NCPA - National Center for Policy Analysis

Medical Tourism: An Odd Byproduct of High Drug Prices

March 7, 2017

Senior Fellow Devon Herrick writes at NCPA's Health blog:

On numerous occasions President Trump has lambasted drug companies for their high drug prices. He has suggested on more than one occasion Americans should be allowed to import medications from abroad where they are cheaper. Allowing private citizens to import their own drugs is a form of arbitrage. Arbitrage is when people are able to take advantage of discrepancies in prices in two different markets and bypass the higher prices by purchasing the lower-priced product in a cheaper market. For instance, you could argue that buying from Amazon is a form of arbitrage to avoid paying higher prices at your local brick & mortar store.

Under federal law a drug may only be imported by its manufacturer. This is what allows drug companies to price-discriminate, selling drugs for different prices in different countries. Drugs are lower priced in other countries due to a variety of reasons. One is that most foreign countries have a lower living standards compared to the United States. Their citizens often cannot afford U.S. prices. Another reason is that many foreign governments keep the price of drugs artificially low by imposing price controls or by refusing to respect patents.  Allowing Americans to buy from abroad would have the effect of importing foreign governments' price controls along with the drugs. It would also have the effect of rewarding foreign firms that violate patents (with their government's permission). In a nutshell, there are laws against private drug importation because property rights are at stake. For instance, patents are designed to protect drugs for a set number of years. Allowing Americans to import unauthorized generic versions, for instance, would violate drug companies' patents.

One drug therapy that has come under scrutiny are the costly new treatments for Hepatitis C. Hepatitis C is an infectious disease that scars the liver over time and can lead to liver failure and costly liver transplants. As you can imagine, when the alternative is death or a liver transplant (cost ~$500,000 and a lifetime of costly anti-rejection drugs), any effective treatment is going to be expensive until the patent expires. Gilead Sciences made the first highly effective treatment that cures Hepatitis C. Sovaldi (Sofosbuvir) has been shown to be about 95 percent effective at curing the disease. Earlier treatments had severe side-effects, which were difficult to tolerate and had to be taken daily for the rest of patients' lives. With a list price of $1,000 per pill, Sovaldi is not cheap. It takes one daily pill for nearly three months to cure the disease. Most people with Hepatitis C cannot afford a treatment that costs $84,000 on their own.

Millions of people worldwide have Hepatitis C. Egypt has what is believed to be the highest rate of Hepatitis C in the world, due to an ill-fated 1950s-era program to combat Schistosomiasis, a parasitic disease spread by snails. Health service personnel would fill syringes with multiple doses of a drug to fight Schistosomiasis and inject multiple people in a row with the same syringe.  It is estimated that 10 percent of the population -- 9 million Egyptians -- have Hepatitis C. More than half of men over the age of 50 in the Nile Delta region have Hepatitis C.

Poor Egyptians certainly cannot afford a treatment that costs $60,000, $70,000 or $100,000. Gilead offered Egypt a deal where the drugmaker would provide the country with Sovaldi for $10 per pill provided the government tightly control distribution. Patients were required to pick up their prescription from a government-run pharmacy. When patients picked up their pills, they were required to open the container and break the seal in front of the pharmacist. They then had to take the first pill on the spot. To obtain their second container they had to turn in the empty bottle from the previous fill. Hundreds of thousands of Egyptians have been treated this way.

Since the deal with Gilead was signed, a generic version became available for $4 per pill from a local drugmaker. Gilead also rolled out its newer product Harvoni for $14 per pill. A competing drug by AbbVie is $13 and a Hepatitis C drug by Bristol-Myers Squibb is also available.

Given the increased availability of Hepatitis C medications in Egypt, I was not that surprised to stumble across an article about Hepatitis C medical tourism, advertised for $5,900. One program is known as Tour n' Cure, from Prime Pharma, an Egypt generic drug company. One reason drug makers are selling their products cheaply in Egypt is because the Egyptian government refuses to honor American drug patents for these medications. This is the flipside of the drug importation debate. On the one hand, drugs are higher priced in the United States due to patents, property rights and higher living standards. Drug companies charge lower prices abroad when the market abroad cannot bear the U.S. price. In the case of Egypt, its refusal to respect patents gave it a cheap way to solve a huge public health crisis that the Egyptian health ministry caused (albeit 60 years ago). Now, the government is helping richer people from other countries access medications at the rate charged to impoverished countries (or by violating patients).

Some patients with Hepatitis C from western countries are traveling to India in search of cheaper cures. This is something that drugmakers expected but tried to prevent. A Bloomberg article even talked to an executive from drug plan manager Express Scripts, who briefly investigated the idea of docking an Indian-flagged ship stocked with cheaper Hepatitis C drugs in international waters off the coast of the United States. In theory, covered patients could be ferried to the ship where their drugs could be dispensed. The idea was dropped because that too would violated federal law, which limits the value of drugs Americans can bring back form a foreign country.  The Bloomberg article also claimed some Indian generic drug companies are selling generic versions by mail-order (which also violates federal law when drugs are imported into the United States.)

Basically you have multiple bad actors. One is drugmakers who try to maximize revenue by charging much higher prices than actual individuals can hope to pay. Prices are generally set at levels that rely on insurers, employers and the U.S. government to fund them; few individuals are going to buy an $84,000 treatment. The other side of the equation is foreign governments who want to steal drugmakers' intellectual property that delivers a huge value, so they can deliver cheap drugs to their citizens. In more egregious cases, foreign governments help local industry sell a product they did not develop for huge profits.

Surely there is a middle ground where drugmakers get rewarded for their discoveries; Americans have access to drugs they can afford; while foreign patients pay their share of development.


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