Duke 2008 | ASHE | Equity and Efficiency in Health and Healthcare

Many Americans complain that prescription drugs in the United States are too expensive. Some U.S. representatives believe that one way of reducing the price of prescription drugs is to authorize reimportations from other developed countries, especially Canada. Currently, only the manufacturer can import prescription drugs to the United States. While pharmacists and wholesalers are theoretically allowed to import drugs from Canada, the Secretary of Health and Human Services must guarantee that the drugs imported are safe, which he is unable to do. In practice, therefore, pharmacists and wholesalers cannot import pharmaceuticals because of an interpretation of the 'Precautionary principle': as long as the drugs imported are not proven to be safe, no risk to Americans' health should be taken by allowing reimports. This system limits competition and enables companies to set higher prices in the United States than in other countries which control prices.

Pharmaceutical companies have constantly been opposed to drug reimports, because they contend that drugs sold in other countries are unsafe. Yet, the United States imported for more than 42 billion dollars worth of pharmaceutical products from 90 countries in 2006, and the World Health Organization says that most drugs sold in industrialized countries are safe. While pharmaceutical companies lobby to maintain the ban on drug reimports to the United States, they want to be able to continue to outsource production, and import active ingredients and finished products. One of the Food and Drug Administration's (FDA) missions is to guarantee that pharmaceuticals imported to the United States are safe, but reports show that the FDA is failing in that mission. Why then authorize manufacturers to import and not pharmacists and wholesalers?

This paper develops a model that shows that the current laws are not the result of safety concerns but of pharmaceutical companies? desire to limit free trade. Consumers maximize utility by paying low prices for high quality drugs. Pharmaceutical companies maximize their profits by setting high prices (thanks to a ban on drug reimports) at the lowest cost possible (by outsourcing production). If companies lobby for ?protectionism? (trade barriers), the legal debate on drug reimports will focus on the high prices consumers pay; if they lobby for 'precautionism' (drug safety), the debate will revolve around the quality of drugs. Thanks to precautionism, pharmaceutical companies can scare consumers, who are willing to support higher prices for what they think are safe drugs. The pharmaceutical companies' use of the Precautionary principle enables them to lobby successfully for trade limitations. The bottom line is that precautionism is pill easier to swallow than protectionism.