**Statement of Pete Sepp**

**Vice President for Communications, National Taxpayers Union**

**before the**

**Public Meeting of U.S. Department of Health and Human Services, Food
and Drug Administration and Task Force on Drug Importation**

**Docket \# 2004N-0015**

**April 14, 2004**

On behalf of the 350,000 members of National Taxpayers Union (NTU), I am
most grateful to members of the Task Force and the Food and Drug
Administration for the opportunity to offer comments on proposals to
allow for importation or reimportation of prescription drugs into the
United States. As a nonprofit, nonpartisan citizen organization founded
in 1969, NTU has long opposed certain government laws and regulations
that would manipulate free-market innovation, including price controls,
rationing, and weakened patent protections. Importation proposals are
only the latest in this long line of burdensome mechanisms. In our view,
importation is fraught with fiscally and economically detrimental
consequences for taxpayers and consumers alike.

**The cost savings from importation may not be as great as advocates
suggest.** In November 2003 NTU studied the cost-saving claims behind
Illinois Governor Rod Blagojevich's plan to import or re-import
prescription drugs from Canada for use by state government employees and
retirees.

Using data from the nationally-respected Congressional Budget Office
(CBO), NTU analysts determined the possible savings from Blagojevich's
plan to be in a range from 0 to 0.8 percent, not the 39 percent depicted
in the study commissioned by the Governor. These paltry savings
translate to a mere 99 cents per enrollee per month (based on the number
of workers and retirees in the Illinois State Employees' Group Health
Insurance Program).

The zero savings minimum is based on CBO's first analysis (July 22,
2003), which determined that Canadian imports would not produce any
significant savings to consumers or taxpayers on a nationwide basis. The
0.8 percent maximum comes from an October 14, 2003 report estimating
that total savings from a national reimportation bill (from Canada and
24 other countries), for all payers (both government and private), would
be only \$40.4 billion over a 2004-2013 scoring window.[^1]

Although advocates of importation may cite their own analyses, NTU's
research suggests that at a minimum, the implementation of such a plan
nationwide could fall far short of the savings expectations from
consumers. Worse, other costs associated with this proposal could prove
much more damaging.

**Importation would starve U.S. drug innovators of the vital capital
they need to continue their role as world leaders in providing
cutting-edge cures.** Importing drugs at a price set by some other
country would be, quite simply, a way to rob the pharmaceutical
companies of revenue needed to fund research. However cheap it is to
manufacture pills, private firms first undertake a tremendous financial
gamble in order to formulate a drug breakthrough. According to the Tufts
Center for the Study of Drug Development, a drug's formula costs
pharmaceutical companies an average of \$800 million, with a typical
development and approval time of 14 years. For just one drug to be
approved by the Food and Drug Administration, a company typically needs
to screen between 5,000 and 10,000 compounds.

In a truly free-market economy, these long odds only make sense because
risk-takers can reap the rewards when their hard work pays off. Far from
being a cure-all, importation would allow the failed socialist policies
of free-loading foreign nations to invade America, the last major island
of pricing freedom (and health care innovation) in the world.

**The free-market drug development environment, unique to the U.S.,
already yields substantial savings to taxpayers and consumers**.
American drug breakthroughs have had a documented effect in lowering
other health care costs, for example by shortening hospital stays and
obviating the need for expensive surgeries.

A study by NTU Adjunct Scholars William Orzechowski, Ph.D. and Robert C.
Walker provides a great deal of research to support the notion that
innovative drugs can control costs in state and federal programs over
the long term, and increase productivity throughout the economy because
of better worker health. According to the authors:

\[E\]conomist Frank Lichtenberg has found that hospital time and
surgical procedures declined fastest for patients with the greatest
increase in the total number of drugs prescribed and with greater
utilization of new drugs. ... A \$1 increase in pharmaceutical
expenditures is associated with approximately a \$4 reduction in other
health expenditures. Incredibly, he found that 'in the absence of
pharmaceutical innovation there would be no increase and perhaps a
decrease in mean age at death. A one-time \$15 billion expenditure of
drug R&D subsequently saves about 1.6 million life years per year whose
annual value is about \$27 billion.'[^2]

Unless the American tradition of free markets -- which rewards
risk-takers for products that benefit society -- is upheld now, these
cost savings could soon be a thing of the past.

**Conclusion -- Don't Import Price Controls.** Instead of writing bogus
bureaucratic prescriptions for health care reform, policymakers should
pursue pro-taxpayer options, like wider availability for medical expense
deductions and tax credits for the uninsured. The proven-successful
concept of "Health Savings Accounts" should also make a more substantive
contribution toward reform.

Furthermore, private and public entities could contain costs without
risking patients, through "disease management" strategies that reduce
non-drug health costs like hospitalization and surgery with
closely-monitored long-term pharmaceutical therapies. Our November 2003
study cites two of many cases -- the PacifiCare Health Systems
initiatives for renal and heart disease and the "CarePatterns" Disease
Management Program for diabetes -- that demonstrate the viability of
consumer-based alternatives to importation schemes.

Americans won't get a "second chance" if prescription drug importation
proposals undermine the cost savings and cures that our nation's
unrivalled free-market approach to medical development currently
provides. For this reason alone, policymakers have a special obligation
to avoid all of the reckless and politically-shortsighted importation
plans. In doing so, they will protect the well-being of taxpayers and
patients.

Once again, I appreciate the opportunity to furnish our views, and will
gladly answer any questions that members of the Task Force or the Food
and Drug Administration may have.

[^1]: For further findings, consult National Taxpayers Union Issue Brief
    147, *Planning to Fail: The Illinois-Canadian Drug Plan*, November
    3, 2003, available at www.ntu.org.

[^2]: For further findings, consult William Orzechowski, Ph.D. and
    Robert C. Walker, *Stealing Innovation: How Congress's Assault on
    Patent Laws Sacrifices Miracle Cures for Cheap Pills*, September
    2002, available at www.ntu.org.