Wednesday, November 12, 2008

Canadian Imports? Think Policy, Not Prescription Drugs

Election Day has come and gone, so once again it is time to handicap the prospects for so-called reimportation legislation—bills that would allow much broader importation of prescription drugs from Canada or other markets where prices are lower than they are in the U.S.

That has been a biennial topic for the last four election cycles, ever since bus trips to Canada burst on to the political scene to dramatize the high cost of prescription drugs in the U.S.

Since 2000, every national election has brought a push for action, but so far at least the borders remain closed to wholesale import of drugs from Canada. So it comes as no surprise to see reimportation on everyone's list of issues for industry to worry about heading into 2009.

But we think asking about the prospects of reimportation legislation next year misses the point.

First off, Congress has already enacted legislation that would allow widespread legal importation of drugs from Canada, as long as HHS Secretary certifies that the practice would be safe. Under President Bush, that certification has not happened, but at least in theory an Obama Administration could change importation policy with the stroke of a pen.

We don’t think that is going to happen.

Yes, we have read Obama’s website, which dutifully pledges to "lower drug costs by allowing the importation of safe medicines from other developed countries."

But we’ve also heard what one of Obama’s key health advisors, Dora Hughes, had to say on the subject at a recent generic industry trade conference: In light of the heparin problems, reimportation is just not that high a priority anymore. (You can read more about her remarks in “The Pink Sheet.”)

That also seems in keeping with the sense that reimportation has served its purpose for the Democratic party—a sense that seemed clear to us over a year ago.

Some of this relates to the odd political history of imporation: bus trips to Canada were always an odd national campaign emblem, but they made a kind of sense back in 2000. In that year, the Democrats saw an opportunity to make significant gains in the Senate by targeting a number of Republican incumbents who happened to be up for re-election in northern border states that year. So people like Maria Cantwell (Wash.) and Debbie Stabenow (Mich.) or even Hilary Clinton (N.Y.) all benefited from the national focus on Canadian imports. And once in Washington, they all shared an interest in advancing legislation.

Eight years later, look at the Senate seats that flipped to the Democrats. Virginia. North Carolina. Colorado. New Mexico. Oregon. Not a Canadian border in the bunch. Reimportation just isn’t the issue there. If anything, the danger for pharma is tighter regulation of trade, or even outright protectionism. (The one exception is New Hampshire, where former Governor Jeanne Shaheen brings a track record of drug cost containment to the Senate.)

Here’s the thing: importing drugs from Canada was never the point. Lowering US prices was.

That’s where the new Administration and the new Congress will focus their attention, starting with the unfinished business from the 2006 elections: price negotiation in the federal Medicare program. So if the Democrats want Canadian prices, they can get them--but they don't have to bother with allowing (and policing) wholesale imports, they can simply direct that the US government pay no more than the Canadian price for medicines sold in both countries.

We don't actually think that is how price negotiation will work at first; as we wrote here, Congress is more likely to start with benchmarking against the US Medicaid price for the same drug. But once Pandora's Box is open, its a safe bet that using Canadian prices as a point of reference will be on the table too.

And that's where industry might start to do some importing of its own--not of drugs, but rather of case studies in the impact of Canadian efforts at price controls on investment in that country.

Beyond that, its time to start gathering stories of how the Canadian health care system overall does and does not meet the needs of Canadians. Fifteen years ago, the US health care reform debate triggered a sub-debate about whether Canada's system does or does not work well for its citizens. That debate is certain to recur if and when the health care reform debate begins again in earnest.

So there will be plenty of cross-border trade in 2009--but in the form of a flow of ideas, not prescription drugs.

1 comment:

David Dodds said...

I am originally from Canada and have experience with that country’s universal coverage/single-payor system. I am currently self-employed in the US, and pay 100% of my own healthcare costs and insurance so I see the full system in action here too. There are advantages and disadvantages of each system, and I have personal anecdotes of both.

There is much to be said on many aspects of the healthcare debate, but the inability of the US to even consider the experience of other countries which have taken various healthcare plans over the recent past (let alone actually look at the real data) is the most dangerous and destructive error that we are committing.

Examination of only the healthcare legislation in other countries is not enough; other factors that influence healthcare (and especially drug) costs must also be examined. For example, Canada limited pain & suffering awards in 1975, and has a legal system that requires the loser to pay all costs in civil torts. The UK has similar laws, and both countries have criteria for product liability, negligence, etc. that are different from the US. Government programs which have nothing to do with healthcare, but provide an existing infrastructure for distribution of new services at very low marginal cost are another factor that affects ultimate healthcare costs significantly. Intellectual property laws, the Bayh-Dole Act in this country, and the availability of capital to invest in new drugs (and the relevant laws and taxes affecting investments, etc. etc.) are all critical aspects of the debate, but do not appear at all under the general heading of “healthcare”.

Originally enacted by Parliament as Bill C-102 in 1969, the Canadian system did in fact lead to lower drug prices. But I left Canada for the US after graduate school because after a dozen years, that system had also destroyed pharmaceutical R&D in Canada, and there were no jobs for anyone with advanced degrees in the early 1980s. Further, the loss of both the pharmaceutical R&D entities and large numbers of us with degrees in the relevant sciences meant there was no basis for a biotech industry in Canada by the early 1980s.

As a result of a bill passed to control drug prices in 1969, Canada sat out the initial biotech boom of the 1980s, a great example of the law of unintended consequences. By the mid-1980s, the Canadian government did recognize this and began to dismantle some of the original legislation. This worked, and Canada was able to experience the second biotech wave of the late 1990s.

The point here is the timing; between the initial legislation in 1969 and the point at which pharmaceutical R&D reached nearly zero was about 12 years. Lower drug prices were enjoyed by the population for most of that time and “biotech” simply did not exist over much of that time. Further, the amount of R&D left in the pipeline after passage of C-102 was sufficient to carry the industry in Canada for at least some of those years, so to the public (i.e. voters), it looked like the system was working. It was only after the passage of time - and several elections - that the prospect of a “brain-drain” and the missed economic opportunities of the biotech industry were sufficiently obvious to force re-consideration of the original legislation during the late 1980s. That process did lead to the eventual recovery of biotech investment in Canada in the late 1990s, but it took over 30 years, nearly eight election cycles in the US.

Wholesale adoption of any other country's healthcare system is not likely to work; we do need a plan tailored to the particular aspects of the US. But we are less exceptional than we think, and the continuing failure of US administrations to even consider outside experience and data will lead to the same problem here – serious, unintended consequences that appear only after a dozen years, and take another 20 years to fix. Anyone over the age of 30 in the US should be worried and angered by the close-mindedness, partisanship, myopia, and general lack of vision in all quarters of the debate on US healthcare. Collect the data, then make the plan; otherwise we are just shooting in the dark and we will lose another 30 years.