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Oy Canada! Trade\u27s Non-solution to \u22the Problem\u22 of U.S. Drug Prices

By Daniel Gilman

Abstract

Price disparities—price “differentiation” or “discrimination”—in pharmaceuticals markets have, in recent years, been the subject of much discussion. Price sensitivity should come as no surprise: Medicines play an increasingly important role in healthcare, while pharmaceuticals prices continue to rise. When prices vary greatly within markets or between neighboring markets, the pressure towards arbitrage is clear. This paper considers the question whether the re-importation of medicines from Canada or the EU is well advised and argues that it is not. First, we might reasonably question the extent to which we wish, as a matter of policy, to manage pharmaceuticals pricing; among other things, it is not at all clear that any particular foreign pricing scheme entails optimal US intellectual property policy. Second, we might well ask whether large scale re-importation from Canada (or from Canada, the EU, and beyond) is good policy independent of IP concerns. I argue that various Canada-focused re-importation schemes are not likely worth the candle. That is so not because Canadian drug regulation is radically inferior to U.S. drug regulation—or even radically different from it—but because there are substantial costs to dissolving the regulatory border between the two nations with relatively little to be gained in doing so. In brief, pharmaceuticals represent, in classical terms, a best case model for a regulated market, one with a high regulatory burden at that. There are regulatory costs because: drugs are beneficial products but risky ones; regulation is a way of managing those risks, not a way of eliminating them; and parallel trade confounds the regulatory task. Without substantial administrative oversight, parallel trade in drugs is dangerous. That substantial administrative task is not cost-justified because, whatever we might wish to do to control drug prices, it is extremely unlikely that we can do much at all by integrating the U.S. and Canadian markets. Second, I consider some of the costs of administration as they may apply to parallel trade in pharmaceuticals more generally. Advocates of parallel trade with Canada may argue that the U.S. and Canada provide a special case of regulatory convergence, or the de facto harmonization of two regulatory systems. When we consider regulatory harmonization more broadly however, we need to consider not just the benefits to be had from streamlined regulations but the costs implied in administering them. I suggest that harmonization may impose special agency costs beyond those typical of bureaucratic administration, costs that may come to swamp what may be seen as efficiencies of regulatory production. I consider, then, European harmonization as it appears to model some of the costs, benefits, and difficulties of regulatory integration more generally. We would do well to observe these phenomena but not—at present—to import them

Topics: Commerce Clause, cross-border trade, prescription pharmaceuticals, Commercial Law, Health Law and Policy, Pharmacoeconomics and Pharmaceutical Economics
Publisher: DigitalCommons@UM Carey Law
Year: 2006
OAI identifier: oai:digitalcommons.law.umaryland.edu:fac_pubs-1126
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