Drug Prices in the USA

re: Canada mulls end to drugs by mail order, by Colin McClell, Associated Press, 6 Jan 2005,

The discussion of restricting Americans from buying drugs from Canada highlights failures of the current system. Unfortunately the focus in not on health care or the best economic plan but rather monopolistic behavior and economic regulation that is politically motivated to support high drug prices within the United States.

Most articles on reimporting drugs to the USA will mention the idea that the United States FDA does not trust the drugs manufactured by American companies overseas. Why should Americans have to believe the contention of the United States FDA over Canada, Germany or Japan’s drug regulators? If American’s want to trust that the drugs sold in one of those countries by one of the largest drug companies in the World selling drugs is good enough for them why does the USA have to laws to prevent it? The argument that the drugs sold by these companies worldwide are dangerous seems like a poor argument to me.

Second there is the contention that without the ability to overcharge American’s the drug companies won’t invest in Research and Development. This is such a poor argument I can’t believe people can make it without suffering a big blow to any credibility they had. Obviously drug development has a very high cost (creating a high fixed cost) and often drug manufacture has a small marginal cost (though at times the marginal cost is also high). Right now the companies count on the American market to provide funds for much of the research, development, marketing and profits. Then they sell the drugs in other markets only looking to maximize profits looking at marginal costs. Obviously, if they no longer could count on excessive prices in the United States they would have to spread the fixed cost over the rest of the world. The argument that they won’t invest in research and development without excessive costs in America is false. They would adjust their pricing structures around the world based on losing the cash cow of the American consumer. That should be obvious to anyone who even took one economics course.

Should the drug companies have the ability to use price discrimination. Probably. So if they want to say that people in Manhattan have to pay 5 times as much as those in Madison, Wisconsin that is their option, right? I don’t have a problem with that, but, actually I am not sure they have that option. My guess is US laws would prevent this but I may be wrong.

Should the drug companies have the right to say if you buy the drug in Madison you can’t sell it to anyone in Manhattan. This doesn’t seem right to me. Now drugs have the complication of medical necessity, etc. so in order for a person in Manhattan to buy and use them they would have to comply with the laws the government has setup to regulate medical care. So whatever those medical requirements are would have to be met but arbitrary rules about pricing should not be in any way a part of that discussion. The ability to allow price discrimination is the trickiest part of this issue. I support the idea the drug companies should be allowed to use that tool. If the drug was developed from basic research funded by the American taxpayer, how should that be factored in? What about just favorable tax treatment the company may receive? More time needs to be spent on this facet of the health care system.

Should the drug company have the right ot only sell the amount they want in Madison at the low prices? Maybe. Should the drug company be able to limit the amount it sells to Canada. Probably.

So now “Canadian health officials are drafting a proposal to prevent Internet pharmacies from selling mail-order prescription drugs to U.S. consumers.” Why would they do this? They are restricting the economic activity in their country. Are they doing it because they don’t believe their drugs are safe as the United States FDA contends? I don’t think so. Are they doing it because they fear their country will be punished by the drug company and their citizens will suffer health consequences of those actions by the drug companies? I doubt it. Are they fearful of political repercussions from the United States? Possibly, but I doubt it. I believe they fear the overall economic result of allowing free trade of medical drugs would be less beneficial than the current deals they have negotiated with the drug companies. So their economy would suffer more from losing special deals the American drug companies offer in selling drugs to Canada then the economy gains from the trade.

Is Canada deciding not to sell drugs to United States citizens via the internet within their rights? I sure think so. It does raise the question why the Canadian politicians have managed to get American companies to give their citizens better deals than the American citizens receive. It seems if you look at the money the American politicians take from drug companies it is pretty obvious why they setup rules that result in Americans having to pay much more for the same drugs manufactured by American companies than do the citizens or Canada, Germany, England, Japan, Australia, Mexico or pretty much anywhere on earth.

If the Canadian government decides to shut off a way United States citizens had found to take advantage of the better deal the Canadian government got Canadians than the United States government got their citizens that may be the function of the market (the free market is obviously not so free when you examine the issue of drug prices). The fact that Canada chooses to maximize the benefit for Canada, even if that means American consumers suffer, should not be seen as the Canadian government selling out. They are doing what they exist to do, provide their citizens the best results they can. Now, how you describe how the American government has created situation where their citizens have to pay much higher prices for drugs that American companies make that is a different story. In that case it does seem like something that could be described as selling out.

The last two sentences of the article by Colin McClell:

“Despite the Bush administration’s support for a ban, importing cheaper drugs from Canada is popular with U.S. lawmakers of both parties and has considerable support in Congress. The House has passed a bill allowing reimportation, and lawmakers in both parties say that it would pass the Senate if Republican leaders would allow it to come up for a vote there.

While reimporting drugs is technically illegal, those laws are not enforced. Ten million illegal shipments of prescription drugs worth $1.4 billion entered the United States in 2003, about half of them from Canada.”

Other Links:

This entry was posted in Economics, Health care. Bookmark the permalink.