Prescription Drug Reimportation: Some Forgotten Fundamentals

May 06, 2004


Dr. Russell Roberts
Professor of Economics
George Mason University

Dr. Jerry Ellig
Senior Research Fellow
Mercatus Center at George Mason University

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Constituent complaints about prescription drug prices are common in congressional offices.  Although purchasing prescription drugs outside the United States and bringing them home is often illegal, that does not stop many Americans from considering obtaining their prescription drugs from foreign sources as a low-cost alternative to the domestic market.

Some have proposed legalizing the reimportation of prescription drugs in order to lower their costs for Americans, particularly for the senior community.  Proponents argue that the drug companies’ practice of charging different prices in different countries is unfair to the American consumer.  Opponents counter that legalizing reimportation would import price controls from other countries and would stifle innovation.

What are the economic implications of this policy?  What will happen to prescription drug prices in the United States if reimportation is legalized?  By providing an economic framework for understanding drug reimportation, this seminar will give staffers a foundation of economic theory that will allow them to better analyze this complicated and politically-charged issue.

Participants will address such questions as:

  • Why do prescription drug prices vary across the world?  Why do American consumers pay higher prices than consumers in some other countries?
  • How would reimportation affect innovation and the development of new drugs?
  • Can prescription drugs be made more affordable without stifling innovation?
  • Would the traditional consumer benefits of free trade – lower prices and greater variety – occur if reimportation were legal?
  • Would reimportation “import” other countries’ pharmaceutical price controls?
  • How do firms in other industries survive without bans on “reimportation” of their products?