The potential unintended economic consequences of the medicine equity and drug safety act of 2000

Abstract

Background: The Medicine Equity and Drug Safety (MEDS) Act of 2000 was passed by Congress in October 2000 in response to the perception that US pharmaceutical prices and expenditures were rising too quickly and that many people could no longer afford their medication. The Act was terminated at the end of December 2000 for lack of the congressionally required certification by the Department of Health and Human Services of 2 key conditions written into the law. Under the terms of the MEDS Act, pharmacists and wholesalers would have been able to reimport lower-priced pharmaceuticals into the United States from other countries. Objective: In this article, we formulate an economic model as the basis for determining the probable unintended effects of the MEDS Act and propose an alternative policy that would achieve the objectives of the MEDS Act. Methods: An economic model of parallel trade in the pharmaceutical industry was used to demonstrate the likely effects of the MEDS Act. Results: Although in most markets the effects of parallel trade would increase economic efficiency, in the pharmaceutical industry parallel trade would be detrimental to long-term economic efficiency. By encouraging parallel trade into the United States, the Congress would, in effect, be introducing pharmaceutical price controls from other countries that have price controls. Parallel trade erodes price differences across countries and hence undermines the most efficient pricing mechanism for paying for research and development. Conclusion: Although the MEDS Act was terminated, important policy lessons can be learned for consideration in the creation of any similar future legislation designed to control pharmaceutical prices.