Across borders, a murky trade

Google deal sheds light on practice; disparate drug costs a concern

By Robert Weisman
Globe Staff / August 25, 2011

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Even as the Justice Department painted its $500 million settlement with Google Inc. as a victory for consumer safety, its crackdown on Internet drug ads yesterday trained a spotlight on the underground business of Canadian pharmacies catering to cost-conscious Americans.

It is illegal to import prescription medicines, so there are no firm numbers on how much is spent by US residents buying drugs from Canada or other countries. But at least 1 million Americans are thought to purchase prescribed medicines annually from licensed Canadian distributors, according to PharmacyChecker, a White Plains, N.Y., consumer group that evaluates online pharmacies in the United States, Canada, and other countries.

Individuals who do so are seldom prosecuted, and they can save as much as 50 to 75 percent of the cost, depending on the drug, say researchers who have done comparison studies.

They note that drug prices in the United States are much higher than those in other developed countries, including Canada, which have price controls. In the case of Canada, the cost of prescription drugs is set by establishing a “reference price’’ based on the cost of medicines in a group of European countries.

“Basically, what’s going on with Canada is a little bit of leakage,’’ said Arthur A. Daemmrich, assistant professor of business administration at Harvard Business School. “It’s a release valve so that American consumers don’t get more upset with the prices. The US has become the international outlier for prices, and it’s hard to see, politically, how you can sustain that.’’

But the US biopharmaceutical industry, which applauded the Justice Department’s investigation of ads that fuel illegal drug imports, points out that profits from the sale of high-priced prescription medicines are plowed back into research and development.

“In the United States, we have the strongest drug pipeline in the world because of our free market,’’ said Robert K. Coughlin, president of the Massachusetts Biotechnology Council, a Cambridge trade organization. “We invest in innovation.’’

Yet financially strapped Americans, especially those without health insurance, have gravitated to the Canadian market for years, said Alan Sager, professor of health policy and management at Boston University’s School of Public Health.

Demand tapered off after the prescription drug benefit known as Medicare Part D took effect in 2006, he said, but lately it has been on the rise again as health insurers and employers embrace new “co-insurance’’ plans that leave patients responsible for as much as 20 to 33 percent of the cost of prescription drugs.

“This could well put a dent in that market,’’ Sager said of the Google settlement. “Many patients may not know the name of the Canadian pharmacies or have the URL for their websites, and they find it through the search engine.’’

In the long run, though, the Google settlement is likely to represent just a “bump in the road’’ for imports if US drug prices remain high, he said.

Gabriel Levitt, vice president at PharmacyChecker, warned that the Justice Department’s crackdown on Google could create the impression that all online Canadian pharmacies are unlicensed. In fact, he said, most are licensed by Canadian authorities and only provide drugs that are prescribed by doctors.

“Any actions that are taken that prohibit Americans’ access to safe and effective medications are bad for the public health, not good,’’ Levitt said.

Coughlin, however, said US Food and Drug Administration regulators have no way of knowing whether drugs delivered from Canada or other countries meet safety standards.

“They’re not regulated by the FDA, and they put consumers at risk for potential imposter drugs or dangerous drugs,’’ Coughlin said. “We have enough problems importing toys for kids that are safe. Why would we want to take that risk for people who are sick?’’

Robert Weisman can be reached at