Government Intervention for Prescription Drugs Does Not Make Them Cheaper

August 9, 2011

The prevailing assumption in Canadian drug policy is that without government intervention, the market will fail to achieve certain socially desirable outcomes, one of which is affordable access to prescription drugs, say Brett Skinner and Mark Rovere of the Fraser Institute.

Skinner and Rovere's study suggests that, on average, greater government intervention in Canada's drug markets has not provided more affordable access to prescription drugs relative to a less interventionist policy in the United States.  The study also notes that if other indirect factors are taken into account, there are probably net socioeconomic costs associated with government intervention.

By observing per capita drug spending as a percentage of per capita income the study compares the average personal affordability of drug costs for Canadians and Americans.  The method provides a way to estimate the actual economic burden of prescription drug costs on consumers in Canada and the United States relative to the differences in living standards.

  • Consumers in Canada and the United States spend nearly the same proportion of their per capita gross domestic product on prescription drugs (1.6 percent in Canada and 1.8 percent in the United States) and of their per capita personal after-tax income (2.5 percent in Canada; 2.3 percent in the United States).
  • The number of prescriptions dispensed per capita in both countries is roughly similar (14.9 in Canada; 12.9 in the United States).

Why is the personal affordability of prescription drug spending roughly the same in Canada and the United States?  

  • While brand-name drugs in Canada are significantly cheaper on average than in the United States, generic drugs in Canada are about 90 percent more expensive on average.
  • Americans also tend to substitute lower-cost versions of drugs for relatively more expensive brands more often than Canadians; and per capita after-tax incomes are higher in the United States than in Canada.

The Canadian government's greater intervention in prescription drug markets offers no affordability advantages for consumers compared to competitive markets in the United States.

Source: Brett J. Skinner and Mark Rovere, "Average Personal Affordability of Prescription Drug Spending in Canada and the United States," Fraser Institute, July 2011.

For text:

http://www.fraserinstitute.org/uploadedFiles/fraser-ca/Content/research-news/research/publications/average-personal-affordability-prescription-drug-spending.pdf

 

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