Friday, April 1, 2016

Importing Drugs

While listening to Trump supporters, I heard a familiar argument, one that is often put forth by supposed "free market" proponents as a solution to the "health care crisis", one that was touted even before ObamaCare by certain individuals, and one that, despite its sound, is a terrible idea. That is the idea that we can solve the high cost of prescription medicine by allowing us to import drugs.

Before you think I am going to argue about safety and quality control and the rest, rest assured, that is not my intention. Likely we could easily set up import laws such that imports would come from vendors with established quality and so on, so I won't bother with these straw men. No, instead I want to point out another, much more significant problem with importing drugs, one based on the reason out of country drugs are so much cheaper, and then offer two answers to the high cost of medication -- one a very short term remedy, and one a much more long term one.

The problem with importing drugs is, in effect, it will extend foreign price controls to US drugs. You see, the reason foreign drugs cost so much less is, quite simply, foreign lands impose price controls. (Well, there is a small boost from two other causes, as I shall discuss below.) Some do it explicitly, actually most do it explicitly, but a few do it implicitly, letting companies know the price they would want, with all the implicit threats a government recommendation entails. Either way, the cost of foreign drugs is low because of price controls*.

So, I am sure many are asking, why should I care? Why not impose price controls?

To which I ask, do you like having new drugs? You see, the costs of research, of development, of testing and all that, that is basically paid by drug profits. Without sufficient profits, there are no new drugs. And right now, with many nations imposing, often draconian, price controls, the cost of development is basically paid by the US consumer. It is not fair, I grant, but "fair" is often a meaningless term. And, fair or not, the answer is not to end that one lifeline, as doing so will simply end all drug development. That is not good for anyone.

A few may be asking, "but why are drugs so expensive? A single pill can cost $10 or more!" And yes, I agree prices are quite absurdly high, but with good reason. In the US, the FDA imposes quite extensive testing regimes, and also can deny a drug for reasons which, while seemingly well defined, can be interpreted pretty arbitrarily. After all, who is to say that "rationally" the benefit outweighs the harm? There is no rational measure of this, and so any prohibition can be supported. And make no mistake, as I argued before (cf "Gun Control, The FDA and Regulating the Law Abiding", "Food Paranoia", "Nonsensical Regulation", ""Better Safe Than Sorry" Usually Leaves Us Even More Sorry, And Much Less Safe", "The Problems With "Safe and Effective"", "Free Market and Federalist Confusion", "Fear Driven Enterprises", "Salt, Transfats, DDT, Bad Science and Even Worse Law", "A Passing Thought on Transfats" and "The Problem With Regulation") the incentives are all toward denying rather than approving. Which means, when you buy a pill, you are not just paying for that pill, but for the hundred other medications the company developed and the FDA denied.

Well, not just FDA costs. If I am honest, the US has one other heavy burden, that being the liability lawyers. Ever since the era of lenient liability laws dawned, and explicit waivers ceased carrying any weight, the drug companies also have to assume any drug, even the most beneficial, will carry with it a certain amount of liability cost. No matter who they warn, nor how well, they will still be sued, and, in some venues, they will lose. And so you are also paying off those legal costs, since "the company" is not a person and cannot really pay. (See "The Foolishness of Corporate Taxes" for a related discussion.)

Which brings me to my recommendations. Three ways we can reduce the costs of drugs. (Actually, there are four, but I doubt drug companies would agree to stop selling overseas until foreign lands end price controls, shifting some of the burden of research costs to other lands. So I will stick with the three that are remotely possible.)

First, liability reform would do a lot to reduce the costs in the short term. I doubt it would be as beneficial as some think, as I believe costs are driven up more by the regulatory burden and other factors, but it is pretty clear, if drug makers did not have to assume every drug would be found defective in at least some courts, they would not need to charge as much in expectation of legal costs. Of course, tort reform would be beneficial in a number of areas (See "The Virute of Novelty and the Value of Tradition", "Still More on Liability Law", "Liability Law and Cost-Benefit Analysis", "Victim as Judge", "The "Right To Sue" As Our Only Right", "Skewed Perspective , or, How Big Government Becomes Inevitable", ""Better Safe Than Sorry" Usually Leaves Us Even More Sorry, And Much Less Safe", "Better Safe Than Sorry Revisited", "You've Come a Long Way, Baby!","Consumer Protection", "Utopianism and Disaster", "Guns and Drugs","Contracts and Freedom" and "In Praise of Contracts"), so it would definitely be a course to pursue, but in terms of drugs, I don't think it is the most beneficial.


The second suggestion would be to reduce the burden the FDA places on companies, maybe to start by accepting in house tests rather than requiring many be performed again. I know, some may imagine this would allow companies to smuggle dangerous drugs onto the market, but a company that sold dangerous drugs would probably suffer a pretty serious blow to its reputation, costing it more than it would gain. (Well, in a free market it would. In our regulated market, it is arguable, so see the next point.) This would definitely reduce the cost of drugs, allow more to come to market, and generally benefit us all.

But the best solution, the one that would have the biggest benefit, and inevitably the most controversial, is to eliminate the FDA entirely and allow open entry and competition. As it stands now, the barriers to entry** make the drug market an effective cartel, which means, inevitably, higher prices, little concern for the consumer, and little care about reputation. Ending the cartel and allowing free entry and unregulated competition would end that and bring a lot of benefit. I know many argue it is a pipe dream and people would go back to selling "snake oil", but I disagree. We are in a much different climate, with better informed consumers***, and the 19th century ills would be very unlikely to appear in this age.

As I said, I doubt these will be enacted any time soon, too many depend on liability for a living, and they have a lot of political clout, while many others think liability laws and regulation make us safe. (See "Who Is Safer?", "Worker Safety" and "Oven Mitts and Safety Regulation") Still, if we truly want to reduce the costs of medical care, and specifically of medicine, we need to enact these measures.

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* In a few cases, low costs are because of -- in part or in whole -- government subsidies. But I seriously doubt, if we allow wholesale overseas drug buying, they would continue to subsidize the US consumer, so I doubt we need to consider those cases when thinking about this issue.

** This would be a truly tricky things to do, as some barriers are part of our war on drugs, as handling a lot of chemicals is restricted by the government. So, to allow truly free competition, we would need to seriously modify how we viewed that topic as well. (See "The Problem of Established Perspectives", "De Gustibus Non Disputandum Est", "Guns and Drugs", "Nonsensical Regulation" and "The Free Market Solution")

*** On the other hand, there are people buying snake oil now, be it unneeded vitamin supplements, HGH "boosters" or what have you, and present laws do nothing to stop that. Either because it is legal, or because people who want something don't care much about laws and regulations. Which helps to make my case, actually, as the ills regulation supposedly cure still persist, leaving us with only the costs of regulation.

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POSTSCRIPT

To see my discussion of medical costs in general, read "High Cost of Medical Care","Government Efficiency", "Medical Reform, An Overview", "The Absurdity of Mandatory Insurance", "Clarification of my Argument for a Free Market in Medicine", "Preexisting Conditions", "Misunderstanding Profits", "Government Quackery", "Two Examples of "Inefficiency" in Capitalism", "The Devil is in the Definitions (And Assumptions)", "Bad Economics Part 10", "Bad Economics Part 18", "Cutting "Costs"", "A Different Look at "Health Care Reform"", "Reviving Nonsense in the White House", "The Problems With "Safe and Effective"", "Again?" and "Collective Ventures Versus Government" .


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