NCPA - National Center for Policy Analysis

GENERIC DRUGS IN CANADA: OVERPRICED AND UNDERUSED

March 16, 2009

Fraser Institute's annual study, "Canada's Drug Price Paradox," compares Canadian and American prices for an identical group of 100 most commonly prescribed brand-name drugs and the 100 most commonly prescribed generic drugs in Canada.  The most recent edition of the study found that, although brand-name drugs were more expensive in the United States, generic drugs were significantly more expensive in Canada in 2007.

After adjusting for price parity of the United States and Canadian dollars:

  • Canadian retail prices for identical brand-name drugs sold in 2007 averaged 53 percent lower than the United States, rising from 51 percent in 2006 and 43 percent in 2003.
  • Canadian retail prices for generic drugs in 2007 averaged 112 percent higher than United States prices, dropping from 115 percent in 2006.

The evidence suggests this difference is explained by various Canadian policies not found in the United States.  In particular, three policies distort the prices, according to Fraser:

  • Provincial and federal drug programs direct public reimbursement of prescriptions to pharmacies instead of consumers; as such, it insulates customers from the costs and removes incentives for comparison shopping, which would pressure companies to lower prices.
  • Public drug programs reimburse generics at a fixed percentage of the original, brand-name drug; under such a program, there is no incentive for retailers to compete and undercut prices.
  • Federal prices controls on patented drugs unintentionally prevent brand-name drug companies from reducing prices on these products once a patent expires; these price controls create an artificial incentive for brand-name companies to resist competing on the basis of price with generic firms for sales of off-patent drugs.

Source: Brett J. Skinner and Mark Rovere, "Generic Drugs in Canada, Overpriced and Underused," Fraser Institute, February 2009.

 

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