If medication prices in the US are higher than in other countries, why not import from there?

Question

In the United States, many medications are much more expensive than in other countries (see for example How the U.S. Pays 3 Times More for Drugs). This is a serious problem for many patients, and becoming a political topic (Lower Drug Prices: New Proposals Carry Lots of Promises, New York Times article from February 2018).

Given these facts: Why don't the US just import the medications from where they are cheap? This would seem the obvious answer, particularly in a country where free trade is highly valued. It also seems to work nicely for many other goods, such as clothing, cars or electronics.

If I understand correctly, one obstacle is that it is generally illegal to import medication into the USA, because that medication lacks the required approval by US authorities, specifically the FDA (Information on Importation of Drugs prepared by the Division of Import Operations and Policy, FDA).

However, this still leads to the question of why this is not changed? Laws can be modified - is it protection of US pharmaceuticals, concern about quality, something else? It would seem a no-brainer to lift restrictions that increase the cost of medication.

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Note that there is precedent: In the European Union, approval of a medication in one country is generally accepted in other countries, too (with some limitations) - see e.g. the page on Authorisation of medicinesfrom the European Medicines Agency.

Answer 1

Why don't the US just import the medications from where they are cheap?

In many cases they do, and the importer makes a lot of money thereby.

Retail prices don't necessarily have a strong relationship to costs of production. If people (and, perhaps more importantly, their insurers) are willing to pay high prices for pharmaceuticals, pharmaceutical companies will charge high prices for their products in the US.

why this is not changed? Laws can be modified - is it protection of US pharmaceuticals, concern about quality, something else? It would seem a no-brainer to lift restrictions that increase the cost of medication.

Pharmaceutical companies won't see it that way, and they have a lot of money available, thanks to the high prices of their products, to lobby lawmakers with arguments about safety standards and the like.

One thing you might want to look at in analyzing this issue: the same product manufactured by the same company in the same factory can be sold under the same name in two different countries with huge price differences. See for example https://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2009.0923.

Answer 2

Your question is based upon a flawed premise that the US has a free market. The US government exerts extensive political control over its markets, making it rather protectionist (though mercantilist might be a more accurate description).

Importing pharmaceuticals would inhibit the ability of pharmaceutical companies to make high profit margins on their drugs, which is needed to overcome the extremely high cost of gaining government approval to sell those drugs. If Americans paid world prices for drugs, the profits would not be able to justify spending billions of dollars on getting FDA approval for that drug to be sold.

There is an argument that such barriers are legitimate in that poorer nations cannot afford the higher prices which would arise if there were a uniform world price. Price segregation allows vital drugs to be provided at cost (or closer to it) for low-income nations, while American customers pay high enough prices to fund research and development of new medications. As with any such intentions, the actual rules are gamed, resulting in excessive prices in the US (especially for so-called orphan drugs) while claims that this system is necessary for further development of new drugs are not empirically supported.

Answer 3

There are a few other reasons that I'm aware of.

In some countries, in countries that are lower priced, it might be a case that the patent holder can only secure the patent in that country if they sell for an arbitrary price set by that country. The Patent holder can either sell at the required price OR loose the patent in the country, who will give the formula to a company that plays ball.

In the U.S. some generic drugs have an inflated price because they are monopolized by one company. This occurs when the drug is not widely consumed by those who it is prescribe to and the cost of investment to start producing a drug to undercut competition is not worth the gain from sales at a lower price per production.

Another reason could be price fixing. In this case, the drug is generic and cheap to make, but Company A and Company B agree that Company A sells their brand to Drug Stores 1 and 2 and General Store Alpha while Company B will only sell to to Drug Store 3 and General Store Beta and Gamma. This means that they can set prices by never bothering to undercut each other in their defined territories (this is illegal and I'm aware of suits against companies that do this occurring right now).

Answer 4

There is a federal law prohibiting such imports. For example, the state of Vermont passed a law allowing for imports of prescription drugs However,

Before the plan can be implemented, a waiver from the federal government is needed ... Federal law was changed in 2003 to allow the secretary of the Department of Health and Human Services to authorize the importation of prescription drugs, but such permission has never been granted.

Vermont is not the only state attempting this plan Utah, West Virginia and Oklahoma are also petitionaing the Trump administration for permission. "The state measures use a framework put in place by the 2003 federal law that created the Medicare Part D program."

The opposition is centered around the idea that the drugs are not safe.

Alex Azar, the newly confirmed health secretary, said in a Senate hearing last fall that importation could jeopardize public health. Both the Food and Drug Administration and the drug industry echo that concern.

"Public health is at risk when the safety measures put in place by federal laws and regulations are undermined or absent through the importation of unapproved foreign drugs," an FDA spokesman said.

Others argue that drug companies would block such an importation scheme:

Skeptics maintain that the drug industry would likely work to counter importation.

They could tamp down how many prescriptions they sell in Canada, or find other ways to discourage Canadian wholesalers from participating, said Michael Law, a pharmaceutical policy expert and associate professor at the University of British Columbia's Center for Health Services and Policy Research.

"My guess is any Canadian distributor to engage in that would find their [medication] supply dwindle quickly," he said. "The supplier systems in the United States would probably find it hard to get a [Canadian drug] supply in the long term."

Why would existing drug companies block this kind of scheme? The answer is that they make huge profits under the current system (arguably to offset the costs of new drug development).

Answer 5

If a medication is a lot cheaper in some foreign country than in the USA, then it seems obvious that it could be produced a lot cheaper in the USA, and since this is not happening, there must be a powerful reason why it's not happening. Usually the reason is that somehow one manufacturer got a monopoly, usually through patents, and that monopoly applies to importers as well.

In extreme cases, there are plenty of people who privately fly to a foreign country and buy medication for their private use at a much lower price. Bringing these privately bought items back to the USA isn't "import".