The Trump administration wants to allow Canadian drugs to be imported to give consumers lower prices. This is also supported by almost every Congressional Democrat and many Republicans. It sounds great to allow American consumers to buy cheaper drugs from Canada and is already happening somewhat through online Canadian pharmacies. Consumers can generally save 30-50% and in some cases by a lot more.
So why is this tactic going to fail? First, drug makers do not want to sell to Canadian distributors just to have those lower priced drugs come back to the United States. They happily will sell what Canadian consumers need but will not allow much more than that to be sold into Canada. Drug companies know some Americans buy Canadian drugs but that is a relatively small amount. Once that reimportation gets to be a big business drug companies will restrict what Canadians can buy.
Second, the Canadian government has already said they have experienced drug shortages and will not allow Canada to become an exporter of drugs if their own citizens face problems filling prescriptions. Drug makers will not allow their golden goose US market to be destroyed by a Canadian end run. Drug makers always have the option of not selling a drug in Canada if the approved price is too low. That could deprive Canadians of getting access which is not a good scenario.
Unfortunately for drug makers it looks like there will be some system of price indexing or outright price controls in the future. There is no strong support from either party for drug makers charging US consumers more than other developed countries. While Republicans are more friendly to drug makers, they cannot convince their constituents that it is fair to pay significantly more than the French, Canadians or Germans. While they know innovation is funded by US profits, that is a hard sell for voters having trouble affording rising health care costs.
What is the solution? Drug companies must self regulate their desire to raise prices beyond inflation. Any increase beyond that is difficult to defend. American consumers need to get a tangible benefit paying a premium price. That could be faster access to new drugs, and more price support during the introductory period to prove the value of the premium drug. While the industry’s ad campaign explaining the wonders of drug research is good, I am afraid it is insufficient to assuage concerns that Americans pay too much.
The best solution is to have one developed market price for a drug with Canadians and Europeans paying more and Americans paying less. Why would other governments agree to that? There would have to be some benefit in allowing drug companies higher prices in price-controlled markets. That could be through trade concessions in other categories. Any fair price system would take a massive negotiating effort between the drug industry and multi government regulators. Perhaps over time an index system could work as long as the drug industry could make substantially the same returns.
Another solution is to extend patent expirations in exchange for lower prices. Also, any system that speeds approval can be leveraged against high drug prices. What needs to be done is a pragmatic approach that balances need for innovation with lower prices. Saying that drug companies are greedy will not get to a workable long-term drug strategy. American consumers will not benefit if mandating lower prices leads to a cut in vital research.
What I do predict is the drug price issue cannot be successfully fought much longer by lobbyists. That can no longer be the main strategy of drug makers. The American people will demand a price solution as this ire is being stoked in every political debate. Unfortunately, the proposed solutions will not be favorable to drug maker profits. One of the ways to mitigate profit impact is to increase demand. DTC could be a beneficiary of that demand-based strategy. If drug prices are forced down, I would expect drug companies to increase marketing budgets to grow their user base and retain those users.
After so many years of drug prices debates, 2020 looks like the time action will be a reality. Of course, the extent of price action depends on who gets elected. The Sanders/Harris/Warren plan is highly punitive for drug makers while Biden and other moderates will go softer. Trump is not far from moderate Dems on his plans so drug makers will get hurt whoever wins in 2020.
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