This is a truly sad debate being argued on the fringes of nuance. What the drug companies have is a flexible pricing arrangement. Nothing bad about that. Their incremental cost to supply Canada is exceeded by the revenues of playing there. What's bad is that they are relying on the force of governments to enforce their pricing regime. What's dishonest is that they cover it up by arguing about safety. The makers of Tylenol figured out safety 20 years ago. The rest of the industry can too.

The free market approach is for our government to tell the drug companies they cannot use the border patrol to enforce their flexible pricing schemes. Given the price differential and comparative market size, allowing reimportation will very quickly make Canada reconsider their stupid health system and bring it in line with how things work in this hemisphere. That will be better long term for drug companies.

This is no different than region codes on DVDs or putting DRM in a printer cartridge. It's an ill-advised industry attempt to wrap up local monopolies and then use mechanisms of law (like DMCA) to protect them from competition. This in turn, fuels all the whacko lefties who have a rallying point and an excuse to run over everyone else. It is the worst kind of self-defeating business politics. Kruschev was right: capitalism and freedom will bury itself.

-Brad

I agree that the best solution would be for Canadian prices to rise to a more realistic level. But I'm not sure that allowing reimportation would cause the Canadian government to reconsider anything. After all, they had a near-confiscatory system for patent protection for twenty years (until 1987.)

As Brad points out, Canada is a really small market, in monetary terms, which is why drug companies can allow their government to set prices. It doesn't hurt that much, and some Canadian revenue is preferable to no Canadian revenue. (And he's right, the drug safety argument is ridiculous.)

But in many cases, the drugs themselves aren't produced in Canada (or at most, they might be packaged there.) If they come back into the US, hey, no problem for the Canadian government. I'm having trouble seeing where the pressure would come from.

Derek says: " I'm having trouble seeing where the pressure would come from."

Admittedly, I'm no economist, and I am projecting what I have seen repeatedly in micro situations to a macro situation, so that may be the error of my thinking.

If you generally charge a price A to your wider market and then offer a prce B < A to some special market, there is an incentive for price conscious customers in the wider market to figure out how to be in the special market (or find someone who really is to buy for them). Generally, this isn't a problem and doesn't weaken your wide market price if you can make the conditions for the discount stringent enough and the case for the discount noble enough that the wide market doesn't care. An example of "noble enough" for a software company might be "education discount". Customers like that you're selling things to schools and giving them a price break. It's not terribly rational of the non-edu customer, and I'm not being cynical or exposing any deep software industry secrets. It's just how it is. Look at Adobe's very streamlined approach to squeezing millions out of schools ;-).

OK, so translate edu software sales to drug sales to Canada. The drug companies play there to pad their top lines. Nothing wrong with that. And with reimportation banned, they can keep the markets compartmentalized. The problem is that US consumers see the situation as subsidizing Canada. We sing their anthem at hockey games. Must we subsidize their drugs? So the discount is not noble enough, and without government protection at the border, it would not last. So drug companies either have to lower prices all around or raise Canadian prices. The signatories to the TCS open letter seem to think the former. I think effectively the latter, after perhaps curtailing sales to Canada or tightening up the supply chain so that it becomes too expensive for Canadians to reexport. That would be a market at work.

-Brad

Not certain I'm 100% correct on this, but I was under the impression that it was the Canadian government that set the prices on pharmaceuticals sold there, not the pharmaceutical companies. Therefor, they can't "raise Canadian prices". And by pulling out of the market entirely, if it came to that, they may well be risking compulsory licensing. If this is the case, by allowing free trade with Canada in regards to drugs, America would have its prices essentially set by the Canadian government, plus importation expenses, rather than the drug companies themselves.

-Kian

The Canadian government doesn't precisely set the prices on pharmaceuticals. It can and does, however, bargain over the prices, with a threat of loss of patent protection if the prices are not satisfactory.

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