Legalizing Foreign Drugs (2013 Nov)

by Barry A. Liebling

A new law is going into effect in the State of Maine that permits residents to buy drugs from foreign sources. The legislation is in direct opposition to FDA regulations (rarely enforced) which prohibit importing prescription drugs into the United States. As you would anticipate, individuals and companies that purchase drugs are generally pleased with the law. They view the prospect of more economical drugs as a plus. Also, as expected, several large pharmaceutical companies are demoralized and see the legislation as a stinging rebuke to their policies. The companies’ frustration has motivated them to oppose the new law in court.

The conflict between large pharmaceutical companies and Americans who purchase drugs is not inevitable. Instead it is the direct result of poor decisions – one tactical and one ethical – made by corporate executives.

Many years ago key players in the drug industry hit upon a sales tactic – variable pricing – that was bound to have the results that it did. When a new drug was introduced company representatives cut a separate deal on price with each country. For example, it is less expensive to buy an American-made prescription drug in Canada than in the United States – precisely because drug companies agreed to give Canadian distributors a better bargain. And Canada is not necessarily offering the world’s lowest price to its citizens. Other countries – those that “demand” better terms – might be importing pharmaceuticals from the United States at even steeper discounts.

Pharmaceutical executives knew from the beginning that variable pricing would put incentives into place that would hurt their bottom line. Americans instantly see the advantage of getting their American drugs from outside the US (often Canada), and foreign business people are quick to recognize the profit they can make by selling discounted American drugs to Americans. In an attempt to plug up this built-in, guaranteed leak, American drug companies sold their products inexpensively abroad with the explicit understanding that the distributors were not to export the medicine back into the US.

Good luck with that working out. There will always be some people who will risk “breaking the rules” to either make money or get their drugs at a better price.

Pharmaceutical executives have defended their variable pricing policies with reasoning that is reminiscent of the Marxist slogan “from each according to his ability, to each according to his needs.” They have claimed that they have to discount their drugs dramatically to “poor countries” in order to assure that those who need the medicine are able to afford it. By contrast, because the United States is a “rich country” its citizens should pay the highest possible prices because (according to fallacious leftist doctrine) they have a duty to subsidize the “less fortunate.”

Note that the variable pricing tactic is not the only way to go. Pharmaceutical companies could have decided to establish a single world-wide price. While it is too late to undo what has already occurred, in the future when new drugs are developed and marketed, companies can abandon their variable pricing policy. Executives in drug companies could calculate an optimal price for each product that balances their volume and revenue objectives.

I have personally seen an instance where the single price tactic was effective.

Many years ago I was a young marketing consultant doing a project for an animal pharmaceutical company. Their main product was an antibiotic for chickens. I asked my client how much they charged farmers for the product, and when he replied I asked how much discount they offered if a customer wanted to buy it in bulk. My client explained that the antibiotic was the same price whether the farmer bought one package or one-thousand. He told me that American farmers are shrewd business people. If there were any volume discounts the farmers would band together, buy a huge amount, split the purchase among themselves, and the company would sell no product at the regular price. The company solved the potential discount problem by offering its best price for everyone regardless of how much they bought.

More serious than the tactical problem with the variable pricing model is the ethical breach. The United States is supposed to be a free country where citizens do all of their dealings by mutual consent. It is easy to see that it would be morally wrong for pharmaceutical companies to physically stop citizens from buying drugs at bargain prices. Companies have no right to prevent their potential customers – via force or threat of force – from acting in their own best interests.

And even as it is wrong for companies to physically bully American citizens, it is equally egregious for them to use the government as their surrogate. When pharmaceutical companies lobby for laws that prohibit Americans from buying medicine from foreign sources they are flagrantly violating individual rights. Some will point out that pharma companies have a contract with foreign distributors to keep the drugs out of the US, and this agreement should be respected. But that suggests that drug companies have grievances against the distributors – which in no way cancels out the freedom of American buyers.

It is telling that lobbyists implicitly understand that they are doing something terrible when they attempt to thwart Americans from purchasing what they want. So they pretend that their real motive is not to violate citizens but to protect them. Some pharmaceutical executives deceptively claim that foreign drugs should not be imported because the products might be counterfeit and might be tainted. Of course, counterfeiting anything is absolutely unacceptable, and selling tainted food or medicine should always be a crime. But only the most gullible listener could believe this phony rationalization for blocking citizens from acting in their rational self-interest.

The new Maine law that affirms Americans’ right to buy medicine from foreign sources is a step in the right direction. It is not only good for ordinary citizens; it is an educational lesson for the pharmaceutical industry.

*** See other entries at in “Monthly Columns.” ***

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