When the Price Is Wrong

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Science  15 Aug 2003:
Vol. 301, Issue 5635, pp. 895
DOI: 10.1126/science.301.5635.895

Drug pricing is a hot topic internationally. In the developing world, the high cost of treatment for many infectious diseases is especially troublesome, raising questions about whether the prices set by major U.S. and multinational companies are really needed to support their research costs. A legislative solution for a related problem has now been proposed in the United States. It would allow the importation of prescription drugs from certain countries in which they are available at lower prices. Pharmaceutical company lobbyists are fighting the idea; former commissioners of the U.S. Food and Drug Administration (FDA) (including, in the interests of full disclosure, the undersigned) have opposed earlier versions; Mark McClellan, the incumbent commissioner, is out there testifying against this one; and the president has promised a veto.

So this bill appears dead on arrival—but hold on. The House of Representatives passed its version of an importation bill on July 23! This stunning reversal of form was engineered by a strange coalition between right and left: Representative Bernie Sanders, the Socialist former mayor of Burlington, Vermont, stood right beside conservative Republicans at the triumphal press conference. A political scientist I know describes such improbable liaisons as “closing the political color circle through the extraspectral purples.” These things just don't happen every day; why now?

Drug importation has failed in the past (a measure was passed in 2000 but never implemented). But this could be the year, and the decision could have an effect on the international pricing structure. As we await Senate action, here are some relevant considerations. The U.S. health care system becomes a more embarrassing disaster each year, and a primary issue now is coverage for prescription drugs. Drug companies employ domestic value pricing (charging what the market will bear), arguing that these prices are needed to cover research investments. But in neighboring Canada, the national health system uses its bargaining power to ensure that the drugs are cheaper there. That's why busloads of senior citizens are ferried from Maine to (say) Fredericton, New Brunswick, where they pause briefly to admire the civic highlights and then buy lots of medicine.

The FDA says it cannot guarantee that drugs manufactured elsewhere, even if they are FDA-approved, have been made in facilities subjected to the same kind of testing the agency applies to domestic firms. Even for drugs made in the United States, exported, and then reimported, it says it cannot guarantee that the required labeling is appropriate and that its handling has met standards. These risks could be serious, especially if we're talking about countries less medically advanced than Canada. And if importation is legalized, what prevents new niche businesses from importing drugs at overseas prices, then reselling them for prices below the existing domestic market? That's pharmaceutical arbitrage, which makes people uncomfortable (although those favoring the bill might applaud were the arbitrageurs to drive domestic prices down!).

Weighed against the risks is that pesky price differential. It is now so large that the old arguments about risk may have to be rethought: After all, there surely is some price disparity at which most consumers would be willing, even eager, to accept some risk in order to gain access to a medication they need. Why not? Their insurance won't cover the cost, which is prohibitive, and their medical need is real. The organizer of one of those buying trips to Canada for Maine senior citizens reports one-busload savings of $19,000! As they say in Maine, that's wicked good.

There are miles to go before this one is over. The Senate has yet to consider its version and is likely to pass either nothing or something quite different. If the latter, a conference would follow, then perhaps a presidential veto. While this is going on, there is time to ponder the choice. Some risks will remain, even though the House version attempts to skirt these with various limiting provisions, and so will the deep price disparity. The latter could be solved through comprehensive health care reform. That might happen, and the Red Sox might finally catch the Yankees. In the meantime, I am afraid that legalizing drug importation looks more and more like a bad idea whose time has come.

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