Governor Doyle is actively promoting the drug reimportation solution to high drug prices. He is either oblivious or indifferent to the fact this is a classic Goose that Laid the Golden Eggs blunder. In the words of the Congressional Budget Office, “permitting the importation of foreign-distributed prescription drugs would produce at most a modest reduction in prescription drug spending in the United States”. The reason for pricing differences is because there is almost no free market in the pharmaceutical market.
Cato Institute: First, when drug companies look at the world they see essentially one free market—America. Here they can set prices at levels that aim at maximizing profits. In the rest of the world, companies tell us, socialized medical systems set prices: "monopsony" buyers make take-it-or-leave-it offers. Because a company's marginal cost for the second pill is so low, as noted earlier, it can accept those offers and still come out ahead. But it can do so only because it has America—half the world market—to fall back on.
Drug Reimportation: The reason many drug prices are lower in Canada is their government-imposed price controls. And when we reimport Canadian drugs — whether made in the United States or elsewhere — we import Canadian price controls.
Although Americans frequently pay higher prices for brand-name drugs, they often pay much lower prices for generics and over-the-counter (OTC) drugs. … So why do Canadians pay less than we do for brand-name drugs, but more for generics? Since brand-name drugs are principally produced by foreign manufacturers, the Canadian government willingly imposes strict price controls that benefit Canadian consumers. In the generic market, however, Canadian producers dominate. Through regulation, therefore, the Canadian government protects its generic producers from lower-priced American competitors — at the expense of its own citizens. Where it has no domestic producers (for example, brand-name drugs), it flexes its muscle to push prices down.
