Economic Policy Researcher Finds Fault with Federal Drug Importation Plans

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This editorial by Liam Sigaud was published by Inside Sources on August 27, 2019. Mr. Sigaud writes for the American Consumer Institute, a nonprofit educational and research organization.

What Politicians Get Wrong About Economics of Drug Importation

As many Americans continue to struggle to afford the medicines they need, an old idea is regaining traction. According to a Kaiser Family Foundation poll conducted in February, 80 percent of Americans think importing drugs from Canada is a good way to reduce U.S. pharmaceutical prices. And the Trump administration seems to agree. Last month, federal officials announced the Safe Importation Action Plan to legalize the importation of foreign drug products, including from Canada.

But consumers looking to drug importation schemes to reduce prices and expand access to medicines are in for a disappointment. Despite all the rosy political rhetoric, bringing drugs in from abroad is not a viable solution to America’s pharmaceutical spending problem.

The biggest concern is that allowing drug importation will expose American patients to unsafe, adulterated and counterfeit medicines from all over the world. An estimated 85 percent of medications sold from “Canadian” online pharmacies, for example, actually originate from countries without basic quality assurance mechanisms. According to the World Health Organization “1 in 10 medical products in low- and middle-income countries is substandard or falsified.”

Canada has made it clear that it will not monitor the safety of drugs being shipped to the United States, increasing the risk that dangerous products will infiltrate the U.S. pharmaceutical system. Even if the safety of every imported drug could be assured, however, there still would be no reason to think American consumers would be better off.

For one, generic drugs, which make up nearly 90 percent of U.S. drug sales, already cost about the same (or even less) in the United States than in other developed countries, including Canada. Importation won’t generate any savings there.

The only price reductions from importation would come from a small number of brand-name drugs that are significantly cheaper abroad.

Drug companies won’t sit by and let the drugs intended for sale in Canada get rerouted to the United States and sold at a lower price. To protect their profits, manufacturers would likely pursue several strategies, including contract restrictions with wholesalers prohibiting exports, limiting the volume of drugs shipped to Canada to meet only local needs, or even exiting from the Canadian market altogether.

Canada, too, would likely take steps to restrict the volume of drugs diverted to the United States, since large-scale exports would both exacerbate shortages for Canadian patients and put upward pressure on Canadian drug prices. And even if Canada could be persuaded to go along, its pharmaceutical industry — which serves a population barely one-tenth the size of the U.S. — does not have the capacity to supply even a small percentage of our drug market.

The nonpartisan Congressional Budget Office has predicted that “permitting the importation of foreign-distributed prescription drugs would produce at most a modest reduction in prescription drug spending in the United States.” Total drug spending in the United States would decline by no more than 1 percent. Permitting importation only from Canada would have an even smaller impact.

Alas, even if such a policy could be implemented without empowering counterfeiters and endangering patients, importing drugs from Canada — or any other country — would not deliver the cost savings American consumers seek.