Importing Single Payer Style Price Controls Is Not the Way to Lower U.S. Drug Costs

On Wednesday, the Trump administration announced it is moving forward with its oft-discussed plan to allow the importation of prescription drugs from Canada, While the details are wonky and the policy has some bipartisan support, this policy is less about importing a product than it is about importing government price controls that will not work for the U.S. health system.

The Department of Health and Human Services (HHS) said in a release that it plans to write regulations allowing states, pharmacies, and wholesalers to apply for Food and Drug Administration (FDA) approval to import drugs from America’s northern neighbor. The administration also released guidance for the pharmaceutical industry on a second pathway for importation, one that would allow manufacturers to import drugs from foreign countries under a new FDA-approved National Drug Code (NDC).

Defending the policy was HHS Secretary Alex Azar, who just last year called importation a “gimmick” that “has been assessed multiple times by the Congressional Budget Office [CBO], and CBO has said it would have no meaningful effect.”

Indeed, as NTU has pointed out before, CBO wrote in 2004 that “[p]ermitting importation only from Canada would produce a negligible reduction in drug spending.” Even expanding importation to a “broad set of industrialized countries” would reduce drug spending by about one percent over 10 years.

The reason why some policymakers insist an importation policy will offer significant savings to American patients and taxpayers, though, is because drug prices in Canada are lower than they are in the U.S. The reason is simple: the Canadian government heavily regulates drug prices.

NTU has warned before of the risks that price controls pose for taxpayers. In a December 2018 letter to Secretary Azar and led by NTU, more than 150 economists warned:

“...setting price controls at below-market rates leads to shortages, squeezes the cost bubble toward some other portion of the economy, and imposes a deadweight cost on society. In this case, price controls can lead to a reduction in patient access to certain drugs, less investment in the research and development of new drugs, and cost-shifting that raises the prices of other therapeutics. Ultimately, patients will suffer as cures are delayed or entirely undeveloped, while taxpayers will be denied potential savings from drugs that could obviate more expensive treatments in government healthcare programs, and the investment of capital in development of new medicines.”

Beyond these potentially catastrophic effects, it is unclear the price controls in Canada have been particularly effective for patients and taxpayers there. According to OECD data, while the U.S. spends more per capita on drugs ($1,220) than Canada ($832), prescription drug spending makes up a higher proportion of health spending in Canada (16.7 percent) than in the U.S. (12.0 percent), and a comparable proportion of GDP (2.0 percent in the U.S. vs. 1.8 percent in Canada). An earlier study from the Commonwealth Fund found that out-of-pocket prescription drug spending per capita in 2015 was slightly higher in Canada ($149) than it was in the U.S. ($142). And prescription drug prices are enough of an issue in Canada that universal drug coverage was a major part of the victorious Liberal party platform.

That ruling Liberal government is also uncomfortable with the idea of Americans importing their prescription drugs. The Hill reported this month that Canada’s acting Ambassador to the U.S. appears unwilling to partner with the U.S. government on importation:

“It is important to recognize that Canada’s market for pharmaceuticals is too small to have any real impact on U.S. drug prices,” Canada’s acting Ambassador to the U.S. Kirsten Hillman said in a statement following her meeting earlier this month with Joe Grogan, Trump’s domestic policy chief.

A fair retort, then, is: if not importation, then what? There is lots to applaud when it comes to prescription drug coverage and access in America. We are the world’s leader in biopharmaceutical innovation. Retail prescription drug spending makes up only nine percent of national health spending, and is growing at a slower rate than hospital, physician, or clinical care. Nine in ten retail prescriptions in 2017 were for generic drugs, and 86 percent of the prescriptions paid by Medicare Part D in 2016 were for generics.

Still, many Americans report struggling with prescription drug costs. NTU has identified pro-taxpayer ways for policymakers to deliver savings to patients for both prescription drugs and biologics. Among them are negotiating better trade deals, lowering the regulatory barriers to generic and biosimilar competition, and making reforms to federal health programs that incentivize patients and their providers to choose lower-cost alternatives when appropriate. All of these would deliver savings to patients and taxpayers without destroying the system that has made America the global leader in prescription drug innovation.