UF sources available to comment on pending federal drug trade agreement

July 14, 2004

GAINESVILLE, Fla. — Congress is considering a wide-ranging international trade agreement allowing pharmaceutical companies to prevent the import of prescription drugs to the United States. The following University of Florida sources are available to comment on the agreement, which is expected to be approved within the next two weeks.

“This is just another in a series of moves on the part of the current administration to run from the real problem, and that is the exorbitant prices U.S. drug manufacturers are charging the American people,” said Paul Doering, a UF distinguished service professor of pharmacy practice who co-directs UF’s Drug Information and Pharmacy Resource Center.

“In Washington, we often hear the term P.C. meaning ‘politically correct.’ More and more it is looking like the solution to the problem of high-cost medications is also P.C., only this time it means ‘price controls.’ I can’t see where this legislation will do anything other than protect the drug companies from competition from abroad, said Doering, who recently testified at a U.S. House of Representatives subcommittee hearing aimed at developing strategies to prevent prescription drug abuse.

Michael W. Gordon, a UF professor of law and an expert in international business and trade law, says: “I tend to think that any restriction on re-importation of a product is unsound and clearly not in the best interests of consumers. Trade agreements are supposed to open trade, not limit its direction to one-way traffic.

“The proposed agreement essentially assures that U.S. citizens will continue to pay high prices for drugs and thereby subsidize many foreigners buying those same drugs at very much lower prices. It might be considered a foreign-aid proposal, but usually aid goes to developing nations,” said Gordon, the Chesterfield Smith Professor of Law and a member of the NAFTA and WTO trade panel rosters.

“This will aid Australians, including the most-wealthy Australians. I suspect it is partly the result of the fairly successful re-export from Canada of prescription drugs. But with e-commerce it will be difficult to enforce. Having such disparate prices for any goods, whether it is Mercedes cars or Merck drugs, encourages middlemen to enter and shift goods from the nations where the price is low to the nation where the price is high.”

Bruce Vogel, a health economist with UF’s College of Medicine who can comment about drug pricing, says: “The crux of this trade dispute is the ability of pharmaceutical companies to engage in price discrimination, that is, charging different countries different prices for drugs that are more or less identical in production costs. Their ability to engage in price discrimination, which increases their profits, is critically dependent on their ability to segment markets, in this case, through laws prohibiting re-importation,” he said.

“Whether reducing price discrimination is good or bad from an economic perspective is very dependent upon profit levels in the pharmaceutical industry. If pharmaceutical profits are above risk-adjusted ‘normal’ profits, then prices can be reduced without affecting the incentive for innovation. On the other hand, if pharmaceutical profits represent an appropriate return to massive, risky R&D expenditures, then reducing profits through allowing re-importation will reduce incentives and the flow of new drugs.”