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I've been buying albuterol inhalers from Mexico for a several years now. Most of my life these inhalers cost a few bucks, but a few years back (2010?) they started costing me $50 for just the copay.

It turns out the pharma lobby was able to get congress to ban CFCs from inhalers (even though the amount of CFCs in these is trivial). Because of that they were able to re-patent them and start charging more. Now I go to Mexico every couple years and buy a bunch of them for less than $1 each. It's the same medication I've always used, now with spanish on the package.

EDIT

Here's a link that talks about the pharma lobby shenanigans for albuterol inhalers: http://www.motherjones.com/kevin-drum/2013/10/heres-why-your...

And here's another that talks more about medical patent evergreening: http://www.nytimes.com/2013/10/13/us/the-soaring-cost-of-a-s...

We "disallow trade" for lots of legitimate reasons. One such reason is when government intervention in another country drives prices below market levels (e.g. we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry).

That's exactly what happens in Canada. Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels: http://www.becker-posner-blog.com/2009/12/should-the-governm.... Allowing re-importation of those drugs into the U.S. would create a price ceiling at whatever level the Canadian government had negotiated, and would effectively allow the Canadian government to set drug prices in the U.S.

That would be good for consumers in the short term, but not necessarily in the long term. It's no coincidence that the U.S. is the epicenter of pharmaceutical advancements. When I was a kid (early 1990s), HIV/AIDS was something we regarded as a death sentence. I vividly remember people talking in hushed tones when Magic Johnson was diagnosed in 1991. 26 years later, Magic Johnson is still kicking, HIV is no longer a death sentence, and we have Big Pharma to thank for it (and not Canada).

You talk as if the negotiated prices were permanent. The profit extraction flows like water - if most customers negotiate lower prices, then the one market that doesn't (the US), ends up carrying the bulk of the profits.

If the US closes down the allowed margin, the drug maker isn't just going to blink out of existence. I would expect a set of renegotiation between all it's existing customers to rebalance what is a reasonable profit to allow - which admittedly would likely be lower than what is extracted from the US market currently. But that is likely healthier for society in the long term as it would remove all the costs of inefficiency spent on this crazy drug pricing dance that occurs in the US.

> we put high tariffs on Chinese steel to counter heavy Chinese government subsidization of that industry

That's not a good comparison, because we're talking about reimportation - ie, drugs that are produced in the US and exported to another country before being reimported. In general, nobody's interested in reimporting steel produced in the US and exported to China.

> Because the healthcare system is publicly funded, the government has enormous market power that it can use to drive drug prices below efficient levels

First, Canadian healthcare is run at the provincial level, not at the federal level. So while each province/territory is a monopsony, they're each fairly small.

Secondly, pharmaceuticals are typically not covered in Canada; patients pay for most drugs out of pocket, and their generic prices are actually not much lower than they are in the US[0]

> Allowing re-importation of those drugs into the U.S. in effect allows the Canadian government to set drug prices in the U.S.

With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.

In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.

[0] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3107113/

> patients pay for most drugs out of pocket, and their generic prices are actually not much lower than they are in the US[0]

But rayiner's entire point is about incentivizing R&D by allowing the collection of monopoly rents on patented drugs; he's not talking about generics. How the market for generics is structure has essentially no impact on R&D. And as you say, since Canada's generics are nearly as expensive as in the US, or are more expensive (see below), re-importing generics does not usefully push down prices.

http://news.nationalpost.com/news/canada/this-is-why-canada-...

> But rayiner's entire point is about incentivizing R&D by allowing the collection of monopoly rents on patented drugs.

I'm pointing to the generics as an illustration of Canada's pharmaceutical prices not being as controlled as people often think. (In fact, in Canada they're not controlled directly at all - they're simply pegged by law to other countries which set their own prices).

I actually agree with rayiner's point about incentivizing R&D by allowing (temporary) collection of monopoly rents on patented drugs. I'm just saying that they should be collecting those monopoly rents from all countries that consume the drugs. Right now, they basically collect them only in the US, and allowing reimporting from other countries which respect US patent laws would ensure that all countries are contributing towards that in proportion to the amount that they actually consume the results of the R&D.

Ahh, I see. Thank you for clarifying.

> With free trade, another country is still free to subsidize the goods that it imports from the US, but with the knowledge that they'll be subsidizing whatever portion of Americans choose to reimport those drugs at the subsidized prices.

But that's the whole problem. Canada presumably doesn't want to subsidize U.S. citizens. The whole point is to provide a benefit for their own citizens. If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians, with that drug being freely exportable, that could be billions of dollars lost, depending on how much of the savings compared to the country that imports it is in a better negotiated price and how much is subsidized by the government of Canada.

> In reality, that reimportation won't need to happen, because it'll just apply backpressure on the initial sale prices in both markets from the manufacturer.

It will happen for as long as the manufacturer resists. If the price difference is mostly because of subsidies and not a better negotiated price, that cost difference would be paid by Canada, and the manufacturer has no incentive to change the price. In fact, they may have the opposite, since they are still getting paid well, and the drug is effectively marketable as being much cheaper than what they are charging.

> But that's the whole problem. Canada presumably doesn't want to subsidize U.S. citizens.

Well, right now the US is effectively subsidizing Canadians, because the US is funding the majority of the pharmaceutical research that produces the drugs they consume. Half of the entire world's funding for pharmaceutical research comes from the US. A large chunk of that is funded by earnings on pharmaceutical sales[0][1].

> If Canada subsidizes a popular but expensive drug so that it costs $1 for Canadians

This is kind of a moot point, because Canada doesn't do that.

> It will happen for as long as the manufacturer resists.

I don't understand what you mean by "resist". If reimportation were permitted, the manufacturer literally has no power to prevent cross-border trade. In your hypothetical scenario, yes, Canada would probably adjust the degree to which they subsidize their drugs, but that's a moot point because they're not actually doing that.

[0] and again, most of that come from the US, because earnings will be higher where the sale prices are highest

[1] http://www.slate.com/articles/news_and_politics/explainer/20...

> I don't understand what you mean by "resist".

Resists changing the price in the country that is imported into.

Let's consider this hypothetical scenario. A popular drug is sold for $100 in the U.S., but the Canadian government subsidizes it to the degree that Canadians pay $50 for it (and Canada has negotiated a price of $80). The drug can by and is imported into the U.S. and sold for $60.

There is no incentive for the manufacturer to lower the price. Even if they lower it to $80, they are losing out on some purchases who choose to buy at the higher price. They either make $80 or $100 depending on where they sold, but for ever unit that is imported, Canada is losing $30, which is partially going to subsidize the price for U.S. citizens, and partially to import/export costs.

With open export regulations on drugs, there is effectively no way to subsidize a drug for your own citizens without subsidizing it for others where it is lower than another country that allows importation as long as the combined import fees and subsidized cost are not more than the cost in the importing country.

> Resists changing the price in the country that is imported into.

If they don't, then people will just import drugs from the cheaper source, as long as it remains cheaper. Which amounts to the same thing.

> With open export regulations on drugs, there is effectively no way to subsidize a drug for your own citizens without subsidizing it for others where it is lower than another country that allows importation as long as the combined import fees and subsidized cost are not more than the cost in the importing country.

Correct. And on the flip side, there is no way for one country to force the other to subsidize its share of medical research, by purchasing the drugs at a price that doesn't cover R&D. Currently, that's what is happening. Pharmaceutical companies don't complain too much, though, because they can still make up the difference off of their largest customer: the US. If they couldn't, then things would be very different.

The US is the largest consumer of patent-protected drugs, by a huge margin. It also funds half of all medical research worldwide, the benefits of which are then available to all countries, even though most pay rates that wouldn't sustain that level of research. There's a reason that even most European pharmaceutical companies get the bulk of their research funding from the US.

Any solution which reduces drug prices in the US will inevitably result in either other countries that recognize US parents having to pay more, or total medical research funding dropping, which affects all countries worldwide. Realistically, it'll probably be some combination of both.

I think fundamentally what we have here is the collision of socialism and capitalism, and I'm not sure how to make those work at the margins where they meet. Government funding of research is socialism, but selling the developed drugs is capitalism, and selling them outside the funding country without an increase in price costs the funding country.

I'm not sure what the research on this topic says, but I suspect the solution is moving the demarcation of socialism and capitalism to a more acceptable point, as much as that makes sense. For example, instead of freely funding development, if the government got some ownership stake in the drugs developed with some of their funding, as profits as well, then any gain from their own citizens or the citizens of other countries would go towards teh budget, and thus the good of the citizens of the funding government.

I guess the real question is how do you mix capitalism and socialism in a way that eliminates, or at least reduces the friction caused where they push up against each other?

> I think fundamentally what we have here is the collision of socialism and capitalism, and I'm not sure how to make those work at the margins where they meet. Government funding of research is socialism, but selling the developed drugs is capitalism, and selling them outside the funding country without an increase in price costs the funding country.

I don't think you really want to call what happens in Europe and Canada "socialism" in this context, because it's quite literally "Europe and Canada receive the benefits while the US pays for it". That's a definition of socialism I've heard, but only ever in a pejorative context. And government funding of research is not "socialism". It can happen in a socialist society, or it can happen in a capitalist one, and it's not inherently inconsistent (or synonymous) with either philosophy).

I'm also not really thrilled with this framing of "socialism vs. capitalism", because Canada and most European countries do not officially claim to be socialist[0], and most of them aren't particularly socialist in practice. As a result, discussing the topic on those terms runs the very real risk of veering off into abstract philosophy without much grounding in the practical matter at hand, which is a very far way off from the original article.

[0] Of all Western, Central, or Scandanavian European countries, only one (Portugal) even claims to be socialist officially, and that claim is made rather nominally.

I'm not labeling countries socialist and capitalist, I'm labeling practices such. I was talking about socialism and capitalism purely within the context of the U.S.

Government funding of medical research for the good of its citizens is socialistic. Selling developed drugs on the market is capitalistic. When you use government funds for something which is eventually sold, but the government doesn't receive any direct compensation, there's a friction between the socialistic and capitalistic forces at play, and that's what we've been discussing.

To be clear, I've made zero claims as to what is better, just that dthey engender different incentives that don't always play well with each other. My personal view is that there are definitely things we want the state to handle (some degree of welfare including health, some level of regulation of various parts of the economy), but the details as to how much government control are the important bits. Purely socialist and purely capitalist environments don't seem to function nearly as well as a mix, from what I've gleaned from history.

Couldn't Canada in this case change the way they handle the subsidy, such that they only subsidize drugs consumed by Canadian citizens, or some such? In other words, you can not export a subsidized drug without refunding the subsidy first. That way, imports would be at the negotiated cost plus markup, rather than the subsidized negotiated price.

You could make it a capped tax write off, and that may prevent a large single actor from exporting, but it won't stop many individual people from reselling to a local exporter for some quick case. In other words, it adds a small per-limit cost to the exporter to deal with individual people and aggregate, but doesn't address exporting overall very well.

That is so interesting. I had no idea Canada didn't cover drugs.

That's a pretty shitty way of saying that somebody has to pay and it has to be us (the USA).

Shafting the American consumer because the rest of the world can't or won't pay the "true" cost (including research / marketing / profits) isn't a solution.

The challenge with that is that simply allowing drugs to be imported doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination.

This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?[1]

In an April 8 letter to Canadian pharmacies and wholesalers, AstraZeneca wrote that some prescription drug orders would be reduced because of a new allotment program designed to address "unexpected sales increases"

[1]http://khn.org/morning-breakout/dr00017294/

> doesn't prevent drug companies from allocating volume on a country-by-country level and maintaining price discrimination.

It does; for price discrimination, there are three criteria that all need to be satisfied, and one of them is the ability to restrict resale between market segments. If market segments are free to trade with each other, the supplier cannot price-discriminate.

> This happened back 6-7 years ago when getting your script filled by a Canadian pharmacy was all the rage. The drug companies simply setup quotas for Canada. They have a good estimate of how much drug Canadians need. If a wholesaler tries to buy more, the drug company tells them no. Then all of a sudden Canadian wholesalers are in a bind. Do they sell to Americans and tell the Canadians no?

It's important to understand the difference between the short-term impact and the long-term (steady-state) impact. The case you're referencing is an amusing one, because it's actually AstraZeneca's proactive campaign against what was then a touchstone of the healthcare reform bills[0]. At the time, unrestricted trade in pharmaceuticals was not possible between the US and Canada, and AstraZeneca was making a threat to try and kill the provisions that would have permitted it[1].

The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place. They could try, and succeed in the short-term, but in the long term, the prices in both markets would be forced to converge (with the difference bounded by the costs of import/export).

[0] Remember the date: April 2009, just a few months into Obama's inauguration. The public option was still theoretically on the table, and the Baucus plan hadn't happened yet.

[1] It worked - that was one of the parts of the ACA that was killed before it got a vote.

The only reason that they can set these quotas in the first place is that US wholesalers can't (freely) export to Canada, and vice versa. If the ban on that had been lifted, AstraZeneca wouldn't be able to set quotas per-country in the first place.

Manufacturer control over whole gets the buy drugs and what they can do with it after that is a cornerstone of drug distribution strategy. It also maintains drug pedigree and product integrity. I can't see it going away.

> Manufacturer control over whole gets the buy drugs and what they can do with it after that is a cornerstone of drug distribution strategy. It also maintains drug pedigree and product integrity. I can't see it going away.

Not really. Manufacturers already have essentially zero control over wholesale resale within the US. (They can track it, to assist in things like recalls, but they can't prevent it). And there are other countries which already permit free trade of US-produced pharmaceuticals between their own international borders. The only difference is that it can't cross the US border again, which is why the easiest way for manufacturers to make money is to price-gouge US customers.

I worked in the industry and every branded manufacturer I worked with had clear restrictions on who wholesalers can sell to.

It's insane. I need a drug that costs about $8k every two months in the US. However, I'm living in Canada right now, where it costs $4k. My US insurance company just decided they will no longer cover the drug in Canada, so instead of paying the $4k CAD, they're now going to pay $8k USD and I'll go pick up the drug across the border. Seems like a lose-lose.

You are misunderstanding the incentives of the insurance company. They get to keep 20% of money that passes through them. The only way they can make more money is by increasing the money flow.

You lose though. Insurance is part of your total compensation, you are paying for all this. It's averaged out across a bunch of people, but you are still paying for it.

In summary, drug company wins, insurance company wins, your employer doesn't care and you lose. But you don't even know you lost, and can do nothing about it even if you wanted to.

Or: we could just emulate what those other countries are doing to control prices, which apparently has been empirically proven to be effective. Why set up this rube goldberg export / import system when we could, apparently, just import some good legislation?

> Or: we could just emulate what those other countries are doing to control prices

Because centrally setting prices is very difficult, and that difficulty scales super-linearly with size.

Every other country that controls pharmaceutical prices is significantly smaller than the US is, and they also fund much less pharmaceutical R&D than the US does[0], even though they essentially import the benefits of that R&D at reduced prices[1].

If the US tried to do that, pharmaceutical research would completely evaporate in the US, which would impact every other country that either produces or imports drugs produced in the US as well[2].

Instead, cross-border trade ensures that research funding is proportional to drug consumption.

[0] Until a few years ago, US funded more than half the R&D of the entire world. It's now around 44%, mostly because China and India have been growing rapidly.

[1] Even pharmaceutical companies based in Europe receive most of their R&D funding either directly or indirectly from the US.

[2] Which is literally every other country in the world, even countries like India which do not recognize US pharmaceutical patents.

In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case. There's a lot of rent seeking behavior by these companies due to poor legislation. This kind of behavior (incentives/"conferences" for physicians, lobbying, etc.) shows up under sales in their annual reports and it's clear they spend a lot more on it than on R&D: https://www.washingtonpost.com/news/wonk/wp/2015/02/11/big-p... Clearly the current legal framework is not optimal for consumers.

> In your comment you suggest that most of the profits of pharma companies go into R&D but that's not the case.

No, I didn't say that most of the profits of pharmaceutical companies go to R&D. I said that most R&D funding comes from the US (and that a large deal of that funding comes from profits, mostly profits on sales within the US).

What a poorly written article. It looks like just lumped all the business expenses under "sales and marketing". I think it's absurd to assume that all of that spending is completely discretionary.

Contrary to what people think, you need to do a certain level of sales support in the pharmaceutical market. The drugs don't sell themselves.

We don't want them to be "sold". We want them to be prescribed as needed by medical professionals.

Yes, but medical professionals can't prescribe if they don't know enough about the drug.

Here is an interesting example: People complain about direct to consumer advertising of drugs in the US. What an outrage!! Well, the FDA did some analysis and found out that when patients asked for the drug: (1) 87 percent actually had the condition the drug treats, (2) 6 percent of those DTC-generated visits, a previously undiagnosed condition was discovered, (3) Only 7 percent of doctors said they felt "very pressured to prescribe" a particular advertised drug - the real pressure was time pressure. More patients are coming in armed with more questions.[1]

Sounds like DTC is pretty good huh?

[1]http://drugwonks.com/blog/fake-dtc-news-mustn-t-drive-the-he...

So that's an article on how pharma companies spend more on sales and marketing than research. But many companies we'd consider "innovative" spend about twice as much on SG&A (sales, general, and administrative) as on R&D. For 2014-2015, the ratio between R&D spending and SG&A spending is 0.59 at Pfizer, 0.75 at Google, 0.56 at AstraZeneca, 0.43 at Apple, and 0.58 at Microsoft.

I'm skeptical that pharma companies should require equally high levels of marketing spending as other industries. After all most expensive pharmaceutical products are bought through an expert (ie. your physician). There's not a huge discoverability problem to be solved for those companies - or at least there shouldn't be - after all there's a national drug directory run by the FDA. Furthermore the US is one of only two countries where companies can advertise for drugs which require prescriptions.

Is discovability a problem for Apple, Microsoft, or Google? And note that Microsoft and Google sell primarily to experts too (advertising and IT professionals).

As to advertising. As for as I know, what other nations ban is direct to consumer advertising, which is a minority of advertising spend. And as to DTC advertising, you can level the very legitimate criticism that it's directed to convincing people to ask for drugs they don't really need. But that's true of most advertising. Does anyone really need a new iPhone or to upgrade to Windows 10? Also, getting rid of DTC advertising wouldn't really address drug prices. It would just force manufacturers to recover their R&D + ROI from a smaller pool of buyers (the ones who really need the drug). On a cost per pill basis, whatever would be saved through lower DTC advertising expenditures clould be outweighed by the reduced sales.

If doctors were hyperdiligent about researching treatment options rather than "meh, it's a job, we don't have anything for you, next!" then I would agree completely. But sometimes they have to be reminded of what is out there, which may have changed since they were in med school.

Doctors vary a lot by how up to date they are on new drugs. Some are focused on research, read all the latest journal articles and could teach pharma companies a thing or two.

Then there are the physicians who prefer to spend time treating patients. Maybe they are a generalist and don't have time to learn about every new drug. A brief conversation with a sales rep might point them in a right direction to learn more.

As I and other have mentioned before, the easiest way to fix this would be to permit re-importing drugs that were manufactured within the US.

The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs and medical procedures. Unfortunately, this is treasonous to Republicans and Democrats are spineless. The current system will be upheld until people get fed up enough to vote for real change.

> The easiest way to fix this is to have cost controls like every other 1st-world country in the world on drugs

Ignoring the incredibly loaded term "first world country", that's not true. Not all other "first-world" countries implement price controls on drugs.

Secondly, as explained below, the only reason that works for them is that the single largest consumer of patent-protected drugs (the US) does not, and thereby ends up subsidizing medical research for the rest of the world. (Half of all medical research in the world is funded by the US, and even many European pharmaceutical companies fund their research from the US).

I took that statement directly from this Frontline episode:

http://www.pbs.org/wgbh/pages/frontline/sickaroundtheworld/

It was clearly stated, over and over again.

"First world country" was the phrase they used, as well.

Wait, so following suit would then lower prices in the US and pass on the costs to the rest of the world?

..Sold!

> Wait, so following suit would then lower prices in the US and pass on the costs to the rest of the world? ..Sold!

Yes, which is why basically any American should support drug reimporting[0]. But pharmaceutical companies lobbied heavily against it, so it was taken out of the ACA, and it's been defeated in Congress (albeit by a narrow margin) each time it's come up since then.

[0] Conversely, countries which import drugs from the US (which includes all developed nations) have a very vested interest in not letting pharmaceutical prices in the US drop.