Why Drugs Cost So Much / The Issues '04: Why We Pay So Much for Drugs

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While there is no doubt that counterfeit and adulterated medicines--some potentially injurious, possibly even lethal--are sold over the Internet by unscrupulous vendors, a TIME investigation suggests the FDA'S actions against Canadian imports have been part of a concerted campaign to simultaneously discredit its counterpart agency in Canada, provoke fear among American consumers who buy their drugs there, blunt an exploding political movement among local and state governments to begin wholesale drug buys in Canada and ultimately preserve the inflated prices charged U.S. consumers and taxpayers.

The price of drugs has already emerged as a hot issue in this year's elections, cropping up everywhere on the campaign trail, along with jobs and national security. In his State of the Union address last week, President Bush hailed the passage of the Medicare bill that will give seniors "the modern medicine they deserve" and touted the new drug-discount card that the Administration says will save them 10% to 25% on pharmaceuticals. The even larger Canadian discounts, meanwhile, have attracted a popular passion that is shared by politicians on both sides of the aisle. G.O.P. Congressman Dan Burton--who represents Indiana, where drug giant Eli Lilly employs thousands of voters--has accused the industry of "raping the American people." In the Democratic presidential debate last week, Senator Joe Lieberman described the trend toward buying drugs from Canada as "a kind of Boston Tea Party of the 21st century ... There's only [one] way that this is going to begin to turn around, and it is if we begin to allow the legal importation of drugs from Canada. That's the way we can speak with our money to the drug companies to treat us more fairly." Senator John Edwards of North Carolina said, "Here's a perfect example of what goes on in Washington every day ... These powerful lobbies for the drug [companies], they're taking the democracy away from the American people."

The prices Americans pay for prescription drugs, which are far higher than those paid by citizens of any other developed country, help explain why the pharmaceutical industry is--and has been for years--the most profitable of all businesses in the U.S. In the annual FORTUNE 500 survey, the pharmaceutical industry topped the list of the most profitable industries, with a return of 17% on revenue.

The FDA drive within the U.S. to shut down the Canadian pipeline has coincided with a campaign by drugmakers to pressure the Canadian government to cut off drug sales to the U.S. At the same time, the big U.S. drug companies have warned Canadian pharmacies that their supplies of all prescription drugs will be halted if they sell to U.S. citizens, thereby threatening to deprive Canadian citizens of access to drugs. Explaining the industry's opposition to American purchases of Canadian drugs, a spokesman for the Pharmaceutical Research and Manufacturers of America (PhRMA) told TIME, "The FDA has said consistently and repeatedly over the years, through both the Clinton and Bush administrations, that there are safety risks and this shouldn't happen and in fact it's illegal."