Cheaper drugs from Canada may sound like a good idea for consumers, but in the long run they would cost Massachusetts jobs. A study from the Beacon Hill Institute at Suffolk University for the Institute for Policy Innovation finds that proposals to lift the drug reimportation ban would destroy 3,957 jobs in Massachusetts over the first six years.

Moreover, if the ban takes effect this year, the state would bear $247 million (in 2000 dollars) annually in lost economic activity by 2010.With its growing biotech sector, Massachusetts presents a particularly interesting case study. Not only is the Bay State home to some of the most vociferous advocates of reimportation such as the mayor of Boston, civic leaders in Springfield and Senator John F. Kerry, but it also garners nearly 10% of the nation’s pharmaceutical and biotech research and development dollars.

But the reimportation debate is an end-around. Reimportation allows proponents to say publicly that they oppose domestic price controls while bringing them in through the back door. Removing the ban on reimportation of drugs would mean re-importing price controls that translate into lower prices for consumers in the short run but also limited access in the long run. It would also stifle R&D in high-tech states like Massachusetts.

At a well-attended press conference in September, researchers from BHI outlined the job losses should the drug reimportation ban be lifted.

One week after the release of the report, legislative supporters of re-importation criticized the BHI study. However, BHI was quick to respond to the critique at a press conference held by Sen. Jarriet Barrios and Rep. Deborah Blumer at the State House. BHI argued that the pro-importation group’s claim that drug companies would benefit as a result of cheaper drugs was based on faulty analysis.

The complex, highly-regulated drug development process is extremely costly, and most drugs fail to win approval. The few drugs that do make it to the marketplace must earn enough to pay for R&D for the majority that do not. Reimportation would shrink the pipeline for new prescription drugs by reducing the ability of companies to recover their investment in R&D. In the 12 years following the implementation of reimportation, R&D spending by pharmaceutical and biotechnology firms would fall by $14.8 billion, in net present value terms. Reimportation would also lead to the abandonment of an estimated 262 additional drugs.

While reimportation rewards consumers with lower costs for drugs already available, it reduces the flow of new drugs and treatments entering the marketplace each year. This short-sighted policy could have long-term negative consequences for Massachusetts economy and public health.

The release of the BHI study enabled the Institute to become one of the sources of information on the issue across the U.S.. A report by the pro-labor union Center for Economic and Policy Research called for the elimination of drug patents and the assumption of all drug industry research by the federal government resulting in a savings of $140 billion. “To be kind,’’ BHI’s John Barrett told the Boston Herald, ``I’d say (the report) is pretty naive.’’

As with most proposals to regulate or impose price controls, plans for reimporting drugs promise an economic free lunch. As economists know consumers will most likely pay the costs of such ill-advised policies.

Drug reimportation is not a long-term solution and would cost jobs in one of the state’s emerging sectors that could result in the offshoring of some aspects of the drug development process to lower cost high-tech nations such as China and India.

Posted on 01-Dec-2004 9:58 AM