Today the Senate is voting to reauthorize the Prescription Drug User Fee Act of 1992. A number of amendments have been added to and rejected from the reauthorized version of the law, but the one we've been watching most closely is amendment #2107 proposed by Sen. John McCain (R-Az). The amendment, which was recently rejected by the Senate, would have allowed American citizens to import cheap prescription drugs from Canada, under certain conditions. While this proposal might sound like good policy at first glance, it would in fact have dire consequences for pharmaceutical innovation if implemented.
Prescription drugs are cheaper in Canada only because of price controls imposed by the Canadian government, which effectively prohibit pharmaceutical companies from selling their drugs to Canadian citizens at market value prices. Faced with a choice between selling their drugs in Canada at a reduced price or not selling them at all, pharmaceutical companies reluctantly choose the former. Since the U.S. government does not force drug companies into collective purchasing agreements (insurers and PBMs bargain directly with drug companies over prices), American citizens generally pay somewhat higher prices for their patented drugs than do Canadians.
Although Americans may resent that other developed countries pay lower drug prices, it is absolutely crucial that pharmaceutical companies be free to set their own prices in at least some wealthy markets if we want pharmaceutical innovation to continue. By purchasing drugs at market prices, rather than at prices set by a government cartel, American citizens effectively subsidize global pharmaceutical innovation for everyone.
Profits that pharmaceutical companies reap from their sales to American citizens help those companies recover the extraordinary investments they make in drug research and development, and even more importantly, these profits are used to fund the next generation of pharmaceutical advances.
The failure of the McCain amendment is thus a victory for global medical innovation, insofar as it protects pharmaceutical companies' ability to charge sufficiently high prices to develop future innovations.
More importantly, is it a victory for the millions of patients who will live longer, healthier lives tomorrow because we didn't embrace price controls today.