On numerous occasions President Trump has lambasted drug companies for their drug high prices. He has suggested on more than one occasion Americans should be allowed to import medications from abroad where they are cheaper. Drug importation and re-importation is currently illegal under federal law. A drug may only be imported by its manufacturer. This is what allows drug companies to price-discriminate: selling their wares for different prices in different countries. Drugs are higher priced in the United States than other countries. Drug companies charge lower prices abroad for a variety of reasons. One is that most foreign countries have a lower standard of living compared to the United States. Another reason is that many foreign governments keep the price of drugs artificially low imposing price controls and by refusing to respect patents.
Allowing private citizens to import their own drugs would be a form of arbitrage. Arbitrage is when people are able to take advantage of discrepancies in prices in two different markets and bypass the higher prices by purchasing the lower-priced product in a cheaper market. For instance, you could argue that buying from Amazon is a form of arbitrage to avoid paying higher prices at your local brick & mortar store. Allowing Americans buy from abroad would also import foreign governments’ price control with the drugs – which is why there is a law against private importation.
One drug therapy that has come under scrutiny are the new costly treatments for Hepatitis C. Hepatitis C is an infectious disease that over time scars the liver and can lead to liver failure and costly liver transplants. As you can imagine, when the alternative is death or a liver transplant (~$500,000), any effective treatment is going to be expensive unless there are numerous competitors. Gilead Sciences made the first highly effective treatment that cures Hepatitis C. Sovaldi (Sofosbuvir) has been shown to be about 95 percent effective at curing the disease. Earlier treatments were had severe side-effects, difficult to tolerate and had to be taken daily for the rest of patients’ lives. With a list price of $1,000 per pill, Sovaldi is not cheap. It takes one daily pill for nearly three months to cure the disease. Most people with Hepatitis C cannot afford a treatment that costs $84,000 on their own.
Millions of people worldwide have Hepatitis C. Egypt has what is believed to be the highest rate of Hepatitis C in the world, due to an ill-fated 1950s-era program to combat Schistosomiasis, a parasitic disease spread by snails. Health service personnel would fill syringes with multiple doses and inject multiple people in a row with the same syringe. It is estimated that 10 percent of the population – 9 million Egyptians – have Hepatitis C. More than half of men over the age of 50 in the Nile Delta region have Hepatitis C.
Poor Egyptians certainly cannot afford a treatment that costs $$60,000, $70,000 or $100,000. Gilead offered Egypt a deal where the drugmaker would provide the country with Sovaldi for $10 per pill provided the government tightly control distribution.
Patients were required to pick up their prescription from a government-run pharmacy. When patients picked up their pills, they were required to open the container and break the seal in front of the pharmacist. They must then take the first pill on the spot. To obtain their second container they must turn in the empty bottle from the previous fill. Hundreds of thousands of Egyptians have been treated.
Since the deal with Gilead was signed, a generic version became available for $4 per pill. Gilead also rolled out its newer product Harvoni for $14 per day. A competing drug by AbbVie is $13 and a Hepatitis C drug by Bristol-Myers Squibb is also available.
Imagine my surprise when I stumbled across an article about Hepatitis C medical tourism to Egypt advertised for $5,900. One program is known as Tour n’ Cure, from Prime Pharma, an Egypt generic drug company. One reason drug makers are selling their products cheaply in Egypt is because the Egyptian government refuses to honor American drug patients. This is the flipside of the drug importation debate. On the one hand, drugs are higher priced in the United States due to patents, property rights and higher living standards. Drug companies charge lower prices abroad for if the market abroad will not bear the U.S. price. Most foreign countries have a lower standard of living compared to the United States. In the case of Egypt, its refusal to respect patents gave it a cheap way to solve a huge public health crisis that the Egyptian health ministry caused (albeit 60 years ago). Now, the government is helping richer people from other countries access medications at the rate charged to impoverished countries.
Some patients with Hepatitis C are traveling to India in search of cheaper cures. Something that Express Scripts has apparently investigated was to dock an Indian-flagged ship with cheap Hepatitis C drugs in international waters off the coast of the United States and ferrying covered patients to the ship for their drugs. The idea was dropped because that too would violated federal law. The Bloomberg article also claimed some Indian generic drug companies are selling generic versions by mail-order (which also violates federal law when it’s imported into the United States.)
Basically you have multiple bad actors. One is drugmakers who try to maximize the price of drugs by charging much higher prices than actual individuals can pay. The other side of the equation is governments who want to steal intellectual property from drugs that deliver a huge value. Surely there is a middle ground.