It is a compelling issue that has the potential to motivate voters on Nov. 2: Prescription drugs will cost Americans an estimated $210 billion this year.
In recent years, spending on prescription drugs has grown at a real (inflation-adjusted) average annual rate of 14.5 percent. If it continues at this rate, spending on prescription drugs will nearly double in five years.
Due to price controls in Canada and other countries, less expensive drugs are available across the northern border or overseas.
So why not allow Americans to buy their pharmaceuticals in Canada?
In 2000 and again in 2003 Congress passed laws allowing pharmacists and wholesalers to import prescription drugs from Canada.
But Congress added a catch: The Food and Drug Administration could not implement the law unless the Secretary of Health and Human Services certified that the imported drugs were safe and lowered costs for consumers.
Neither the Clinton administration nor the Bush administration has made this certification, so, for now, the law is stymied.
The demographic group with the biggest per capita out-of-pocket prescription drug outlays is Americans over age 65. This also happens to be the peak age group for voting participation, with 72 percent of such voters casting ballots in 2000.
The issue may lose some of its sting in 2006, when the Bush administration’s Medicare prescription drug program takes full effect. Nearly 40 million Americans, most of them over age 65, are enrolled in Medicare.
Starting in 2006, after paying a $250 deductible, Medicare beneficiaries will pay 25 percent of the cost of their prescriptions up to a ceiling of $2,250. After a gap, Medicare will take over above $3,600, paying 95 percent of the costs.
But if the drug makers increase their prices, this would blunt the benefit for older Americans.
Symbols speak as loudly as details
Politics is as much a matter of symbols as it is of gritty details of prices and entitlements.
For some Americans, the drug industry has the image that the railroads and Standard Oil did in the early 1900s: big and malevolent, notwithstanding that the drug firms are doing things to help those who can't afford prescriptions. Last month, for example, Pfizer launched a program to provide the company's pharmaceuticals at a discount to Americans who lack health insurance.
In a survey of 1,223 people on Medicare published last month by the Kaiser Family Foundation and Harvard University’s School of Public Health, nearly 80 percent of respondents said they favored changing the law to allow Americans to buy drugs from Canada.
Large majorities rejected the pharmaceutical industry’s argument that cheap drug imports would choke off money needed for U.S. drug firms to do research and development.
The Bush administration position, like the pharmaceutical industry’s, is that imports would expose Americans to risk from unsafe or ineffective drugs.
Democratic presidential candidate John Kerry has said that under his health care proposal, “all Americans will be able to buy less expensive prescription drugs from countries like Canada.”
So far the re-importation of prescription drugs has been a sleeper issue that has remained mostly dormant in the Bush-Kerry struggle. The most aggressive action on this front has come not from Congress, which is mulling over legislative proposals on drug imports and is not likely to act in the few weeks left before Election Day, but from some of the nation’s governors in states closest to Canada.
Minnesota Gov. Tim Pawlenty, a Republican elected in 2002, has launched a state Web site to help consumers buy prescription drugs from Canada.
His administration has also set up a Web site to help 120,000 state employees and their dependents buy Canadian drugs. Estimated savings for the state: $1.4 million this year and next.
Pawlenty said his effort “is about free trade and using world markets to advantage consumers. When people complain about importation of drugs from other countries, one of the biggest things they say is ‘Canada has price controls.’ Well, yes, but China is a Communist country. We don’t get self-righteous with respect to China; why would we get uniquely self-righteous with respect to Canada?"
He explained, "We search the world market for the best deal for American consumers and I don’t think we should carve out and make an exception for prescription drugs. ... The FDA should join us in a partnership with Minnesota and demonstrate that we can do this safely, with government inspection and oversight.”
Even apart from guaranteeing safety and efficacy, importing prescription drugs from Canada and other countries raises practical questions:
- Would re-importation of drugs made in the United States and then shipped to Canada, in fact, lower costs to American purchasers?
- Would pharmaceutical companies continue to sell into the price-controlled Canadian market if Americans could buy freely in Canada?
Study foresees small savings
On the cost savings issue, a study released last April by the non-partisan Congressional Budget Office concluded that “permitting the importation of foreign-distributed prescription drugs would produce at most a modest reduction in prescription drug spending in the United States.”
A bill passed last year by the House, but not passed by the Senate, would have permitted importation "from a broad set of industrialized countries" and, by the CBO's reckoning, would have cut total U.S. drug spending by only 1 percent over the 2004-2013 period.
Assuming the CBO estimate is correct, why would importation bring about such small savings?
The CBO study said both foreign governments and U.S. pharmaceutical firms would take aggressive counter-measures to protect themselves if Americans were allowed to buy their pharmaceuticals in price-controlled foreign markets.
The study said foreign governments “would have incentives to limit the volume of drugs diverted to the United States, given both their interest in preventing shortages or higher prices in their own countries and the drug makers' ability to limit supply.”
And U.S. drug makers — who have already taken steps to curtail shipments to Canada now that some Americans are buying prescription drugs there — would impose “limits on the volume shipped to markets where orders appear to exceed local needs.”
Asked about U.S. drug makers curtailing supplies to Canada, Pawlenty said, “If they do that, the Department of Justice should consider legal action” and added, “We’ll have to look at other opportunities in the United Kingdom, Switzerland, Germany, and other countries we know are potential safe providers of prescription medicines. In the end they (U.S. drug makers ) can’t suffocate the supply to the rest of the developed world.”
Nudging the drug companies
A bill introduced by Sen. Charles Grassley, R-Iowa, to allow import of pharmaceuticals includes provisions designed to nudge the firms to continue to export drugs to Canada and other price-controlled markets, some of which would then be re-imported back into the United States.
The Grassley bill would increase the research and development tax credit for U.S. firms that cooperate with the export/import rules, and punish firms that don’t cooperate by depriving them of their advertising expense tax deduction.
Is political sentiment heading inexorably toward price controls in the United States, just as in Canada?
Asked whether he favored price controls in the United States, Pawlenty said, “No, I think the long-term answer is to rebalance world prices and that’s not going to happen unless we bring some pressure for change. The change is going to have to come because the drug companies feel pressured by reimportation to renegotiate their deals with other countries or the federal government going have to help us.”
With a dash of Minnesota sarcasm, Pawlenty added, “This idea that the rest of the world gets a free ride and the American consumer gets the privilege of subsidizing the starving Swiss and the downtrodden German consumer is just no longer acceptable.”