Drug Reimportation: The Free Market Solution

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As modern “miracle drugs” play a growingrole in medical practice, drug prices in Americasoar far beyond prices in the rest of the world. Yetour law prohibits Americans from buyingAmerican‐​made drugs abroad at those prices and“reimporting” them to the United States. Thathas led many Americans, and even some stateand local officials, to ignore the law and go toCanada and Mexico for their drugs; to the passagein the House last year of a bill lifting the banon reimportation; and to similar bills now in theSenate — legislation that Health and HumanServices Secretary Tommy Thompson recentlycalled “inevitable.”

The ban’s defenders raise several concerns.The safety of reimported drugs cannot be guaranteed,they say. Moreover, lifting the ban willamount to reimporting the foreign price controlsthat largely explain the price differences — and that will dry up the funds needed for theresearch and development that produces moderndrugs. Food and Drug Administration regulationsimpose extraordinary costs on drug companies,they add, but when companies go torecoup those costs, they find that only inAmerica, with its relatively free market, can theydo so. The rest of the world, with socialized medicalsystems, will simply not pay market prices,they claim, or if threatened with product withdrawalwill steal the patents and produce thedrugs themselves. But ban defenders also arguethat price discrimination enables companies toexploit different levels of demand and hence tomaximize profits, to the benefit of all; yet theonly way to enforce that market segmentation,they contend, is through an American ban onreimportation.

As a practical matter, however, Americans endup paying for most of the costs of drug R&Dwhile the rest of the world rides free — and that ispolitically unsustainable, as events are demonstrating.The current ban should be lifted, therefore,not to encourage reimportation, but toallow the incentives to surface that will “force“wider use of market practices and the internationaltrade regimes that reflect such practices.The last thing we want, however, is to move awayfrom today’s regulated market to the kind offorced trade that one prominent bill now in theSenate, backed by the AARP, would impose. Thatwould indeed import foreign price controls, endingthe pharmaceutical revolution the world’scapital markets underwrite here at home and themiracle drugs it produces.

Roger Pilon

Roger Pilon is vice president for legal affairs at the Cato Institute where he holds the B. Kenneth Simon Chair in Constitutional Studies and is the director of Cato’s Center for Constitutional Studies.