Amidst the Lieberman Drama, Some Wrangling Over Drug Prices

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Tonight the Senate began voting on amendments to the health care bill for the first time in days. Near the top of the agenda: an amendment from Democratic Sen. Byron Dorgan that would have allowed U.S. pharmacies and drug wholesalers to “reimport” drugs from foreign countries. It was was voted down 51-48. (Amendments need 60 votes to pass, according to an agreement between the majority leader and minority leader.) It might seem like a simple win for the drug industry and a defeat for the American consumer already buckling under the cost of high-priced pharmaceuticals. But, like so much related to health care reform, glossing over the particulars ignores some of the real policy and political issues at stake.

The idea of buying name-brand drugs from foreign pharmacies is popular. Already, an untold number of Americans stream across the border into Canada and Mexico to get their prescriptions filled at deep discounts. And online, it’s almost impossible to avoid spam and banner advertisements encouraging the purchase of pharmaceuticals over the Internet. (This is against the law.)

Dorgan has long wanted to make buying drugs from foreign outlets legal and more widespread. It would save consumers $100 billion over the next decade, he says, and save the federal government about $20 billion, according to the Congressional Budget Office. On the basis of these savings, Dorgan put together a bipartisan group of 20 co-sponsors for an amendment he introduced to the Senate health reform bill that would have made it legal for pharmacies and drug wholesalers in the U.S. to “re-import” pharmaceuticals. Simple, right? Nope.

While proponents of drug reimportation say pharmaceutical companies are simply gouging U.S. customers and could stop anytime, there’s a reason drugs cost so much more here than in other countries: Countries such as Canada have government-mandated price controls. U.S. drug makers agree to sell their products to foreign countries at lower prices for a few reasons. Sometimes the market is small enough not to have a huge affect on profits. Sometimes foreign countries make deals related to patents and generics that protect pharmaceutical companies’ interests. Sometimes customers in foreign countries – especially in the developing world – simply would not purchase drugs at U.S. prices, so refusing to offer discounts is self-defeating. And yes, drug makers have high enough profit margins in their largest market – the U.S. – that they can afford to charge others less. This is Dorgan’s point.

But many experts on the reimportation issue – which has percolated in U.S. politics for many years – say legalized reimportation would not have the desire effect or would, but only temporarily. They says drug makers would respond by raising prices in other countries or shrinking shipments to those nations.

Here’s an analysis from a 2004 New York Times article on the subject of reimportation:

“…It may make political sense to point to Canada as a solution to high prescription drug prices in the United States. But many economists and health care experts say that importing drugs from countries that control their prices would do little to solve the problem of expensive drugs in the United States, where companies are free to set their own prices…

…To begin with, there are not enough Canadians, or drugs in Canada, to make much of a dent in the United States. There are 16 million American patients on Lipitor, for instance — more than half the entire Canadian population.

Drug makers like Pfizer say they would reduce their shipments of drugs to distributors in Canada and other countries that re-export to the United States. ”We are not going to supply drugs to diverters, in Canada or elsewhere,” said Hank McKinnell, chairman and chief executive of Pfizer.

And Canadian health officials, fearing shortages and higher prices of their own, would probably clamp down on their own pharmacists and distributors to keep their drugs from leaking into the United States. Canadian patient-advocacy groups have already complained about shortages from the exports to the United States that already occur, even though they violate American law.”

On the Senate floor, opponents of the Dorgan amendment from both sides of the aisle said it could jeopardize the safety of patients – a case helped by the fact that the Food and Drug Administration has raised similar concerns. But the politics here may be far more instructive.

Democratic Senators Max Baucus, Chris Dodd and Majority Leader Harry Reid recognized that momentum was building behind the Dorgan amendment – which would have blown up the deal already struck between the White House and pharmaceutical industry – so it appears they needed a way to appease those hankering for further relief from high drug prices. One group that is most likely to stop taking necessary medications because of cost are seniors caught in the doughnut hole, a gap in Medicare Part D prescription drug coverage. (Enrollees have drug coverage until their costs exceed $2,700. At that point, they have no coverage until they spend $6,154 out of pocket.) So Baucus, Dodd and Reid pledged – days after the Drogan amendment hit the floor – that Democratic health reform legislation would close the doughnut hole, something the Senate bill does not currently do. The three haven’t offered any specifics yet on how they would make good on their promise, but it would likely happen in conference – when a Senate bill would be merged with the House bill, the latter of which does gradually closes the gap.

The moral of the story here is that things are moving quickly on the health care bill and the moving pieces are everywhere – from the Senate floor to the drug company boardroom to the border.

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