In his recent State of the State speech and in a letter to Congress,
California Gov. Arnold Schwarzenegger pointed out that Canadians, Europeans,
and millions of others around the world pay less for their prescription
drugs because their governments impose price controls that effectively shift
the financial burden of research and development to the United States. The
governor recognizes that it is unfair and inappropriate that American
consumers bear a disproportionate share of the cost of developing new
medicines that benefit the whole world. He encouraged the Congress to
demand an end to price controls in foreign countries and vigorously support
those pharmaceutical and biotech companies who refuse to sell their products
to countries imposing price controls.
It’s good news that the Governator correctly identifies unfair, unjust, and
unsustainable First World “free-riding” as the elephant in the room during
every conversation about American drug prices. And it’s exciting that he’s
calling for aggressive government action to help end it. That’s a brave and
honest position in these days of Big Pharma bashing. Some people don’t like
pharmaceutical companies, others don’t like food companies, and still others
aren’t fond of insurance firms. But the Governor appears to understand that
if you have a market-based economy, you play by market rules.
Or does he? In the same letter, he encouraged Congress to pass legislation
that allows Americans to import prescription drugs from other nations in a
manner that protects patient safety and respects intellectual property
That’s a bad idea for a number of reasons. You cannot protect intellectual
property rights while, at the same time, flouting intellectual property
rights. Importing brand name drugs that are less expensive abroad because
of unfair price control regimes is a blatant breach of the most critical
underpinning of a pharmaceutical firm’s intellectual property–its patent.
Furthermore, it’s a bad idea because foreign drug importation cannot be done
safely. Canadian pharmacies aren’t sending their American customers “the
same” drugs that are for sale at a local pharmacy in Winnipeg. Americans
are getting drugs from across the Atlantic while at the same time the
European Union is battling an insidious and growing threat of counterfeit
While “drugs from Great Britain” may sound almost as good as “drugs from
Canada” to the average American, the fact is that you can’t cherry-pick
medicines from just one or two of the 25 European Union nations.
Last year 140 million individual drug packages were parallel-imported
throughout the European Union–and a wholesaler repackaged each and every
one. This means that parallel traders opened 140 million packets of drugs,
removed their contents and repackaged them. Mistakes happen. For example,
new labels incorrectly state the dosage strength; the new label says the box
contains tablets, but inside are capsules; the expiration date and batch
numbers on the medicine boxes don’t match the actual batch and dates of
expiration of the medicines inside; and patient information materials are
often in the wrong language or are out of date.
This means that drugs purchased from a British pharmacy could come from
European Union nations such as Greece, Latvia, Poland, Malta, Cyprus, or
Estonia. In fact, parallel-traded medicines account for about 20% of all
prescriptions filled by British pharmacies. In the EU there is no
requirement to record the batch numbers of parallel-imported medicines. If a
batch of medicines originally intended for sale in Greece is recalled,
tracing where the entire batch has gone (for example, from Athens to London
through Canada to Indianapolis) is impossible. Caveat emptor is bad health
care practice and even worse health care policy. Safety cannot be
compromised, even if the truth is inconvenient.
The Governor’s motives are noble, but the messages he’s sending are mixed.
Policy makers should take his efforts seriously, but separate the wheat from