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Cheap drugs would be a bitter pill

Opinion Editorial
July 27, 2003

By Jon Caldara

Have you thought about going up to Canada to pick up your Viagra? It might save you some money. It’s getting more and more popular. Of course there is this little problem: It’s against the law. At least for now.

Still, some politicians, doctors and single-payer health care advocates are helping seniors break the law by cramming them into buses for day trips to Canada to score cheaper drugs. Smuggling American-made drugs back into the U.S. is turning into big business. You don’t even have to leave home. There are an estimated 80 Canadian Web-based firms that specialize in shipping drugs south to Americans.

Congress is debating allowing American consumers to legally purchase prescription drugs that have been manufactured in the United States and shipped to Canada, where they are sold under Canada’s system of price controls. They call it “re-importation.” At first glance, it looks like simple free trade, but it is a step toward socializing drugs.

So why are pharmaceuticals so cheap in other countries like Canada? Beyond a much-faster drug approval system, the reason is that their health-care system is nationalized. The government buys their drugs in such gigantic quantities, they can negotiate a huge discount with the American manufacturers, Don Corleone style.

Sounds great, huh? Well, it is great, assuming that the government buys the drug you happen to need. You see, Canada picks only a handful of drugs to treat a medical condition, based on some committee’s evaluation of effectiveness and price, and then they buy it in bulk. The official list of drugs the government buys is called a “formulary.”

Let’s say you have high blood pressure, and the drug that works best for you is on the formulary. Congratulations, you win! But if you have a reaction to that drug, or if it doesn’t work for you, or if it was too expensive for the government to buy, you lose.

While the American media flack for a Canadian-like takeover of pharmaceuticals here, they never mention all the Canadians who run south of the border to get the prescription drugs they can’t get at home.

The other big reason why pharmaceuticals are cheaper in other countries: They don’t pay to develop them. The cost of manufacturing another pill at the factory is cheap. But the research and development to create a new, life-saving molecule is immense. Most drugs don’t turn a profit until the final few years before their patents run out.

Canada just pays the marginal cost of making more pills. It’s no wonder why the R&D for new drugs migrated from Europe to the United States.

So price controls, or tricks to use some other country’s price control via re-importation, will certainly get some of today’s drugs to consumers more cheaply than true market price. But what about the next generation of drugs? If a drug company knows it can never make a profit, why invest to create the next wonder drug?

In fact, if re-importation is made legal, pharmaceutical companies would be forced to reconsider their deeply discounted prices next time they renegotiate with Canada. So the chances that legalizing re-importation would result in lower drug prices here in the United States are pretty slim.

Whether or not buying back American-made pharmaceuticals through another country is legal, you should think twice before doing it. Not that you’re likely to get hauled off to jail, but because you might not get what you think you’re buying.

The World Health Organization estimates that roughly 10 percent of the world drug supply is counterfeit, mostly outside of the United States. And a recent report from the Royal Canadian Mounted Police stated that Canada has an “established counterfeit industry,” and that counterfeiting in Canada has reached an “epidemic.”

So diluting medications, slipping placeboes in with the real stuff, or selling drugs that have been damaged by excessive heat or cold is hard to control outside the border.

What about those who can’t afford prescriptions here? Instead of socializing the entire industry and stifling innovation and limiting choices for everyone, it’s time to provide prescription insurance plans to those who can’t afford them.

Yes, the new pills are pricey. But these expensive new drugs save health-care dollars. Those suffering illnesses from high blood pressure to heart disease to depression can lead a relatively normal life, without more-expensive treatment like hospitalization, thanks to these pricey designer drugs.

Please, evil drug companies, invent some more before they turn your industry into the medical version of the post office.

Jon Caldara is president of the Independence Institute in Golden. He lives in Boulder and can be reached at JonCaldara@yahoo.com.