Don't Blame Canada (for Cheap Drugs)

Safer than syrup.

Photographer: Brent Lewin/Bloomberg

Canada has a well-founded reputation for dangerous exports: Dirty oil. Strong beer. The occasional bad pop song. Hockey fights. Hockey hair. The Canadian tuxedo.

Still, the U.S. pharmaceutical industry's concern about a law that let Maine residents buy prescription drugs from Canada is a little odd. There's no evidence that medicines from Canadian pharmacies pose any greater safety risk than those bought in the U.S. Yet industry trade groups last week persuaded a judge to overturn the law, on the narrow grounds that drug importations are a federal matter.

Drugmakers are probably more concerned with price than with safety. In Canada, drugs often cost much less than in the U.S. That's what made the Maine law popular.

But consider what makes Canadian drugs so much cheaper in the first place. Canadians are no better than Americans at mixing and packaging chemical compounds. The difference is they let government health-care plans use their purchasing power to negotiate lower drug prices.

If that strikes you as socialized medicine, consider that the U.S. Department of Veterans Affairs does the same thing. Medicaid, the federal-state program for the poor, does something similar, by demanding that drugmakers provide a rebate in exchange for participating in the program.

But those programs pale in size next to Medicare, which this year will spend an estimated $87 billion on prescription drugs. The 2003 law that created Medicare's Part D prescription drug benefit included a "noninterference clause," which specifically prevents the agency from negotiating lower prices.

Partly this was a sop to drugmakers, and partly it was meant to ensure that beneficiaries would have access to all drugs, not just those whose producers met Medicare's terms. But Canada and the VA have shown that you don't need to cover every drug to give beneficiaries the options they need.

Judging from the VA's experience -- it pays an estimated 40 percent less than Medicare for the same types of drugs -- repealing that clause could reduce costs for the elderly. The federal government could theoretically use the same negotiating power on behalf of the 11.5 million people enrolled in insurance plans through state Affordable Care Act exchanges, whose premiums are paid largely through federal subsidies. For that matter, it could create a Part D-type program open to every American -- a public option for prescription drugs.

Congress is unlikely to take any of those actions anytime soon. So, as an alternative, why not let American consumers take advantage of negotiated prices in Canada? The strategy has growing support: Republican Senator John McCain of Arizona and Democratic Senator Amy Klobuchar of Minnesota have introduced a bill to expand Maine's approach nationwide.

The senators point out that the U.S. spends about 40 percent more per person on pharmaceuticals than any other country. Buying drugs in Canada won't fix that. But until Congress can make it easier for the federal government to negotiate lower prices, it's a start.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.