The green is at the core of friction over gray market


Lois Gazvoda, a 65-year-old grandmother, moved her first gray-market drug shipment across the U.S.-Canadian border last spring.

The cargo was: Lipitor for her cholesterol, Naproxen for her arthritis, Glucophage and Glyburide for her diabetes, Atenolol for her blood pressure and K-Dur for her potassium.

By driving to Ontario from her home in Canonsburg, Pa., on a sortie organized by the Alliance for Retired Americans, Lois says, she paid $280 for three month's worth of pills that would have cost $975 in the United States. She had no insurance at the time.

She and her husband, Joe, a retired LTV Corp. steel worker, had adjusted gross income last year of $17,076, according to their tax return. On an income of $17,076, an annual pill outlay of $3,900 is what accountants like to call "material," and so is a three-month savings of $695.

The Food and Drug Administration has said it believes that importing drugs intended by manufacturers for sale in Canada is illegal, even by people such as the Gazvodas.

When the Gazvodas stopped their 1996 Ford pickup at the border on the way home, the U.S. customs agent looked under the cap in back and then walked over to Joe and said, "Where you going?" Lois recalls.

"Home," said Joe.

"What were you doing in Canada?" said the guard.

"We came up for her prescriptions," said Joe.

The guard, who presumably was seeing more and more of this, waved them through.

Federal officials say they are unlikely to prosecute individuals importing small amounts of prescription drugs for their own use. The feds mainly threaten the Internet dealers and insurers who buy cross-border.

But the mere hint that the sovereign power would move against people such as the Gazvodas bespeaks a big policy dilemma, at least, in a country noted for freedom.

The FDA and GlaxoSmith- Kline, a large drug-maker that threatened to cut off Canadian dealers who supply U.S. customers, say the flow of foreign pharmaceuticals into the United States is a safety issue. How do we know the pills are genuine?

Sometimes when people say it's not about the money, it really isn't. This isn't one of those times. The drug-import dispute is not about safety. It's about the Benjamins or, to be more precise, many, many Woodrows ($100,000 bills).

Because Canada and many other nations regulate drug prices to keep them affordable and the United States doesn't, pharmaceutical companies make the bulk of their profits here. Attacking the cross-border gray market protects corporate earnings by forcing people to pay U.S. sticker price instead of the lower rates required by foreign governments.

Even free marketeers who know big profits create incentives for great medicines and who believe Canadian price regulation is property confiscation might agree that, for certain medicines at certain prices, pharmaceutial companies could do potential customers an injustice.

But even without drug-price controls, health care hasn't been a free market for 40 years and never will be. Drug development is heavily subsidized by U.S. taxpayers. The cost of most health care is paid not by the patient but by insurers, employers and government, which leads to huge over-consumption.

Ideal markets require perfect knowledge among economic agents. But drug consumers are in the dark, unable to understand the technology, bamboozled by TV ads and swayed by authority figures who are often paid to prescribe pills that may work 10 percent better than the over-the-counter alternative but cost 10 times as much.

It's not really a free market, either, when your doctor says you have cancer and must take Aromasin at $200 a month or die. When you have your health you have everything, the cliche says, and drug companies have found that, to have everything, people will pay almost anything. Inelastic demand, the trained professionals call it.

The problem will be addressed politically, of course, first with a Medicare drug benefit, perhaps a leash on the trial lawyers at some point and later tough price controls and maybe re-regulated drug ads.

The great danger is that the government will go too far, turning the drug business into something like the nursing-home trade, which gasps on thin profits, lurches from crisis to crisis and doesn't deliver a very good product. Canada hasn't produced many miracle drugs lately, but it's still the dealer of choice for the Gazvodas.

They have insurance now, but the plan limits drug coverage and they intend to head north soon, this time with prescriptions for a year's worth of pills.

They're also boycotting GlaxoSmithKline. "Don't buy their toothpaste," Lois says.

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