The Wall Street Journal reports today that the prescription-drug importation issue is back. It’s a complex legal and economic issue about which I’ve written at length here and, more briefly, in the Journal here and here and in National Review here.
Federal law prohibits the “reimportation” of cheaper drugs from abroad. But Maine has moved to allow importation from Canada, the U.K., New Zealand, and Australia, prompting a federal suit by Maine pharmacy groups and the Pharmaceutical Research and Manufacturers of America.
Politicians in both parties are playing this, not surprisingly, as a battle between special interests and suffering patients. In an ideal world, of course, the market would set the prices of drugs—and I have urged moving in that direction—but when it comes to pricing the miracle drugs that have revolutionized modern medicine, we’re living in far from an ideal world.
In a nutshell, given the Food and Drug Administration’s safety and efficacy standards, it takes 12 to 15 years and upwards of a billion dollars to bring a new drug to market, but only pennies a pill to manufacture it thereafter. Obviously, drug companies need strong patent protection or they’d never undertake that research and development.
But when they go to market a new drug, they find a relatively free market only in America. Everywhere else they face socialized medical systems and strict price controls, so they segment markets and price their drugs differentially, garnering such profits as they can from each market. Naturally, therefore, they have to guard against “parallel markets”—vendors in low-price markets reselling the drugs (at a profit) in high-price markets, especially when supply limitations and no-resale contracts are legally suspect. That’s where the reimportation ban comes in. If low-price drugs sold abroad flood the American market, displacing higher-priced domestic drugs, there go the profits—and there goes the R&D needed to discover new drugs.
Naturally, Americans resent having to subsidize the rest of the world, in effect, which is why letting them import cheap drugs from abroad plays so well politically. But we’re faced here with a Hobson’s Choice—which I’ve only sketched in this post. As I said, it’s a complex issue, involving treaty arrangements, patent law, and much more, rooted ultimately in the socialized medical systems we find abroad, toward which, alas, we ourselves are moving. In fact, the ultimate aim of many of the reimportation proponents is to have the federal government subsidize, if not do, the R&D needed to bring new drugs on line. Talk about bad medicine.