The Importation of Prescription Drugs
By Pierre Lemieux
We just learned that Trump-appointed FDA Commissioner Scott Gottlieb is leaving the agency, apparently for family reasons (“FDA Chief Scott Gottlieb to Leave Agency,” Wall Street Journal, March 5, 2019). Friends of liberty won’t miss him, except of course if his replacement is worse.
Gottlieb’s latest display of his “visible fist” (to borrow an expression that the late Murray Rothbard opposed to the “invisible hand” of the market) was on the importation of prescription drugs, just a few days ago (“Canadian Drug Distributor Targeting U.S. City, County Employees Gets FDA Warning Shot,” February 28, 2019):
The Food and Drug Administration sent a warning letter to CanaRx, a Canadian company that makes low-cost prescription drugs available to employees of as many as 500 U.S. towns, cities and school districts.
Through the action, the FDA is venturing deeper into a debate over the high cost of prescription drugs in the U.S. The agency said that CanaRx’s “activities cause the introduction of unapproved new drugs and misbranded drugs into interstate commerce,” in violation of U.S. law.
Foreign welfare states cap the prices of prescription drugs in order to reduce the expenditures of their health insurance schemes. Eschewing sales of products for which the marginal cost is very low would not maximize profits, so drug companies price-discriminate and accept from foreign customers much lower prices than from US consumers and insurers. This price-discrimination system can only work to the extent that the US government effectively prevents the importation (or reimportation) of low-priced drugs. If imports were not severely limited, drug prices would drop in the US and increase in foreign countries.
The FDA’s official justification for controlling imports is to protect consumers from themselves, as the Wall Street Journal story explains:
FDA officials see the matter as one of safety, saying they cannot ensure the purity of drugs brought into the U.S. …
FDA Commissioner Scott Gottlieb said the agency is protecting consumers in its action. …
But the FDA is adamant about the CanaRx case. “We urge employers and any enrolled employees not to use any medicines from CanaRx,” Dr. Gottlieb said. “The FDA will pursue additional enforcement actions as needed.”
It is not clear at all that importation or re-importation of prescription drugs should be banned. First, even if you believe in the nanny-state justification, the government could be content with providing information to consumers as to which drugs it deems safe.
Second, the intellectual-property justification is not obvious either—especially in the context of the US government’s continuous push to extend the definition of intellectual property, extend patents length, and criminalize infringements, including through trade agreements. Enforcing the pharmaceutical companies’ intellectual property requires intruding on the property-like rights of Americans to buy prescription drugs from foreigners who have previously purchase them.
A third, related, reason is more general. The idea is that the pursuit by the state of ends that require the use of unacceptable means is itself unacceptable, as F.A. Hayek argued (notably in the first volume of his trilogy Law, Legislation, and Liberty). The state should protect property rights only with acceptable means. Indiscriminately sniffing people’s luggage or shipments at borders or other checkpoints certainly looks unacceptable in a free society. It is strange that the 4th Amendment offers no protection against this sort of enforcement.
Exceptions to this limitation of state power should arguably be available in special or extreme cases—like combatting trade in stolen goods with proper search warrants when probable cause exists. But it is unlikely that trade in prescription drugs that have already been sold voluntary and paid for should fall among these exceptions. The presumption is that trade, foreign as domestic, should be left free. Producers who want to price-discriminate should be free to do so, but should not expect the assistance of the state. Like software programmers, they should find private ways to keep control on what they claim is theirs, if they can.
My numerous “should” refer to value judgments. Welfare economics has shown that any government intervention ultimately requires some value judgment. (For an overview, see my “Social Welfare, State Intervention, and Value Judgments,” The Independent Review, Summer 2006.)