Should Americans Be Allowed to Import Drugs from Canada?

The whole reimportation of prescription drugs from Canada issues is a bit odd because it tends to reverse traditional political views. Democrats who complain about the horrors of outsourcing jobs and the evils of free trade suddenly find themselves on the side of free trade across the Canadian border. Republicans who are nominally the party of free trade suddenly find themselves talking like anti-globalization activists about the dangers of weak safety standards in countries where the drugs might be made (and, as Clark Venable notes, it’s misleading to claim that the reimported drugs are made in America or Canada).

I am a free trader, a fan of the pharmaceutical industry and an ardent supporter of reimportation. Clark Venable quotes from a New England Journal of Medicine article that purports to make the case against reimportation, but really offers up the main reason to support it,

The mass exportation of prescription medication to the United States threatens the preferential pricing set by the Patented Medicine Prices Review Board.2 Companies may also choose not to market medication in Canada in order to protect the larger and more lucrative U.S. market.3 At risk is nothing less than the ability of countries to set their own policy regarding pharmaceuticals. The availability of Canadian medication is not a viable long-term solution to the problems of drug costs in the United States and represents a substantial threat to the access and affordability of drugs in Canada.

Yes, absolutely — this is precisely what needs to happen to bring sanity back to prescription drug pricing.

The current situation is quite simple. Canada tells a pharmaceutical manufacturer that it will only buy a drug at say $2/pill. The manufacturer says fine, we’ll make that up by charging American consumers $4/pill. The end result is that Americans end up subsidizing Canada’s system of socialized medicine. They get all the benefits of the lower price, while Americans pay the price in higher prices and also to a certain extent a penalty that discourages innovative new products (since in order for a product to be truly profitable, a company has to be able to sustain high prices in the U.S. market, so there is a disincentive to develop products that might be profitable if there were a market system in other countries rather than only in the United States).

As the NEJM notes, allowing reimportation of drugs will go along way to busting up that system which is a very good thing for Americans. Canadians (and other countries for that matter) must know that they cannot be free riders on American consumers forever. If their governments are going to continue to demand below market prices from drug companies, they are going to have to face a tradeoff of important medications being withdrawn or not being made available at all.

It should also be pointed out that the U.S. government also artificially inflates the cost of drugs with requirements that companies sell drugs to Medicare at the lowest rate they are sold for in the United States. Hmmmm…so if a company offers a subgroup a discounted price, it has to offer the government that same discounted price. Guess how pharmaceutical companies decide to price drugs given those incentives.

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