Will Importing Medications Contain the Costs?

Jan 25, 2024 | Health, Long Term Care

Rising costs for medications are a concern for both employers and employees. In the US, we spend twice as much on medications compared to other countries.

Medication Costs In the USA

Medications cost less outside of the United States. This is far from being a secret. Rising healthcare costs, especially the cost of medications are a concern for both employers and employees. It is not uncommon for benefits professionals to be approached by a vendor who will import drugs from other countries to drastically reduce prescription drug costs; however, that may prove to be far from a panacea.

Global trade is complex. There are dozens of industries that all work in tandem to supply medications to people in the United States. But somehow the US still spends twice as much on medications compared to other developed and even developing nations. This price gap has created an industry for medications sold in countries like Canada. Both pharmaceutical tourism and drug importing (still technically illegal) are on the rise. Some see this as a long-term solution. Unfortunately, it isn’t.

Medications Pills Worldwide

Consider the Supply Volume

The first consideration is the supply volume. The population of the US is roughly 328 million, the third highest in the world. By comparison, the population of Mexico is 129 million and 37 million in Canada, roughly half of the US. Including Australia (25 million) and the United Kingdom (68 million), the other two countries referenced on drug importing companies’ websites, the total population of these countries is 259 million people. Now consider what would happen if 10 million US citizens and residents routinely obtained medications from Canada, Australia, and Great Britain. If the US made drug imports legal, the demand curve in each country would shift dramatically. It would be as if the countries’ populations increased by 15%-40%. Prices would spike in those countries and put their medication supply at risk. And if the prices rise, employers’ and individuals’ costs would rise eradicating the original purpose for importing.

    Medication Pricing

    Price ceilings are often cited as a counter to the inflation argument. However, despite the socialist moniker, universal healthcare systems still operate in capitalist systems and are subject to market dynamics. Manufacturers and wholesalers would face revenue losses in the United States. As revenues decline, both stakeholders would act and limit supply to those countries.

    There are no laws that force drug manufacturers or wholesalers to sell medications. So why would they continue to supply channels with a lower rate of return? If citizens in Canada and other countries were no longer able to obtain medications, how long would it take before regional and national governments abroad were forced to intervene and limit or ban drug exports? Exacerbating the shortage might cause additional short-term revenue losses for these industries and would certainly hurt public perception. But the pharmaceutical industry is hardly the gold standard in net promoter scores. Medications are inelastic goods, which means consumers will absorb price increases (to a point) and have few or no substitutes. Profits can be delayed; treatment cannot.

    Medication Price Hikes

    Daraprim became famous in 2015 when the price per pill went from $13.50 to $750 a pill. The ethics of the price hike are questionable but remain legal. And despite the manufacturers’ immediate response to consumer demands for a cheaper alternative, implementation took nearly five years and it only happened that quickly because the patents had expired. Brand and specialty medications have patent protections which are for the most part honored in developed nations. Alternate products could be dangerous and undoubtedly illegal. Safety is the reason the United States has a closed-loop pharmaceutical supply chain. Black market products would increase the likelihood that other nations would follow suit.

    Pharmaceutical tourism became mainstream when the State of Utah began offering employees cash incentives to obtain specialty medications in Mexico. The logic was, that despite the travel costs, employee inconvenience, and cash bonus, the plan would still save money. But international travel is never guaranteed. The COVID-19 pandemic has shown how unreliable it can be. This is a prime example of an employer implementing a quick fix solution to rising healthcare costs.

    Solutions for High Medication Costs

    The United States cannot resolve healthcare inflation by shifting distribution channels internationally. The uncertainty and uncontrollable variables of international trade create more complexity in an already intricate market. This is not to say there is nothing to be learned from healthcare systems abroad. Those solutions, however, should be analyzed at a domestic level with other logical government interventions and market solutions to create cost-effective and sustainable healthcare. Those will be addressed in the next article.

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