Drug Pricing: The root cause of the internet pharmacy debacle

Most Americans buy medicines from overseas online medicine sellers because they are cheaper. Some of these people just don’t want to pay a “fair” amount others are simply unable to afford what they require. Proper pricing of medicines is difficult. Developing effective medicines requires years of research and even longer amounts of testing, yet for most products the cost of production is low. So pricing on average has to be orders of magnitude above marginal cost in order to recoup research costs. In principle low production costs means companies should be able to tier their prices based on ability to pay, amongst other factors. This is both equitable and efficient. See here for more details.

The US is quite unusual in allowing the market to set some medicine prices. Most other nations, such as Canada, cap prices and hence average prices are cheaper than in US – this is inefficient and overall inequitable. The products are the same and so, quite naturally, some US patients, especially those paying out of pocket, would prefer to pay Canadian or other nations capped pricing. And before internet pharmacies existed busloads of Americans went over the border to buy their medicines. Today millions do it via the web.

One problem is that this is illegal (even though US FDA currently ignores the law for limited personal importation of prescription medicines). The main reason it arguably should be illegal is economic, since such importation probably undermines differential pricing that should exist. It can also pose risks, since foreign web sellers might sell dangerous products, whereas products through certified domestic web sites presumably would use “safe” products from within the FDA overseen regular US supply chain.

But while nations like Canada and Europe do not allow free pricing of medicines, US itself does not differentiate prices effectively. In the main few worry about this because insurance companies cover the immediate costs and negotiate often lower rates (based on buying power rather than means testing based on income). The result is that many uninsured or underinsured patients, who have no negotiating power, end up paying very high prices, or go without their medication.

I have been looking at the market for poor quality medicine for nearly a decade. When I first sampled medicines bought over the internet I assumed I’d find major problems. The reality was that I didn’t, especially from US and foreign sites credentialed by groups like
www.pharmacychecker.com. The most comprehensive of my peer review studies was published by BEJEAP earlier this year.

Because I had taken strong positions against poor quality medicines prior to my research on internet pharmacies, some in industry were surprised by my findings and statements that buying from such sites was fairly safe. Some assumed I was even being funded by PharmacyChecker, or the Canadian Internet Pharmacy Association, or some of the Canadian pharmacies. One industry-backed group even recklessly made the claim to the Associated Press, which I refuted to AP’s reporter and do so now publicly.

The sides in this battle have become even more entrenched than a few years ago. The drugs industry and its allies have the best of the legal arguments, and groups like PharmacyChecker often have the best of the public health case (I say “often” because “Canadian” internet pharmacies often sell globally-sourced products that are not registered in Canada, and some sites possibly mislead consumers into thinking they are Canadian approved products – my recent research has shown that
India has increasing problems controlling the quality of products leaving its shores and many credentialed internet pharmacies sell products from India).

I can see the merits of both the legal/business and public health arguments. Unfortunately most people arguing in this space only care about one of these issues, regardless of their public pronouncements.

As usual law trumps public health and I suspect soon that the US authorities will pressure Canada’s credentialed internet pharmacy business to close. This may make a few patients safer, it will also expose millions looking for cheaper medicines to source from non-credentialed sites, or go without. From a narrow legal perspective this is the right result. It is bad for the rule of law to have laws that are not enforced.

The public health advocate in me is dismayed at this outcome. The pricing of medicines in America is a mess, and since consumers have no choice about what generic medicines they take (and not all generics are equal), there is sure to be anger at effectively outlawing credentialed pharmacies, which increase choice.

Industry will probably achieve a legal win, but they may face a revolution in drug pricing and consumer choice. The status quo sucks. It has enabled a flourishing and arguably necessary illegal internet market. Until industry and political leaders work out how to price medicines and increase consumer choice they risk such a revolution.

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