Beware Kerry Rx Kare

Published January 1, 2004

Democratic Senator John Kerry said that if he were president he would lower the cost of prescription drugs by allowing the re-importation of foreign drugs. What Kerry left unsaid was that his plan would allow the importation of drug price controls, not drugs, from Canada and other foreign sources.

Canada and other foreign countries use price controls to create artificial, below-market prices that don’t reflect the actual costs of pharmaceutical research and development. U.S. companies spend an average of 15 years and more than $900 million to develop a new drug. They must be allowed to recoup that investment. Kerry overlooks the unseen cost of inhibiting research and development by controlling drug prices.

Politicians love to give away “free” stuff in an attempt to get votes. But beyond the tax-subsidized fantasy world, real companies go bankrupt when forced to sell at prices at or below actual costs. Cheap drugs make great sound bites for politicians but are lousy economics.

Think of the airlines and discount seats. If everyone were to fly in only the discounted seats, pretty soon there would be no seats available because the airline could not afford to fly. All passengers would lose. The same is true in the drug industry.

The irony here is that in many cases, we are paying more than we need to by buying foreign drugs. A Canadian study concluded that 75 percent of the 27 most popular generic drugs were significantly cheaper in the U.S.

IT’S YOUR HEALTH is written by Conrad Meier, senior fellow in health policy at The Heartland Institute. This program is produced as a public service by Radio America. Meier passed away unexpectedly on March 18, 2005.