An unintended consequence of my earlier correspondence with North Dakota's two senators was getting on their mailing lists. Today I received a missive from Senator Dorgan about prescription drug prices and a call to support legislation to lower drug prices:
This week I have led a group of bipartisan Senators to introduce the “Pharmaceutical Market Access and Safety Act”, which would give consumers the ability to access FDA-approved drugs for the lower prices that other consumers around the world are paying.
It is estimated we will save the American consumers over $50 billion in lower prescription drug costs in the next decade. North Dakotans alone will save more than $112 million.
The legislation provides important safeguards to ensure the safety and effectiveness of imported drugs. It provides critical funding to impose proper oversight and to make sure that counterfeit drugs cannot be brought into this country.
Wow, that sounds great. How much will all that oversight cost? The letter doesn't say. Where does that $50 billlion number come from? The letter doesn't say.
Basically, the plan seems to be to set up some government bureaucracy (the best kind of bureaucracy!) to allow Canadian drug imports. The senator is right when he says Canadians pay a lot less for drugs then us schmucks in America. Sort of. Hold up a bottle of Lipitor from Canada and one from the U.S. and the little price sticker will have a higher number on the red, white and blue bottle.
But the reason for that isn't evil phamaceutical companies. Prices are lower in Canada because Canada uses price caps to control the cost of prescription drugs. This has the effect of making the price sticker lower. But it also has the effect of stifling innovation in the Canadian drug market. After all, we're not comparing the Canadian version of Lipitor to the American one. That's because there never was a Canadian version of Lipitor. At least, not until the patent ran out and companies could use the formula at no cost to create a generic form of the drug.
Canada isn't known for it's amazing advances in drug R&D for this very reason; there's no money in developing new drugs, at least not on the scale seen in the U.S. Canada tries to offset this effect by giving subsidies to Canadian drug makers. As you are no doubt aware, subsidies are just a government euphemism for tax money.
To recap, Canada tells drug companies what they can charge for their product. This lowers profits, killing incentive to invest the billions needed to develop new drugs. The Canadian government takes tax money and gives it to the drug companies to help them stay profitable. The Canadian consumer pays less at the drug store but way more in taxes for this and other aspects of the "free" health system. It's really just a shell game.
Senator Dorgan wants me to support legislation to import generic version of drugs. The long term effect of this will be to drive down profits of the companies that shell out the initial investment to create the drugs in the first place. Guess what those companies will do in response?