Drug cost dilemma.

Byline: The Register-Guard

Allowing Americans - and cash-strapped government medical programs - to save money by purchasing lower-cost prescription drugs from Canada seems like a no- brainer.

Everyone knows that most brand-name U.S. drugs are far cheaper in Canada. The public is clamoring for the right to shop for the best price. Gov. Ted Kulongoski has joined officials from 20 other states in asking Health and Human Services Secretary Tommy Thompson to allow states to import prescription drugs from Canada.

Sensing there has been a turn in the tides, Thompson recently signaled a sea change in the Bush administration's long-standing opposition to legalizing prescription drug imports. Thompson told reporters drug importation was inevitable and that he would advise President Bush not to oppose legislation making its way through Congress that would authorize imports.

But the promise of cheaper drugs comes with a "be careful what you wish for" clause. As Congress considers drug import legislation, lawmakers should heed the physician's prescription to "first do no harm."

Drug pricing is a complex multinational issue. Despite relatively low manufacturing and distribution costs, U.S. pharmaceutical companies must shoulder staggering research and development expenses to meet the federal Food and Drug Administration's safety and efficacy standards. The FDA standards are respected worldwide, and the U.S. now conducts most of the world's drug R&D.

Once a new drug is deemed safe and effective - a process that can take years - drug companies protect their formula with patents and launch an international marketing campaign. This is where pricing and politics get tangled.

Socialized health systems in Canada and Europe impose price controls on prescription drugs. As a result, American drug manufacturers have to recoup the bulk of their huge R&D and marketing costs in the domestic market, because they end up selling to foreign governments below cost. When it comes to prescription drugs, Americans underwrite a significant portion of the health-care costs of the rest of the world.

The rationale for the existing ban on reimportation has been that bringing below-cost drugs back into the U.S. market imports foreign price controls. Canadian pharmacies add insult to injury by taking the drugs they purchase below cost from U.S. companies, marking up the prices and selling them back into the U.S. market at a profit.

It doesn't take a Harvard MBA to grasp the consequences of allowing unrestricted access by Canada's price-controlled, below-cost market to the profitable above-cost U.S. market. Domestic pricing would be destroyed, and along with it the financial support for future R&D.

Even the drug industry's harshest critics don't want to throw away prospects for future miracle drugs just to reap short-term savings on today's prescriptions. That leads to suggestions of some form of free-market approach as an alternative to reimportation.

What would happen if U.S. drug companies told countries with price controls that American drugs would no longer be available at below-cost prices? If prices could be adjusted upward for foreign customers, they could be lowered in the United States, reducing the threat of unbalanced reimportation.

But Canada and Europe's socialized health care systems also are buckling under the weight of skyrocketing costs and burgeoning bureaucracies. Foreign governments would resist higher prices, or simply refuse to pay them. They'll either let their citizens go without access to U.S. drugs, or they'll stop honoring American patents and steal the drug formulas.

Yet it's highly unlikely that foreign citizens will accept being cut off from vital U.S. drugs. And if foreign governments try to seize drug patents, they'll be in violation of powerful treaties protecting intellectual property.

Two bills in Congress seek to address the drug import dilemma. A bipartisan proposal in the Senate prohibits American companies from "taking actions that would have the effect of thwarting drug importation." Such actions would include raising prices or reducing supplies abroad. Prohibiting U.S. companies from raising prices to foreign customers compounds the problems caused by reimportation of a price-controlled product, in effect controlling the price at both ends.

It would produce lower drug prices for Americans, but the hidden cost may be a substantial reduction in future R&D efforts. Furthermore, how does a Congress that wouldn't be caught dead approving domestic price controls on drugs justify this approach?

The better of the two bills was passed last year by the House. It leaves it to U.S. drug companies and their foreign customers - in other words, to the marketplace - to resolve the issue of what price should be paid for continued access to U.S. drugs. The House bill also would result in lower drug prices, but it at least leaves open the possibility that foreign customers would finally pay a fairer share of the true cost of the high-quality drugs they purchase from the U.S.