Drug Importation Is Subject of National Symposium

Published January 1, 2004

Illinois State Senators Steven Rauschenberger and Chris Lauzen are conservative Republicans who agree on many things, but at The Heartland Institute’s October 23, 2003 National Symposium on Drug Importation, the two showed themselves to be polar opposites when it comes to drug importation from Canada.

Rauschenberger: “For governors or elected officials to argue that importing Canadian price controls into our market-driven system is in the short-term or long-term best interests of Illinois consumers or Illinois government or the American government is wrong.”

Lauzen: “The people, whom we all serve, either as customers or constituents, are actually angry. The objective is not to vilify drug manufacturers. … But we are here to ask them, ‘Sell to us, as your fellow U.S. citizens, for what you’re selling to Canadian citizens. We don’t want to pay twice as much as our Canadian neighbors. Folks are insisting, ‘Don’t just stand there. Do something.'”

Democrats, too, disagree among themselves on drug importation. In the days leading up to the symposium, Richard Daley, Chicago’s Democrat mayor, spoke against importation even as Illinois Governor Rod Blagojevich, also a Democrat, stumped the state and lobbied Washington DC seeking support for his proposal to import drugs from Canada for state employees. Blagojevich and Daley were invited but declined to participate in the symposium.

Local Issue Goes National

Eight panelists from a variety of backgrounds participated in three discussion segments. With the exception of Lauzen, all opposed drug importation.

“Several proponents of importation were invited to speak, including Governor Blagojevich and Congressman Rahm Emanuel,” Heartland President Joseph Bast told symposium attendees. “They declined to join us. I won’t speculate on their reasons, but I hope you’ll ask them why.”

Symposium panelists pointed to drug safety, imposition of de facto price controls in the U.S., loss of research and development funds, loss of intellectual property rights, and legal liability as reasons to oppose importation. Lauzen and importation supporters in the audience dismissed most of those concerns.

Drug importation has become a national issue, driven in part by Blagojevich and Emanuel calling on the federal government to allow Illinois to import drugs from Canada for its 230,000 state employees and retirees.

Prescription drugs are less expensive in Canada because of price controls the government imposes on manufacturers who supply medications there, as well as other factors. Blagojevich’s office claims the state could save as much as $91 million; others, including the Food & Drug Administration and Heartland Institute, contend there would be little or no savings.

Questionable Sources

Safety, cost, and intellectual property rights concerns occupied much of the discussion.

Robert Goldberg, senior fellow at the Manhattan Institute for Policy Research, reported Canada imports 60 percent of its drugs from the United States. The rest come from around the world, he said, raising concern over their safety and efficacy.

“I bought a tranquilizer from a Canadian internet pharmacy that came from Namibia, which is nowhere near Ottawa but in Africa,” Goldberg said. “It turns out that in the first eight months of 2003 there has been an increase in pharmaceutical imports into Canada from the following countries: China, a 430 percent increase; a 369 percent increase from South Africa; from Turkey, a 160 percent increase; from our good friends in Iran, a 165 percent increase; from our good friends in Saudi Arabia, 90 percent; Philippines, 120 percent; and from that quality producer of pharmaceuticals, Bangladesh, 1,300 percent.”

The increased importation by Canada is due in large part to increased demand from Americans, who are driving to Canada to have prescriptions filled or are purchasing drugs from Canada-based internet pharmacies.

Goldberg noted the Canadian government will not guarantee the safety of drugs shipped across its borders, because the “chain of custody” cannot be guaranteed.

And, he said, “In Canada, most of the stuff that is coming in from these countries is under a personal use exemption, which allows people to bring in commercial quantities of these products without any inspection from Health Canada [Canada’s equivalent of the U.S. Food and Drug Administration] whatsoever. And it still can come into the United States without any inspection from Customs or the FDA. Under the Gutknecht bill, that amount could be any amount by any individual, any wholesaler, any distributor, without any inspection by the FDA.”

Goldberg’s reference was to a bill introduced by Congressman Gil Gutknecht (R-Minnesota). The measure, which would authorize importation of drugs into the U.S. from 26 foreign countries, was dropped from the Medicare reform bill Congress passed in November.

Importation Works For Me

Mary Rutherford, an audience member and owner of Rx Depot in Chicago, defended the safety of Canadian drugs. Through 85 locations nationwide, Rx Depot helps Americans purchase prescription drugs from Canadian pharmacies.

“The implication being made about Canadian imports from other countries is that they are substandard, and I’m not sure you can make that point,” Rutherford said. “They could indeed be imported with controls.”

She used herself as an example. Rutherford has asthma and needs medicines to treat the condition. She began buying them from Canada and said she has saved “significant amounts.” She noted her medicines are made by the same makers that supply the U.S. domestic market. Her experience was one factor in her decision to open an Rx Depot outlet in September 2002.

She said Rx Depot works only with licensed Canadian pharmacists. Customers provide their prescription to Rx Depot, which sends a copy to a Canadian pharmacist. A physician there reviews the prescription to ensure it is reasonable and then writes one of his own, which the Canadian pharmacist fills and sends back to the patient. Rx Depot itself does not handle any controlled substances. Its revenue comes from fees the Canadian pharmacies pay for having the U.S. prescriptions steered their way.

Two weeks after the symposium, U.S. District Judge Claire Eagan in Oklahoma shut down Rx Depot because it facilitates “illegal activity determined by Congress to harm the public interest.” By law, only drug manufacturers are allowed to ship medicines into the U.S.

Lauzen also challenged the notion that drugs from Canada are unsafe.

“Folks from the governor’s delegation say the system in Canada is very similar, if not more thorough, than our own systems for taking care of quality,” he said.

Lauzen also criticized drug companies’ profit levels, which he said are two to three times higher than those of typical businesses. And he noted drug companies typically spend two-and-a-half to three times more on marketing and administration than on research and development.

Price Controls

Sean Heather, executive director of Congressional public affairs for the U.S. Chamber of Commerce, said he believes safety, though a legitimate concern, is really “a red herring” in the importation debate. He said the real issue, which Congress refuses to acknowledge, is whether the United States should impose price controls on prescription drugs.

“Why not have the courage to stand up and have an honest debate over whether price control is the way to go?” Heather asked.

“We decided long ago that health care is an entitlement,” Heather said. “The decision we are struggling with is, how much health care are we entitled to? We have a real decision to make, whether we want to, for the first time, in a very severe way, inhibit the capitalist system. Europe is deciding, as we speak, to go back to a market-based system. Why is that? Because in the past 20 years or so, they have watched their pharmaceutical industries dry up.”

He said Europe used to produce one-third of the world’s drug research, with the United States accounting for another third, and the rest of the world the remaining third. Over the past 20 years, the United States has come to represent half of the world’s drug research as European drug firms and others cut back on research to cover declining revenues, a result of drug price controls imposed in those countries.

Stephen Entin, president and executive director of the Institute for Research on the Economics of Taxation, explained that “irritating as this is, the rest of the world have become free riders on the strength of the U.S. market.”

The costs to develop a new drug can reach $1 billion, Entin said, but once the formula is known, the drug can be produced for pennies a unit. “That’s why we have patents,” he noted. “Companies must be able to recover those costs. Reimportation would effectively cripple patent protections.”

Noted Grace-Marie Turner, president of the Galen Institute, “Americans are angry at paying a disproportionate share of research and development costs. Why do we do this? Because of laws that say if you don’t work your patent, we can allow others to take your patent. So the pharmaceutical companies protect their property rights by agreeing to sell at below-market rates [in price-controlling nations].”

A Welfare Issue

Entin said drug affordability is “a welfare issue, arising because some people have low incomes. It is not a problem with the price of the drugs. The right reaction is to leave the drug prices alone and to give the poor the wherewithal to go out and purchase the medicines they need like everyone else.”

Entin cited food stamps and housing vouchers as examples of programs that help people afford necessities without distorting normal pricing for those items. He said low-income people, or those who cannot reasonably be expected to afford expensive drugs they may need, should receive similar government assistance.

“What do you think would happen if we tried to help the poor buy food by telling grocery stores they would have to sell everything at 30 percent off?” Entin asked. “Or if we told farmers they would get only half of what they now get for corn and wheat and soybeans? The farmers would go broke. Grocery stores, some of them, would shut down, until there was enough of a shortage to drive the basic price up so that the discount would yield the same price as it did before the intervention.”

John Graham, director of health and pharmaceutical policy research at the Vancouver, British Columbia-based Fraser Institute, agreed with Entin that government policy should focus on helping persons who cannot afford prescription medicines.

He also noted that because of Canada’s price controls, the country typically receives new drugs 39 weeks after they become available in the United States. He also cited studies showing Canadians pay less than Americans for virtually everything, from computer software and electronics to appliances and automobiles. This is because the United States is a wealthier nation, and producers of goods and services know that Americans can afford higher prices.

Goldberg also noted new drugs for many conditions are used less frequently in European countries and Canada than in the United States, a fact European governments and consumers themselves have begun to recognize.

“The European Commission is taking note of that,” Goldberg said. “One of the reasons they want to loosen up the price control regime is because they want to get these drugs to their patients more quickly.”

Doing so could lower medical spending overall. Several panelists pointed out that modern drugs are reducing the number of persons on disability or in need of hospitalization or surgical procedures, thus lowering medical costs for those services.

Goldberg said the United Kingdom, which keeps out new and expensive anti-cancer drugs to hold down medical spending, has a cancer survival rate “that is the worst of the industrialized countries, worse than India. Death is sometimes cost-effective–but it is also a way of letting people know things are not working.”

Steve Stanek is an Illinois-based freelance writer. His email address is [email protected].

For more information …

Video clips and transcripts of the presentations delivered at the National Symposium on Drug Importation are available on The Heartland Institute’s Web site at http://www.heartland.org/Article.cfm?artId=13270.