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October 16, 2004

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» Kerry Flip-Flops on Scientific Advancement from Truth, Lies & Common Sense
Allowing the reimportation of lower cost, U.S. made medications is the same as agreeing to out-sourcing price control decisions to other countries. [Read More]

» Re-importing drugs... from Mental Hiccups
The New York Times looks at the drug re-importation issue and concludes that it won't work. This makes sense to me. [Read More]

» NYT article says that reimporting drugs from Canada isn't a solution. from blogtron.com
Well it would be a solution if the drug companies manufactured millions of extra doses, at reduced prices, specifically so they could be reimported from Canada into America. Since drug companies, like many other companies, aren't willing to commit fi... [Read More]

» Drug reimportation from A Physicist's Perspective
During the last two presidential debates, there was some discussion about saving consumers money by reimporting drugs from Canada. I don't really know much about this, so I don't plan to say anything. But JustOneMinute has a nice post on this -- appa... [Read More]

Comments

Jim Glass

It was about time for someone in the media to notice that US drug companies aren't going to ship drugs for 300 million people to a country with 30 million.

It might also be time to run a story on how many Americans are going to die from a lack of 50 million flu shots -- compared to, say, the number who have been killed in Iraq. IIRC, 36,000 die annually even with full availability of vaccines, so project from there.

Then it might consider how the government using its purchasing power as the big buyer of the vaccine to drive down the price and keep cost low has contributed to driving alternate supplies of the flu vaccine out of the market, and created this shortfall. Before we adopt this model for all drugs.

Eric Anondson

One nitpick I had with the article was that it only touched upon the effect of existing regulation on the vaccine shortage. They just said "regulation" without going into the details for how those "regulations" go put there or how they hurt vaccine supplies in detail.

The article did point out that the US once had dozens of vaccine makers only a few years ago. A little more examination into the factors that allowed all those companies to flourish then would be appropriate, and also some examination into how the US could tempt more US-based vaccine makers into the business.

Not having enough US-based vaccine maker is a homeland security issue of far more urgent importance than energy independence.

Exploration into Kerry's vote record on the regulations that have been used to chase native vaccine-makers out of the business would be a good idea.

Forbes

The vaccine situation is the natural result of the 800 lb gorilla of government imposing its weight on the marketplace. Price controls (government as the sole purchaser) limits supply, and by extension, investment in mfg facilities. For whatever perserse reason, politicians seem to believe that applying more of what causes the problem, will solve the problem. IIRC, Washington first got into the vaccine biz via "emergencies," e.g. polio vaccine in the late '50s (?), swine flu in '75, then supplying/subsidizing for the poor, then children, and finally as the sole purchaser so as to guarantee the "discount" associated with volume purchasing. In this manner, all the really smart people in Washington turned a commodity product market into government contract market--precisely how you get $800 hammers and toilet seats. Friggin' geiuses!

In no way does Canada allow Americans to buy drugs from their supplies--otherwise their favorable deal is up--because shipments to Canada will be on allocation and American purchases will cause Canadian shortages.

Again, cap prices and you get shortages. Someone send these politicians to Econ 101. How stupid can you be? (rhetorical question)

ed

Hmmm.

The issue isn't importation of drugs from Canada. It's the importation of drugs from unknown third party manufacturers over the internet. No quality assurances, controls or any ability to track. No way to determine if the drugs are actually as advertised or if they're old, contaminated, adulterated, diluted or just plain garbage.

Aaron

Someone ought to ask Kerry how he can be against outsourcing while at the same time support drug re-importation. Re-import of drugs is simply outsourcing that business so foreigners make the money not Americans, and we lose all those jobs as well.

It's funny how consumers are against "outsourcing" until they are asked to pay for domestic products that cost more than they would like.

Brian

There's nothing pointless about trying to reimport drugs. Nobody is trying to pretend that it's going to be a magic solution, including Kerry and Edwards. In fact, the only reason they emphasize it so much, I believe, is that, for some reason, it's popular among seniors.

There hasn't been a great deal of research done on the issue, so it's kind of stupid to act like the case is completely closed. We can all assume what would result, but until more is done to study this issue, we shouldn't hold firm opinions.

The real question should be, why aren't we allowing the actuary for some government programs, for instance, to bargain with companies? Since Medicare (or Medicaid, if not that) is the biggest buyer of prescription drugs, it could do a lot to hold down prices. It wouldn't be a price control, which is a good thing, and while a lower price would result in lower profits for drug companies, I don't think it makes much sense to assume that would be the beginning of the end. For one thing, again, it's not a price control. It's a process of bargaining. And what's more, the overall chunk of money spend on research and development has, from what I've heard, been greatly overstated. More is in fact spent on things like advertising. If that is indeed the case, then I am not as worried about the companies losing money.

Also, why aren't we pressuring other countries to loosen their price controls?

Brian

Sullivan,

Every time something like this happens, people try to blame Hillary Clinton. Yet each time, they fail, because their claims are what yours above are: garbage.

John Thacker

For one thing, again, it's not a price control. It's a process of bargaining.

Well, it would be negotiating from, first off, a near-monopsony position (the single-buyer equivalent to monopoly), and, second, from an unusual position of strength due to being the government and having the power to break patents. Governments throughout the world have and do use (the threat of, mostly) their ability to break patents to lower drug prices. Thanks to the ability to break patents, they would most likely be able to, just like other governments, negotiate a price somewhat near the marginal cost, which means, of course, no paying for R&D.

Most importantly, Brian, if you understand that price controls in other countries raise our prices, because we pay for R&D, then you should realize that Medicaid and Medicare negotiated low drug prices are very likely to raise prices for everybody else, not "do a lot to hold down prices."

And what's more, the overall chunk of money spend on research and development has, from what I've heard, been greatly overstated. More is in fact spent on things like advertising.

Sigh. Advertising is designed to get people to buy more. When advertising works, it pays for itself by increasing profit. Assuming that the company is trying to maximize profit, then if you cut all advertising out of the budget, the company would make less money. More specifically, because less advertising would mean fewer sales for a particular drug, less advertising would mean LESS R&D spending as well and less drug development. Nobody has to raise the price of a drug to "pay for" advertising that pays for itself by increasing the number of doses sold.

What sort of drugs do companies advertise? They certainly don't advertise drugs that people just take for acute conditions because they couldn't live otherwise. When was the last time you saw stroke medication, insulin, vaccines, AIDS medication, or anything like that advertised? Drugs which are advertised are "lifestyle drugs," drugs that treat conditions that people might leave untreated. That ranges from impotence to allergies to baldness to depression to a high cholesterol level-- all things that people might not tell their doctor about, not know that there's treatment for, and just decide to live with. In cases like that, again, advertising means more profit, and supports the R&D of these types of drugs. No one knew the extence of the impotence problem, nor that people would pay to treat it, until Viagara started advertising.

Now, you can criticize advertising in situations where it seems like it's not growing the market, but rather about multiple drugs taking market share from each other, such as in the current impotence market. However, those cases are exactly the ones where there's competition between different drugs and drug companies, and thus lower prices because of that.

Now if you want to go after something, the junkets and free samples and other things offered to doctors to try to induce prescriptions of a particular drug are a much graver threat than advertising to the public, thanks to the principal agent problem. (Your doctor's interest is not always your interest, and there's a risk that a doctor might prescribe a more expensive medicine thanks to what is, in effect, bribery.)

Brian

"Well, it would be negotiating from, first off, a near-monopsony position (the single-buyer equivalent to monopoly)..."

I've heard this claim before, but can you put an exact number on it?

Tim Noah in a Slate column made a good point: things like this happen with defense contractors. Why is it so bad if it happens with drugs? Is it the elasticity or something? (I am not, by the way, in a Kucinich style of thinking that we need to slash the defense budget, so don't think that.)

"...and, second, from an unusual position of strength due to being the government and having the power to break patents."

And what makes you think that this is going to happen?

"then you should realize that Medicaid and Medicare negotiated low drug prices are very likely to raise prices for everybody else"

For other people. I'm not sure I'm entirely bothered by that.

"Advertising is designed to get people to buy more. When advertising works, it pays for itself by increasing profit. Assuming that the company is trying to maximize profit, then if you cut all advertising out of the budget, the company would make less money."

I resent this condescending tone. Besides that, I never said that we should make them cut out all advertising or anything like that.

"When was the last time you saw stroke medication, insulin, vaccines, AIDS medication, or anything like that advertised?"

How often do new breakthroughs in these conditions, besides those for AIDS, appear?

"NNow, you can criticize advertising in situations where it seems like it's not growing the market, but rather about multiple drugs taking market share from each other, such as in the current impotence market. However, those cases are exactly the ones where there's competition between different drugs and drug companies, and thus lower prices because of that."

I'm not sure how any of that relates to what I was talking about.

"Now if you want to go after something, the junkets and free samples and other things offered to doctors to try to induce prescriptions of a particular drug are a much graver threat than advertising to the public, thanks to the principal agent problem. (Your doctor's interest is not always your interest, and there's a risk that a doctor might prescribe a more expensive medicine thanks to what is, in effect, bribery.)"

You have a point there.

----

Basically, I was saying that, contrary to the hysterical claims from some, R&D does not consume the majority of the costs for drug companies. It's about a third, in fact, and believe it or not, advertising consumes almost as much. Maybe there have been studies done that I'm not aware of that prove me wrong, but I don't see how a slight reduction in the profits is going to kill those companies. Reimportation, if it is not as bad as some think, might make a difference. (As I said above, there hasn't been a lot of research on this, so it's silly to draw definite conclusions.) Negotiating is another way to do it.

This piece from CAP does a good job of correcting some misinformation, by the way.

I've concluded that we will have to to live with high drug prices, but how high is a good question. If we can bring down some prices and not kill the industry, let's do it.

Cecil Turner

Jim Miller makes a good case that the main issue is over-regulation and lawsuits (and, as usual, he's well-reasoned and articulate, even if you don't agree with him). Lawsuits are certainly a big reason for the rising cost of health care (and malpractice insurance premiums which have caused at least one health care professional--my wife--to find work teaching rather than practicing).

Drug reimportation from Canada is a silly concept anyway, as Jim Glass pointed out in his first paragraph. But the proof is probably too long to be made in a short answer debate format, especially by someone as tongue-tied as the President. I also think the flu vaccine situation nicely illustrates the dangers of half-a**ed government regulation (and in that regard is remarkably similar to California's recent energy debacle).

TM

Re Tim Noah is Slate comparing Big Pharma to Defense - hah! I said the same thing almost a year ago, and last month (so it *must* be a bad idea). My rhetorical question each time - now liberals love the defense industry as a model? I missed that memo.

As to the notion that a slight reduction in the profit of the drug companies won't kill them - sure, that is probably true. However, the legal and regulatory environment that leads to a "slight" reduction could just as easily lead to a devastating reduction. I doubt that Europe set out to ruin their pharmaceutical industry, but they have managed it - there are always plenty of voters who want cheaper drugs NOW.

The reimportation from Canada argument does not need further study - one minute's reflection will tell you that there are roughly 30MM Canadians and 280 MM Americans. If we *all* had access to Canadian drugs at Canadian prices, there would not be enough left for the Canadians, who would be obliged to slap on a ban on re-exportation.

The only reason re-importation works now is not many of us can exploit the price difference. And the reason that it is politically popular is that it panders to people's sense that somebody else is getting a deal, and they want in on it.

As to the notion that Kerry is not pandering and exploiting people's ignorance on this subject, I refer you to his website. His third bullet point:

Cut the Cost of Prescription Drugs
The Kerry-Edwards plan will reduce prescription drug prices by allowing the re-importation of safe prescription drugs from Canada, overhauling the Medicare drug plan, ensuring low-cost drugs, and ending artificial barriers to generic drug competition.

When Bush says stuff like that, it is called lying. Sorry, "mis-leading".

Eric Anondson

The reimportation from Canada argument does not need further study - one minute's reflection will tell you that there are roughly 30MM Canadians and 280 MM Americans. If we *all* had access to Canadian drugs at Canadian prices, there would not be enough left for the Canadians, who would be obliged to slap on a ban on re-exportation.

Indeed, Canada already has had a moment of reflection upon the issue.: http://news.ft.com/cms/s/1138adf6-2076-11d9-af19-00000e2511c8.html

Canadians don't want American's buying their cheap drugs.

Dan

Just a note in this regard, something I posted earlier today from wire reports:
http://carnivorousconservative.typepad.com/carnivorous_conservative/2004/10/kerry_curses_fo.html

More than 30 Canadian internet pharmacies have decided not to accept bulk orders of prescription drugs from US states and municipalities.
The move delivers a potentially serious setback to US politicians most notably Democratic presidential candidate John Kerry

Dan

sorry. Don't know why the full link won't post. But it's at my blog: Kerry: Curses Foiled Again - with a linkto the wire story.

Brian

"My rhetorical question each time - now liberals love the defense industry as a model?"

I don't like that implication, for a number of different reasons.

"As to the notion that a slight reduction in the profit of the drug companies won't kill them - sure, that is probably true. However, the legal and regulatory environment that leads to a "slight" reduction could just as easily lead to a devastating reduction."

The problem with this type of argument is that we can make it for anything. Sure, a lot of bad shit could happen, but that shouldn't stop us from trying new things, at varying rates.

Then again, despite my cynical, pessimistic side, I believe every problem has a solution, or as I sometimes say, every solution has a problem.

"The reimportation from Canada argument does not need further study - one minute's reflection will tell you that there are roughly 30MM Canadians and 280 MM Americans. If we *all* had access to Canadian drugs at Canadian prices, there would not be enough left for the Canadians, who would be obliged to slap on a ban on re-exportation."

Call me crazy, but I'm going to take the word of Brad DeLong, who, although not specifically a health care economist, spent a lot of time working on issues like this. For starters, I refer you to this. Are you aware of a great body of knowledge on this? I'm not, and if you are, I'd like you to refer me to a few things.

"As to the notion that Kerry is not pandering and exploiting people's ignorance on this subject, I refer you to his website."

What the hell? When I said "
In fact, the only reason they emphasize it so much, I believe, is that, for some reason, it's popular among seniors," I was trying to indicate that while they were exploiting the issue, they just weren't promising a magic solution. They are doing what politicians do, but they aren't promising anything grand, because they aren't idiots.

"When Bush says stuff like that, it is called lying. Sorry, 'mis-leading'."

What a nice little dream world you created. I'm prepared to give all politicians, including Bush, a high bullshit factor when they run for office. I just take issue with false, completely outrageous claims, like the one that Kerry is planning to enact a massive government run health care program. He's not being misleading there. He's simply lying.


Reid

The real question is, why do we subsidize other nations' drug purchases by paying for the R&D here and, is there any way to stop that?

We subsidize their drugs, we pay for a defense umbrella so that they do not have to spend as much as we do on defense (one of the laughable things about Kerry's proposal to get "allies" to help us in Iraq, by which he apparently means France and Germany and none of the "coerced and bribed" whom he has managed to alienate, is that their maximum contribution would be so utterly negligible anyway). Basically, the entire industrial world gets a free ride on our backs, and not just in these two areas.

Is it something we should or could change? After all, the current system at least keeps the peace and keeps the wheels of international commerce turning, to our immeasurable benefit. But, sometimes, it really ticks me off (and "ticks" is an intentional choice of words, if you get my drift). How is it that we are so damned productive that we carry the whole lot of them on our backs and still outperform them in most categories?

TM

Call me crazy, but I'm going to take the word of Brad DeLong, who, although not specifically a health care economist, spent a lot of time working on issues like this. For starters, I refer you to this.

And what is his word? I agree with is point that the "Canadian drugs will kill you" argument seems phony (although Kerry mentions the safety issue, too). If you are reading his post to say that re-importation *will* work, well, that is not what is says. The Prof is sly, not stupid.

For example, he describes this as a "good question":

If we allow competition from price-capped Canadian pharmacies, would it in fact reduce U.S. prices enough to seriously degrade the returns to drug research and development, and markedly slow the pace of drug development and innovation?

Very artful - seniors really want re-importation in order to get cheaper drugs, not to protect R&D. The most likely outcome of re-importation is a change in the laws in Canada, or extreme shortages plus rationing up North. Note that the actual impact on R&D in the US will probably be negligible, just as the impact on prices will be negligible. But if you ask the right question, the answer does not seem so scary.

He concludes:

What are the answers to all of these questions?

I don't know for sure. The data needed for full and proper analyses are locked up inside the drug companies, and they don't like to share.

But the fact that opponents of drug importation are using the fake argument that Canadian drugs are unsafe — and that they are not using the (maybe true) argument that importation could undermine incentives for drug development — does tell us a great deal about the strength of the anti-importation arguments.

Well, I don't know what arguments opponents are making - I know the President settled for an easy sound-bite about safety, but I didn't hear him try to explain the problems with raising the minimum wage, either.

But I am reading this LA Times column as a cleverly phrased "Hey, why not?", rather than a serious attempt to explain why reimportation might lower drug prices significantly here.

Slartibartfast

How hard is this?

The pharma companies are going to make their profit, period. If a respectable fraction of drugs get funneled through Canada, then the price of drugs in Canada is going to:

1) Stay the same, giving our seniors something for nothing.

2) Increase, because TANSTAAFL.

3) Decrease, because I'm an idiot.

Pick one. But if you picked anything other than 2), you need to consider paying attention during your next pass through Econ. Pharma companies will make their profit. And you can't make the same profit when your revenue gets cut and expenses are the same.

John Thacker

Brian, I'll try to avoid a condescending tone, but your comments on advertising are just plain confused. This statement of yours makes no sense whatsoever:

"Basically, I was saying that, contrary to the hysterical claims from some, R&D does not consume the majority of the costs for drug companies. It's about a third, in fact, and believe it or not, advertising consumes almost as much. Maybe there have been studies done that I'm not aware of that prove me wrong, but I don't see how a slight reduction in the profits is going to kill those companies."

Anyone who makes this statement, especially the first one, may read Professor DeLong but almost surely doesn't understand economics. Not to put too fine a point on your first sentence, but so what? What does it matter what percentage is spent on advertising? If less money were spent on advertising, would that money go to R&D? NO. If the advertising is doing its job (as opposed to if it's useless, costing the company profits, and should be cut anyway), then it increases profit. By increasing profit and sales of each drug, it increases overall R&D. Advertising does not compete with R&D.

How does a drug company decide whether to research and produce a drug? As anything (or, say, this study in the Quarterly Journal of Economics) will tell you, drug companies, in the long run, have to compare the cost of doing R&D with the potential profits from creating the drug, and two important things are market size and price. The more people who will buy the drug, the more profitable it is for the drug company to research and produce it, and the more such drugs will be researched. That's obvious, surely.

Advertising increases the market size for drugs. Before Viagara, most companies and analysts didn't believe that lots of people would buy an anti-impotence drug. Pfizer correctly believed that people would buy it, but that advertising was necessary. Since there hadn't been working anti-impotence drugs before, men were usually too embarrassed to tell their doctor of the problem and ask for a treatment that they didn't know existed. Hence, advertising. Thanks to Viagara demonstrating that there was a market, and it was large, other companies also jumped in.

Advertising occurs in the drug industry only when it will increase the chance that someone will buy a drug. (That was the point of my earlier digression; there never are ads for immediate, acute, life-threatening conditions that everyone has treated, and everyone goes to the doctor or hospital and gets whatever they're told to get.) There are two possible cases: One is where there are no closely competing drugs, and the other is where there are. In the former, advertising clearly increases the total market for the drug. This makes the drug much more profitable to research, and increases R&D. Without this advertising, fewer drugs would be researched, because they wouldn't be profitable to be researched. In the latter case, some (unknown, usually) amount of the advertising makes the market larger, but some of it is merely about fighting over market share. However, as I said, I'm less worried about those cases because in those very cases there is competition between drugs which also lowers prices for consumers.

As for your second statement, you again clearly fail to understand economics. Things happen on the margin. Drug companies research drugs which are profitable; they don't research drugs which aren't. Some drugs are barely approved for research because they're expected to be barely profitable or break-even. If you make the price of drugs lower, then some drugs will still be profitable, but others that were barely profitable will become so no longer. Drug companies will continue to make the first ones, but no longer make the second one. They won't simply take a loss, you know. Companies try to maximize profit. In fact, the drug companies will likely still make a profit, perhaps even the same profit margin, while simply researching fewer drugs than they used to. The concern is not, and never is, about "killing" the drug companies. The concern is that the entire R&D market will shrink, because fewer drugs will be profitable to research. The drug companies would live on, but you would never even notice all the drugs that would have otherwise been researched that you prevented.

Of course, the arguments are averages, and often companies are wrong in the short run about exactly which drugs will be profitable and so on. They're also wrong about whether a piece of advertising will work to grow the market. But in the long run it all holds. Profit disciplines companies. Advertising is, like anything else, to increase profit, and thus pays for itself. Decrease the market size (by banning advertising) or decrease the price, and you decrease the profitability of drugs, and decrease the number of drugs researched.

garrett

Argh! I don't know where to start. This being my first post here I fear I will try to bite off too much, but here goes.

In an attempt to describe how countries use the threat of patent breaking, as I understand it, if a new drug is created, called XYZ made by an american company, tested it, got it approved with the FDA, and starts selling it. Canada, Western Europe, Japan, etc. all contact the drug company to say that they want to buy XYZ, but they demand to see the books. These countries tell the compnay that they will buy the drug for the cost of making it, M, plus a small profit, P. The company is forced to either accept the deal and make the profit, or make no money knowing that those countries will take the formula and have a host company make the drug.

Paul Zrimsek

Ordinarily, Garrett, the threat of patent breaking doesn't come into play. As long as the controlled price in the new country covers the marginal cost of producing the drug for it (including the cost of the capital needed to expand production), it will be in the best interest of the producer to sell the drug there at the controlled price even without the threat of patent-breaking. True, the controlled price does little if anything to help defray the fixed costs of R&D and of FDA approval, but those are sunk costs for the company and so don't enter into the decision.

Brian

"If you are reading his post to say that re-importation *will* work, well, that is not what is says. The Prof is sly, not stupid."

Uh, no. What I said twas that more reseearch needs to be done before we reach a conclusion. He said that, too.

"Very artful - seniors really want re-importation in order to get cheaper drugs, not to protect R&D. The most likely outcome of re-importation is a change in the laws in Canada, or extreme shortages plus rationing up North. Note that the actual impact on R&D in the US will probably be negligible, just as the impact on prices will be negligible. But if you ask the right question, the answer does not seem so scary."

I'm not really sure how this contradicts anything that I said.

"But I am reading this LA Times column as a cleverly phrased "Hey, why not?", rather than a serious attempt to explain why reimportation might lower drug prices significantly here."

By mentionining DeLong's piece in the Times, I was simply trying to prove that we don't have a great deal of evidence that allows us to reach any conclusions. Thus, we can think something, but we cannot be certain.

Brian

"Pick one. But if you picked anything other than 2), you need to consider paying attention during your next pass through Econ. Pharma companies will make their profit. And you can't make the same profit when your revenue gets cut and expenses are the same."

Excuse me if I sound bitter...actually, wait, screw that. I don't care if I sound bitter. I don't like talking with people like you (this doesn't include people like Mr. Maguire, however). You are a condescending jerk.

I realize that nothing is free. Don't patronize me. My point was, R&D doesn't compose the vast majority of the budgets of drug companies. So a tiny reduction in profits would give them less money, yes, but I don't see how R&D is going to suffer an extreme drop as long as the the drop in profit isn't extreme.

Could I be wrong? Sure. But before you even try to refute me, you have to at least understand what I am saying.

Brian

John Thacker,

You could have just said what you wanted to say once. There was no need to repeat yourself so many times.

And in that spirit, see what I wrote above.

TM

Brian, to take an extreme example, I can't prove that if you blindfold me and put me in the middle of the LA Freeway, I won't survive. Cars might stop, I might develop a Spider sense, (or get whatever Daredevil has) - the possibilities are endless.

That does not mean that the experiment is worth performing, or that there is much doubt about it being a bad idea.

And I have read this advice, and consider it to be woterh repeating - don't be overly impressed by experts, including economists. In this case, what does your common sense tell you? There really are 280 milion Americans and 30 million Canadians. Do you seriously expect drug companies to ship ten times their previous allocations to Canada at the Canadian-controlled price so that they can watch it be re-shipped to the US?

People have put up clips from stories pointing out that the Canadians are worried about shortages. Does that strike you as a plausible outcome of a major US re-importation scheme?

The CBO analysis is here. Some excerpts of the obvious points, and their conclusion:

Foreign Governments. Many foreign governments would have incentives to limit the volume of drugs diverted to the United States, given both their interest in preventing shortages or higher prices in their own countries and the drugmakers' ability to limit supply. Depending on domestic circumstances, governments might simply influence purchasing arrangements by agreeing to export restrictions by contract, for example, or by imposing statutory restrictions on imports.

Drugmakers. Drugmakers would have an incentive to respond so as to minimize parallel trade or to reduce its rewards. Among their options, as mentioned above, are contract restrictions between manufacturers and wholesalers prohibiting exports, and limits on the volume shipped to markets where orders appear to exceed local needs. Price hikes outside the United States would reduce the price differential and hence the incentive for parallel trade; in some circumstances, even the threat of price hikes could encourage contract restrictions.

Conclusion: ...H.R. 2427, for example, which would have permitted importation from a broad set of industrialized countries, was estimated to reduce total drug spending by $40 billion over 10 years, or by about 1 percent.(14) Permitting importation only from Canada would produce a negligible reduction in drug spending.

All of which is common sense.

Brian

"don't be overly impressed by experts, including economists"

I go to them because I'm not an expert. I go to Brad DeLong because he's usually reliable (and funny, too). Does that mean I cannot think for myself? Of course not.

"Do you seriously expect drug companies to ship ten times their previous allocations to Canada at the Canadian-controlled price so that they can watch it be re-shipped to the US?"

UUh, no. I never said that or implied anything like it.

"Does that strike you as a plausible outcome of a major US re-importation scheme?"

Yes, it does. However, we could always get them to lift their price controls.

"All of which is common sense."

Indeed. But I (like Kerry and Edwards) never claimed it was going to make all the difference in the world. I simply have stated or implied that it might make some difference, and that if the costs of a slight reduction in the profits of drug companies aren't as great as the benefits to consumers, it's an avenue worth pursuing. I don't think anyone has put exact numbers on it, just as nobody put an exact number on the leverage that the US government has in negotiating drug prices.

Is it the grand solution that we are all looking for? Not a chance. Could it make a difference? Sure. Even if that difference isn't grand, I'm not willing to take anything off the table just yet (besides the obviously bad things).


Andy Freeman

> If we can bring down some prices and not kill the industry, let's do it.

I've got a better idea - why don't you do it?

Invest YOUR money in a drug company that works the way you want. If you're correct, you'll get rich AND you'll provide lower cost drugs. The latter is a good thing even if you do nothing with your new-found wealth.

If you're wrong, well, why shouldn't you pay the price for being wrong? Or rather, why should someone else be hurt by your error?

When someone isn't willing to put their skin in the game, that's a pretty good indicator as to their confidence and self-perceived competence. If you don't really believe in your theory, why should anyone else?

Old Whig

Ah, but Andy, it's a failure of the market that I can't afford to start my own drug company.

Derek Lowe

I write what I think is the only blog from inside the drug industry (I'm a medicinal chemist), and I couldn't believe my eyes when I saw the NY Times article. (http://www.corante.com/pipeline/archives/2004/10/17/preach_it_brother.php). It's surely the most sensible thing on the topic that's ever appeared there.

My worry has been with the way my industry has played this as a safety issue, which I think is largely a bogus argument. It's an economic issue, and the excellent arguments against reimportation are economic ones. (The "Drug Prices" category on my site has plenty of fulminations on this theme.)

TM

I saw more than enough of Derek Lowe last night, thank you.

And I agree that the safety issue is a cop-out. But it does appeal to the FDA's desire to regulate everything that moves, so by gathering the bureaucrats to their side it may be clever bureaucratic ju-jitsu.

Brian

"I've got a better idea - why don't you do it?"

What a ridiculous argument.

TM

Brian, that seems to be your argument - no one can suggest a reason that reimporting price controlled drugs from a market one-tenth the size of the US will help, but you are sure we need more study, and maybe ought to try it.

Brian

Tom,

It depends on what you mean by "help." Will it make a massive difference? Probably not. But could it make a slight difference, enough so that reimportation could be part of a multi-step solution? It's possible.
The part CBO report you cited said the difference would be "negligible," not "nothing." Meanwhile, could all of this produce some nasty side effects? Sure.

But again, we don't have a lot of studies done on this, as Brad DeLong noted. Therefore, we shouldn't act as if we are certain about what would happen.

Simply put, I am open to this idea. I don't want to dive in, but rather, walk down the stairs.

Aaron

Everyone is so eager to make a "tiny" reduction in drug companies' profits.

Maybe it would be simpler to make people pay a "tiny" bit more for their drugs for the benefit of future R&D gains?

I can't see a "tiny" reduction in profits actually making any difference in the end price.

Aaron

...and if "reimportation" from Canada is such a great idea, why don't we outsource some of our government functions to India to lower our costs and provide some price competition for government employee salaries.

Look, if you want price controls, then have price-controls. Don't keep dragging Canada into it. If we do it ourselves all those jobs become American not Canadian.

Slartibartfast
I don't like talking with people like you.

Brian, please feel free to decline to address me at all from now on. It'll probably serve both of us in good stead.

Apropos of nothing Brian said, though: the implication in legalizing the re-importation of prescription drugs from Canada is that everyone will be able to legally enjoy the price break that only a few are getting now. It wouldn't even be a campaign talking point if that weren't the implication. And it's utterly untrue.

FRNM

I think this issue of importing drugs for lower prices garners way more attention than it should, given the potential to effect much greater benefit by addressing the real costs in needless deaths and higher prices caused by obsessive government regulation of the pharmaceutical market.

If you wish to learn more, look for articles by Mary Ruwart on the issue. She can state the case much more intelligently than I can.

Here is one link - http://www.isil.org/resources/lit/death-regulation.html

In the one talk of hers I have attended she mentioned one point I hadn't considered. That was given the huge costs involved in bringing a new drug to market, the drug companies are often forced to abandon many drugs which may show promise and work perfectly well, but have no hope of earning back their investment. These potentially life-saving and life-altering drugs never make it to our market because the cost of receiving FDA approval is too high. Such a cost is not necessarily felt in large categories such as arthritis or asthma treatments, but in the smaller ones that affect fewer people. Consider that the next time you hear of someone who dies or suffers from lesser-known ailments.

Brian

"Maybe it would be simpler to make people pay a 'tiny' bit more for their drugs for the benefit of future R&D gains?"

I suspect that the people who probably have to pay more probably have the least ability to actually pay.

"...and if 'reimportation' from Canada is such a great idea, why don't we outsource some of our government functions to India to lower our costs and provide some price competition for government employee salaries."

That's a ridiculous argument. (I'm not saying outsourcing is bad, by the way. I'm just saying that the comparison Aaron is making is awful.)

Brian

"Brian, please feel free to decline to address me at all from now on. It'll probably serve both of us in good stead."

I don't mind talking with people who disagree with me. I just don't like talking to you, in particular, because of the way you act.

"And it's utterly untrue."

Oh really?

Slartibartfast
I just don't like talking to you, in particular, because of the way you act.

I'm going to invite you again to just stop. I know you can do it.

Oh really?

Yes, really. This sort of response has absolutely nothing to do with how I treat you in comments, I swear.

godfodder

The bottom line is simple-- drug companies are not going to let the large profit they make in the US be threatened by the small profit they make in Canada. Prices in Canada WILL go up, and/or supply there WILL go down. Take your pick.

Canadians know this too.

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