NCPA - National Center for Policy Analysis

Drug Price Controls Hurt Canadian Health Care

May 3, 2004

With the rising costs of pharmaceuticals, some Americans have looked to Canada for cheaper drug prices while others yearn for its socialized health care system. Yet Canadians have long suffered under a system that limits access to life-saving drugs, a trend that looks only to get worse with U.S. drug importation.

In Canada, the government strictly controls the prices of drugs, mandating artificial below-market prices that don't reflect actual costs. By eliminating profits, Canadian price controls eliminate private-sector innovation as well. That's why the world doesn't look to Canada to cure cancer or AIDS. But Canada's bureaucratic control of prices also comes with a raft of rules and regulations. The impact on Canadians' lives has been significant.

  • Regulation slows the approval of new drugs considerably -- for example, approval of AIDS drugs takes twice as long in Canada than in the United States.
  • Out of 100 new drugs launched in America from 1997 through 1999, 43 have made it to market in Canada.
  • Even with price controls, generic drugs are often more expensive in Canada -- 75 percent of the 27 most popular generic drugs were significantly cheaper in the United States.

Prior to the emergence of drug reimportation, U.S. companies reluctantly sold drugs to Canada at a discount (to comply with Canadian price controls). Since the Canadian market is one-tenth the size of the U.S. market, the discount was regarded more as a nuisance than deal-breaker.

However, if U.S. companies see their drugs rebounding from Canada back into the American market and undercutting sales here, they'll simply cut back shipments to Canada. This has already resulted in a scarce supply of drugs in Canada, serving only to worsen the quality of the country's health care.

Source: Sally Pipes (Pacific Research Institute), "AARP Bad Medicine: A Few Will Benefit, Many More Will Pay," Investor's Business Daily, April 15, 2004.

 

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