The Senate should reject foreign drug importation

Congress must send a budget to President Obama by next Friday. Senate lawmakers, hoping to avoid a government shutdown, have just started sparring over the details of their reconciliation measure.

Sen. John McCain (R-Ariz.) has introduced an amendment to legalize the importation of certain prescription drugs from abroad. On the face of it, this effort makes sense. Thanks to price controls, certain drugs are much cheaper in countries like Canada.

But price controls carry a steep cost. To offer “cheap” medicines, Canada relies on restrictive drug formularies. And pharmaceutical investment in that nation has been decimated.

If foreign drug importation is indeed legalized, the United States will import price controls along with cheaper drugs. That means reduced access to medicines today and fewer new drugs in the future.

This push for importation stems from the pervasive myth that drug prices are a big problem in this country. But they aren’t. Drug spending as an overall percentage of healthcare costs has been stable for more than 50 years. And since 2010, drug costs have increased at a rate well behind overall healthcare inflation.

Further, drug prices shouldn’t be seen in a vacuum. They’re an upfront investment that can actually lower healthcare expenses elsewhere. Patients that are provided the right drugs early usually don’t develop conditions requiring much more cost medical interventions.

Take, for instance, the breakthrough hepatitis C drug Sovaldi. Industry critics have decried the drug’s $84,000 annual price tag. But overall treatment costs for the typical hepatitis C patient totals more than $200,000. In the worst cases, people suffer liver failure and require a transplant – a procedure that costs at least half a million dollars. Sovaldi cures this condition for a fraction of that price.

Indeed, it’s estimated that every dollar spent on new drugs saves the overall healthcare system six dollars.

Yet some lawmakers remain fixated on the price discrepancy between drugs offered in the United States and other major markets, chiefly Canada. Importation would, in theory, give their constituents access to those deeply discounted foreign meds.

But importation would also bring domestic drug innovation to a grinding halt.

Innovation is extremely risky. Just five out every 5,000 promising medical compounds makes it to the human trial phase. And just one out of those five ever makes it to market.

That high failure rate leaves drug developers with huge expenses. Work from Tufts University estimates that it costs, on average, over $2.6 billion dollars to bring a new medicine to market.

The prices on the products resulting from this work reflects this risk. Firms are trying to recoup those huge investment costs. But if the American market gets flooded with artificially cheap Canadian drugs, the returns on drug development will drop precipitously. Developers, confronting fewer investment dollars, will pull back on new research, depriving future generations of new breakthrough medications.

Worse still, importation would expose Americans to dangerous counterfeits. The U.S. Food and Drug Administration has already admitted that it “cannot ensure the safety and effectiveness of products that… come from unknown sources and foreign locations.” And just a few years ago, American authorities shut down the domain for offering misbranded and counterfeit drugs, only to have it reopen again less than a year later.

It’s also worth noting that just 35 million people reside in Canada. Innovative research companies won’t send Canada an unlimited supply of drugs; they’ll simply ship Canada the drugs it needs for its own population. So it defies logic to think that Canadian pharmacies would be able to supply the U.S. market without turning to dangerous, foreign suppliers.

McCain should halt his crusade. Allowing foreign drug importation is not free market, would jeopardize patient health, and threaten innovation.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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