09 January, 2009

Drug Importation

Ezra's right that drug importation is completely absurd. Basically, US pharmaceutical companies make the drugs. They sell them here very expensively and sell them in Canada very cheaply. Drug importation would allow people to legally drive to Canada, pick up their Viagra, and drive back. (Or, presumably, mail-order it.) But this is ridiculous--we just shipped the drugs there, why are we shipping them back?

As Ezra points out, Canada's national health care system has been able to use its monopoly power (technically, monopsony) to bargain a cheaper price. In our system, no one entity has the power to do that. Thus, cheaper drugs in Canada, more expensive drugs here. So why don't we just do that?

The crux of the matter, which Ezra doesn't mention, is that someone has to compensate the drug companies for their research and development costs. Also, keep in mind that the vast majority of drugs in development end up not working or not getting through FDA testing, so someone has to compensate the drug companies for all of the drugs that fail, too. If they aren't allowed to make serious profits on the drugs that succeed, it won't be worth it for them to develop any new drugs at all, which would be pretty bad for people with uncured diseases.

Unfortunately, every other country has negotiated cheaper drugs and we've basically been left holding the R&D bag. If we do it too, it seriously reduces the incentive of drug companies to produce new and innovative medicines. So the discussion shouldn't be about how do we get cheaper drugs, but how do we get cheaper drugs while maintaining the current level of innovation?

One proposal is that tnstead of a patent system, where drug companies get monopoly profits on drugs they invent for 20 years or so, we could have a prize system. The government would set prizes for certain discoveries, say $1,000,000,000 for achieving a proven cure to Parkinson's. The first company who cured it would get the prize, but would have to release their discovery to the world. Then the drug could be produced by generic producers and sold at cost instead of at monopoly rates. We'd still be funding the world's pharma R&D, but at least more people would have access to the drugs.

Another proposal is to leave the patent system in place, but allow the US government to buy out patents. After a patent is bought out, the drugs could be produced generically. This way, drug companies would get their payout and we would get our cheap drugs. Another option would be for the government to simply subsidize drugs so that consumers can purchase them at cost. All of these proposals have different pros and cons, but they're all better than drug reimportation.


Eremita said...

Is there some way to force other countries to take on some portion of the R&D costs? Like a tariff or something? Or is the idea here that no one can afford drugs at anything above cost?

spencer said...

I think it depends on the country. We'd kind of be screwing over poor countries by doing that. Other countries would just break the patent and start producing it themselves. But a tariff on exports or something similar would probably work on a country like Canada that doesn't want to piss us off by breaking patents and has enough money to pay higher prices.

Eremita said...

Well I would assume it would be on a country-by-country basis. Just a thought. I like the idea of some kind of one-time pay out for an important drug...but a couple problems seem pretty dire:
1. Would/should non-american drug companies be eligible? Should we spend tax-payer dollars rewarding them?
2. I can imagine tax-payers being ok with spending 1,000,000,000 on Parkinson's, but how happy will taxpayers be spending that on Viagra or something?

spencer said...

1. I guess there's no real reason why non-American companies shouldn't be eligible, but this might not be politically palatable. I don't think the reasons for having a prize change when the nationality of the company changes (unless we would be more successful at bargaining with foreign companies).

2. We could keep the patent system around for less important things like Viagra. In fact, we'd probably need to, because prizes can only be awarded for drugs that we can imagine before they are developed. But lots of useful drugs may be unpredictable, like I'm sure Viagra was.

Eremita said...

You're right, it was initially developed in hopes that it would treat high blood pressure and, according to wikipedia, angina (chest pain due to low blood flow). Random.