Importing drugs from Canada hurts R & D

Minnesota Gov. Tim Pawlenty has launched an aggressive campaign to lower prescription drug costs in Minnesota by importing drugs from our northern neighbor, Canada. He announced plans to investigate the possibility of importing drugs to cover almost 700,000 Minnesotans, from state employees to seniors on public assistance.

Debate has swirled around the high cost of prescription drugs for months now, with U.S. Rep. Gil Gutknecht R-Minn. leading the drug importation campaign in Washington. With Minnesota in the center of the turmoil, it is crucial to ask if importing prescription drugs from Canada is in the long-term interests of our state and nation.

What is the drug importation debate really about, anyway? The issue results from the significantly lower prices of prescription drugs in foreign countries, like Canada and Mexico, compared to domestic prices. Americans naturally view this as unfair, and they immediately blame the pharmaceutical companies. Consequently, people are calling to re-import drugs from Canada into the United States.

This re-importation policy would have potent consequences for the world health-care market as a whole. If re-importation is allowed, drug prices will fall for a while, but the long-term welfare of the health-care system will suffer.

Re-importation would result in the collapse of the medicinal research and development infrastructure in the United States. Foreign prices often do not include the full costs associated with research and development that it takes to produce drugs. The Tufts Center for the Study of Drug Development estimates companies spend $900 million to develop each new drug that is eventually sold, an enormous cost that the consumer must eventually pay.

Drug prices in foreign countries are lower largely because drug companies often broker special deals with countries to more effectively sell products in the heavily socialized, price-control ridden health-care environment of the global marketplace. Pharmaceutical companies do what they can to survive in this virtually government-controlled health-care environment.

If re-importation is allowed, the United States would be effectively enforcing these foreign price controls on our own domestic market, and that is not in our best interest. In recent years the prescription drug markets in Canada, Mexico and elsewhere have been decimated and destroyed by such controls. Their markets are now far too weak to contribute significant research and development in health care, leaving the United States as the last field for innovation. If similar price controls are enacted in the United States, even indirectly, we are sure to face catastrophic long-term consequences in research and development.

John Vernon, a professor of economics at Duke University, cited a likely decrease in research and development funds of more than 45 percent in a 1995 study of re-importation policy. Long-term national costs extend well beyond this, however. With the recent outbreak of illnesses such as SARS and possible biological weapon attacks, the U.S. research and development industry must remain well-funded and vigilant.

What economists call the real (adjusted) price of drugs in foreign countries is not that much different from the U.S. price. In exchange for their discounted nominal prices, foreigners are often allowed only restricted quantities of certain drugs, and shortfalls result. Companies often delay access to new drugs in foreign markets as well. On top of it all, these countries’ socialized health-care systems cost the people dearly in taxes.

The re-importation policy touted by Pawlenty and Gutknecht is a dangerous solution to an overrated problem. Not only does re-importing drugs destroy the research and development innovations of the world’s most powerful pharmaceutical industry, but it imposes foreign price controls and economic constraints on our domestic market.

The pharmaceutical industry often commands high prices due to their high expenses, but the value we receive from their pricey commodities is great, curing illnesses and relieving pain for countless thousands. This is one expensive good worth paying for.

Brinton Ahlin is first-year student and a guest columnist. He welcomes comments at [email protected]