One of the media’s favorite whines is that Americans pay a lot more for prescription drugs than do people in other countries. It’s just so unfair.
And so President Obama has promised in his massive budget proposal that he’d help Americans "buy safe and effective drugs from other countries." This one sentence in Obama’s $3.6 trillion budget is what caused drug stocks to drop precipitously last week.
So what’s wrong with “reimporting” drugs from other countries back to the U.S. where they were made? Pretty much everything.
It sounds like a simple cost-saving trick. But no one ever seems to ask the most relevant question: why are drugs less expensive in other countries? Do drug companies hate Americans? Are they charging the true price overseas, but jacking it up in the U.S.? Does shipping a drug half way around the world and then back somehow magically reduce its cost?
No. The reason that drugs are so cheap in some foreign markets is that many countries are robbing American drug companies and forcing them, under threat of confiscation of their patents, to sell at unfairly low prices — or risk having their businesses destroyed. Under the force of this extortion, the drug companies have buckled in an effort to save their patent protection and their investment in research.
In a nutshell, the scam works this way. A foreign government with a socialized medical system names a price at which they are willing to buy a drug and the drug companies get to agree to it. This price could be grossly unfair, but the drug companies will still have to agree to it because, if they do not, the foreign government will invalidate the patent protecting the drug in question.
That would allow generic manufacturers to legally rip off that drug and sell it at a rock bottom price, since the generic company did not have to spend a single dime on all the research to invent the drug. And once a legal generic source is available in one country, the cheap generic knock-off will find its way into every corner of the world, ruining the world market for the company that actually invented the drug.
Inventing a drug is an unfathomably expensive and lengthy process. It takes about 10-15 years and nearly $1 billion to bring a new cure or treatment to the market, and most of what you pay for when you buy a newly invented drug is that research. Manufacturing the drug is only a small part of the cost. Most of the price is aimed at recouping the hundreds of millions of dollars spent on discovery and the clinical trials to show that the drug works and is acceptably safe.
The only reason private drug companies are willing to invest such huge sums finding and testing new drugs (that are then easy to rip off and under-price) is that most nations have historically been willing to grant patents — exclusive rights to profit from an invention for the first few years of its manufacture — to the inventors so as to encourage future innovation.
After the patent expires, the invention then becomes common property and anyone can manufacture it. In this way, society encourages research and discovery. It means that new inventions are more expensive for the first few years, but that many more new inventions are discovered, so society continues to advance. After the patent expires, each invention becomes cheap and society ends up with the best of all long-term scenarios: a huge number of ultimately affordable technological innovations.
The system has worked quite well for centuries, especially in Anglo-Saxon countries. The Founding Fathers thought the system was important enough to actually enshrine it as an enumerated federal power in the Constitution, and Thomas Jefferson served as the nation’s first head of the Patent Office. Patents are the lifeblood of all high technology companies, including drug companies.
So when a “cost-cutting” government threatens to invalidate patent protection, what it is really doing is threatening to seize the research investment of the patent holder and cause it a huge financial loss. Traditionally, drug companies have agreed to all sorts of extortion in smaller markets with price controls in order to protect their investments and make a profit in large markets, such as the United States. As foreign nations have piled on to the socialized medicine concept, the result has been that the U.S. market is now one of the last bastions of unfettered patent protection. Essentially, the U.S. is supporting world drug research.
That is why drugs are cheaper in many foreign countries. The U.S. continues to reward invention and research, while many other countries have chucked these long-term interests in favor of short-term cost “savings” (really a subtle form a theft), which is politically quite popular in most places.
So what Obama and others are really talking about reimporting is not drugs but the price controls imposed by foreign socialized medical systems. This is a cowardly thing to do. America has made a conscious choice not to curtail patent protection, since that would rob the future of many yet undiscovered drugs. Drug companies are not going to invest in research if they cannot hope to recoup those costs. Obama and his administration want price controls, but do not want to debate the issue openly, so they have proposed to outsource the dirty work to foreign governments.
If Obama has his way, then drug companies will be forced to sell unlimited supplies of drugs to foreign medical systems below cost, and then watch helplessly as those drugs are shipped right back to America and sold at a loss here. And this assumes that what is reimported will even be the same drugs that are shipped out to begin with. America cannot now stop the import of poison pet food and lead laced toys from overseas. Do you really believe we can regulate the reimport of potentially fake or adulterated drugs, where the profits to the unscrupulous could be so much higher? Obama’s big drug savings plan essentially boils down to having Medicare respond to some spam promising “di$count foreign p1lls.”
In the short term, drugs will be cheaper under Obama’s reimportation scheme. Fenced goods are always cheaper, after all. In the long term, however, innovation will suffer and people will die of diseases that might have been cured, if only research still paid. I suppose that this will save costs in the long-term too, since insurance companies and governments will not have to pay for cures that are never invented. Death is cheaper than new drugs.
So not only does Obama’s massive proposed budget saddle our children with record deficits to be repaid, it also saddles them with a more costly burden: the possibility that the constant stream of new cures we have come to expect as commonplace in our lifetimes will slow to a trickle in the future. But hey, at least the tired old drugs our bankrupt children will have rationed to them will be “cheap.”