In this post I talked about how Canada’s strict drug pricing laws allows them to be free riders. They get cutting edge medical products without having to deal with the costs of liability or development.
Now Damien Penny has pointed out an outraged op-ed in the Toronto Star. It would appear that some editor has his panties in a bunch because the Muskeg Lake Cree Nation plans to build the clinic on land it owns in Saskatoon. The clinic will be a for-profit facility, just like we have in America!
How can they do this, being in Canada and all? Well, it would appear that the Canadian government granted the Native Americans a great deal of autonomy in self governing, even in the way they run their own health care system. So now they want to actually make some money off of it. You know, the American dream. Apparently that’s something that the Canadians just can’t allow to happen.
Drug re-importation needs no action by the US government. The Canadian government will shortly try to put a stop to it as soon as they realize that their limited supply of drugs (because they fix the price) are all going to Americans leaving none for Canadians. Their first impulse of course will be to try to apply additional string-arm tactics to the drug companies, but it won’t work.
Watch for drug shortages in Canada, they will be starting very soon. Free-riding is no panacea.
DSpears – You’re substantially right but you’ve skimped on important details. There are shortages only when supply is limited. Supply is not currently limited for the Canadians. Drug companies are only now starting to threaten to limit supply to what the domestic market requires. When that happens, you will see the shortages pop up, as well as the bodies starting to accumulate. The Canadian government will most likely break patents and grant local generic producers to create knockoffs and the US is likely to cry foul and start NAFTA proceedings.
In other words, the US government will end up doing something because they can’t tolerate the destruction of the international patent system.
Canada’s drug market is already supply constrained. I don’t have the numebrs in front of me but I believe Candians have access to something like half of the number of drugs availabble to Americans. It has been this way for a long time. Price controls set what the price is that can be charged, it is much more difficult for a government to mandate the quantity of drugs that must be supplied. Regardles of all the government intereference, the pharm companies still determine the supply of drugs that they will provide at that price. If their marginal cost exceeds their marginal price, they won’t sell any more. If these drugs can be re-sold by Canadians at even a small profit to people in America, then there is no reason for the pharm companies to increase supply to Canada. Because they cannot realize the extra profit available.
What it will do is put pressure on drug prices in America, squeezing R&D budgets and forcing pharm companies to spend scarce R&D dollars on more profitable products, such as erection enhancement.
I just think this is temporary since the Candian government most likely won’t let it go on forver. Of course I could be wrong about that. I’m no expert on this subject, I’ve just applied some simple logic and economic theory to the subject.