The Senate this week may be voting on an amendment pertaining to importing foreign price controls on prescription medicines.  The Senate should reject any such effort.  It's bad health care policy, it's even worse trade policy, and it's not a free market solution.

The amendment in question would allow Americans to purchase prescription medicines from Canada.  On its face, this is a pro-free market amendment.  Why should the government prevent people from buying goods or services from anywhere they want to, especially a developed nation like Canada?

The free market answer is that consumers would often not be importing just the medicine, but also the price control.  In most countries, the prescription drug industry labors under burdensome government-imposed price controls.  These price controls allow politicians to give voters seemingly-cheap medicines, but there's a heavy price.  Since the drug companies are left with little or negative profit, there is virtually no money left over to finance the next generation of drug research and development.

One of the only countries left that allows drug prices to be (mostly) set by the free market is the United States.  The profits made here finance the next generation of life-saving and life-improving prescription medicines.  If the U.S. market suddenly gets flooded with price-distorted drugs from all around the world (they only need to make their way to Canada first), our drug market will be permanently-damaged by price controls in other countries.

Think about it this way: suppose you are taking a blood pressure medication that costs you $50 per dose.  This amendment passes, and you start to purchase a medicine from Canada (really, from anywhere) that only costs $20 per dose, thanks to the price control in the other country.  You would be a fool not to take that deal.  Millions of other Americans do the same, and suddenly no one is buying the $50 version of the drug anymore.  No new drugs have entered the country--it's the exact same medicine whether it's a market-set $50 or a government-set $20.  But price controls dictated by foreign bureaucrats have entered the country, totally distorting our drug market.  By importing price controls today, the miracle drugs of the future are strangled in the crib.  All the capital for future R&D is gone.

This type of amendment would be a good idea in a world free of market-distorting price controls.  Free trade is a good thing.  But free trade requires transparent prices set by markets, not by governments.

Posted by Ryan Ellis on Monday, May 21, 2012 11:59 AM EDT

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