QUESTIONS AND ANSWERS ABOUT PROTECTING INNOVATION

1. Some of the congressional sponsors of drug importation legislation say the bill could lower drug prices for seniors by 30-50 percent.  Isn’t this legislation worthwhile if it will save that much?

Independent evaluation by the Congressional Budget Office (CBO) and others has found that pharmaceutical importation will actually save consumers very little.

In addition, importing the foreign price controls of other nations subjects the U.S. to the damaging impact of price controls: initially lower prices followed by shortages, lower quality, less innovation, and even higher prices in some cases than competition would produce.  Whether it is price controls on gasoline, natural gas, airlines, long-distance telecommunications, trucking, or a score of other industries, the outcome has been the same. 

Perhaps most important, however, is that the pharmaceutical and biotechnology industries are especially vulnerable to the adverse impact of price controls because they invest heavily in research and development – the research and development that will find the cures and treatments for many, if not most, of the major diseases that afflict today’s seniors, and that will afflict the 80 million Baby Boomers who will begin retiring in a few years.

2. While industry claims that the drug importation legislation will endanger patient safety, most proposals contain strong protections ensuring that imported drugs will be safe, including relabeling provisions.  Don’t these provisions ensure safety?

Eleven former Food and Drug Administration (FDA) commissioners – from both Democratic and Republican administrations – wrote letters opposing legislation that would allow pharmaceutical importation.  Former Democrat and Republican chief counsels of the House Commerce Committee have spoken out against the legislation due to consumer and patient safety concerns.

Most versions of importation legislation have required that the Secretary of Health and Human Services certify the safety of imported drugs. Neither Secretary Donna Shalala, under President Clinton, nor Secretaries Thompson and Leavitt, under President Bush, have been able to make such a safety certification. These experts, along with safety experts from drug wholesalers and pharmaceutical manufacturers, have raised strong concerns about safety, including the potential for mislabeling, counterfeit, subpotent drugs, and so on.  They stress that, no matter how many inspections by the FDA and Customs Service, the key way manufacturers maintain the safety and efficacy of their products is that they maintain control of the product from production to the wholesaler in the U.S. Even with the tight controls that currently exist, the World Health Organization estimates that up to 8 percent of the products shipped into the United States are counterfeit, unapproved, or substandard.  If the safety controls are relaxed, this number will only rise. 

3. Why are the U.S. prices for prescription drugs higher than the prices across our borders, such as in Canada?

The Canadian health care system employs a system of price controls on pharmaceutical products, assuring citizens of artificially low prices on some prescription drugs. However, prices of prescription drugs are not always lower than in the United States. For example, generic drugs in Canada tend to be much more expensive than in the United States. 

Price controls have many disadvantages, even for Canadian citizens.  The controls only apply to certain products – if a necessary drug is one without a price control, Canadian patients pay a much higher price, if they have access to the drug. In addition, a system of price controls impedes future research and innovation. If the U.S. were to practice price controls, pharmaceutical companies would not be able to support new research and treatment advances through prescription drugs.

4. It’s understandable that there are concerns about importing prescription drugs from some countries, but isn’t it safe from a developed country, like Canada?

In September 2004, U.S. Customs seized more than 450 drug packages intended for the United States. Though the drugs had been bought online from Canadian pharmacies, Customs found that most of the drugs had been manufactured elsewhere and repackaged for sale.  This illustrates the inherent difficulty in tracking the source and makeup of prescription drugs when the FDA does not control the supply chain.

Under Canadian law, Canada is precluded from inspecting any packages with a final destination other than Canada. Therefore, shipments bound for the United States would not be subject to Canadian inspection and, therefore, would not be subjected to the same inspection requirements as drugs Canadians themselves use. In addition, the Canadian market is less than 10 percent of the American market. That means the amount of drugs available for the much larger U.S. population would be insufficient and inconsistent and leave the Canadians with shortages.

5. How are other countries responding to the U.S. importation of prescription drugs?  Are Canadian and other pharmacies glad for the additional volume of prescriptions?

On the contrary, some other countries have become unwilling to share their drug supply with Americans. Canadian officials have announced that they intend to block bulk exports of prescription drugs when supplies are low in Canada. 

6. What about price controls?  Shouldn't the federal government act to set limits on pharmaceutical "price-gouging?"

Across-the-board price controls imposed by President Nixon in the early 1970s failed and were abandoned.  Controls on gasoline prices in the 1970s contributed to shortages, which were only relieved by lifting the price controls in 1981.  Similarly, federal controls on natural gas prices led to a severe shortage in the late 1970s, which was alleviated when controls were lifted. Examples of the failure of price controls are plentiful in the telecommunications, trucking, airline, and many other industries.
 
The pharmaceutical and biotechnology industries are especially vulnerable to the adverse impact of price controls because they depend on continually bringing new products online.  These industries invest heavily in research and development. Many emerging biotech companies have little or no revenue and few if any products and are entirely dependent on investment capital.  Companies must set drug prices to produce an acceptable return on investment, given the risk inherent in developing new drugs.

American patients are healthier and live longer in part because of innovations in health care made possible by pharmaceutical investment.  In the past 20 years, each additional dollar spent on health care services has produced health gains valued at $2.40 to $3.00. This was accompanied by significant health gains such as the fact that annual death and disability rates declined, and a key measure of population health – the number of days in the hospital – declined from 130 to 57 per 100 persons.

Government-imposed price controls destroy incentives for innovation. Even the threat of government-imposed price controls causes investors to direct much-needed resources away from pharmaceutical innovation.  In the mid-1990s, the growth rate for research and development investment showed a marked decrease due to discussions about a government-run health care system. What does this mean for patients?  That they lose new drugs, vaccines, treatments, and cures for disease.

7. Patients in other countries with price controls don't seem to be suffering. Why is the United States any different?

American patients enjoy timely access to the most sophisticated medical innovation in the world. In the four-year period between 1998 and 2002, new pharmaceutical products debuted in the United States at twice the rate of introduction into European countries.  Because of this, American doctors and patients were able to begin new treatments far more quickly than their European counterparts – timing of great importance to patients with serious illnesses. On average, American patients have access to new drug therapies four months after a new pharmaceutical product launches. By contrast, European patients wait 7-19 months.