The Right Prescription

A Good Obama Flip-Flop

Drug reimportation dies, for now.

By 12.17.09

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Candidate Obama was for drug reimportation. President Obama, who has to deal with very different political realities, suddenly is not. That's a fortunate Obama flip-flop.

The Senate failed to gain enough votes to pass an amendment from Sen. Byron Dorgan (D-N.D.) that would have allowed limited reimportation of prescription drugs. The Obama administration reportedly urged the amendment's defeat, citing, as past administrations have, the FDA's safety concerns.

For once, Obama refused to take the overly simplistic position that the government can simply make the world better by passing a law ordering the world to be better.

Dorgan's amendment would have allowed Americans to buy prescription drugs from certain foreign countries.

"This issue isn't rocket science. The American people are charged the highest prices in the world. They want Congress to stand up for their interests and do something about it," Dorgan said.

Arguing for his bill, he listed the prices of some brand-name prescription drugs as they varied from country to country. Inevitably, the United States had the highest prices. Dorgan claimed that U.S. consumers could save $100 billion in a decade if only they could buy the cheaper drugs from foreign countries.

What he didn't list were the prices of generic equivalents. That's because, as a 2004 congressionally mandated Department of Commerce study found, generics are cheaper in the United States than elsewhere. American generics are cheaper than both foreign brand-name and foreign generic drugs.

Generics "account for more than half of all prescription drugs consumed in the United States," the Commerce study found. Which means that more than half the drugs consumed in the United States won't get any cheaper if we allowed reimportation.

Two Ohio State University researchers noted two years ago, "According to a new study by the FDA, Americans who buy drugs in Canada in hopes of saving money could pay significantly more for certain prescription drugs than if they had purchased generic versions of these drugs in the US."

The idea that reimportation is a magic pill that would automatically lower American drug prices and keep them low is a fallacy.

The Commerce study determined, not surprisingly, that the primary reason drugs cost less in other Organization for Economic Cooperation and Development (OECD) countries is that those countries impose strict price controls. In other words, the governments set prices well below what the market would produce.

Importing those drugs into the United States would do nothing to lower the cost of developing, manufacturing and distributing prescription drugs. It would simply reduce pharmaceutical company profits.

Liberals think that's great. But the Commerce Department concluded that reducing pharma profits would substantially reduce research and development, which in turn would reduce the number of new drugs that reach the market.

Sen. Frank Lautenberg (D-N.J.) claimed that the defeat of drug reimportation (Lautenberg had his own amendment, also defeated) would result in more American deaths. Actually, passing it would. Fewer new drugs means fewer new remedies. An AIDS drug might cost many times more in the United States than in Canada. But it would not exist at all without the profit pharmaceutical firms made by charging market prices in the United States, a portion of which was invested in R&D.

In fact, Commerce concluded that foreign price controls harm Americans by lowering drug company profits, and thereby reducing the number of new drugs that make it to market.

"The benefit to U.S. drug purchasers from the new drugs that would be developed and marketed if there were no price controls is in the range of $5 billion to $7 billion per year," Commerce concluded.

Not only would more Americans suffer and even die by allowing reimportation, but more foreigners probably would too. The New York Times reported in 2004 that drug reimportation was unlikely to achieve its intended goals for several reasons. One reason is that there simply aren't enough foreign drugs to import. Another is that drug companies would restrict supplies to any country that allowed reimportation.

It's called "reimportation" because it mostly affects drugs made here and shipped overseas. Pharmaceutical company executives told the Times that they would reduce shipments to any country that allowed reimportation into the United States. That would mean fewer drugs for us and the Canadians, British, etc. Pharmaceutical firms already have cut off supplies to some foreign pharmacies that ship to the United States.

Canada would have an incentive to ban drug exports to the United States, too, to prevent shortages of drugs. The Canadian government already has expressed concerns about shortages that could arise if Americans started buying drugs meant for Canadians.

Politicians who promote drug reimportation are either grandstanding or simply don't understand economics. It's a good thing Obama reversed his position and helped kill this amendment.

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About the Author

Andrew Cline is editorial page editor of the New Hampshire Union Leader. You can follow him on Twitter at @Drewhampshire.