A Place For McCain To Chat About Reimportation
12 CommentsBy Ed Silverman // February 27th, 2008 // 6:27 pm
There is a new Internet site that may appeal to the Republican presidential frontrunner, who insists he supports buying drugs from foreign countries. eDrugSearch, which is a search engine for finding meds from ‘international pharmacies,’ is now running a new social network for consumers. Now, you can not only find a place to order your meds, but chat with others about pricing, delivery and whether John McCain will really make it easier to buy drugs from Canada.
“US consumers…have long had the odds stacked against them,” says Cary Byrd, who runs the site. “By creating the eDrugSearch community, we are moving beyond specialized search to enable our members to share information about their experiences, both with online prescriptions and online pharmacies.”
So McCain can rate and review pharmacies and drugs. He can provide firsthand accounts of his experiences, monitor news, track price changes and even earn discounts. In fact, McCain can even make friends or join new groups. “Drug consumers relish the opportunity to share their experiences - and often their frustrations - with one another,” says Byrd. “These individuals are turning to each other, and other data points on the web, rather than simply relying on pharmaceutical company advertising for their information.”
Matt
Buying drugs from other countries won’t matter much: once drug companies recognize that their drug sales are increasing in any one particular country they will just up the cost in that country or find some other way to continue their exorbitant pricing.
After all it’s not about health care, it’s about profits.
Bob Freeman
Matt, it doesn’t work that way–either prices or reimbursement is fixed in all countries except the US. Even countries like Canada that allow for price increases based on CPI, don’t grant increases.
The reality is that foreign countries aren’t able to supply the US market–they’re simply too small to have an impact.
The other fact is that a high percentage of drug imports come from cross-border foot traffic not direct shipments to US citizens.
Nathan
It always strikes me as funny that politicians actually view reimportation as a viable strategy for lowering drug prices. Once this practice starts to eat into drug company profits, pharma can just “pull the plug” on exports to the Canada or they can limit supplies to just enough for Canadian residents. This would force Canada to stop selling its drugs to US citizens. It’s all supply-and-demand: If the potential gain in revinue (in the US market) exceeds the loss in revinue (from the Canadian market), then suddenly Canada has no economic clout with the pharmaceutical companies and reimportation will cease.
It may well have reached this “tipping point” already and pharma has choosen not to adopt this strategy because it would be a PR nightmare and may open up the door to more price controls here in the US market.
Jack2
As Nathan points out, companies might rather lose all of their profits from Canada then risk price decreases in the US market. Of course losing the profits from Canada will hurt some, so I’m not going to talk tough from the industry’s perspective, but it’s a pretty simple equation to run and the companies will just behave rationally. I think many companies will consider closely if they want to jeopardize prices in the US market for Canada.
As an industry employee I guess it concerns me. But as an American who seeks justice, part of me actually wants to see it happen. Canada’s been parasiting off of US-subsidized R&D for years. If the law changes I think Canadians will need to pay a price close to the US price (Canada IS a first world country after all) or do without.
Jack2
…Also once a few AEs occur from counterfeit drugs, the winds could change.
Patient
Canada has a universal health care system and that is why they can and must restrict durg prices.
Unlike Americans whose healthcare system is for profit based. Canada’s health care system is really for the people - not the fat cat capitalists….
All that being said, Americans should not look to Canada to import drugs - they should accept the responsibility of fixing their own decrepit health care system - after all 42 million Americans cannot access health care in the States. Hmmm, this almost makes the States close to a third world country - actually that is an insult, some thrid world countries actually take better care of their people.
JACK2 you said: Canada’s been parasiting off of US-subsidized R&D for years. If the law changes I think Canadians will need to pay a price close to the US price (Canada IS a first world country after all) or do without.
Which of course makes you sound like a red neck American - sorry for the insult to red necks everywhere….
If you had any sort of real intelligence you would know that Canadians have been at the forefront of many of the innovations in drugs and devices - Do your homework pal..
And for the record I am not Canadian I am a well learned, well traveled American who honors the intelligence, insight and innovation from many of the worlds richest cultures. Sadly I find the United States has lost their position and in fact are the parasites…
Nathan
Patient:
I could be wrong, but I believe that Jack2 was simply implying that the higher US drug prices have funded the drug research that has, in turn, benefited Canadians (and the rest of the world). There is no doubt that world-class research takes place in Canada, Europe, and Asia — not just in the US. However, if US drug prices suddenly drop to that of Canada and Europe, you will likely see a tremendous drop in innovation due to the simple fact that funding has dried up. Pharmaceutical research is incredibly expensive.
That said, I completely agree with you that reimportation is not the answer to our broken down health care system.
Jack2
Let me try to explain my point with an example. The actual numbers could be off a little, or off a lot, but they really are my best guess at averages.
A brand name drug has a wholesale price in the US of $10/day.
The wholesaler actually pays $8/day for the drug after rebates so the company gets $8 in revenue.
It cost about $1 to manufacture and distribute that drug.
It costs about $2 to research that drug*.
It costs about $3 to market that drug (reps, advertising).
Company administrative costs came to about $1.50**.
That leaves about 50 cents profit for the shareholders from US patients. Now a country like Canada comes along with a government healthcare system (and isn’t that really just a reverse monopoly with one buyer?) and says we will add your drug to our system, and we will pay you $5/day for your drug. Since, if you want to sell your drug in Canada we’re your only customer, you can take it or leave it.
The company does the math. It will still cost $1/day to manufacture the drug. Marketing will probably cost less in Canada too ($1.50?), and the administrative costs are about the same ($1). So the company can still sell the drug in Canada and make 50 cents profit.
So of course they agree to do it. They want more profit - they’re a company (why does this surprise so many people around here?).
The problem is that Canada (and I didn’t say they don’t do any research in Canada, or possess world-class Universities, just that they don’t pay for drug development) didn’t really contribute much to the drug development cost. The drug would not exist at all if there wasn’t an opportunity to make $8/day in the US market.
Now the system changes, reimportation is allowed, and charging $5/day to Canada’s 30 million people reduces what your ability to get $8/day from 250 million insured Americans. Do you rethink how you deal with Canada’s $5 take-it-or-leave-it offer? I think you do. You’re more likely to say “leave-it,” I want to charge $8/day in the US.
Basically, I just don’t think Canada FINANCALLY contributes to medical innovation. This is why I characterized them (and stand by that characterization) as (innovation-)parasites. Not as bad as Thailand, since what Canada does is indisputably legal, but Thai’s don’t have the income of Canadians, so I don’t forgive them (the median Canadians make more money and work less hours than the median American).
Again, I’m not saying the Pharm industry wouldn’t be hurt by this. They would lose profits in Canada. And I’m not saying it’s a bad idea for the US to implement - from the perspective of the American people, even though I work for a pharmaceutical company. After all, I’m also an American and I don’t think it’s right that the US population subsidizes medical innovation for the rest of the world. In fact, it really irks me.
What I actually am saying, is that rather than simply reducing prices in the US, this law could also reduce medication access in Canada. Most likely, the result would be a combination of the two.
*Of course the research costs are front loaded, but let’s think of this as working off prior research costs for this drug and a portion of the company’s failed drugs.
**I added administrative costs here. Because a lot of the numbers you see only break pharm expenses down to 3 buckets - R&D, marketing and sales, and manufacturing. But there’s alot of other costs - computers, the lights, the offices, the legal groups, the regulatory groups. Also some aspects of marketing at the 10,000 foot level with only has 3 buckets, are really not traditional marketing. Customer support, safety monitoring, phase 4 studies etc. They’re really administrative costs.
Bob Freeman
The only thing I would qualify your estimates with is noting that sales and marketing costs are substantially less than in the US. Canandian and EU countries (among others) are quite profitable (currency exchange rates ignored). The problem is that you have to aggregate revenues from all non-US subsidiaries to generate sufficient cash flow to sustain R & D. There are countries (New Zealdand, Belgium and Australia, as examples) where restrictions are so onerous that even reaching break-even is difficult.
One of the untoward effects of price controls is that branded products have very long life cycles companred to those in the US. Price controls mean that price competition does NOT exsist among branded products and generics, and there’s no incentive to offer a product at a lower price that the one that you would receive from the government. In effect, after a branded drug goes off-patent it still has a profitable life after patent expiry.
Oddly, generic drugs are more expensive in Canada than in the US because our system allows price competition whereas Canada’s really doesn’t.
Jack2
Bob what you’re saying agrees with my general impression of things. I can think of a few cases where two companies co-developing a drug agree to split marketing rights - one gets the US, and the other one gets the rest of the world, so I would think they’re worth about the same.
However, most of those revenues come from Europe and , to a lesser extent, Japan (and this is just what I hear) - not Canada. Even if you factor in that Canada’s got a smaller population, on a per capita basis they contribute less to drug development than any first world country.
I understand why Canada does it. It’s a great system…for them.
My biggest question:
I understand that Americans pay more for healthcare, and yet, on a lot of objective measures Americans have pretty mediocre health outcomes (although we’re also the fattest country - so that’s not helping). What I’d really, really, really love to know is how Americans WITH insurance do compared to the rest of the world. Even if I found such a report I’d probably greet it with a lot of skeptisim. I’ve seen too many economic reports from various healthcare entities (doctors, pharmacists, nurses, therapists, drug companies, device companies, insurance companies) which PROVE that increased spending in their arena will lower health care costs overall, and yet the costs keep going up. Plus, even with the best of intentions, it would be a muddy study, since the cleanest outcomes (lifespan?) would be contaminated. People spend part of their life with insurance and part without. And not all insurance is equal.
Still, I suspect that Americans with insurance do quite well. My best friend hates our healthcare system (because of insurance companies - not because of drug companies) because his wife’s employer won’t pay for a particular medical device. He assumed you could get it in Canada. But I checked - and you can’t get it in Canada either (as best as I can tell). A government may or may not have a responsibility to provide healthcare to every citizen - that’s an ethics question beyond what I can even think about - and I’m a numbers guy anyway. I just think a lot of people assume that if the government provided healthcare it would be better, and I’m not so sure (at least if you have insurance already). At least, I seriously doubt it would be user friendly. It’s a pain to deal with an insurance company, but when was the last time you had to interact with a government service and got fast, friendly, reliable service?
someone
Jack2:
1.) Canada does major research
2.) American HMO’s and health care providers consistently tell their fellow Americans that the reason their rates are so high is because they are paying for the rest of the world. This is completely false, but it STOKES the American ego…
3.) Generics are cheaper in Canada - you need to check it out more thoroughly.
4.) The issue with drugs in general in Canada has to do with the PMPRB - Pharmaceutical marketing price review board (or something like that..)
5.) As for American innovation - hmm wake me up when that really happens I wouldn’t want to miss it - yes I am American
6.) You also forgot the high cost of drug distribution. Drug distributors mark up the drug excessively. This is akin to theft as they have nothing to do with research and innovation.
As for your thinking about Government not being able to give “friendly” service to health care - working in International marketing, I have visited Canadian Health Care facilities. Do you know how many Americans go to Canada to get special procedures done that are not available in the US - it is quite a profit industry for Canada…
Bob Freeman
Jack and Someone:
Canada PMPRB is Patented Medicines Price Review Board, which uses a 7-country reference price array to ensure that Canadians do not pay the world’s highest price. After PMPRB, the Provincial governments use formularies and reimbursement limits. PMPRB isn’t really that onerous.
Jack, your question is intriguing but I believe it might turn out to be an unanswerable question since the mix of services covered by various insurance schemes would make comparisons difficult at best. Throw in the concept of solidarity vs. individualism and it gets more complicated.
Finally, Someone–generic prices are higher in Canada than in the US. Valided by Patricia Danzon at Penn. Sorry I don’t have a reference but will dig one up if you want it. Canada’s sytem is a blend of private health insurance and public insurance; yet, prices/reimbursement are regulated for each.