Economist: Drug Importation Will Not Improve Health Care Affordability

This editorial by Wayne Winegarden, Ph.D. appeared in Forbes on April 27, 2017. Dr. Winegarden is the Managing Editor for EconoSTATS and a senior Fellow in Business and Economics at the Pacific Research Institute.

The growing problem of health care affordability requires prompt and effective policy solutions. However, just as the wrong medical diagnosis will not cure a patient, and may make the patient even sicker, the wrong policy solution will not address the U.S. health care affordability problem, and may even worsen the problem.

Proposals to import pharmaceuticals from overseas are the wrong policy solution. Nevertheless, both Hillary Clinton and President Trump advocated for drug importation on the campaign trail; and, Senator Bernie Sanders has proposed legislation to import drugs from Canada in the current Congress.

Proposals to import drugs from abroad are chasing the wrong rabbit. These proposals will not fix the core problem, which is the growing unaffordability of health care. Worse, importing drugs will diminish the beneficial innovations created by the pharmaceutical industry and raise safety concerns for patients.

The broader health care affordability problem is a long-term structural problem of the U.S. health care system. Total health care expenditures have been growing faster than the economy since at least 1960, and health care prices have been significantly outpacing overall inflation since at least 1982.

Over these many decades, sometimes pharmaceutical prices grew faster than medical inflation (such as the period between 2012 and 2015); sometimes pharmaceutical prices grew slower (such as during the 1990s). The same holds for overall expenditures. Over time, there has been no consistent relationship between the relative growth in pharmaceutical expenditures and the relative growth of health care expenditures.

Since there is no consistent relationship between pharmaceutical spending and health care spending, this is an indication that other factors are driving the health care affordability problem. Drug importation does nothing to address these “other factors”, and therefore will not fix the broader health care affordability problems.

In fact, the price discrepancies between pharmaceutical prices in the U.S. and prices in other major economies, so often touted by the likes of Senator Sanders, are nothing more than the typical affordability problems that plague the U.S. health care sector. Pharmaceuticals are more expensive in the U.S. than other nations, but so are MRIs, CTs, and bypass surgeries.

If importing drugs from abroad were harmless, then, while ineffective, the importation proposals would not be disconcerting. But, such proposals are not harmless.

Prices in other countries are low, in part, due to price controls and other anti-competitive policies. Drug importation is effectively importing these adverse policies into the U.S. to the detriment of new innovations that are necessary to address currently unmet health care needs.

In fact, part of the recent surge in pharmaceutical prices were related to a surge in new innovative medicines. Surges in innovative, but more expensive, medicines raise the average price of pharmaceuticals just as the “average” person in a bar becomes a millionaire when Bill Gates sits down for a drink.

Importantly, such surges are linked to improvements in health outcomes, and, historically, the higher average prices that are associated with these surges subside once the surge in innovation wanes. Consistent with this pattern, both the number of new innovative medicines and the size of pharmaceutical price increases lessened in 2016 after 4 years of accelerated growth.

From a safety perspective, the importation of drugs creates problems because there is simply no way to verify the source of the drugs. This raises serious safety and efficacy concerns.

As an example, a Washington Legal Foundation study found that the cancer drug Avastin had been imported into the U.S. through a Canadian online pharmacy whose entire business model was based on importing “misbranded” and “unapproved drugs” into the U.S.

Enabling drug importation expands the opportunities for such illegal activities. Instead of enabling more diverted and counterfeited drugs, policies should be geared toward reducing this problem. For instance, as the Washington Legal Foundation study noted, the penalties from pharmaceutical counterfeiting and diverting should be strengthened and aligned across all types of diversion activities.

In contrast to importing price controls, effectively addressing the problem of health care affordability requires systemic reforms that improve the efficiency and competitiveness of the entire U.S. health care system.

These reforms should focus the health care system on patients, not insurance companies; and should include: moving away from the current fee for service payment model, empowering greater competition for doctors and other health care providers, and addressing the problems of tort abuse that unnecessarily raises medical costs.