Prescription drug importation could be destructive

Published in the South Florida Sun-Sentinel on April 29, 2008

As the presidential primary campaigns grind on, Sens. Hillary Clinton and Barack Obama always find something to exchange blows over. And even though he's enjoying the Democrats' intra-party fight, Sen. John McCain manages to disagree with both of them almost daily.

But on drug importation, all the candidates agree. Democratic presidential contenders Hillary Clinton and Barack Obama and presumptive Republican nominee John McCain have promised that if elected they would allow the importation of prescription drugs from an array of foreign countries that use price controls to keep costs down.

With support like that, drug importation must be a good idea — right?

Not really. When you look at the details, it becomes clear that the plan would impose price controls on the U.S. drug market through the back door — with all the destructive consequences that come with such policies.

Fortunately, under our current system, American companies aren't required to do business with foreign governments that impose price controls on drugs. If France suddenly demanded 10 million Viagra tablets at a bargain-basement price, Pfizer could tell Monsieur Sarkozy to take un hike.

But under the latest piece of drug importation legislation that's snaking its way through Congress, U.S. companies couldn't walk away. The bill contains a "forced-sale" provision that would require U.S. drug manufacturers to sell their wares to foreign distributors in whatever quantity the firm demands and at whatever price the foreign government imposes, even if the distributor plans to export them back to America.

In other words, foreign governments and firms would be allowed to tell U.S. businesses what to sell, how much to sell, and at what price. If a U.S. company balked, it would face punishment in U.S. courts.

The bill's supporters claim that the forced-sale provision simply assures "free trade" in drugs, but it's nothing of the sort. Free trade can exist only between willing buyers and sellers. If a government sets the price and terms, the transaction is no longer "free."

No individual would accede to these sorts of stipulations when selling a home or a car, and no business should have to either. Forced sale undermines the most basic principles of our economy.

And the savings would be negligible, since an army of middle-men would enter the picture.

A London School of Economics study shows that similar systems already in place in Europe have resulted in almost no consumer savings. Instead, it's the middlemen who derive most of the benefit, buying low and selling back to consumers at a high price.

Should Congress really be fighting to make foreign middlemen richer?

Further, a report by the nonpartisan Congressional Budget Office estimated that drug importation would reduce costs by a mere 1 percent.

Meanwhile, the long-term costs of importation would be devastating. John Vernon of the AEI-Brookings Joint Center recently warned that, over time, importation would cost approximately 79 million life years, one million lives, or about $8 trillion.

That's a terrible price to pay for a 1 percent drop in drug prices.

At the same time, U.S. pharmaceutical research — the source of most medical innovation worldwide — would be decimated. One study concluded that importation would decrease investments into research and development by as much as 35 percent.

By forcing drug manufacturers to sell at artificially low prices, importation would hobble the capacity of America's peerless pharmaceutical researchers to create the next life-saving miracle cure.

Supporters of the idea disingenuously claim that it promotes "competition." It's instead a battle that U.S. businesses cannot win, and in which the American people — all of whom rely on the benefits of the medicines created in this country — most surely lose.

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market solutions to health reform. She can be reached at turner@galen.org.

SHARE THIS ARTICLE

About the author

Published in the South Florida Sun-Sentinel on April 29, 2008

As the presidential primary campaigns grind on, Sens. Hillary Clinton and Barack Obama always find something to exchange blows over. And even though he's enjoying the Democrats' intra-party fight, Sen. John McCain manages to disagree with both of them almost daily.

But on drug importation, all the candidates agree. Democratic presidential contenders Hillary Clinton and Barack Obama and presumptive Republican nominee John McCain have promised that if elected they would allow the importation of prescription drugs from an array of foreign countries that use price controls to keep costs down.

With support like that, drug importation must be a good idea — right?

Not really. When you look at the details, it becomes clear that the plan would impose price controls on the U.S. drug market through the back door — with all the destructive consequences that come with such policies.

Fortunately, under our current system, American companies aren't required to do business with foreign governments that impose price controls on drugs. If France suddenly demanded 10 million Viagra tablets at a bargain-basement price, Pfizer could tell Monsieur Sarkozy to take un hike.

But under the latest piece of drug importation legislation that's snaking its way through Congress, U.S. companies couldn't walk away. The bill contains a "forced-sale" provision that would require U.S. drug manufacturers to sell their wares to foreign distributors in whatever quantity the firm demands and at whatever price the foreign government imposes, even if the distributor plans to export them back to America.

In other words, foreign governments and firms would be allowed to tell U.S. businesses what to sell, how much to sell, and at what price. If a U.S. company balked, it would face punishment in U.S. courts.

The bill's supporters claim that the forced-sale provision simply assures "free trade" in drugs, but it's nothing of the sort. Free trade can exist only between willing buyers and sellers. If a government sets the price and terms, the transaction is no longer "free."

No individual would accede to these sorts of stipulations when selling a home or a car, and no business should have to either. Forced sale undermines the most basic principles of our economy.

And the savings would be negligible, since an army of middle-men would enter the picture.

A London School of Economics study shows that similar systems already in place in Europe have resulted in almost no consumer savings. Instead, it's the middlemen who derive most of the benefit, buying low and selling back to consumers at a high price.

Should Congress really be fighting to make foreign middlemen richer?

Further, a report by the nonpartisan Congressional Budget Office estimated that drug importation would reduce costs by a mere 1 percent.

Meanwhile, the long-term costs of importation would be devastating. John Vernon of the AEI-Brookings Joint Center recently warned that, over time, importation would cost approximately 79 million life years, one million lives, or about $8 trillion.

That's a terrible price to pay for a 1 percent drop in drug prices.

At the same time, U.S. pharmaceutical research — the source of most medical innovation worldwide — would be decimated. One study concluded that importation would decrease investments into research and development by as much as 35 percent.

By forcing drug manufacturers to sell at artificially low prices, importation would hobble the capacity of America's peerless pharmaceutical researchers to create the next life-saving miracle cure.

Supporters of the idea disingenuously claim that it promotes "competition." It's instead a battle that U.S. businesses cannot win, and in which the American people — all of whom rely on the benefits of the medicines created in this country — most surely lose.

Grace-Marie Turner is president of the Galen Institute, a non-profit research organization focusing on free-market solutions to health reform. She can be reached at turner@galen.org.

SHARE THIS ARTICLE

About the author