This week, the House of Representatives is beginning the committee markup stage of repealing and replacing Obamacare. This comes on the heels of President Trump’s address to Congress, in which he endorsed that effort, and dovetailed it to one that he has spoken about a lot in the past: bringing prescription drug prices under control.
What does that mean? How does the government bring the price of goods — prescription drugs, bananas, or anything else — under control? Unfortunately, the go-to method is too often the imposition of a price control, either directly or through subterfuge.
Within the world of prescription medicines, one sneaky price control politicians have tried again and again is the so-called “drug importation” argument (old hands at this might remember it as “reimportation”). The idea is that it’s restrictive that only FDA-approved medicines can be sold in the United States. We ought to, they say, let individuals and companies purchase drugs from overseas (Canada being a friendly-sounding target). After all, conservatives are for free trade and against regulatory barriers to entry, so by all means why not import these drugs?
The problem is that this narrative is fundamentally dishonest. The real issue is not that the FDA acts as some sort of gatekeeper (though there are legitimate safety concerns). The problem is that the U.S. is one of the only developed countries in the world that has a more or less free market in prescription medicine sales, and accurate prices that go along with that free market.
The full cost of research and development (more than $2 billion per drug in many cases) has to be recouped in sales before the drug patent runs out. If there is to be a next generation of miracle drugs, this is how it has to be. Research and development cost money, and we all want that next generation of cures, so that means the research has to be paid for when the medicine is put to market.
Other countries don’t care to operate with transparent prices sending signals to markets. Instead, they blatantly price control their drugs, leaving the schmuck Americans to pick up the tab for research and development. The real price of a drug might be $50, but in Europe it sells for a government price-controlled $10.
Back to the importation argument. If an American buys the American version of the drug, the one that accurately reflects the price of the good as determined by real market inputs, she pays $50. If she can “import” the drug from Europe, it costs her $10. Here’s the problem — it’s the exact same drug (if she is lucky, see below). Our consumer hasn’t bought a different drug, but merely a different price, a price set by a foreign government to be artificially low.
That’s why this isn’t free trade. Free trade is about countries selling goods and services to each other without barriers to entry like tariffs or any unfair export subsidies. Price controls are one of the main export subsidies that turn free trade into government-manipulated dumping. Anyone arguing that drug importation schemes proposed all the time in Congress are free trade need to answer how freely-trading any product is possible when the price has been set by one of the trading governments.
Trump should oppose drug importation for this reason. For too long, other developed countries have made chumps out of us, price-controlling medicines for their own citizens while leaving U.S. consumers to pay the full price and shoulder the full burden of research and development that benefits all. That has to end. The Trump administration should re-negotiate with European and other countries to stop their Big Government price control manipulation which counts on us playing the fool.
The answer is not to validate and endorse their European socialist price controls by dumping them on the U.S. market and ruining the last free market for drugs in the developed world. This is especially true when the imported drug is counterfeit and dangerous, as too often happens in violation of the law today.
A good example here is knockoff Botox. The FDA has been trying to prevent harmful, fake versions of this drug from entering the country for well more than a decade. In 2004, four people became paralyzed in Broward County, Fla., when they were injected with fake Botox. In 2008, 29 individuals were convicted of purposely injecting an unapproved, cheaper substitute toxin for FDA-approved Botox Cosmetic into nearly 1,000 unknowing patients.
All but the most unhinged libertarians would admit that there is a compelling public interest in preventing poisonous knockoff drugs from entering the U.S. posing as the real thing. Drug “importation” supporters dismiss this point as paternalism, but tell that to someone who is the victim of this type of cruel fraud.
Drug importation is a bad idea. It endorses price controls imposed by socialist regimes around the world. It pretends to be free trade while ignoring the fact that you can’t have free trade and government price controls on the same product at the same time. And it opens the door to dangerous knockoff products that can literally kill Americans, a risk almost no one is willing to take.
A better solution is the free market: the end of price controls internationally, patent lives that allow drug companies to recoup research and development costs reasonably, faster FDA approval of drugs, and healthcare consumers paying with their own money via health savings accounts and comparison shopping.
Ryan Ellis (@RyanLEllis) is tax policy director for the Conservative Reform Network.
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