Pharmaceutical parallel trade: economics and regulation

Healthcare

Making Prescription Drugs Affordable?

Parallel Trade and the Pharmaceutical Industry

The skyrocketing cost of prescription drugs remains one of the most contentious issues in America. In this presidential election year, especially, politicians are continually debating ways to make life-saving drugs more affordable. Alone in the world, the United States prohibits the free importation of prescription medications from abroad. Yet, as is so often pointed out by those in favor of changing the law, such drugs are nearly always much less expensive in foreign countries - even medicines that are actually manufactured by American corporations. Of central importance in the argument is the precise rationale for current pricing levels. The pharmaceutical companies and their allies claim that high prices are necessary to finance the continuing innovation of American medicine. Foreign nations, they say, artificially control drug costs, thereby depriving corporations of the sizeable funds required for new research. New medications and treatments are extremely costly to test and to develop, and it is largely because of foreign governments and their socialized healthcare systems that American companies - and therefore Americans - must bear the brunt of these expenses. The development of new, life-saving treatments, insist these American manufacturers, would grind to a halt if prices were drastically reduced. On the other hand, it is just this sort of "Parallel Trade" that is backed by the many who believe that pharmaceutical prices are out-of-control and unrealistic. Allowing for the importation of cheaper, and essentially identical, drugs would be a boon to the American people, and would not deal a death blow to new research. Speaking with the interests of the average American at heart, and with the voice of the committed free trader, Parallel Trade supporters contend that allowing pharmaceutical imports would provide the best of both worlds - affordable healthcare for ordinary Americans, with competition further stimulating research and development.

As one of the leading advocates for seniors, AARP - the American Association of Retired Persons - supports a three-year trial period for the importation of prescription drugs from Canada. The trial period is designed specifically to address the "safety concerns" that are the last ditch attempt of the pharmaceutical industry and the White House in their bid to stave off the dread specter of drug importation - or rather reimportation as it is termed; most of the drugs being imported actually having been manufactured by American companies. The emphasis on reimportation from Canada is based presumably on the notion that Canadian drugs would be subject to more stringent control in their country of manufacture than would, say, drugs made in Mexico, or some other nation perceived as having less-stringent controls than the United States. In its defense of the safety and reliability of reimported pharmaceuticals, AARP makes reference to the Internet and Mailorder Pharmacy Accreditation Commission - or IMPAC - a non-profit group that certifies medications manufactured in Canada and Mexico.

Jennifer Walkowiak, IMPAC's executive director, says the accreditation process is "highly rigorous" and includes a two-day inspection of a mail order pharmacy's whole operation, "all the way from how they hire their staff to how the drug is sent out."

The aim is to offer consumers reassurance by identifying online pharmacies that give excellent service, she says. Accredited pharmacies must go through the same process every two years.

Individual states, too, support schemes such as AARP's when it comes to saving money on their employee health plans. In particular, states near the Canadian border actively encourage consumers to "shop around." Many municipalities are already taking the plunge, taking full advantage of the equal quality, and yet dramatically lower priced Canadian reimports. The Mayor of Springfield, Massachusetts, Michael Albano, sees reimportation from Canada as the answer to the rapidly rising healthcare costs that have become such a strain on his city's employee benefits provisions. "The fact is we're mad as hell, and we can't afford it any more,' Albano says, noting that the city's annual prescription drug costs have more than doubled to $18 million over the past eight years. Buying at Canadian prices could save up to $9 million a year, he says." There is no doubt that practices such as the City of Springfield's bring prescription drugs into the reach of more Americans. It was because of the already high price tag of medical care that so many United States residents turned to healthcare insurance in the first place. This medical insurance was typically financed in whole or in part by an individual's employer. As healthcare costs continued to rise, many corporate and municipal employers were forced to either cut back on, or eliminate, their contributions to their employees' insurance. It is to avoid precisely this circumstance that Mayor Albano, and others like him, have looked to reimportation.

However, while taking into account the affordability of good quality medical care, reimportation, as it is currently being practiced, does not take into account the other argument of the pharmaceutical companies - that their ability to perform research and develop new treatments would be adversely impaired by the competition of Parallel Trade. It is the opinion of the Food and Drug Administration, or FDA, that medical care in the United States is the finest in the world, precisely because of the current, no-importation (or reimportation) situation. FDA regulations ensure that all drugs have been properly tested even before they have been released to the market. Pharmaceutical companies use their profits to develop new medications which, under FDA rules, must undergo rigorous tests, trials, and so forth. Many never make it to the pharmacy because their ill-effects, or possible ill-effects, are detected during the long process of FDA approval and certification.

We are aggressively using our existing educational, compliance and enforcement tools to combat the proliferation of unsafe or fraudulent pharmaceuticals on the Internet, and we will continue to evaluate what changes in our procedures, regulations, or the law might be appropriate to enhance our efforts.