In this season of the campaign promises, pandering, and appeals to high principle, let’s be candid: The process of wealth redistribution through the institutions of democratic politics combines all three beautifully. The latest manifestation of this art form is the current drive in Congress to facilitate the importation of “cheap” pharmaceuticals into the U.S. from Canada (and a number of other nations). This will purportedly reduce U.S. drug costs sharply, with no adverse effects upon future drug development or safety.
And so we find ourselves beckoned by another free lunch, courtesy of the Beltway. As usual, skepticism is wholly appropriate. Let us dispose first of the canard that imported pharmaceuticals are “cheap.” Hardly: They are subject to foreign price controls, destructive regulations that would be imported into the U.S. along with the drugs themselves. Indeed, one prominent proposal would force U.S. pharmaceutical producers to sell unlimited amounts of drugs to foreign governments at their controlled prices precisely for importation (resale) into the U.S. This means automatically that either foreign price controls will be imported here, or various middlemen will capture the difference between controlled prices overseas and the market value of the drugs in the U.S.
In any case, the pharmaceutical companies will fetch dramatically lower prices for their products. That may seem a blessing for those afflicted with infinite myopia; but because the cost of bringing a new pharmaceutical to market is about $800 million, it is impossible to obscure the central truth that the bill would adversely affect the research and development processes that create new drugs, that in turn yield longer lives and reduce human suffering. One recent study concludes that the decline in R&D would be between a quarter and a third, so that the political drive to import “cheap” drugs literally steals cures and the alleviation of human suffering from the future so as to buy votes from drug consumers now.
Then there is the safety problem. Advocates of importation argue that a “chain-of-custody” requirement–a paperwork trail–will guarantee safety, but the harsh reality is that the Food and Drug Administration will not be able to police the shipments, cross shipments, reverse shipments, false documentation, and other machinations that counterfeiters will adopt when U.S. law facilitates drug importation. The central problem is that “chain-of-custody” requirements by their very nature cannot be self-enforcing, and the potential profits to be earned from illicit activity are enormous. Moreover, it is inevitable that importation from advanced economies in Europe and Asia will follow importation from Canada. As new nations are admitted to the EU, the safety problem will be exacerbated, and authority for the FDA to ban counterfeit drugs and to test shipments will not suffice.
Actually, the problem is far worse than that. Foreign regulatory requirements and drug specifications differ–often sharply–from those in the U.S., so that an enormous expansion in FDA regulatory authority would be needed to avoid a situation in which numerous versions of a given “FDA-approved” drug would be imported into the U.S. And without such an expensive increase in regulatory authority, it is inevitable that FDA labeling will be inaccurate by design: FDA labeling requirements necessarily will be preserved, but at the same time the importation of several different versions of given drugs will be required also. Will the FDA now be required to police the borders along with the Department of Homeland Security and other agencies? The safety and labeling complications inherent in the various schemes to import “cheap” drugs are immense.
In principle, the pharmaceutical producers could simply refuse to sell quantities of drugs overseas greater than those expected to be demanded in the respective countries. That is why importation proposals invariably contain antitrust or other provisions forcing unlimited sales into those markets at prices controlled by foreign governments. Thus the importation controversy is of far more than merely theoretical importance for those not directly involved in pharmaceutical research or investment: If the federal government can force drug producers to sell unlimited amounts of their products at controlled prices to foreigners, no producer of any product in the U.S. is safe from such confiscatory measures.
The unpublicized reality is that those who cannot afford needed drugs can get substantial aid now from both government and pharmaceutical producers themselves. Moreover, the real question is not the narrow cost of drugs, but instead the effect of drugs on the overall cost of medical care, in that the availability of modern drugs reduces the need for costly surgical and other procedures, hospital stays, and the like. And let us not ignore the benefit of longer, healthier lives and reduced human suffering–parameters that may not appear on accountants’ ledgers, but that are crucial nonetheless. Should those benefits be sacrificed in pursuit of short-term political advantage? The question answers itself.
–Sally Pipes is the president and CEO of the Pacific Research Institute for Public Policy.