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Three Easy Lessons on Ruining Innovation and Drug Markets

The Huffington Post The Huffington Post 14/03/2016 Douglas Holtz-Eakin

Presidential Candidate Donald Trump has joined Hillary Clinton and Bernie Sanders in support of enhanced importation of prescription drugs. Specifically, Trump's plan is to: "Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers."
Sounds good. But is it really?
It is not always clear what people mean by "import prescription drugs" or, as it sometimes is said, "reimport prescription drugs." There are three possibilities. The first is to manufacture prescription drugs in a Food and Drug Administration (FDA)-approved facility overseas, transport them to the U.S. in an FDA-approved supply chain and market them in the U.S. on terms comparable to domestically manufactured drugs. For innovator drugs that are still on patent, this would mean manufacture by the U.S. manufacturer and sale just as if they had been manufactured in the U.S. This is legal now. And I don't think any of the candidates are advocating for a policy that is tantamount to shipping drug-manufacturing jobs offshore!
The second possibility is that drugs are manufactured abroad under the auspices of the foreign government's regulatory regime (not the FDA), perhaps even in a country that does not recognize U.S. patents. Accordingly, they may be selling abroad at prices below those in the United States. Importing these drugs would do two things. The first would be to raise safety concerns because of the absence of FDA inspections in the manufacturing facilities and in the supply chain.
The second would be that the drugs would be sold at low prices because the patent is being violated. This is tantamount to getting rid of patent protection -- something candidates are careful not to say -- which would destroy incentives to innovate and develop new therapies. It is a sure route to ending the advance of medical progress.
The third possibility is so-called reimportation. That is, allow U.S. consumers to purchase pharmaceuticals that were manufactured in (FDA-approved) U.S. facilities and exported abroad (e.g. Canada) and "reimport" them back to the U.S. Presumably, this would take place at a lower price because of government policies like price controls.
Weirdly some conservatives get seduced by this notion, and call it "free trade." "Free" trade is an abstract, academic benchmark that does not exist in the real world. One should never decide actual policy decisions on the basis of idealized notions. Even more important, quality competition would never involve price controls and price controls on competition should be an anathema to conservatives. But price controls are the only thing that is being imported - the drugs, after all, are already in the U.S. - in the form of the artificially suppressed price. Reimportation isn't good trade policy by any name.
Moreover, reimportation would not work. To begin, those drugs are being sold abroad in the quantities that are being sold and at the prices the government has mandated because the government and the consumers want them. Why in the world, would they permit large amounts to go back to the U.S. and result in either higher prices or rationed access to the drugs? They would not, and it will not happen. And from the flip side, why would a U.S. manufacturer export a large amount of drugs that simply got sent back to the U.S. to undercut U.S. contracts? It wouldn't.
The upshot is that importation and reimportation are shiny baubles of the drug policy world. They make for tempting campaign rhetoric and serve to distract from the real solutions to pricing problems. High-quality competition, an efficient and low-cost regulatory regime, and elimination of costly government policies can lower drug prices. These slogans will not.

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