Come January, the new blood of Republican Congressional members will want to tackle the many problems with US healthcare. High-priced drugs is a big concern of voters, even if it's overlooked in the bigger debates about health insurance and health spending.
When it comes to drug prices, one solution congressional leaders discussed in 2010 was legalizing the importation of cheaper drugs from places such as Canada and the European Union, where governments restrict drug prices. US pharmaceutical companies oppose such wholesale importation, as do most Republicans. But there are nuances to the issue, of which newbie congressman and their staff should be aware, before they dismiss all discussions of importation.
Plans to allow importation would certainly lower drug costs, but the negative impact on research and new product development might be significant, since most drugs are developed by small and large US-based drug companies. The reason for this is the unusual nature of drug development. Most of the costs of drug development are upfront, sometimes estimated at a billion dollars, which means that normal marginal cost pricing of drugs is inefficient. It is far better to tier the pricing based primarily on income-in other words it is both efficient and equitable that richer people pay more for their drugs.
To a certain extent Europeans and Canadians (and numerous other countries) free ride by not paying their fair share. The best solution would be for these other nations to reverse policy and allow competition, rather than government dictat, to set prices. But while these nations free ride, should Americans continue to foot most of the research and development bill? Probably, since the benefits of new products accrue to Americans often before other nations. This is especially hard to swallow for congressional leaders whose states border Canada, where some of their elderly buy their meds from over the border.
Drug pricing and importation is an important debate and one that should continue, especially if it can help drive better policies in Europe. But some of those opposed to importation know the debate is never entirely won and that at some stage importation may be allowed. So they are always looking for new reasons to block importation, and one way is to scare people.
Are imported drugs dangerous?
There are certainly numerous examples of dangerous imports, from contaminated Chinese drugs to counterfeiters selling bogus pills over the net. But according to my research team's work, internet-sourced drugs are probably a lot safer than you think. In fact, with the exception of fake Viagra with packaging from China, which not only didn't have the right active ingredient but could have contained a lethal one, none of the five brands from 70 web pharmacies we assessed failed basic quality testing (our original study of 55 online pharmacies was published in the peer-reviewed scientific literature and can be accessed here).
It is important for Republicans to appreciate that their constituents know European and Canadian imports are, by and large. well-made products. After all, while surveys indicate that Americans are concerned about Internet drug quality, millions buy online and have done so for years. This market is already more than $12 billion a year. For the elderly and isolated in particular, convenience and low cost outweigh the potential harm of using web pharmacies.
Certainly, there are still risks to buying drugs this way. The World Health Organization reports that drugs from Web sites that conceal their physical address are counterfeit in more than 50 percent of cases. And indeed, the few drug failures in our analysis came from Web sites lacking a physical address. Our research suggests that even non-approved Web sites (those breaking U.S. law by not requiring prescriptions and importing drugs) that at least have a physical address will deliver decent-quality brand drugs--albeit illegally. Your best bet is to go to the independent credentialing agency www.pharmacychecker.com and look at their approved list of web pharmacies before deciding.
Contrary to what one might expect, we also found that price was no indicator of quality. Drugs from India, which were marked up 20-fold from their local retail price, passed basic quality tests, as did those from Europe.
It's true our sample size is still fairly small. But if replicated by further studies, the conclusion is clear: though there remains a clear risk to buying cheaper drugs over the Internet, as long as the requested drug brand is delivered and the web site has a physical address, with staff contactable by phone, the risk is really pretty small.
Such a conclusion undermines the fear-based argument being used to oppose importation.
Republicans should stick with the economic arguments against (wholesale) importation. They must appreciate the nuance of opposing importation of drugs, which undermines efficient and equitable tiered pricing of drugs, but acknowledge that US patients pay higher prices, and the uninsured or underinsured often cannot afford them. To punish the desperate is immoral and surely loses future voters. All Republican leaders need to do is decriminalize personal importation of drugs for up to 90 days supply, but continue to deny insurance reimbursement of such purchases. That way they do not fatally undermine tiered pricing on which future drug development depends, but assist the poorest voters in their constituencies.Roger Bate is the Legatum Fellow in Global Prosperity at AEI.