This editorial by Dr. Kristina M. L. Acri née Lybecker was published in IP Watchdog on January 2, 2020. Dr. Acri is an Associate Professor of Economics at Colorado College in Colorado Springs, and Chair of the Department of Economics and Business.
State Pharmaceutical Importation Programs Threaten Patients and Innovation
In mid-December, President Trump presented a plan to lower prescription drug prices by allowing states, drug wholesalers and pharmacies to import some cheaper drugs from Canada. While reducing the cost of medicines is a laudable goal, pharmaceutical importation programs – if implemented safely and effectively – would fail to deliver the promised savings. And if implemented without the necessary safeguards, they would endanger the lives of countless patients. The plan essentially relies upon importing price controls from Canada, which will both undermine innovation and prove unsustainable.
As with many “simple solutions,” the devil is in the details. Not surprisingly, the Trump Administration’s plan contains very few details on implementation. And it is precisely those details that are expensive and complicated.
Analyzing Cost Effectiveness
The bottom line is that all cost savings quickly evaporate when accounting for the cost of quality testing, the medical consequences of treatment failure, and the cost of treating an adverse medical event. I have studied drug importation programs for more than two decades and recently completed an exhaustive analysis of the cost-effectiveness of such programs. While the study is rigorously structured to estimate the greatest savings possible from pharmaceutical importation, the analysis demonstrates that importation is not cost-effective in the majority of cases.
To examine the cost-effectiveness of importation, the study analyzes 24 drugs obtained from both an online Canadian supplier and a brick-and-mortar Canadian pharmacy, accounting for the cost savings, the cost of testing, the medical consequences of treatment failure, and the cost of treating an adverse medical event. Given a 99.999% confidence level with 99.999% reliability, the cost of testing exceeds the presumed cost savings in all cases. The study also weighs the presumed cost savings against the costs of treating an adverse medical event resulting from treatment failure due to ineffective (counterfeit) drugs. At the national level, for a “Representative State” comprised of 1/50th the U.S. population, the presumed savings from an online Canadian supplier are exhausted in the treatment of only one patient in the case of Nexium, to 24,318 adverse events for patients in the case of Advair.
Importing Price Controls
Further, for an individual patient, regardless of whether one’s drugs are obtained from a Canadian online supplier or a brick-and-mortar Canadian pharmacy, in three out of four cases, the annual presumed savings fails to cover the costs of an adverse medical event. For the 24 drugs analyzed, patients would need to acquire the cost savings over a period of up to 111 years to cover the costs of one adverse event.
While pharmaceutical importation amounts to a false promise of cost savings for patients, such programs also threaten biopharmaceutical innovation. Fundamentally, the Trump Administration’s proposal equates to the importation of Canadian price controls. Empirical studies (here, here, and here) have repeatedly shown a strong correlation between the enactment of price controls and reductions in pharmaceutical R&D investment, resulting in decreases in new drug innovation. The consequences for patients would be a loss of innovative treatment and cures, those incentivized by the robust U.S. pharmaceutical market.
Cheap or Safe – Not Both
Pharmaceutical importation schemes would endanger patient safety without saving consumers money. Moreover, the importation of Canadian price controls would undermine biopharmaceutical innovation. Pharmaceutical importation plans are politically attractive, but the numbers demonstrate that they fail to deliver cost savings when implemented safely. These schemes can be cheap, or they can be safe, but not both.