Filed under: Health
Republican Senator David Vitter says he wants to re-import drugs from Canada, at low Canadian prices, because if the US does, then “that system implodes” due to massive US demand. That will end the current situation where US drug consumers are allegedly subsidizing the low drug prices in the rest of the world, where governments negotiate low low prices with the pharmaceutical companies in exchange for market access.
Help me out here: unless I’m missing something, this sounds like it’s backwards. There will be implosion, but it’ll be an implosion of the drug companies in the US. If the US starts re-importing drugs from Canada, effectively the Canadian market gets bigger. That enhances Canada’s ability to negotiate low drug prices with pharmaceuticals companies. A drug company that decides not to meet Canadian demands for low prices, and gets shut out of Canada, will find its competitors now have it beaten out, not just for the Canadian market, but for the massive US re-importation market. This gives Canada’s drug price controls board even more power to set the market price. This works the same way that the fact that Hamburg is a huge global center for the coffee trade means wholesale coffee prices in Hamburg are lower, not higher, than those in places where coffee is only sold locally. That’s the logic by which certain exchange centers become dominant in certain commodities.
So if we legalize drug re-importation from Canada, what will happen is that the direct US market for drug sales, which is where pharma companies make their big profits, will shrink. And their profit margins will shrink. And at some point they may start to run into severe financial difficulties. Now, it’s possible that what will happen at that point is that drug companies will start to insist to other countries that they have to be allowed to charge more, because they can no longer make it up with their profits in the US market. And then there will be some bitter conflicts in drug markets around the world, and prices will ultimately equalize. But that will happen because Vitter’s plan has put the squeeze on drug companies, forcing them to contemplate bankruptcy if they don’t equalize their global pricing. It’s not going to put a squeeze on Canada or force it to “implode”; it will just drive drug prices way down in the US and, eventually, as pharma companies stare at the abyss, force them to push prices up somewhat in Canada, Europe, and Asia. And that’s probably why pharma companies oppose reimporting drugs from Canada. They don’t want to be forced into that tough negotiation. They like their cushy overpriced US market.
Anyway, unless I’m missing something, I think Vitter’s idea is perfectly sound, since it basically turns US drug pricing over to Canada’s drug price control board, which will probably negotiate us a good deal. Or am I missing something?
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