Drugs, Importation, and the Internet: A New Study

Roger Bate | 19 Aug 2009
The New Ledger
The pharmaceutical industry insists importing drugs from overseas will be a danger to American patients. There is certainly evidence to back up their claim with a growing number of deaths directly caused by dangerous drugs coming from overseas, mainly from China. But the greater risk of drug importation is it will undermine the current pricing structure. Americans currently subsidize drug prices to the World's poor and more importantly many of Europe's middle class. If Americans refuse to continue to pay a high price, new drug development is threatened.

Americans are turning to the internet to source cheaper drugs, and although most are wary of its dangers, the total online drug market in US is now over $12 billion with millions of users. After all, buying drugs over the internet is fast and often cheaper than visiting your local pharmacy, and for the elderly, sick or those living in isolated communities, it is far more convenient.

Senator Byron Dorgan (D-ND) is the lead sponsor of a bill — The Pharmaceutical Market Access and Drug Safety Bill — to allow importation of drugs from many countries, including via the internet. My recent research suggests Senator Dorgan is justified at least in terms of general safety. Although there is a wide variety in web site drug quality, my research team found that, with the exception of fake Viagra with packaging from China, none of the drugs failed our basic quality testing. However, in 20% of cases, a substitute drug was delivered, against requests for name-brand only, and these drugs could not be tested accurately, so there is certainly room for concern. But all the drugs we could test which we imported from Europe (and other locations Senator Dorgan's bill will allow importation from) passed.

The World Health Organization reports that drugs from websites that conceal their physical address are counterfeit in more than 50 percent of cases. Our findings are consistent with WHO's assessment. The few drug failures in our analysis came from websites lacking a physical address. Our research suggests that even non-approved websites (those breaking the law by not requiring prescriptions and importing drugs) that at least have a physical address will deliver decent brand quality drugs — albeit they were illegally diverted from the EU, Australia and Turkey, amongst other places.

We found price was no indicator of quality. Some of the products we bought were marked up over 2,000 per cent, other drugs possibly stolen, were sold at a significant discount to their face value. In fact with the exception of Viagra, the more regulated sites were on average slightly cheaper than the others. But the vast markups we were charged for some drugs is indicative of the real danger of importation. Buying drugs at deep discounts to US prices does lower the price of drugs in US, but it will do so by undermining the tiered pricing system on which efficient and equitable drug markets work — poorer people in developing and middle income countries paying vastly less than Americans for the same medications. Europeans also pay less because of price controls across Europe, which is unfair to American consumers and drug companies, but Europeans will not pay more especially in an economic downturn. The EU still provides enough profit for companies as long as Americans pay as much as they do. However, if Americans import EU drugs at EU prices and companies cannot charge what they need to sustain profitability and hence research budgets then fewer drugs will be developed.

So importation, in effect of the strict price controls of socialized medical systems in Europe and elsewhere, will be harmful. But healthcare costs are high in America and we're in a recession too. So making the correct economic argument that American drug prices should remain high, in order to encourage research, is a hard sell for industry; while everybody benefits from new drugs, not everybody helps out with the cost — some because they can't, others, notably Europeans, because they choose not to.

Industry could boycott selling to European nations that refuse to pay higher prices but only if they act in unison as a cartel. For industry to do that would require immunity from antitrust action. Congress has given such immunity before, but is not even debating giving it to the drugs industry. It would help if industry demanded it!

Rather than do this, industry is hiding behind the safety argument. People have indeed died from counterfeit imports, and the media likes to report scary stories, so this is the main argument being used by industry before Congress. But from the evidence I've seen safety concerns are largely overblown. There is a danger from the internet but it can be contained, and it is only very rarely found in drugs imported from Europe. What this means, as the drugs industry knows, is that it will eventually lose the safety debate, and probably the entire importation debate with it.

It is ironic that industry is right to oppose importation, but its safety arguments are largely bogus — whereas Senator Dorgan's bill, if enacted, is largely correct about safety but will probably be harmful, as harmonizing prices will squeeze drug research.