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Commentary

Cracks in High Drug Prices; Change is in the air as Congress looks at legalizing orders from foreign companies.
Los Angeles Times, 4-22-05

The Times supports importation as a measure to equalize world prices for prescription drugs, since U.S. consumers are now paying the lion’s share of the cost of developing medicines that benefit global markets.

If importation became legal, simple and widespread (which is not a sure thing even under the Dorgan/Snowe bill), U.S. prices would almost certainly sink closer to foreign prices. Drug makers would have to figure out the premium that U.S. consumers would be willing (not forced) to pay for the convenience of buying American. Drugs that patients take for emergencies or one-time prescriptions would probably remain relatively costly. Prices in Canada, Europe and Japan might rise slightly as companies bargained harder to make up some of the difference. Drug makers would be likely to maintain healthy profitability, according to a dense mathematical model developed at the University of Alabama, though perhaps at less astronomical levels. Makers could then consider shifting some of the billions of dollars they spend yearly on marketing to maintain research and development. In effect, the rest of the world would do the bargaining for U.S. consumers. Good deal, eh?

Cost shifting—getting Europeans and Japan to pay their fair share—is a good idea. However, the Times underestimates the monopoly power these nations have over drug sales. If push comes to shove, policymakers in those countries could just threaten to seize the patent of any drug that pharmaceutical companies refused to sell at a steep discount.

The more likely result of U.S. importation would be that the industry would shift its emphasis from branded drugs to generics, and move much of their U.S. based R&D efforts to India and China. In other words, we might have some cheaper drugs, but fewer new ones, and we’d lose billions of dollars in jobs and investment that come with innovative research. That sounds like a terrible deal.



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