U.S. Reimportation of Prescription Drugs

Brian L. Beirne, Yale Law School
Michael Tucker Dr., Fairfield University, Professor of Finance

Abstract

The United States is the only developed country without price controls on prescription drugs and, as such, has the world’s highest prices. Across the border, Canadian prescription drugs retail at prices averaging 78.6% below those in the U.S. In addition to the reimportation being carried out by consumers physically crossing the border to fill lower-cost prescriptions, the internet has made possible a new, completely unregulated marketplace based in Canada. With Canadian authorities having been unwilling to shut these operations down, this market has been thriving as the FDA has adopted a largely “hands off policy” regarding the Food, Drug, and Cosmetic Act prohibition against the importation of prescription drugs by anyone other than the manufacturer. The volume of reimportation, however, is set to vastly accelerate beyond current levels as the U.S. Congress moves to legalize reimportation and several states explore the possibility of switching all their prescription purchases to Canadian reimporters. Pharmaceutical companies reap outsized profits in the U.S. which they claim are essential to funding research and development. In the absence of regulatory enforcement, some companies have moved to protect their profits by cutting supplies to reimporters in Canada. This analysis of the U.S. legalization of the importation of prescription drugs from Canada develops supply scenarios based upon international regulatory and legal precedents and demonstrates the impacts of various levels of importation on the Pharmaceutical Industry’s profits, with special attention paid to resultant R&D spending.