Today's R1 bait is here:

http://www.skepticalraptor.com/skepticalraptorblog.php/import-canadian-drugs-another-half-baked-idea/

He correctly attacks Bernie drug import proposal, but for reasons that are weak.

Nice ideal, but it’s not reality. The citizens of the USA are actually subsidizing the health care systems of other countries by paying the costs of drug development, investment in manufacturing, and other substantial items in higher prices. There seems to be numerous tropes that new drugs fall on the lap of Big Pharma execs who make billions out of it. If only it were true.

He is correct here that the U.S spends substantially more on drug research than the rest of the world (accounting for around 50 percent of global research spending). See, http://jamanetwork.com/journals/jama/fullarticle/2089358?__hstc=114829016.debc8575bac5a80cf7e168316af0c9bb.1464393600105.1464393600106.1464393600107.1&__hssc=114829016.1.1464393600108&__hsfp=1314462730

But he misjudges the effects that price controls on patented drugs have on research. Research on drugs is an area of investment that produces large positive externalities. Patents and similar mechanisms are an attempt by governments to cause these externalities to be internalised by allowing the drug company to charge something that approximates the consumer surplus of the drug. A price control on drugs, or the expectation of future price controls, would be to offset this effect. The effect of a price control, would therefore, not be to shift the cost of research to U.S consumers, but would be to cause research not to be conducted at all. See this article on the effects that price controls can have on R&D levels http://slatestarcodex.com/2016/09/07/reverse-voxsplaining-brand-name-drugs/

Note that the consumer surplus that could be collected from U.S consumers is the same regardless of the patent or drug pricing the Canadians have. And because the patent holder is a monopolist they have an incentive to charge at the level that maximizes the portion of the consumer surplus they can capture, instead of some kind of cost-plus pricing (there have been a few recent good R1s on this subject) .

So, a price control enacted by a foreign government (in a market that does not allow cross border imports) would harm American consumers by reducing drug development, but would not meaningfully adjust the prices that American consumers pay.

This hits at the core of why allowing drug imports of the type that Bernie wants would be a bad idea. It would in effect transfer the price control that Canada has over to America, and would therefore depress drug R&D levels -- which as the above linked SSC article shows would be bad for consumers.

My concern about pushing down prices in the USA (which will push up prices in those countries that get their socialized medicine on the backs of Americans) is that we’ll lose this investment in R&D to other countries. They’re going to argue “if we’re paying more, then you develop and manufacture it here.”

The location of the drug research, and the payment for it through the patent system are fairly disconnected issues. The location a drug company conducts research is set by things like the quality of the researchers that can be hired and other elements that contribute to the cost effectiveness of research. There is nothing stopping a drug company from using funds collected from consumers in country A to hire researchers in country B.

Instead of putting together an inane, and ultimately useless, plan to buy pharmaceuticals from Canada, the USA needs a powerful bureaucracy, like Medicare, to negotiate prices with pharmaceutical companies to get prices down. There will be consequences – since Big Pharma still needs to bring to market new products, prices in Canada, France, Japan, everywhere will start moving up to the new US pricing levels.

This idea ignores the serious problems that what is effectively a price control on drugs would have. That would decrease prices, but in the long run harm consumers on the net by destroying investment into drug research.

I know that some liberal Americans are quite selfish, and haven’t though through the consequences of this boneheaded plan – Canadian citizens will pay more for their medications. Or those Canadians will be unable to afford the prices when they skyrocket, so they don’t get the health care they thought they had. Drug XYZ may get so expensive, because Americans were buying it cheaply, that Canadians just can’t have access to it.

The above discussion of the effects that Canadian drug price controls have on Americans goes in reverse. The market power of the Canadian government in negotiating drug prices would continue, there would be a decline in R&D that would harm consumers on both sides, but prices in Canada would remain about the same.