Importation Of Drugs

[fifi]

The FDA recently disallowed (yet again) the legal importatiopn of drug s from Canada, saying that their safety could not be guaranteed. Ridiculous argument.

I have a question about this. If private drug companies have the right to specify terms under which their drugs can be bought and sold, should the government be proactive in banning them? Should such importation be a crime or is it a case for a civil suit?

Long aside: Like many other legal issues, I guess I really do not grasp the KEY distinction between a civil case and a criminal case. Trespass is criminal (right?)... it is a violation of property rights. Theft is criminal too? However, if someone reneges on a deal, why is that a civil case? Isn't that similar to fraud? Is *intent* the key? If they always intended to renege, would that make it criminal?

[Praxus]

The FDA recently disallowed (yet again) the legal importatiopn of drug s from Canada, saying that their safety could not be guaranteed. Ridiculous argument.

I have a question about this. If private drug companies have the right to specify terms under which their drugs can be bought and sold, should the government be proactive in banning them? Should such importation be a crime or is it a case for a civil suit?

Long aside: Like many other legal issues, I guess I really do not grasp the KEY distinction between a civil case and a criminal case. Trespass is criminal (right?)... it is a violation of property rights. Theft is criminal too? However, if someone reneges on a deal, why is that a civil case? Isn't that similar to fraud? Is *intent* the key? If they always intended to renege, would that make it criminal?

If these said drugs were stolen copies of American drugs made by private companies, then absolutely they should be banned.

[DavidOdden]

Trespass is criminal (right?)... it is a violation of property rights

Maybe and maybe not. There can be laws against anything, but even without a statute against trespass, you can sue for trespass on the grounds that there has been damage. The distinction is that criminal trespass is an offense against the state but civil trespass is an offense against private property.

Theft is criminal too?

Pretty uniformly.

However, if someone reneges on a deal, why is that a civil case?

Well, "reneging on a deal" is another way of saying that a contract has been broken. So more or less by definition, it is a civil matter and not a criminal matter. It's doing wrong to a person, not the state -- though the state holds that a number of wrong-doings against individuals intrinsically harm society, thus damage the state. It would be a bit draconian to make all contractual disputes criminal offenses.

Isn't that similar to fraud? Is *intent* the key? If they always intended to renege, would that make it criminal?

What makes something criminal is that there is a law against it. It's an interesting question whether making a contract with the (provable) intent to not perform is criminal fraud -- seems to me it is, but mebbe not.

If private drug companies have the right to specify terms under which their drugs can be bought and sold, should the government be proactive in banning them

Once the drug is sold, it is sold. What you're describing is really licensing, not purchase, and as far as I know, no end-user licenses drugs. So there is no requirement that you only consume the drugs in Canada, for example (and thus any restrictions on bringing drugs into the US from Canada do not protect the rights of the manufacturer.

[khaight]

Once the drug is sold, it is sold. What you're describing is really licensing, not purchase, and as far as I know, no end-user licenses drugs. So there is no requirement that you only consume the drugs in Canada, for example (and thus any restrictions on bringing drugs into the US from Canada do not protect the rights of the manufacturer.

I don't think the issue is quite that simple.

Drug development is an expensive and risky problem. Companies spend a lot of research money following leads that turn out to be dead ends. They have to make all that money back on the relatively small number of new drugs that pan out. If they can't do that, new drug research grinds to a halt. The need to cover their research expenses means that the selling price of a drug has to be significantly higher than its physical manufacturing cost. Once you know the chemical formula for a drug, and you have the manufacturing process worked out, the marginal cost for cranking out another pill is pretty minor. But figuring out that chemical formula and putting together the manufacturing process in the first place costs a lot.

Canada's health care system is nationalized. This means there is one (or a few) buyers of drugs there, who buy in vast quantities. This gives them leverage, and that leverage has been used to negotiate purchase prices that are close to marginal manufacturing cost. These prices don't cover the research costs mentioned above. The pharmaceutical companies can't raise their prices in Canada or refuse to sell into the market because of the danger that the Canadian government will simply ignore their patent on the drug and start manufacturing a generic version themselves. (This has apparently happened in the past.)

The result of this is that the drug companies have to make up their research costs by charging higher prices for drugs in the American market, where their property rights have stronger protection. But this in turn creates a market price differential across the Canadian border. It becomes profitable to buy drugs at the low Canadian price, reimport them across the border and sell them in America. Doing this would lower the price of drugs in the American market in the short term, but would gut the revenue that funds new drug research in the long term. Hence the desire by the drug companies to block reimportation.

(The same basic phenemenon occurs with drug sales in many other nations as well, but because they lack long and porus borders with the United States the reimportation issue is less significant.)

Blocking drug reimportation is an attempt to protect the manufacturers from the consequences of threatened property rights violations in Canada. Obviously it would be better if the Canadian government could be convinced to respect the property rights of the drug companies, but right now that doesn't seem to be in the cards. This leaves Americans in the unfair position of funding drug research by themselves while the rest of the world benefits without paying.

[DavidOdden]

I don't think the issue is quite that simple.

Drug development is an expensive and risky problem. Companies spend a lot of research money following leads that turn out to be dead ends. They have to make all that money back on the relatively small number of new drugs that pan out.

Well, I think it is that simple. Drugs are a good which is sold: ownership is transfered, and transfered unconditionally. The valid of your objection is valid, and that is the reason why there are patent laws. Making it an issue of property rights and supposing that drug companies have some kind of extraordinary rights after their goods are sold is wrong. Even if you wanted to try to make control over where drugs can be taken once they are sold into a contractual issue, they don't make you sign a "I won't take these drugs into the US" agreement.

Canada's health care system is nationalized.  This means there is one (or a few) buyers of drugs there, who buy in vast quantities.  This gives them leverage, and that leverage has been used to negotiate purchase prices that are close to marginal manufacturing cost.

Uh, this sounds like it's going to become the "Wal-Mart is coersive because it's so big" argument. You wouldn't do that, right? Leverage is non-coercive.

The pharmaceutical companies can't raise their prices in Canada or refuse to sell into the market because of the danger that the Canadian government will simply ignore their patent on the drug and start manufacturing a generic version themselves.  (This has apparently happened in the past.)

Well, if the Canadian government holds itself above the rule of law, that is not good, but until they actually do violate the law, this is a non-argument. The manufacturers have a choice to withdraw from that market, a right which they have not exercised: this is the primary consideration. They have the right to sell at a higher price, which have have not chosen to do.

Hence the desire by the drug companies to block reimportation.

But their desires are irrelevant. They should simply withdraw from the Canadian market entirely. You can't have it both ways.

Blocking drug reimportation is an attempt to protect the manufacturers from the consequences of threatened property rights violations in Canada.

The argument from threat is potentially valid, but you have to establish that there is an actual threat. Can you establish this? I don't mean, can you invent an Atlas Shrugged scenario where the Canadians nationalise a drug company For The Benefit Of The People, I mean, can you point to actual acts by the Canadian government which inescapably show that the drug companies have been threatened with a specific coercive action?

Also note that the drug manufacturers do not have the same property right to the idea that they have to the product. The former right only exists by dint of a particular statute granting the patent-holder exclusive rights to exploit the idea for a specific period of time. So if you want to argue that Canada has threatened manufacturers with violation of their rights, you have to establish what those rights are under Canadian law.

[Evangelical Capitalist]

Canada's health care system is nationalized. This means there is one (or a few) buyers of drugs there, who buy in vast quantities. This gives them leverage, and that leverage has been used to negotiate purchase prices that are close to marginal manufacturing cost.

They don't "negotiate". Canada has a drug-pricing board (I don't remember the exact name of the board.) What they do is determine whether the prices being charged by drug-companies are "fair". If the prices are found to be too high, the company must pay a "refund" of the total amount by which they have overcharged. The "refund" is paid to the government, of course. (The article I read did not specify what happens when the price is found to be too low. ) If the company refuses to lower their price or pay the "refund" I can only assume that their patent protection is rescinded. This is price-control, not negotiation or leverage. (My wife works for a major drug company, so I follow these things pretty closely.)

As an aside, when a group of employees from my wife's company confronted a local congressman over his support for drug-reimportation at a "town hall" meeting on the topic, his response was, "I'll get re-elected anyway." Ah, democracy at work.

I mean, can you point to actual acts by the Canadian government which inescapably show that the drug companies have been threatened with a specific coercive action?

Q.E.D.

One more aside (this just keeps getting better and better.) One of the people who originally set up this board and served on it for a number of years now makes money advising drug-companies on how to price their product and make their case for "fairness". I taught them to twist your arm, now I'll teach you not to mind the pain.

Also note that the drug manufacturers do not have the same property right to the idea that they have to the product. The former right only exists by dint of a particular statute granting the patent-holder exclusive rights to exploit the idea for a specific period of time. So if you want to argue that Canada has threatened manufacturers with violation of their rights, you have to establish what those rights are under Canadian law.

Their rights don't exist unless the government grants them protection? Since when is government the source of any rights, intellectual or otherwise. Why isn't the property right the same in the idea as in the product? Isn't the purpose of law the protection of rights, not their creation?

[DavidOdden]

They don't "negotiate". Canada has a drug-pricing board (I don't remember the exact name of the board.) What they do is determine whether the prices being charged by drug-companies are "fair". If the prices are found to be too high, the company must pay a "refund" of the total amount by which they have overcharged. The "refund" is paid to the government, of course. (The article I read did not specify what happens when the price is found to be too low.)

If you're speaking authoritatively, with knowledge of Canadian legal specifics, that's certainly better that inventing a theory that the government uses its massive customer base to negotiate a lower price, as Kyle said. This is analogous to price controls on tobacco and alcohol in Ohio, where the state declares a minimum price (maximum prices are not an issue).

If the company refuses to lower their price or pay the "refund" I can only assume that their patent protection is rescinded. This is price-control, not negotiation or leverage. (My wife works for a major drug company, so I follow these things pretty closely.)

You aren't entitled to assume anything here: if you don't know, then you don't know. You can even reasonably assume that Canadian law specifies a fine for violating price regulations. Which is it? Whichever it is, it does not negate the fact that these drug manufacturing companies have no right to use government force to prevent me from doing with my personal property as I want, once I acquire such property. Their only proper recourse is to prevent me from acquiring the drugs, by refusing to sell to me. When I buy the stuff, it is mine, mine, all mine, to do with as I want.

Their rights don't exist unless the government grants them protection? Since when is government the source of any rights, intellectual or otherwise. Why isn't the property right the same in the idea as in the product? Isn't the purpose of law the protection of rights, not their creation?

That was a bit of a misstatement. The right to the idea exist as a floating abstraction which no specific consequences, until the specific nature of the right is secured by a law. The reasons for differentiating IP rights and ownership of goods are discussed in CUI in the chapter "Patents and Copyrights". Ideas cannot be consumed, physical books can. IP rights cannot be held in perpetuity, unlike physical property rights. Patents especially need to be restricted in scope because they infringe on other people's rights to act on their recognition of reality, and to enjoy the product of their mental effort.

[Evangelical Capitalist]

You aren't entitled to assume anything here: if you don't know, then you don't know. You can even reasonably assume that Canadian law specifies a fine for violating price regulations. Which is it? Whichever it is, it does not negate the fact that these drug manufacturing companies have no right to use government force to prevent me from doing with my personal property as I want, once I acquire such property.

Agreed... mostly. The information I have came from a local newspaper article. I didn't claim knowledge of anything that wasn't stated in the article, and I explicitly identified my assumptions. I very much doubt that any company has yet had the temerity to refuse to pay the fine or to lower their price (note that this is another assumption,) and so the consequences of such refusal may not be well defined. Those consequnces weren't mentioned in the article (this is not an assumption,) and so in considering the alternatives available to the drug companies, I must necessarily assume something. Since the power of the Canadian government over the drug companies rests ultimately in the government's protection or non-protection of property rights, my assumption, in fact the only reasonable assumption, was that ultimately, the cost of non-compliance would be the loss of such protection. I think I'm entitled to assume that much. Others are free to take my assumptions as just that and judge for themselves whether the assumption is warranted or not.

I do agree entirely that once you buy those drugs, they're yours to do with as you see fit. I don't like the argument against reimportation on safety grounds for the same reasons I don't like the FDA in the first place. It's the embodiment of the "nanny state." The problem is not reimportation; the problem is price controls.

[oaktree]

I understand the argument against price-controls. How about the legality of private price-fixing.

A good example here is text books. many US companies know that Indians will not be able to afford books at US prices. So, they sell "Eastern Economy Editions" at much cheaper prices. The books come with a warning that they are not to be sold outside India (or whatever country). Would this not be a valid condition of sale?

Would not the same apply to drugs, even without governmental price controls. In fact, many times a drug company will sell a drug really cheap in India because they know it will not sell at a higher price (technically, it will not sell enough volume).

In a way, Indian sales are being subsidized by US sales. At the same time, without the Indian sales, the US price would have to be higher still. so, Indian sales are also subsidizing the US sales.

[fifi]

From what I have heard, many billions of tax dollars are spent on university research that helps drug companies. If drug companies are to have the right to price their product at any price, shouldn't we first stop tax money from subsidizing them?

[Guest jrshep]

From what I have heard, many billions of tax dollars are spent on university research that helps drug companies. If drug companies are to have the right to price their product at any price, shouldn't we first stop tax money from subsidizing them?

<{POST_SNAPBACK}>

On the basis of such an argument, wouldn't you call for the total nationalization of all industry, all business, all property until there is a return to lassiez faire?

Most people get their "education" via the state's "education" monopoly. Does it follow that no one who has gotten such an education has a right to set the price of their own labor or products?

No. What we need is freedom, not more and more controls. Two wrongs don't make a right. Millions of them don't either.

[Evangelical Capitalist]

I understand the argument against price-controls. How about the legality of private price-fixing.

A good example here is text books. many US companies know that Indians will not be able to afford books at US prices.  So, they sell "Eastern Economy Editions" at much cheaper prices.  The books come with a warning that they are not to be sold outside India (or whatever country). Would this not be a valid condition of sale?

Would not the same apply to drugs, even without governmental price controls. In fact, many times a drug company will sell a drug really cheap in India because they know it will not sell at a higher price (technically, it will not sell enough volume).

In a way, Indian sales are being subsidized by US sales. At the same time, without the Indian sales, the US price would have to be higher still. so, Indian sales are also subsidizing the US sales.

Price-fixing is fine. No problem there. The difference is whether the price is set by the mutual, uncoerced agreement of buyer and seller, or whether it is dictated by the government. The conditions you cite are all perfectly legitimate.

And jrshep is absolutely right about the "subsidizing" of the drug industry. I'll go one step further and point out that for precisely that reason the government shouldn't be funding any scientific research. The same principle applies to art or any other activity that the government subsidizes.

[knuckles]

Sometime an industry gets so heavily regulated that certain people cannot get by within the rule of law. This is similar to what could happen to a country as a whole. Health care in the US is approaching such a state for some people.

I have heard of people who have resorted to "theft of healthcare" because the system has left them no realistic alternatives. Govenrment rules have caused health care to be priced way outside their range. These are not poor people, but people in special circumstances related to the nature of their employment or their immigration status.

Sometimes government rules get so bad that you are in a "lifeboat sitation". Then, you have to act accordingly.

[DavidOdden]

I have heard of people who have resorted to "theft of healthcare" because the system has left them no realistic alternatives. Govenrment rules have caused health care to be priced way outside their range. These are not poor people, but people in special circumstances related to the nature of their employment or their immigration status.

Sometimes government rules get so bad that you are in a "lifeboat sitation". Then, you have to act accordingly.

What government rules are you speaking of? There is no question that government interference has driven up the price of health insurance. But exactly how much of the cost of insurance can clearly be attributed to government rules, and how much is because the quality of healthcare has improved dramatically, what with all of those miraculous machines.

Before you contemplate stealing medical services, or a loaf of bread, and rationalising it because the government regulates something, you should take careful stock of what exactly you spend your money on.

[Yes]

The FDA banning the importation of drugs from Canada is yet another example of the government regulating what is supposed to be "free trade."

We'll feel it in our wallets!

I'm against the FDA doing this.

[ex_banana-eater]

These prices don't cover the research costs mentioned above. The pharmaceutical companies can't raise their prices in Canada or refuse to sell into the market because of the danger that the Canadian government will simply ignore their patent on the drug and start manufacturing a generic version themselves. (This has apparently happened in the past.)

If the company refuses to lower their price or pay the "refund" I can only assume that their patent protection is rescinded.

To those saying that Canada directly violates medical patents are incorrect. What company would invest here if a country steals from them? China has this problem, Canada dosn't--we're a patent respecting country.

There is no nationalized system of buying prescription drugs, however one may be in the works. The premiers of the provinces had a delegation and discussed pressuring Ottawa to make a national "bulk buying" pharmacare program in order to drop costs even further. Right now it is generally regional or provincial governments which purchase the drugs.

[knuckles]

What government rules are you speaking of? There is no question that government interference has driven up the price of health insurance. But exactly how much of the cost of insurance can clearly be attributed to government rules, and how much is because the quality of healthcare has improved dramatically, what with all of those miraculous machines.

In most areas in the US, if you go to a hospital it appears that a lot of doctors are from abroad. Actually, the doctor's union (AMA) has been the only one that has made the government impose extremely strict immigration controls on members of its profession. For a doctor to immigrate to the US is far more complex than for a computer programmer.

Tax laws have moved the bulk of the working population toward a system of middle-man payments. Though we call this "medical insurance" in the US, it is not insurance. Insurance is something one calls upon in emergencies. The middle-man systems has greatly reduced the free market system where consumers "ration" their helth care. Other government regulation -- e.g. forcing emergency rooms to treat all non-emergencies that present themselves, regardless of ability to pay, has meant that those costs are billed to people who offer to pay.

The middle-man system has also introduced pricing where the middleman negotiates different rates. This would be fine if this were a market-driven system of middle-men, but not in the current system. A hospital bill for a few nights could work out to $20,000. But, a middleman ("insurance" company) would usually end up paying less than half.

The middleman system has altered the landscape so much that many doctors will refuse to handle a patient to walks in without insurance and offers to pay cash.

[Evangelical Capitalist]

The FDA banning the importation of drugs from Canada is yet another example of the government regulating what is supposed to be "free trade."

There was a bill introduced in Congress at some point (it may still be alive, I don't know for sure) that would have legalized drug reimportation. At the same time it would have prohibited drug manufacturers from reducing their shipments to Canada. That isn't "free trade," it's "forced trade." Remind anyone of directive 10-289?

To those saying that Canada directly violates medical patents are incorrect. What company would invest here if a country steals from them? China has this problem, Canada dosn't--we're a patent respecting country.

There is no nationalized system of buying prescription drugs, however one may be in the works. The premiers of the provinces had a delegation and discussed pressuring Ottawa to make a national "bulk buying" pharmacare program in order to drop costs even further.  Right now it is generally regional or provincial governments which purchase the drugs.

I have not claimed that Canada has refused to enforce any patent, much less that it arbitrarily or comprehensively ignores such patents. However, I'm not inventing the fact that Canada does impose price-controls on prescription drugs. What means have they, ultimately, of enforcing those controls except by the withdrawl of patent protection? They could start seizing the company's products, or forbid them to conduct business at all, but that would hurt their own citizens who wish to purchase those drugs more than the companies themselves. The companies can sell their product elsewhere. The patients have no alternate source of medication... unless the government withdraws patent protection. Regardless of whether the patent is enforced or not, the enforcement of price-controls by any means constitutes a substantial violation of property rights.

You are correct in that the price controls would reduce the incentive for other generic manufacturers to move into a market and begin producing a product in the event the original manufacturer was prohibited from selling or refused to sell their product. The drug companies ought to figure out that the Canadian government needs them a lot more than they need Canada and pull a Galt: withdraw the sanction of the victim.

For the record, I'll repeat again: I don't like the FDA for a host of reasons, and I certainly can't support the prohibition of drug importation on supposed "safety" grounds, or really on any grounds for that matter. (Isn't that kind of insulting to the Canadians? Like they're a third-world country or something.) However, neither can I support those who wish to gain unearned benefits by taking advantage of the price-controls imposed by the Canadian government. The problem is not importation, per se, it's price-controls.

[DavidOdden]

To those saying that Canada directly violates medical patents are incorrect.

We need more light and less smoke, so here, I think, is a bit of light. The Patent Act in Canada was amended in 1987 to install this system, resulting in the creation of the Patented Medicine Prices Review Board. That board has the power to determine what is a legal price, and exercises that power for any drugs patented in Canada. It has no control at all over non-patented drugs. The law states that the board has the right to order the manufacturer to reduce the price if the price is held to be "excessive", and/or to pay a fine (Section 83). Section 85 addresses the validity of using research costs to judge whether a price is "excessive", basically saying that prices cannot be set to cover more than "Canada's share" of development costs. The law does not allow a patent to be cancelled or in any way violates for excessive pricing, and from what I can tell, even in the face of a pricing violation, the law does not allow removal of patent protection.

The two legla methods of enforcing the controls are (1) imposition of a fine and (2) ordering a reduction in price. The penalty for violation of section 83, by a corporation, is no more than $100,000. (And presumably that is in addition to the ordered price reduction) -- apparently the Patented Medicine Prices Review Board has tribunal power.

When the court orders the payment of a fine, of course, violating that order does raise the ante significantly, and I imagine that the court's power to enforce an order is pretty unlimited, just as it is in the US. So that could easily include confiscation of corporate assets. Whether or not the Patented Medicine Prices Review Board has the direct power to seize assets or has to go through another court is a topic for research. I think it's immaterial whether enforcement is direct or indirect, because the order will be enforced one way or the other.