The New Senate’s Top Priority: Destroying Drug Innovation?
Minnesota Senator Amy Klobuchar just introduced a federal budget amendment that would legalize the importation of foreign prescription drugs.
This particular policy change has long topped Democrats’ health care wish list, but shockingly, they might find support across the aisle this year, as President-elect Trump has spoken glowingly of importation. The bipartisan support doesn’t make the proposal any better an idea. Legalizing importation would expose Americans to substandard foreign pills and undermine domestic drug innovation.
Importation proponents say that American patients could save billions by purchasing medicines from foreign pharmacies, since drug prices are lower in many foreign markets.
Of course, there’s a reason for this pricing disparity: foreign governments subject pharmaceuticals to rigid price controls. Producers are forced to sell at below-market rates. So importing foreign medicines would effectively import foreign prices controls.
Those controls would devastate domestic drug development.
Creating a new pharmaceutical is enormously expensive, costing, on average, $2.6 billion and taking a decade of research. The odds of success are astronomically low: Just five out of every 5,000 compounds in clinical trials makes it to human testing. And of those five, just one will ever become a marketable product.
For drug firms to stay afloat, they have to sell enough of those rare successes to cover all the dead-ends — the drugs that never make it to pharmacy shelves.
Product prices reflect this reality. American pharmaceutical companies can only afford to sell at controlled prices in foreign countries because they can also sell at true market prices here in the United States.
Our free market pricing has fueled innovation. Though we account for just five percent of the world’s population, America produces over 40% of all new drugs.
Tightly controlled markets, however, produce very few. Places like France and Canada, supposedly beacons of morally enlightened health care policy, produce just two and four percent of all new drugs.
They’ve been coasting on American ingenuity for decades. They’re getting our genius at a discount.
Allowing importation would dramatically drive down drug industry revenues. Suddenly, a huge chunk of the patient population would be buying at government-controlled prices. The returns on innovation would collapse. Drug developers would be forced to pull back on new research. Patients all over the world would lose out on the next generation of breakthrough treatments.
Importation wouldn’t even save Americans much money in the long run.
By staving off serious illnesses, drugs avert health care spending. A patient who takes, say, blood pressure drugs regularly might avoid suffering a heart attack. That’s a huge savings, especially considering a mild heart attack costs the system $760,000 in direct health care expenses and indirect costs, such as lost productivity.
Worse still, allowing importation will expose Americans to dangerous counterfeits and substandard pills.
Domestically sold drugs have to undergo rigorous safety and effectiveness tests from the Food and Drug Administration. Drugs produced abroad don’t. The World Health Organization calculates that about 30% of medicines on the global market are fake, compared to just one percent in America.
Many Americans think that our friendly northern neighbor is a safe harbor. But it’s not. Back in 2006, federal officials seized massive illegal drug shipments from four countries with spotty safety records — Israel, India, Costa Rica, and Vanuatu — and found that fully half were sold from online pharmacies claiming to be Canadian.
Unfortunately, there’s very little American officials can do to enforce safety standards in foreign markets. In 2012, federal investigators determined that the website CanadaDrugs.com was selling misbranded and unapproved drugs, informed the domain register and had it shut down. Within a year, the site was back up. And that’s just one site; there are over 3,400 unvetted online pharmacies now in operation.
The long-term costs of allowing foreign drug importation would be enormous. Undermining one of America’s most innovative and productive industries, and exposing patients to counterfeit medicines, is no way to make America wealthy and safe again.