In a strange twist of fate Republicans have become bigger supporters of prescription drug reimportation than Democrats. Democrats love to rail about greedy drug companies and preach from their bully pulpits that drug makers charge too much. The sermon goes something like this: “Americans pay the highest price for drugs in the World. Other countries get them cheaper because the government steps in and negotiates prices with drug makers.”
It is true that Americans pay the highest price for drugs of any country. If you want to know why, buy an economics textbook and read up on price discrimination, price controls and the effect of third-party payment on medical prices.
As an aside, other countries do not negotiate, rather they dictate what they are willing to pay. This is what’s known as price controls. Economists (and most Republicans) dislike price controls because it leads to shortages or slows new drug development in the case of pharmaceuticals. Price discrimination, the practice of charging different prices in different markets, works especially well with drugs. The reason it works is because the marginal cost to produce a drug is a minuscule fraction of the average cost when research & development is included. A pill selling retail for $5 apiece may only cost a penny to produce. Yet, that same drug may have taken nearly 14 years at a cost of nearly $2 billion to develop and get approved. Thus, drug makers can maximize profits by charging $5 to Americans, charging $2 to Europeans and Canadians, while patients in developing countries pay low prices of $0.50 cents. Each price increases profit, even if the lowest price is below average cost. Price discrimination is only successful if the producer can prevent arbitrage. In other words, drug makers can only charge Americans $5 if they can prevent Americans from buying their drugs for $2 from Canada. Drug reimportation is a form of arbitrage.
According to Kaiser Health News (KHN):
U.S. consumers pay some of the highest prices in the world for brand-name pharmaceuticals. Drugs are generally less expensive in Canada, where the government controls prices.
Under President Donald Trump, the federal government declared that importing drugs from Canada could be done safely — satisfying for the first time a condition spelled out in a 2003 law. The Trump administration finalized its importation rules in September 2020 just as voters were about to head to the polls.
With the legal mechanism to import Canadian drugs passed by the Trump Administration one would expect the U.S. would be awash in drugs from Canada (see photo above). As another aside, there are numerous reasons why it makes little sense to export drugs to Canada only to reimport them back into the U.S. but that is a discussion for another day. KHN goes on to say:
Florida has been waiting nearly three years for a decision from the Biden administration on its importation plan, pushed by Gov. Ron DeSantis, now a GOP presidential candidate.
Colorado filed an application with the Food and Drug Administration in December 2022 to set up an importation program, becoming among the first states to try to take advantage of the Trump rule. But federal regulators under Biden have yet to green light it.
The Biden Administration has not officially reversed the Trump rule on reimportation, but neither has the Administration shown much support for the idea. The FDA must approve state proposals and states must negotiate with drug makers (who oppose the idea). One requirement is that importation must be certified safe. There are a lot of questions about how drug reimportation would work. For instance, would Colorado merely make a deal with a large Canadian pharmacy? Would the state try to buy from a Canadian wholesaler? Drug companies would probably refuse to sell to those entities.
The drug industry, wary that a government-organized importation program could eat into its profits, opposes the idea and has argued that importation would circumvent U.S. safety controls.
Of course, it is not losing profits drug makers are concerned about. It’s about the safety of America’s drug supply. Yes, there are safety concerns from reimportation, but they are mostly overblown. The concerns mostly have to do with counterfeit drugs, the same with counterfeit handbags. However, accidentally buying a fake Gucci handbag is not dangerous to anything except your pride. The same is not true with prescription drugs. It’s only speculation on my part but I suspect the reason the Biden Administration has not moved to allow drug reimportation is because it’s preoccupied with implementing Medicare drug price negotiation.