

Grace-Marie Arnett is president of the Galen Institute, a health policy research organization based in Alexandria, VA. Readers may write her at galen@galen.org, or P.O. Box 19080, Alexandria, VA, 22320.


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