Economist Warns that Federal Drug Importation is Folly

This editorial by Wayne Winegarden, Ph.D. appeared in Forbes on August 7, 2019. Dr. Winegarden is the Managing Editor for EconoSTATS and a senior Fellow in Business and Economics at the Pacific Research Institute.

Trump's Drug Importation Policy Is Folly, Just Ask Canadians

The Trump Administration's Department of Health and Human Services (HHS) has officially proposed legalizing the importation of drugs from Canada (e.g. the Safe Importation Action Plan). Canadians’ reactions provide an important perspective demonstrating why drug importation will harm the U.S.

Despite assurances from Prime Minister Justin Trudeau, Canadians are worried that the U.S. proposal will impose severe costs on Canadians. Their concerns are well founded. Typical of their reaction, the Canadian Pharmacists Association (CPhA) has noted that

the Canadian medicine supply is not equipped to support both Canadian and U.S. consumers, and will make existing drug shortages in Canada even worse, disrupting patients’ access to their medications. Drug shortages have ‘greatly increased’ in the last 3-5 years according to a newly released survey of Canadian pharmacists.

CPhA is calling on the federal government to clearly express its opposition to U.S. drug importation, and immediately develop an action plan to respond to these proposals including restricting the exportation of drugs from Canada to the US.

There are several key lessons from this statement that demonstrate why the drug importation proposal is unworkable and harmful to the U.S.

Principal among these lessons, as my colleague Sally Pipes also consistently notes, “Canada cannot be the drugstore of the United States”. There are 327 million people living in the United States, compared to 37 million people living in Canada. Even if U.S. citizens consumed every drug in Canada, leaving Canadians’ medicine cabinets bare, the vast majority of Americans would still be unable to obtain a Canadian prescription if drug importation were allowed. Importation from Canada is simply not a serious solution to the drug cost problem in the U.S.

Reading further into the CPhA’s statement also demonstrates that the price controls Canada implements, which enable the cheaper prices on brand name drugs and originator biologic medicines, come with a high price.

In its statement, the CPhA is not worried that the drug importation plan in the U.S. will “create” a drug shortage problem in Canada. The CPhA is worried that the drug importation plan will make Canada’s growing drug shortage problem even “worse”. This is because Canada’s drug price controls are already creating severe shortages across the country.

Shortages are the inevitable consequence of price controls. In fact, if the U.S. truly wanted to have access to “Canadian prices” on drugs, then we could simply implement the same policies that Canada has implemented. Of course, if the U.S. implemented price controls such as exist in Canada and other foreign countries, then we should expect to have significantly diminished access to cutting edge medicines.

Consider that U.S. patients have access to nearly 90% of all of the medicines that were launched between 2011 and 2017. This is the highest access rate in the world. In comparison, Canadians have access to less than 50% of these medicines because the “Patented Medicines Prices Review Board”, a quasi-judicial body that reports to Parliament through the Minister of Health, must approve the price for all medicines. It follows that U.S. patients would fare no better than Canadian patients if the U.S. were to replicate Canada’s price control policies. Access to life-saving medicines would become severely compromised, to the detriment of patient welfare.

The CPhA’s statement is not referencing this access issue, however. While Canadians have access to fewer new medicines, they also cannot access the medicines that have been approved – this is the access issue the CPhA appears to be referencing. As the Toronto Star has noted,

Canadians are living through one of the worst drug shortages in modern history. Of the roughly 7,000 prescription drug products available in Canada, over 1,800 are shorted. Anecdotally, Canadian pharmacists are complaining that up to half of the drugs they order are unavailable.

The Canadian access crisis illustrates that if the U.S. were to implement the Canadian-style price controls, then U.S. patients would also suffer from the problem of less access to approved medicines. The impact on patient welfare would be substantial.

With respect to the HHS Safe Importation Action Plan, the access issues demonstrate that the medicines many Americans need are simply not approved, or not available, in Canada.

The final sentence in the CPhA statement illustrates an underappreciated problem with HHS’ importation proposal. Simply because the U.S. proclaims that it is legal for U.S. residents to purchase Canadian drugs does not mean that Canada will authorize these sales.

The internal pressure inside Canada for the government to severely restrict (possibly prohibit) the sale of Canadian drugs to U.S. residents will be great. Thus, in the end, it is likely that few, if any, Canadian drugs will be available to Americans even if the proposal is ultimately implemented.

There are many other concerns with the HHS proposal. Paramount of these is whether the FDA actually has the ability to know whether all of the imported drugs are actually sourced from Canada and thus ensure the safety of the U.S. drug supply – even if only drugs from wholesalers, pharmacists, and drug companies, and not on-line pharmacies, are permitted. These concerns only strengthen the arguments against legalizing the importation of drugs from Canada.

Drug importation is merely a sound bite, not a serious solution to the ineffective drug pricing system in the U.S. Addressing the U.S. drug cost problem requires policies that do the hard work of fixing the market problems that plague the U.S. market.