NCPA - National Center for Policy Analysis


July 8, 2008

The U.S. retail market for prescription drug sales is more competitive than the market in Canada, resulting in savings for consumers, say Mark Rovere and Brett Skinner of the Fraser Institute.

Research shows that the price of identical generic drugs is 115 percent higher on average in Canada than in the United States.

In September of 2006, U.S.-based Wal-Mart launched an innovative prescription drug plan that allowed customers to buy a 30-day supply of prescription drugs for only $4:

  • The Wal-Mart plan covers 361 generic prescription drugs.
  • Wal-Mart claims that the $4 prescription drug program has saved consumers and their insurers more than $1 billion nationwide.

Meanwhile, Canada cannot reap the benefits of a competitive market for generic prescription drugs because of the reimbursement policies of the government-run, publicly-funded drug plans in Canada, say Rovere and Skinner. 

There are three types of reimbursement policies in Canada: indirect, fixed percentage, and full reimbursement:

  • Public drug plans use an indirect reimbursement approach for prescription drugs; instead of directly reimbursing the patients, public drug plans reimburse pharmacies for the cost of the prescription drugs dispensed to patients.
  • Provincial drug programs reimburse generic drugs at a fixed percentage of the original, brand-name drug, which do not give retailers any incentive to lower prices because the government offers every seller the same price in advance.
  • Most government drug plans use full reimbursement policies, which exclude market forces that could put downward pressure on generic drug prices.

Wal-Mart's drug program should provide Canadian policy makers with a simple lesson: prescription drug policies that allow price competition through market forces can only improve the consumer's access to medicines and increase the affordability of drugs, say Rovere and Skinner.

Source: Mark Rovere and Brett Skinner, "Drug Competition -- Big-Box Style," Fraser Forum, June 2008.


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