Countries like Canada use price controls to keep the cost of their drugs down. As Thomas Sowell often points out, changing the price of something doesn’t change its cost. Our drug companies make up for their lost revenue by charging more for drugs sold in the U.S., meaning we are paying to for Canada’s cheap drugs.
If we start buying these “cheaper” drugs from Canada, something will have to give. Drug companies may decide they can’t afford to spend so much on discovering new drugs. That means those drugs won’t be there to save lives and make life better for those who are ill. As someone with Diabetes, I’m glad drug companies have spent money to invent the medications that keep my blood sugar under control today. I’m grateful that previous generations paid more for their drugs so that I could get some of the feeling back in my legs and feet.
Drug companies might also respond by selling fewer drugs to Canada, so Canada wouldn’t have a enough to export. This would probably be accompanied by an increase in U.S. drug prices to make up for decreased sales to Canada. This would also create shortages in Canada. As the article points out, such shortages are already a problem, even without reselling drugs to the U.S. Canada obviously wouldn’t be too happy about this, and would be forced to take corrective action of its own. Perhaps they would put a heavy tax on drugs resold to the U.S. in order to keep the drugs on their side of the border. It’s hard to predict how all the ripples would interact, but it’s easy to see that simply shifting costs around isn’t a good solution.
That said, I’m wondering whether we shouldn’t allow re-importation anyway. I generally believe that artificial “solutions” tend to create more economic problems than they solve. Often the best thing to do is simply get out of the way and let market forces seek out the most efficient route. Canada’s price controls are an artificial solution. Laws that prevent Americans from buying drugs from Canada are an artificial solution. We can’t overturn Canadian price controls, but we can free things up on our end. And maybe that would put enough pressure on Canada to loosen things up on theirs.
I’m still chewing on this.
[via Just One Minute]
Update: It looks like Canada isn’t going to wait for the U.S. to make up its mind about re-importation. From the Financial Times:
More than 30 Canadian internet pharmacies have decided not to accept bulk orders of prescription drugs from US states and municipalities.
The move delivers a potentially serious setback to US politicians most notably Democratic presidential candidate John Kerry campaigning to give Americans easier access to cheap drugs from Canada…
With pharmaceutical manufacturers seeking to restrict supplies and the US Congressional Budget Office recently saying that reimportation from Canada would have a “negligible” impact on US drugs spending, the internet pharmacies have already had difficulty meeting demand from south of the border…
Canadian Treatment Action Council, a lobby group representing pharmacists and patients, is due to speak out today against drug exports to the US.