The potential unintended economic consequences of the Medicine Equity and Drug Safety Act of 2000

Background: The Medicine Equity and Drug Safety (MEDS) Act of 2000 was pass ed by Congress in October 2000 in response to the perception that US pharma ceutical prices and expenditures were rising too quickly and that many peop le could no longer afford their medication. The Act was terminated at the e nd 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 Unit ed 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 incre ase economic efficiency, in the pharmaceutical industry parallel trade woul d 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 control s. Parallel trade erodes price differences across countries and hence under mines the most efficient pricing mechanism for paying for research and dev elopment. Conclusion: Although the MEDS Act was terminated, important policy lessons can be learned for consideration in the creation of any similar future legi slation designed to control pharmaceutical prices.