National Post (National Edition)
U.S. outsources control of drug prices to Canada: weird!
Canada and the U.S. are in a bizarre war on drug prices. By executive order, the Trump administration authorized the states to make large-scale drug purchases from Canada for their Medicaid plans, which provide health care to poor people. Florida and New Mexico have submitted reimportation plans for Food and Drug Administration (FDA) approval, a prerequisite to beginning purchases. Colorado is well on its way and others are expected to follow. Florida spends US$28 billion each year on drugs for Medicaid and reckons purchasing from Canada will save it US$80 million to US$150 million in its first year — enough to make the effort worthwhile though hardly a material portion of the overall budget. But the politics of exerting pressure to reform drug pricing may drive the process as much as short-term savings.
Importing even U.S.-made drugs from Canada saves money because of Canada's essentially confiscatory drug price controls. Patented drugs in Canada are forced by law to be sold at discounts that average 20 per cent. Proposed new rules will be much worse. Implementation of these new rules has been postponed three times now, in part because of the process of consultation and legal challenges, but also because of the catastrophic impact they will have on drug availability in Canada. The Liberals don't have the good sense and compassion to abandon them, perhaps because the NDP supports them. Fear of these imminent new rules is nonetheless already worsening access to drugs. The government even felt it had to exempt COVID vaccines from the destructive impacts of price controls — impacts it blithely maintains don't occur.
Several parties, including PhRMA, which represents the innovative biopharmaceutical industry, have sued the U.S. Department of Health and Human Services and the FDA to overturn drug reimportation. Canadians should be rooting for them to win. At the end of January, the U.S. government filed for a 60-day delay to respond to the suit. Will the new administration oppose it? That remains to be seen, but it probably will. It has previously expressed support for drug reimportation. The Democratic party supports it. In 2017 Sen. Bernie Sanders introduced a wildly complex and coercive bill that would have even forced U.S. companies to export to Canada, so their product could be more cheaply reimported. That bill died, however, a victim of the common sense that should have kept it from being drafted in the first place.
Because drug reimportation to the U.S. could easily destroy Canada's drug supply, Canada last November implemented an interim order under the Food and Drugs Act to restrict export of Canadian drugs where a shortage might result. Our uneconomic, anti-innovation laws mean we now need protection from the Americans, to whose more innovative economy we owe our pharmaceutical innovations in the first place, and who, by paying higher prices than we do, generously fund our greedy refusal to pay fairly for our drugs.
Canada's drug price controls effectively expropriate a “consumer surplus” from the United States. The United States bears the strains and benefits of an innovative economy, from which flow life-enhancing goods like new pharmaceuticals. We rely on the U.S. to innovate for our benefit, then we further insist that the American consumer pay higher prices for those innovations, so that we don't have to. In effect, we require them to subsidize us. Economics works that way: someone has to bear actual costs. This may seem clever on our part but by forcing confiscatory price restrictions on American exporters, we act as free-riders, shirking our responsibility to help fund innovation, simply to fatten our own pocketbooks — a short-sighted, false economy since we miss out on the considerable benefits of being an innovative economy.
The U.S. naturally would like to regain the consumer surplus Canada steals from its citizens. The moral high ground belongs to them. And maybe price controls that make our domestic supply fragile are not such a good idea, after all. If countries like Canada paid fairly for patented drugs, everyone everywhere would be much better off. We'd have more of the vaccines, antibiotics and drug therapies that extend life, make us happier and productive, generate wealth and save health-care costs — a great improvement over our current mendacious, pusillanimous, immoral scrimping. If the U.S. reimportation policy makes any sense, it's not by saving states money in the short term, but by undermining Canadian drug price controls for good.
However flattered Canada may be that the U.S. would outsource its drug pricing policy to us, it's a wacky way for Americans to go about saving money. For the greatest economy on the planet to effectively export policy formation to Canada, having us do the dirty work of price controls on its behalf, is bizarre and pathetic. And it's dangerous, because it is an implicit endorsement of price controls from a country that knows better. If the Americans adopted their own price controls, that would hurt us all, every man, woman and child who would suffer or die without the next pharmaceutical miracles science would deliver if better funded. Time to end the war, with a sensible and principled peace.
IT'S A WACKY WAY FOR AMERICANS TO GO ABOUT SAVING MONEY.