A few years ago, changing federal laws to lower drug prices was a key political issue. Some proposed allowing Medicare to negotiate lower prices from drug manufacturers and others recommended allowing U.S. citizens to import drugs from lower-priced developed countries such as Canada. These policies would certainly reduce drug prices, however, lower prices could also stifle drug innovation. Thus, the welfare effect on U.S. citizens is uncertain.
The welfare effect on citizens of other countries, however, has been largely ignored. It turns out, Candadians and other countries that currently have low-cost drugs could be the big losers if the U.S. begins negotiating drugs prices based on the prices paid in other countries. A paper by Danzon and Epstein explains why.
Source: Jason Shafrin.