Maine Goes Rogue on Importing Prescription Drugs

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of “The Up Side of Down: Why Failing Well Is the Key to Success.”
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Maine has decided to allow importing of prescription drugs from countries that control the prices of said drugs. The result will be a discount for Maine residents, some decrease in the incentives and money for drug discovery and, eventually, some sort of government or private action that shuts down this gambit.

Maine is not the first U.S. state government that has decided it would be nice to run its own trade policy. Massachusetts, for example, decided to have its own sanctions policy on Burma, separate from that of the United States Federal Government. The courts of the United States Federal Government told them to knock it off.

I expect that Maine's scheme will similarly founder. For starters, the U.S. Food and Drug Administration bans the importation of prescription drugs from abroad. To be sure, the agency doesn't work particularly hard at enforcing this ban, but it exists, and a whole state that defies it is likely to find itself in court. At which point, the judge will probably tell Maine to knock it off.

Moreover, even if that didn't happen, the pharmaceutical companies have ways to make sure that this doesn't become widespread. Back in the middle of the last decade, when growing numbers of American seniors started buying drugs from Canadian pharmacies, drug companies started talking about restricting the quantity they sold to price-capped countries. The passage of the Medicare prescription drug benefit pretty much made this moot, but actions like those of Maine threaten to revive it. If Americans start mass re-importation of prescription drugs, Pharma seems certain to throttle back on the quantity sold abroad -- enough to supply your citizens, but not enough to sell the stuff back to the U.S. And health systems in other countries -- at least, the other countries where you'd actually want to buy the stuff -- will doubtless take steps to make sure that their pharmacies don't sell to the U.S.

After all, the high U.S. prices provide the incentive, and much of the funding, for pharmaceutical research. Big Pharma spends between $4 billion and $11 billion on R&D for each marketable new drug it produces. The cost of actually manufacturing another pill is fairly small -- that's why drug companies can afford to sell pills to Canada on the cheap. But someone has to pay for all that R&D, or there won't be any new drugs. (Please don't tell me that all the "real research" on drugs is done by academic labs. This argument is so ignorant it hurts.) That "someone," unfortunately, is us. There's no reason for foreign countries to mess with that system just so that their pharmacies can make a bit of extra profit.

So if Maine's law actually increases substantially the number of people who are buying their drugs abroad, you can expect Big Pharma to find a way to close that loophole, either legally or strategically. In the meantime, the saga will be another entry in the colorful history of Maine Governor Paul LePage .

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