Commentary: Is Reimporting Drugs A Cheap Fix? Not Really

Why reimporting drugs from Canada won't work in the long run

Psssst -- to any American politician: Want a boost in the polls and a break for your budget? Defy the big, bad pharmaceutical industry and its regulators by allowing your constituents to import cheaper drugs from Canada. The strategy is working for dozens of governors and mayors from Minnesota to Burlington, Vt. And in Washington, a bipartisan group of senators introduced a bill on Apr. 21 that could finally break the congressional logjam over the issue, allowing foreign imports despite the Food & Drug Administration's safety objections. Even Montgomery County, Md., home of the FDA, is plotting to join the mini-rebellion. "We've got a Boston Tea Party here," laments one agency official.

And why not? Soaring drug costs are putting the squeeze on politically powerful seniors along with cash-strapped states and municipalities. If Americans could actually get medicines at Canadian prices, the U.S. would save a cool $60 billion per year, figures Boston University health policy professor Alan Sager.

There's just one problem: The promise of huge savings from imports is illusory. Instead, the move is likely to result in nasty trade disputes, wealthy middlemen, and worrisome shortages of drugs in some countries in exchange for only a small break on prices in the U.S. "When it all shakes out, the U.S. prices will come down a little and world prices will go up a bit," predicts David Dranove, a health economist at Northwestern University's Kellogg School of Management.

It's true that thousands of Americans are already reaping big savings, with sales across the border expected to top $1 billion this year. And as importation proponents argue, opening the door wider has the potential to bring relief to more people. But there's a built-in limit, making it impossible for Canada to become America's discount pharmacy. The Canadian market, at $15.9 billion, is tiny -- just 7.3% of the $216.4 billion in drugs that are sold in the U.S. So where would all the drugs come from if Americans were suddenly free to order from abroad? Not from Big Pharma. With billions in profits at stake, the industry is already playing hardball, shutting off the flow of brand-name drugs to Canadian Internet pharmacies and wholesalers that are linked to increased sales in the U.S. Drug manufacturers are requiring pharmacists to agree not to export drugs and are raising prices to the maximum allowable under Canadian price controls. They're even threatening to withhold new drugs to Canada unless the government negotiates a price that is high enough to discourage reimportation. "The drug companies have the power and the means to put a halt to it," says Steven D. Findlay, director of research and policy at the National Institute for Health Care Management.

The squeeze has already made it harder for Canadians to get drugs, says Lothar Dueck, a pharmacist in Vita, Manitoba. That has in turn prompted a backlash as Canada's traditional pharmacists lobby the FDA to shut down U.S. Web sites that sell Canadian drugs. The pressures have led some Net pharmacies like to buy drugs from Britain. That's a slippery slope. The FDA has already found some sites importing from Asia -- far from the reach of U.S. safety and quality rules.

Even when drugs are legit, the experience in Europe shows that drug importers and distributors -- not patients -- benefit most from importation. With different price-control systems among European Union nations, drugs cost up to three times as much in Britain or Germany as in Greece or Portugal. That has created a thriving business of buying inexpensive drugs and shipping them to countries with higher prices. But Panos Kanavos of the London School of Economics found that the prices paid by patients, hospitals, and insurers for imported drugs were only slightly lower than for locally sourced ones. Overall, "this is a welfare loss," Kanavos concludes.

Politicians wooing voters may not pay attention to these uncomfortable facts. But the case for reimporting drugs is more politics than substance. America's problems with health-care costs won't be solved with Canadian drugs.

By John Carey

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