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Drug Importation Will Hurt, Not Help, Taxpayers and the Economy

by Pete Sepp / /


Dear Senator:

In the coming days you will be casting votes on numerous amendments to S. Con. Res. 3, the concurrent budget resolution for Fiscal Year 2017. While National Taxpayers Union (NTU) is issuing various communications expressing views on these amendments, we caution Senators against proposals to facilitate the importation of prescription drugs from abroad. Specifically, NTU urges you to oppose Senate Amendment 32, sponsored by Senator Klobuchar, which calls for initiating this process with certain medications from Canada.

From a fiscal standpoint, importation is a terrible risk. Prescription drugs have long represented, and will continue to represent, a moderate share of total health care spending in the U.S. (roughly ten percent). These expenditures, however, also continue to offset other costs in the system, by shortening hospital stays or obviating the need for surgeries. Taxpayers benefit as a result – for example, according to the National Bureau of Economic Research, every dollar spent on prescription drugs leads to a $2.06 reduction in Medicare expenditures. Policymakers should be loath to tamper, even at the edges, with this elegantly balanced system of free-market drug development in the United States – one that encourages innovation and investment while generally working to stabilize prices at their lowest level possible.

Over a decade ago, the Congressional Budget Office (CBO) concluded that the savings to the federal government from importation would be minuscule, “because those programs generally already pay among the lowest prices on the market.” Patricia Danzon and her colleagues at the Wharton School have likewise concluded that the policing costs of importation would cut into most of its purported savings to customers. The Medicare Modernization Act of 2003 required the FDA to certify that any Canadian importation arrangement would have to “result in a significant reduction in the cost of covered products to the American consumer.” Given the findings of CBO, Danzon, and others, it is no wonder that such certification has never occurred, and its future prospects remain highly dubious.

The intent behind S. Amdt. 32 is apparently to circumvent these genuine problems by limiting the types of medications that could be subject to importation, and creating an intricate certification apparatus involving Canadian authorities (similar to stand-alone legislation that both Republican and Democratic Senators have offered). Such provisions would, on their face, be an admission that importation is not some simple or painless exercise in health care cost reduction. Introducing this harmful experiment, even if limited to a portion of medications sold in Canada, is fraught with fiscal perils that would only grow when supporters would inevitably push to expand the program.

Nor should Members of the Senate be led to believe that importation amounts to free or fair trade. As a recent NTU Policy Paper, Trading in Trouble, noted:

[S]ome fiscal conservatives assert that importation amounts to … the exchange of prescription medications at prices that are reached through the “invisible hand” gently guiding the equilibrium of the free market around the world instead of just the United States. In reality, that hand is simply an appendage of big government, which in other countries (and to a major degree our own) possesses the iron grip of price controls.

Our analysis also warned that “importing self-destructive policies from abroad causes collateral damage here at home. That damage extends to, but is not limited to, our own exports, our workers, our shareholders, our efforts to liberalize and strengthen standards of international commerce, and the long-term savings that innovative drug therapies deliver for taxpayer-funded health care programs.” NTU invites you to examine the full-length Policy Paper, available online here, which further explores the flaws of importation.

Many Members of the Senate now have the first opportunity of their careers to cast a vote on drug importation – but it is by no means a “free vote” merely because it is occurring in the context of a non-binding budget resolution. Lawmakers who support limited, accountable government, property rights, free markets, and sensible trade policies should vote “NO” on S. Amdt. 32 to S. Con. Res. 3, or any proposal like it. Should roll call votes occur on this matter, NTU would include them in our annual Rating of Congress. Thank you for your consideration of our views.

Sincerely,
Pete Sepp
President