09/2003 Galen Report

Published September 1, 2003

President George W. Bush has weighed in on reimportation of drugs, calling the initiative “dangerous” because it “would create serious drug safety problems … allowing counterfeit, adulterated, inactive, and unapproved drugs to enter the country,” with the potential for injuring public health and threatening the security of the nation’s drug supply.

FDA Commissioner Mark McClellan sent a strongly worded letter to the chairman of the House Energy and Commerce Committee, Billy Tauzin (R-Louisiana). McClellan said the bill would erode the FDA’s ability to oversee the nation’s drug supply. He also noted requiring pharmaceutical companies to institute anti-counterfeiting measures would increase drug costs by $2 billion.

The Congressional Budget Office chimed in as well, saying drug reimportation would not reduce drug costs to American consumers.

Many conservatives have argued allowing Americans to buy drugs more cheaply abroad is free trade. But it’s hardly free trade when you are importing price controls from countries with socialized health care systems that impose global budgets and ration medical care–including prescription medicines.

Then they argue drug companies should just refuse to sell their products to countries that don’t agree to a fair price, one that includes a share of the R&D costs. House Judiciary Committee member Chris Cannon (R-Utah) says that is seldom an option. “The patent laws of almost every country in the world allow the government to confiscate or ‘compulsory license’ a company’s patent if it is not ‘worked’ locally,” he wrote in a Dear Colleague letter.

That means if a drug company doesn’t agree to the prices a government demands, the country will essentially steal the patent. What kind of a choice is this for companies whose most valuable asset is their intellectual property?

When Representative Gil Gutknecht (R-Minnesota) lobbies for his reimportation bill, he circulates a chart comparing the prices of 16 drugs in the U.S., Canada, and Europe. Not surprisingly, every one is cheaper elsewhere–because other countries don’t pay their fair share of the research and development costs.

One enterprising researcher produced another chart showing where those drugs were developed: 11 in the United States, five in Europe, and 0 in Canada. Where will the new drugs come from if the U.S. slaps price controls on its drug supply, either directly or indirectly by allowing Americans to import price-controlled drugs?

Representative Jo Ann Emerson (R-Missouri) may be allowed to present a substitute amendment allowing reimportation initially only from Canada, not all 26 countries allowed in the Gutknecht bill. But Emerson proposes a dangerous provision that would tell drug companies they must sell their products to American consumers at the lowest price they offer anywhere in the world.

Grace-Marie Turner


Prescription Drug reimportation Debate

Stephen Entin (Institute for Research on the Economics of Taxation) says reimportation would reduce incentives for pharmaceutical companies to develop new medicines, “denying new and improved treatments to tens of millions of future patients, resulting in earlier death and reduced quality of life.” Source: http://www.iret.org

Sally Pipes (Pacific Research Institute) says pharmaceutical companies can afford to sell drugs below the average production costs for some countries, but not for everyone. Pipes says a reimportation measure will restrict the supply of drugs in the price-controlling countries from which Americans are likely to reimport drugs. “Canadian pharmacists will be forced to make a choice: send the pharmaceuticals south for a quick profit or sell them at home,” she writes. “If it’s the latter, they’ll be doing the most unnatural of acts: forgoing their personal economic interest. If they do the former, Canadians will find themselves heading south for more expensive, but at least available, drugs, just as they now do for high-tech medicine.” Source: http://www.pacificresearch.org/press/opd/2003/opd_03-07-23sp.html

“Price discrimination is a way of making products available to people who otherwise could not afford them,” says John Goodman of the National Center for Policy Analysis. Source: http://www.washtimes.com/commentary/20030720-103239-6685r.htm For Tech Central Station, James Glassman and John Lott explain the free rider phenomenon and conclude Canada and Europe should be the strongest opponents of U.S. prescription drug reimportation. Source: http://www.aei.org/news/newsID.18078,filter./news_detail.asp

David Kendall (Progressive Policy Institute) says price controls would “undermine a competitive approach for delivering a Medicare drug benefit.” Instead, he notes, “public policy should strengthen the ability of private markets to restrain prices.” Source: http://www.ppionline.org/ppi_ci.cfm?knlgAreaID=111&subsec ID=141&contentID=251891

Cost Estimate for H.R. 1 and S. 1, Medicare Prescription Drug Acts
Congressional Budget Office
July 22, 2003

The Congressional Budget Office estimates the House and Senate Medicare bills would each cost more than $400 billion. According to the report, the Senate bill would cost $461 billion in direct spending over 10 years, while the House bill would cost $408 billion.

The CBO also says enrollment in private health plans, a central goal of both bills, would be lower in a decade than it is today: 11 percent of Medicare beneficiaries would likely sign up for some type of private health plan under the House bill; 9 percent would sign up under the Senate bill. Currently, 13 percent of Medicare beneficiaries obtain care through HMOs and other private health plans.

The CBO also concludes prescription drug reimportation provisions contained in the two bills “would probably not produce substantial savings to the federal government. … Manufacturers of brand-name drugs are unlikely to increase their sales in Canada enough to permit a significant share of their United States market to be imported from Canada. … If manufacturers were unable to limit the supply of drugs entering the U.S. market from Canada, the likely result would be that brand-name drug prices in Canada would rise much more than the price in the U.S. would decline.”

Full text (pdf): ftp.cbo.gov/44xx/doc4438/hr1s1.pdf

Prescription Drug Benefit: Is it Good for Seniors?
House Government Reform Subcommittee on Human Rights and Wellness
July 17, 2003

“The Medicare prescription drug benefit advancing through Congress will cost much more, and do less good, than many legislators realize,” testified Joe Antos of the American Enterprise Institute at a hearing before the House Subcommittee on Human Rights and Wellness. “Rather than trying to control the costs of individual health services, as Medicare has tried unsuccessfully to do over the past three decades, we should integrate prescription drugs with all other benefits,” said Antos. “Our proper concern should be on the overall growth in health spending.”

Edmund Haislmaier of The Heritage Foundation testified, “employers who currently offer prescription drug coverage for their retirees will either scale back their coverage to the standard plan design or replace their existing coverage with wrap-around coverage.” Helen Darling of the Washington Business Group on Health, Donald Newcomb of the Alliance for Retired Americans, and Gail Shearer of Consumers Union also provided testimony.

Full text of all testimony: http://www.house.gov/burton/71703h.htm

Material for this report is provided by The Galen Institute, P.O. Box 19080, Alexandria, VA 22320, http://www.galen.org. Grace-Marie Turner is president. The report was produced by Elizabeth Lamirand, who can be reached at 703/299-9550, and edited by Conrad F. Meier, managing editor of Health Care News.