U.S. Drug Companies Exempt from Free Markets By Andrew L. Jaffee, September 26, 2003	Home   Search   Forum   Terms

U.S. drug/pharmaceutical companies have lots of clout in Washington. They get subsidies from American taxpayers and are in many ways exempt from free-market forces. This adds up to U.S. consumers getting gouged. According to Common Cause:

One need only to ride the bus from Maine to Canada in search of cheaper prescription drugs to realize that American seniors are desperate to reduce their monthly drug bills.

Bus trips for cheaper medications are popular in my home state of Maine, and I’ve ridden along many times. The bus starts early in the morning, filled with retirees clutching prescriptions for medications that keep them active and alive. Seven hours later, they arrive at the office of a physician licensed in both the United States and Canada who rewrites their prescriptions so they can be filled in a Canadian drug store.

After the seniors get their medications, they enjoy a cup of coffee and count their savings. Last fall one bus trip had 25 passengers whose savings totaled $19,000. One woman taking Tamoxifin for breast cancer paid $12.35 in Canada for a 30-day supply that would have cost her $110 in Maine.

Why should an American pay $110 at a U.S. pharmacy when they can get the same medication for $12.35 in Canada? Well, first of all:

Under current federal law, it is technically illegal for individuals to go to other countries and bring back prescription drugs which are purchased at lower prices abroad than in the United States. Only pharmaceutical companies are allowed to re-import drugs made in the United States back into this country. Pharmacists and distributors in America are not allowed access to foreign markets to purchase American-made pharmaceuticals at lower costs.

The Food and Drug Administration usually sides with the big drug companies. Why? Money, plain and simple.

According to a study by Public Citizen, the top ten U.S. drug companies raked in $35.9 billion in profits in 2002 and:

...the drug industry hired 675 different lobbyists from 138 firms in 2002 – nearly seven lobbyists for each U.S. senator, according to federal lobbying disclosure records. The industry spent a record $91.4 million on lobbying activities in 2002, an 11.6 percent increase from 2001. ...

Drug industry lobbying ranks include 26 former members of Congress. All told, 342 lobbyists (51 percent of those employed by the industry) have "revolving door" connections between K Street and the federal government. ...

Since Public Citizen began tracking the drug industry’s lobbying activities in 1997, the industry has spent nearly $478 million lobbying the federal government.

As if this isn't all bad enough, Americans subsidize drug company research when they pay their taxes. Their tax money goes to the National Institutes of Health (NIH), which helps pay for drug company research (despite their huge profits).

The big drug companies have taken all sorts of positions against anything that would erode their profits. Now they're questioning the "safety" of drugs made in Europe and Canada. That's just utter nonsense.

President Bush has sponsored a 10-year, $400 billion plan to help senior citizens obtain insurance coverage for their prescription medicines. But this plan doesn't even apply to seniors until they spend more than $8,000 for medicine in one year. Bush's "fix" would just take more money from taxpayers to subsidize U.S. drug companies' already overpriced medicines.

It does cost drug companies a lot to research and develop new medicines. Some argue that allowing importation of foreign drugs -- or the "re-importation" of U.S.-made drugs at lower prices -- will discourage American drug innovation. While there may be some truth to that argument, the National Review Online shoots holes in it:

Because our [U.S.] drug market, burdened as it is with regulations and cost controls, is still free relative to such systems, America's drug companies, which do most of the world's drug research and development, recoup most of their costs, including R&D costs, in the domestic market, then sell abroad at prices far below true costs. Foreigners are thus classic free riders. As with defense, Americans are underwriting a good part of the health-care costs of the rest of the world. But if we allow those below-true-cost drugs to be reimported, critics say, there goes the R&D and all the wonder drugs of recent years. As AEI's John Calfee put it in a July 14 piece aptly titled "The High Price of Cheap Drugs," "reimportation would mean importing foreign price controls, which would destroy the pricing structure of the U.S. drug market and have disastrous consequences for future drug research and development."

Those are powerful arguments — until you stop to think about them, as Rep. Pat Toomey did in a July 17 "Dear Colleague" letter, one paragraph of which goes to the heart of the matter:

Specifically, dropping trade barriers and freeing U.S. consumers to purchase drugs at far lower prices overseas would significantly threaten the profit margins of the pharmaceutical companies. These companies would be forced to present the price-setting countries with an ultimatum: Either liberalize your market or we will leave. It's hard to imagine that countries in this situation will deny their citizens access to life-saving drugs. Instead, they will most likely ease their controls and increase the price they are willing to pay for their drugs. ...

In a nutshell, if foreign governments want to pay less — and will not pay more even if it means their own citizens will go without better drugs — then let those governments police the no-resell terms that enable them to get the lower prices. Right now, not only do Americans pay higher prices because foreigners refuse to pay the actual costs of drugs, but they pay the enforcement costs of that arrangement as well, including restrictions on their freedom. And if foreign governments cannot police those discriminatory contracts — because the incentive to resell, on one side, and to buy more cheaply, on the other side, makes enforcement difficult or impossible — then let a truly free market, encumbered only by enforceable contracts in restraint of trade, set prices at whatever the market will bear. It is neither right nor good that Americans bear so great a portion of the health-care costs of the world.

If you're interested in taking action to help make U.S. drug companies more responsive to the free market, you should support H.R. 1512, introduced last year by Representative Bernie Sanders (I-VT.). He claims:

H.R. 1512, legislation that I introduced last year, would accomplish all three. First, consistent with the "free trade" approach that so many talk about in Congress, American prescription drug distributors and pharmacists would be allowed to purchase FDA safety-approved medicine anywhere in the world where they could get a better price than they currently pay. Second, when drug companies benefit from taxpayer research though the NIH, they would have to provide a "reasonable price" to consumers for that product. Those two initiatives alone would lower the cost of medicine in this country by at least 40 percent - without one cent of additional taxpayer money.

Finally, with lower drug prices for all Americans, and using the negotiating leverage that the government would have for the huge quantity of medicine they would purchase for Medicare beneficiaries, the Veterans Administration, the Department of Defense and other agencies, a voluntary 80-20 benefit could be established for seniors. This would be a significant benefit for America's seniors - something they deserve.

If you're interested in taking action on proposed Medicare prescription drug proposals in general, click here.