Everyone knows that pharmaceuticals are less expensive in Canada and most European countries than they are here. But most people do not know why there is a price gap, or they conclude that American companies are simply greedy and are jacking up the price here to take advantage of the relative affluence of our citizens, charging Americans far in excess of the "real" cost of the drug.
The reason that Rx drugs cost less in countries like Canada is that international laws on commerce treat prescription drugs differently from other consumer products. U.S. pharmaceutical companies are required under a 1994 treaty to sell their drugs at drastically cut prices to countries with drug price controls. Any pharmaceutical company that fails to comply can be punished by having its patent protection taken away. It is as if you were selling books in the United States for $10 and when you offered them to Canada, officials there told you that they would either give you $4 or violate your intellectual property rights and make copies of the book without your permission, in the name of educating Canadians.
To comply with this treaty, drug companies slash prices for countries with price controls, which means most countries in the developed world. The purchasing countries in this "deal" are supposed to agree not to turn around and resell the drugs to Americans. That means all the state programs to "reimport" drugs are illegal, but the law is almost never enforced — and as you read this the Senate and House are considering bills that make importation completely legal.
The United States, which does not currently have price controls, produces nearly 90 percent of the world's supply of new pharmaceuticals. Countries with price controls do not produce any significant supplies of new drugs — instead, the innovators have fled to the U.S., where they have the protection of the free-market system and protection for intellectual property they create. At least, today they come here.
1994 Treaty - Clinton administration - hm.
Remember the flu vaccine 'shortage' imbroglio last year that the Left was trying to hang on President Bush. There's a cautionary tale here.
There are decades of observations indicating that countries with pharmaceutical price controls do not produce new products. Indeed, here in the U.S. there are already virtual price controls on one segment of the pharmaceutical industry — vaccines — and we see one company after another abandoning this area of production. Given that governments purchase vaccines at discount prices, there are few incentives for companies to remain in the business. The disappearing vaccine industry is a harbinger of what will come if price controls are put in place on all drugs.