Last week, President Joe Biden issued an Executive Order on Competition policy. This EO contains several proposals related to prescription drugs, which if implemented could harm American innovation, reduce access to care, and pave the way for socialist healthcare policies.
The EO directs the federal government to continue pushing for the importation of prescription medicines from Canada. In addition, the proposal calls for the HHS to develop a plan to reduce the cost of prescription medicines.
Importation of prescription medicines from Canada is unrealistic, may not result in savings, and could even lead to unsafe drugs flooding the U.S. market.
While importation may sound like a reasonable concept, this proposal is highly flawed and would likely do little or nothing to reduce costs.
First, Canada does not have the scale to successfully import drugs to the U.S. in any meaningful way. Canada is one-tenth of the U.S. with a population of 37.5 million and an economy of $1.7 trillion. By comparison, the U.S. has a population of 327 million and an economy of $20.5 trillion. Canada also represents just 2 percent of the world’s pharmaceutical consumption while the U.S. makes up almost 45 percent.
Instead, this proposal may destabilize the Canadian supply chain, a concern raised publicly by Canadian officials. If 40 percent of Canada’s existing prescriptions are diverted into America, Canadian supply would run out in just 118 days – or 16 weeks. In this scenario, Canadian officials would naturally be incentivized to reduce the supply of imported drugs to keep their prices low and avoid shortages.
Second, it is unclear whether there will be any savings from importation. The non-partisan Congressional Budget Office (CBO) has previously estimated that importing drugs from Canada would have a “negligible reduction in drug spending.”
Many high-cost drugs will likely be excluded from the importation plan, further undercutting the potential to deliver savings. According to the American Action Forum, 42 of the top 50 Medicare Part B drugs by total spend and 31 of the top 50 Medicare Part D drugs by total spend would not be eligible for importation under an earlier version of this proposed plan.
Finally, there are also long-standing concerns that importation will flood the U.S. market with unsafe, unvetted drugs. Every single FDA Commissioner and HHS Secretary over the past two decades have raised concerns about importation and declined to vouch for its safety. Four former FDA commissioners from the Obama and Bush Administrations wrote a letter to members of Congress expressing numerous problems with importation, chief among them that importation “…could lead to a host of unintended consequences and undesirable effects, including serious harm stemming from the use of adulterated, substandard, or counterfeit drugs”
There is no way for the FDA to properly verify that imported drugs are safe. Canada allows drugs to be imported from anywhere – including third world countries – into Canada and then into the United States, raising serious doubts about the safety of these drugs.
The EO’s directive to combat high prescription drug prices and price gouging could result in socialist price controls.
While this directive is vague, it is likely a precursor to socialist price controls that would dramatically expand the size and scope of the federal government.
House Democrats are pushing H.R. 3, the Lower Drug Costs Now Act. This legislation imposes new taxes and government price controls on American medical innovation. Under the legislation, pharmaceutical manufacturers that do not agree to foreign price controls would face a retroactive tax of up to 95 percent on the total sales of a drug (not net profits). This means that a manufacturer selling a medicine for $100 will owe $95 in tax for every product sold with no allowance for the costs incurred. No deductions would be allowed, and it would be imposed on manufacturers in addition to federal and state income taxes they must pay.
Others on the Left are pushing to have the government takeover private sector negotiation in Medicare Part D. Instead of having the government directly provide care, Medicare Part D leverages competition between pharmacy benefit managers (PBMs), pharmaceutical manufacturers, plans, and pharmacies to provide coverage to seniors. This lowers costs and maximizes access for seniors.
At the core of this program is the non-interference clause which prevents the Secretary of Health and Human Services (HHS) from interfering with the robust private-sector negotiations. The Congressional Budget Office has even said that there would be a “negligible effect” on Medicare drug spending from ending non-interference.
This structure has been successful in driving down costs. Since it was first created, federal spending has come in 45 percent below projections – the CBO estimated in 2005 that Part D would cost $172 billion in 2015, but it has cost less than half that – just $75 billion. Monthly premiums are also just half the originally projected amount, while 9 in 10 seniors are satisfied with the Part D drug coverage.
Either proposal would severely harm medical innovation, threaten high-paying manufacturing jobs, and limit access to cures.
According to a study by the Galen Institute, patients in the U.S. had access to nearly 90 percent of new medical substances launched between 2011 and 2018. By contrast, other developed countries had a fraction of these new cures. Patients in the United Kingdom had 60 percent of new substances, Japan had 50 percent, Canada had 44 percent, and Spain had 14 percent. In many cases, Americans are able to buy less expensive generics before countries with socialized medicine can even access the underlying new medicines.
Nationwide, the pharmaceutical industry directly or indirectly accounts for over four million jobs across the U.S and in every state, according to research by Economy Partners, LLC. This includes 800,000 direct jobs, 1.4 million indirect jobs, and 1.8 million induced jobs, which include retail and service jobs that are supported by spending from pharmaceutical workers and suppliers.
The Biden administration’s healthcare proposals could harm medical innovation and open the U.S. market to counterfeit, dangerous drugs. Rather than pushing proposals that dramatically expand the size and scope of the federal government, policymakers should look to solutions that promote competition and improve the quality of healthcare for Americans across the country.