Kerry’s Rx Plan Short On Facts

Published June 1, 2004

Sen. John Kerry (D-Massachusetts) punctuated his emergence as the Democratic Party’s Presidential front-runner with a drug plan he claims would lower prescription prices. “I will repeal the ban on reimporting drugs from Canada,” pledged Kerry.

What Kerry left unsaid is that his plan would in fact import drug price controls, not drugs, from Canada. If Kerry’s plan were enacted, it would almost surely backfire. Critical drugs would become less available–and more expensive–for Canadians and Americans alike.

In Canada, the government strictly controls drug pricing, creating artificial, below-market prices that don’t reflect actual costs. The Patented Medicines Prices Review Board also determines which drugs get on the Canadian formulary–the list of drugs approved for use by Canadian citizens.

U.S. pharmaceutical companies, which develop the vast majority of cutting-edge drugs, are prohibited by Canadian law from selling their drugs in Canada at market prices. They can either sell to Canadians at a discount, or not sell at all.

Because the Canadian market for pharmaceuticals is one-tenth the size of the U.S. market, selling to Canadians at a discount is more a nuisance than a deal-breaker. But everyone can’t get a discount. If U.S. pharmaceutical corporations see their drugs returning en masse to the U.S. at Canada’s below-market prices, they will respond by refusing to sell drugs to Canada altogether.

This is already beginning to happen. As more Americans use the Internet to buy drugs from Canada, pharmaceutical companies such as Pfizer, Lilly, and GlaxoSmithKline are now limiting their Canadian shipments. That means fewer advanced drugs for Canadians.

Disaster for Both Countries

Today, many Canadians travel south for life-enhancing drugs–including Embrel and Remicade for arthritis, Reyataz for AIDS, and Glucophage 2 for diabetes–that are simply unavailable in Canada. Some are available in one province but not another. Between 1999 and 2001, 100 new drugs came on the market in the U.S. Only 43 of those made it on the Canadian formulary.

That’s why David MacKay, head of the Canadian International Pharmacy Association–which represents Canada’s 25 largest Internet pharmacists–isn’t so keen on the idea of opening Canada’s price-control utopia to a flood of American consumers. He says the firms he represents don’t want to build their business on the “backs of Canadians.”

If Kerry’s plan were implemented and America tried to piggyback on Canada’s price controls, it would create an unprecedented health care disaster not just in Canada, but in the U.S. as well. American companies spend an average of $800 million to develop a new drug. They must be able to recoup that investment, which is why the price of a drug is so much higher than the simple cost of manufacturing a pill. Kerry’s proposal overlooks the unseen cost of research and development.

Politicians love to give away “free” stuff. But beyond the tax-subsidized fantasy world of Washington, DC, real companies go belly up everyday. It’s simply not possible to fill America’s medicine cabinets at below-market prices.

Think of the airlines and discount seats. If everyone were to fly in the heavily 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. “Cheap drugs” are good politics, but lousy economics.

Less Expensive in the U.S.

Another key problem with importing Canada’s system is that price controls create bureaucracy. The last thing America’s health care system needs is to get bogged down in Canada’s fever swamp of rules and regulations.

Many life-saving drugs aren’t available at all in Canada simply because of an overabundance of red tape. For example, approval of AIDS drugs takes twice as long in Canada as it does in the U.S.

Kerry should also note that drugs in Canada aren’t always less expensive. He claims prescription prices in Canada “can be 30 to 80 percent lower for the same drug.” But that is misleading, as he’s talking only about non-generic drugs.

Recent FDA research finds Americans buying drugs from Canada may pay a lot more for their pharmaceuticals than they would if they had simply bought the generic version in the U.S. A 2001 Canadian study concluded 75 percent of the 27 most popular generic drugs were significantly cheaper in the U.S.

One good example is the cost of generic Prozac. In mid-January, the Web site reported one hundred 20-milligram pills sell for $13.19 in the U.S. The next lowest price in any other nation was $49.78.

That’s the reality of socialist medicine. Before Kerry turns his initiative into a platform, he should call someone in Canada who’s suffering from AIDS, hepatitis C, or arthritis. Take it from me–a Canadian–America doesn’t want Canada’s price controls … at any cost.

Sally C. Pipes, a former Canadian resident, is president and CEO of the California-based Pacific Research Institute. Her email address is [email protected].