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McCain is wrong on drugs

David Gratzer
Washington Examiner
March 21, 2008

Sen. John McCain described them as "bad guys." Was he talking about terrorists? No, the presumptive Republican presidential candidate was actually referring to pharmaceutical companies.

McCain bemoans the high cost of pharmaceuticals and, with a heavy dose of anti–corporate rhetoric, he champions the idea of drug reimportation—allowing consumers and commercial distributors in the United States to obtain prescription drugs from Canada at lower prices.

Reimportation is politically popular; it's also bad policy. McCain would be better served by abandoning this idea and speaking out instead in favor of reforms that will help Americans pay a fair price for prescription drugs.

Americans are concerned, even angry, about drug costs, so the appeal of reimportation is easy to understand. Most upsetting of all is the fact that Canadians and Europeans pay less than Americans for the same drugs.

But as anyone who has been to a flea market knows, sometimes a bargain isn't such a good deal. Drug reimportation does little more than import price controls, meaning that along with Canadian–style prices, Americans would also get Canadian–style drug innovation.

And Canada—where insulin, the greatest pharmaceutical breakthrough of the first half of the 20th century, was developed and marketed—stands today as a backwater for drug development. Price controls kill profitability, eliminating the enormous capital needed to fund research and development.

Reimportation poses other practical issues. Congress has actually authorized reimportation more than a half–dozen times, contingent on the Food and Drug Administration's certification that it can be done safely.

To date, the FDA hasn't been able to do so, in part because drug counterfeiting is so easy and lucrative; witness the problems of the European Union, where reimportation has been legalized. The World Health Organization estimates that the fake–drug industry tops $35 billion a year globally in sales.

And reimportation is not a panacea in any case: Even if all profits of the pharmaceutical industry were eliminated, the total health care savings would be small, reducing drug expenditures from 10 percent of annual spending to about 8 percent. That reduction translates to a one–time freeze in health inflation of about three months.

Still, McCain is right to suggest that Americans deserve a better deal on their prescription drugs. There are two basic reforms that he could put forward:

» Make drug pricing a cornerstone of trade negotiations.

With the rest of the developed world embracing price controls, America now largely foots the bill for the world's pharmaceutical development. It's one thing for Sudan to want a deal on life–saving medicines, but the world's most affluent nations should be paying their share of the bill.

When negotiating trade deals with these countries, the United States should insist that they not only drop their tariffs, but also their price controls on drugs. During the Bush years, Australia agreed to phase out its price controls as part of a comprehensive trade pact. McCain should make clear that, in his administration, free trade includes fair pricing.

» Reform the FDA.

Today it costs nearly a billion dollars to bring a drug to market, in part because of the heavy regulation of the Food and Drug Administration. And requirements increase by the year. In the mid–1980s, a typical drug trial involved 1,300 patients; today, the number is nearly four times higher (and for some drugs, such as blood thinners, the number may be 25 times higher).

Yet, despite the incredible cost and bureaucracy, the FDA still withdraws from the market just about the same number of drugs as it did two decades ago. In other words, drugs aren't fundamentally safer.

Sen. McCain has built his political career on challenging the kind of Washington malaise embodied by the FDA.

He should push for an end to tenure at the agency, create an ombudsman's office and press for review (through congressional oversight) of the agency's sluggish drug–approval times.

He could go further by experimenting with the contracting–out of drug testing to not–for–profits that President George H.W. Bush employed during his term. McCain should offer Americans a way forward to lower drug prices, without endangering the innovation that has sparked the pharmaceutical revolution.

It may not give him a punchy sound bite, but as a cancer survivor, Sen. McCain should know that it's the right policy.

Dr. Gratzer, a physician, is a senior fellow at the Manhattan Institute.

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