Drug Import Bill Jude Wanniski July 25, 2003

In the early morning hours today, the House passed the drug importation bill by a 243 to 186 vote, a blow to the U.S. pharmaceutical industry.  The bill would require the Food and Drug Administration to design a program to allow individuals, pharmacists and drug wholesalers in the United States to import certain prescription drugs from licensed facilities in several industrialized nations -- including Canada, the EU, Israel and Australia. If the bill became law as is, it would surely cripple the drug industry by permitting foreign suppliers to buy U.S. drugs at deep discounts and sell them back at prices under those charged domestically.

On the face of it, it seems logical that Americans should be able to pay the same price as Canadians, but the issue is complicated by the socialized health-care systems in Canada and the other states where re-selling occurs. The governments set the prices they will pay for specified drugs and either the Pfizers and Mercks sell at those prices or the governments declare their patents inoperative. Their national health-insurance schemes are then permitted to buy from locally produced generics or from Asian countries that do not observe the patent laws. The big vote for the bill of course reflects the unhappiness of the senior lobby and its refusal to acknowledge that the bill could have no other effect than to cut into the R&D budgets of the pharmaceutical companies. Typical of the posturing was Rep. Rahm Emanuel [D-IL]: "For too long, price-gouging of our seniors has gone on, subsidizing the discounts that the French, Germans, English and Canadians enjoy." He predicted the legislation would force the domestic companies to lower their prices.

The White House was fairly aggressive in opposing the bill, but because it will be attached to the Medicare reform legislation that is making its way ever so slowly through Congress there is little chance of a presidential veto. President Bush has said he would sign any prescription-drug legislation that gets to his desk, leaving it up to GOP leaders in Congress to get the best deal they can. The Senate has already expressed its support of re-importation, but its version contains a loophole that would permit the FDA to reject re-imports for "safety" reasons. Drug import legislation passed in earlier years has always foundered on the safety rule, which permits the FDA to override the -trade agreement with Canada. The Senate version also would limit the importation to a one-year trial with Canada.

It will be several months before we see the net result of this wrangling and posturing, as the Medicare legislation may not make it to the President`s desk. The Senate Democrats warn they will not support the House version of the general reforms because they permit more individual choice than the liberals want, moving away from socialized medicine. The Republicans say they will not support the Senate version because they believe it would be a giant step toward “Hillarycare.” Those issues are way to murky for us to assess their impact on the financial markets, but it is clear almost any of the versions of the importation bill would have negative effects on Wall Street. In our exchange economy, the pharmaceutical industry interacts strongly and positively with the rest of the economy. It`s one of the gems of the economic system and any damage to it would subtract from the value of the nation`s capital stock.

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