Some recent headlines:
“HHS reports drug imports likely won’t save money.”
“Net saving on drug import not worth action.”
“Legalizing drug imports not worth it.”
“Bush panel sees scant savings in drug imports.”
These were based on a report released two weeks ago by the Department of Health and Human Services which concluded that “total savings to drug buyers from legalized commercial importation would be 1 to 2 percent of total drug spending.”
If this were true, reimportation of drugs would never take off. Why, then, would the drug industry spend so much time fighting this plan? What is it that the drug companies know but that the Department of Health and Human Services doesn’t want you to understand?
The answer is that the data in the report don’t support the department’s conclusions.
The research in the report actually indicates the possibility of saving 17.5 percent, or $37.8 billion, annually in the United States. And this also explains the drug industry’s fear of importation.
The department’s conclusion that reimportation will not result in significant savings is built on the premise as stated in the report that “imported drugs may be around 12 percent of total use … because drug companies have incentives to impede exports.” This assumption doesn’t take into account that reimportation bills would make it illegal to limit supply something the drug companies are keenly aware of but the Department of Health and Human Services completely forgot.
The second faulty premise is that “U.S. drug buyers may get discounts of only 20 percent or less, with the rest of the difference between U.S. and foreign prices going to commercial importers.”
This statement should be contrasted with a chart in the report showing that U.S. retail drug prices are 100 percent higher than in Europe. So this premise assumes unprecedented price gouging by importers and a complete lack of competition among them. Of course, the drug industry knows that is not how the free market works, but the Department of Health and Human Services feigns ignorance.
The third premise in the report is that “about 30 percent of total drug spending may be unchanged by legalizing commercial importation because about that much is now spent on products that are inappropriate for importation.” According to the report, these would include such drugs as those used during surgery, those that are injected, controlled substances or low-cost generics.
Let’s now do the analysis of savings possible in the United States, based on the data in the report. We know that according to the report drug prices in Europe are at least 50 percent lower than in the United States. Let’s be very conservative and assume as much as half of this price difference is captured by greedy importers a pretty unlikely scenario because with such costs, reimportation would never have existed within Europe.
Then we take the report’s premise that 30 percent of the U.S. market will not have competition from reimported drugs because they are generics or belong to categories that can’t be imported easily.
That leaves 70 percent of the market multiplied by a 25 percent price reduction, for a saving of 17.5 percent on the total U.S. drug bill of $216 billion, resulting in a net saving of $37.8 billion.
This is a simplified analysis, but more complex mathematical models based on the Department of Health and Human Services’ research data result in similar savings. In summary, the report has the right data but the wrong conclusions.
PETER ROST is a vice president of marketing at Pfizer; the views expressed here are his own.