This article originally appeared in the Financial Post.
By Aaron Wudrick, March 1, 2024
With Florida having recently received authority from the U.S. Food and Drug Administration to import drugs, Canada is again facing the challenge of ensuring its citizens won’t face any disruptions in the supply of their medications.
And Florida is just the beginning. In this presidential election year, American politicians of both major parties are feeling the heat from voters to take advantage of cheaper Canadian drugs. Eight other states have laws allowing the importation of drugs, according to The New York Times. Each still needs FDA approval to begin buying foreign-sourced drugs, but the pressure to do so will only intensify.
Florida and any other approved states will be negotiating with Canadian wholesalers for their drugs. Some wholesalers and drug companies already have self-imposed restrictions on exports, while Ottawa says it has measures in place to prevent shortages. But there is cause for concern.
As health policy experts Nigel Rawson and John Adams explain: “Drug manufacturers allot production to countries by assessing the number of patients who will take the medicine each year. They are highly unlikely to allocate more drugs to Canada … when they know that the medicines will be redistributed to the United States at prices that undercut their American business.”
If states do start importing drugs from Canada, that’s also likely to cause renewed interest in direct pharmacy-to-patient exports to the U.S., another pipeline by which drugs can leave this country.
Cross-border pharmacy sales to the United States have been an issue for decades. In the early 2000s, the widespread adoption of internet-enabled mail-order pharmacies led to approximately one million American patients ordering $1 billion worth of prescription drugs from Canadian pharmacies.
This surge raised concerns about potential drug shortages and price increases in Canada, prompting discussions within the government about regulatory action. Nothing concrete was done, however. So-called internet pharmacies do continue to dispense prescriptions via mail to customers outside of Canada. Though they argue their activities are consistent with federal and provincial law and professional standards, their reliance on Canadian doctors to co-sign prescriptions for American patients they have not seen violates the physician standards of care that in every province require a direct prescriber-patient relationship.
Canadian federal regulations have attempted to address cross-border pharmacy sales by focusing on halting bulk exports of drugs, primarily through laws governing export licences and drug establishment licences. But these regulations have not directly addressed the operation of cross-border pharmacies, which fall under provincial jurisdiction, leaving a regulatory gap that still needs to be addressed.
Of course, all these complexities surrounding cross-border pharmacy sales have a single main cause: the vast difference in drug prices between Canada and the United States.
Although Canada’s policy emphasis on cost containment in pharmaceutical pricing has made some medications more accessible and affordable, it has also both created barriers for Canadians who need to access certain life-saving drugs and led to delays in the availability of new medications compared with other countries. Having cheaper medications may sound great, but the tradeoff is getting certain drugs late or even not at all.
Nor is our policy particularly neighbourly. Rather than sharing the drug development burden equally with our neighbours to the south by paying the same price for drugs as they do, our domestic drug policy functions as a price discrimination mechanism. This allows Canadians to benefit on the backs of American consumers, who must then pay higher prices. Why? Because pharmaceutical companies need to recoup the massive cost of drug development and research somewhere.
Both public and private investment in drug discovery are significantly higher in the U.S. than in Canada. The fact is developing drugs is expensive. Canada’s policies distort the real costs associated with the medicines we take for granted.
Americans are right to wonder why they can’t get the same low prices Canadians and the citizens of many other countries do. The simplest answer is that while other countries can free ride on Americans, Americans can’t free ride on themselves.
Addressing cross-border pharmacy sales is necessary in the short term. In the medium-term, however, Canadian policy-makers should reconsider Canada’s free-riding pharmaceutical pricing policies. Who knows, reforming them might incentivize pharmaceutical companies to — gasp! — grow their footprint in Canada and pour money into research and development here. Supposing there were any interest in creating jobs and growing the economy, of course.
Aaron Wudrick is director of the domestic policy program at the Macdonald-Laurier Institute.
