Tuesday, April 06, 2004

What U.S. Drug Companies Say

That importing cheaper drugs from Canada and other countries would be unsafe, would lower incentives to market generic drugs, and would increase drug prices in other countries. Not very surprising that they would say this; it would have been more interesting if they had pushed for drug importation at any cost.

But are these claims true? The last one probably is, at least in those countries where the government doesn't regulate drug prices. This prediction comes from standard economic theory of a firm which prices the same product differently in two different markets. This is only possible if resale can be stopped, or in our case, if the importation of Canadian drugs to the United States can be stopped. If resale is impossible to stop, the two market prices will become roughly equalized (ignoring the effect of any tariff or tax differences between the countries), and the most likely outcome is that the country with previously lower prices will find them go up. Incidentally, the firms' profits will also decline, which is why they are fighting the drug importation plan.

The Canadian government might not let Canadian prices rise, though. The health care system north of the U.S. border has much more government control over things such as prices, and this makes it harder to predict the impact of drug exportation on the Canadian markets.

The truth of the first claim of the drug companies, that imported drugs would be unsafe, clearly depends on the quality control system that is practised in the countries of origin. It's pretty hard to pretend that Canadian drugs would present any health dangers to American consumers, as long as the sellers use the same system of requiring physician prescriptions before filling orders for prescription drugs. Which they do. Importing drugs from some other countries could be more dangerous. Still, there are ways of insuring the quality of imported drugs (we do it all the time with other imported products), and quality problems exist with domestic drugs, too. Also, if the alternative to imported drugs for some poor American consumers is no treatment at all, the likely unsafety of such drugs should be compared to the unsafety of an illness possibly remaining altogether untreated.

But there are already cheaper alternatives for poorer consumers, say the drug companies. These are the generic drugs, i.e., medications which don't have brand names but do have the same chemical components that make brand name drugs effective. Would importing drugs reduce the incentives to market such generics? Maybe, but the current marketing efforts of generics aren't exactly noticeable, either, perhaps because there is a lot less profit in marketing them.

I think that drug importation should be allowed. Aren't we all now devoted followers of the free markets? Wasn't NAFTA supposed to make all of this continent into one big supermarket? Well, here, finally, is an opportunity for ordinary Americans to benefit from it.