Some Shameless Self-Promotion

Herewith, my oral testimony on the importation of price-controlled drugs before the Senate Health Committee last week. Email me if you want the full testimony and/or the executive summary. Comments welcome. Senator Teddy, disappointingly, did not attend, as there was at the same time a Foreign Relations Committee hearing featuring Condi and Rummy. I guess Teddy preferred to grill them than me. Go figure.

Thank you, Mr. Chairman and distinguished members of this committee; I will summarize four central points covered in my written testimony.

First: Pharmaceuticals subject to price controls overseas are not “cheap.” I urge this committee to reject efforts to impose price controls on U.S. medicines, whether directly or indirectly. Any such policies incontrovertibly would mortgage the future in favor of the present by reducing the market R&D incentives yielding more and improved medicines alleviating future human suffering.

Second: Foreign price controls enable overseas consumers to obtain a free ride on the prices that American consumers pay for R&D. U.S. trade and other policies that raise foreign prices toward competitive levels unambiguously would benefit U.S. consumers, regardless of the assumption one makes about the competitiveness of the U.S. pharmaceutical sector.

Third: The recent “free market” argument favoring the importation of price-controlled medicines from overseas is fundamentally flawed because compulsory licensing processes combined with ambiguities in the “failure to work the patent” framework mean that negotiations would be highly vulnerable to implicit or explicit threats of patent theft. At a more general level, free markets domestically even in principle cannot be reconciled with the enforcement of price controls overseas.

Fourth: Federal price negotiations over the long term would harm consumers. The federal government is not like a very large pharmacy chain; it is instead so big that it has monopoly pricing power as a buyer that large private sector buyers engaged in competitive negotiations do not have. At a more subtle level, private sector buyers must compete for customers, and so must balance the conflicting objectives of low prices and broad formulary availabilities. The federal government, on the other hand, does not have “customers” as such, so that short term budget pressures inexorably will tend to crowd out consumer choice over time. That is the deeper implication of the “evidence-based medicine” approaches now being considered and adopted by some states. The noninterference provisions of the 2003 Medicare Act truly were farsighted, and I urge this committee to continue that approach.

In conclusion: We want our medicines to be affordable, and we want them also to be available over the long term. That is why price controls must be rejected.

Thank you very much.