NCPA - National Center for Policy Analysis

DRUG REIMPORTATION AS A PSEUDO-MARKET MECHANISM

July 2, 2004

Advocates for drug reimportation -- allowing American consumers to purchase pharmaceuticals imported from Canada and other countries -- claim it will open free trade and encourage competition. Contrary to such claims, reimportation will only harm the market, says Doug Bandow.

Drug reimportation, he says, would be a first step toward turning the pharmaceutical market into a de facto public utility, behaving as if it were a community-owned, nonprofit entity. Furthermore, it would:

  • Hinder competition by applying foreign price controls domestically.
  • Discourage many nationalized health care systems from purchasing drugs made in the United States, thus making fewer available for reimportation.
  • Encourage the theft of American drug patents by foreign countries, and allow the procurement of drugs at unrealistic prices.

Domestic drug prices reflect the fact that American pharmaceutical companies shoulder much of the research and development of new drugs, while Europe and other countries get a free ride, says Bandow. Enacting drug reimportation could take away incentives for research and development.

Additionally, he explains, the push for reimportation is based on the assumption that drug costs make up a large proportion of consumers' medical costs. The reality is that drugs account for only 10 percent of health care costs, with nearly half of spending on medicine covered by the federal government.

Source: Doug Bandow (Cato Institute), "The Free Market Mirage of Reimportation," Institute for Policy Innovation, May 25, 2004.

 

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