Canadian Prescription Drug Channel May Close

After a number of states have demanded access to the Canadian pharmaceutical market, where the nationalized health-care system keeps drug prices lower than in ithe US, Canadians may take action to protect their pricing and supply needs. Paul Martin’s government announced that it will draft legislation limiting such sales to prevent domestic shortages, which will probably put a halt to end-arounds such as those proposed by Minnesota governor Tim Pawlenty:

The government announced Wednesday that it was drafting legislation to limit bulk exports of essential Canadian drugs in an effort to ensure that online pharmacy sales to the United States do not cause domestic shortages. But the proposal fell far short of what the online pharmacy industry feared might have forced it to leave Canada.
It is unlikely that the two million uninsured and underinsured Americans who depend on cheaper Canadian drugs to treat chronic conditions will be immediately affected. It is possible, however, that tighter regulations in Canada may give other foreign online suppliers a new competitive edge and encourage Canadian companies to warehouse more of their inventories in other countries.
“Canada cannot be the drugstore of the United States of America,” Health Minister Ujjal Dosanjh told reporters as he announced the legislation and several vaguely defined proposed regulatory changes, including one that could limit some Canadian doctors’ practice of co-signing online prescriptions for American patients without examining them.

The incursion of Americans into the previously-closed Canadian pharmaceutical market has seriously distorted pricing and supply on both sides of the border, a predictable outcome especially when dealing with state-controlled markets. As the Americans bought more of their drugs north of the border, margins for the manufacturers decreased here in the US and overall. That put pressure on the distributors to withhold or limit the amount of drugs sold to Canadians. The intent was to either limit the loss of margin to a smaller percentage of production, and/or to force the Canadians to limit access to their privileged pricing in order to protect their supply.
None of this should have surprised anyone who has studied entry-level economics or even had responsibility for a profit/loss statement. However, these basic principles of supply, demand, production, and profit escaped Americans who thought they could get a discount without the necessary sacrifices to create the organized buying power necessary. It also escaped the short-sighted Canadian retail pharmacies, who only saw large-scale American dollar signs.
Dosanjh, who has his own problems surrounding Gomery and the Grewal tapes, cannot afford to let the supply of pharmaceuticals get choked by having Americans poach their distribution channels and pricing agreements. His Liberal Party also cannot afford to drive off the retail pharmacies that have benefitted from American encroachment. Look for Dosnajh to either push for the middle ground, limiting American sales to small levels intended for individual consumers, or to throw the entire mess at Parliament for a legislative-sourced solution.