The United States has a robust drug industry and Americans have access to a wide range of prescription drugs. However, drug prices are far higher in the U.S. than many other countries. The U.S. drug pipeline operates on what economists call price discrimination, charging some customers (countries) more than others. Price discrimination only works when sellers can prevent arbitrage, that is: blocking those in high-cost regions from buying from a lower cost market. Preventing arbitrage in the drug industry is possible due to federal laws against importing drugs by anyone except the drug manufacturer. This is done to ensure the safety of the U.S. drug supply, but it also has the effect of protecting drug company profits.
It was reported in the New York Times and the Wall Street Journal that the U.S. Food and Drug Administration (FDA) has approved Florida’s request to be the first state to legally import drugs from Canada. The point of importing drugs from Canada is to bypass high American drug prices in favor of Canada’s lower (price-controlled) drug prices. The New York Times reports:
The approval, issued in a letter to Florida Friday, is a major policy shift for the United States, and supporters hope it will be a significant step forward in the long and largely unsuccessful effort to rein in drug prices. Individuals in the United States are allowed to buy directly from Canadian pharmacies, but states have long wanted to be able to purchase medicines in bulk for their Medicaid programs, government clinics and prisons from Canadian wholesalers.
The path to cheaper drugs from Canada will not be an easy one, according to the Wall Street Journal:
Plans such as Florida’s to import drugs are likely to face obstacles, including lawsuits from drugmakers and opposition from Canadian authorities. The FDA has also raised safety concerns about importing drugs if it can’t vouch for their quality.
Yet the agency’s decision to give Florida permission adds momentum to governments’ burgeoning attempts to put a lid on soaring drug spending. The products are often priced lower in Canada and other countries.
Florida’s plans are far from a done deal. As mentioned above, numerous obstacles remain including drug company lawsuits and ensuring the safety of the U.S. drug supply chain. The biggest problem for Florida and other states involves logistics like, where to actually buy drugs from Canada.
But significant hurdles remain. Some drug manufacturers have agreements with Canadian wholesalers not to export their medicines, and the Canadian government has already taken steps to block the export of prescription drugs that are in short supply.
The population of the United States is 332 million, compared to Canada’s 38 million, while Florida has 22 million. It is still easy to see how Canadian drug wholesalers would soon run out of inventory. It is also easy to imagine U.S. drug makers starving Canada of drugs if exports threaten U.S. profits.
Canadian authorities may also seek to block shipments to ensure their patients have sufficient supplies. Last year, British Columbia moved to restrict sales to Americans of drugs used for weight loss. In 2020, Canadian Minister of Health Patricia Hajdu ordered companies not to export any drugs if doing so would create or worsen shortages at home in Canada.
Several other states, including Vermont and Colorado, have asked for permission to import drugs from Canada. Florida is the first approved, but this could merely be a warning to drug companies to slow further price increases.
Patients bristle at the thought that Americans pay the highest price for drugs. Although it was never technically legal the U.S. Customs Service has long turned a blind eye to personal reimportation from foreign websites that are not Canadian. Although I doubt it’s still the case, the most common drug illegally imported from rogue online pharmacies was generic Viagra. There are now a host of U.S. pharmacies that will prescribe and fill generic Viagra legally.
There are better ways to lower the cost of drugs than convoluted reimportation schemes that defy logic (and logistics). These include switching more prescription drugs to over the counter and creating a third class of drugs known as behind-the-counter. The latter comes with its own risks. Some drugs would have to be either classified as behind the counter, or pharmacists would need to be authorized to dispense selected drugs without a prescription. Empowering pharmacists to dispense more drugs without a prescription could run afoul of states where the physician lobby is strong. Also, many experts worry that a behind-the-counter drug class may replace over-the-counter drugs due to a risk-averse FDA.