This week, I’m proud to announce that I teamed up with Stephen Salant, PhD, professor emeritus of economics at the University of Michigan, to write an op-ed called “The one-two punch to knock out high drug prices.” Professor Salant was also an economist with the Federal Reserve Board and the Rand Corporation. Our article, published today in The Hill, recommends legislation and regulatory reforms that would promote safe prescription drug importation and implement a most favored nation system of drug pricing for Medicare. The recommendations are based on executive orders from the Trump administration and Democratic legislation from the previous Congress. They should have intense bipartisan support.
Lots of others have written articles advocating similar reforms, but our article employs new economic theory articulated by Dr. Salant in a paper called Arbitrage Deterrence: A Theory of International Drug Pricing. You can read the op-ed and the paper (if you have strong math skills) but the gist is that: 1) Promoting drug importation, both personal and wholesale would lead to lower domestic but higher foreign drug prices, 2) Simultaneously implementing a strong system for international reference pricing would curtail the aforementioned drug price increases and create a noble cycle of lower and reasonable foreign and domestic prices, and 3) the savings to the U.S. government would be more than enough to subsidize biopharmaceutical research to offset lower R&D investments from drug companies.
With lies and deception, Big Pharma has used the threat posed by rogue websites and counterfeit drugs to push back against U.S. state legislation to gain access to lower drug prices in Canada. Regardless, several states have passed laws toward creating importation programs: Colorado, Florida, Maine, New Hampshire, New Mexico, and Vermont. Simple summary: Canada’s brand drugs are priced much lower and states want access to them. These state laws have largely been confined to wholesale drug importation. That is, until this week when California Assemblymember Sydney Kamlager introduced the Affordable Prescription Drug Importation Act, AB 458. The bill not only calls for wholesale importation from Canada – but also personal drug importation from Canada and other countries, subject to Section 804 of the Food, Drug, and Cosmetic Act. It’s about time!
The bill states:
“This bill would authorize an individual to import a prescription drug only for use by that individual or a member of that individual’s immediate family from a foreign pharmacy if specified requirements are met. The bill would prohibit an individual from, among other things, importing a prescription drug for resale or a controlled substance.”
This is a huge step in the right direction because Americans are already buying medications internationally. Millions have done so from safe international online pharmacies – and the law technically permits this through enforcement discretion, but they should have “express permission.” As I stated in a press release yesterday:
The Rand Corporation has released an impressive study showing that brand name drugs cost far more in the United States than in other countries – on average 344% more. For those of you looking for a methodologically strong analysis of international drug prices and a history of related studies, this is the report for you. In looking at all drugs, brand and generic, the percentage goes down to 256%. That’s because, as the report shows, generic drugs in the U.S. were found to be priced at 86% of those in other countries. The report was based on drug prices from 2018.
The report’s title is very descriptive of its contents: “International Prescription Drug Price Comparisons: Current Empirical Estimates and Comparisons with Previous Studies”
Explaining the report’s approach in the simplest terms: it accomplishes its main objectives by creating price indices for 32 member countries of the Organisation for Economic Cooperation and Development (OECD) and comparing them for all drugs, brand name and generic. That’s the report’s main focus. It has additional results for other categories, notably biologic drugs and the top 60 drugs in terms of sales. For biologics, which are generally the most expensive prescription products, U.S. prices are on average 295% the international price. For the top 60 drugs by sales, U.S prices are on average 394% higher.