The Fraser Institute

The Fraser Institute

August 18, 2008 06:00 ET

The Fraser Institute: Canadian Seniors Pay Double What American Seniors Pay for Most Common Generic Drugs

TORONTO, ONTARIO--(Marketwire - Aug. 18, 2008) - Canadian seniors pay twice as much as American seniors for identical generic drugs, according to a new study released today by independent research organization the Fraser Institute.

The peer-reviewed study, Seniors and Drug Prices in Canada and the United States, 2008 Edition, found that on average, Canadian prices for the generic drugs most commonly prescribed to seniors (aged 60 and older) in 2007 were 101 per cent higher than American prices for the same drugs.

Canadian generic prices have been significantly higher than American generic prices for a long time. The most recent data also show that Canadian generic prices have increased relative to American prices over the past five years. In 2003, Canadian prices for the most commonly prescribed generic drugs for seniors were 64 per cent higher than American prices on average.

The complete report is available at www.fraserinstitute.org.

"The comparison of Canadian and American drug prices again shows that Canada's central-planning approach to drug policy is failing to provide better outcomes on generic drug prices than the less interventionist, more consumer-friendly policies commonly used in the United States," said Brett Skinner, Fraser Institute Director of Health, Pharmaceutical and Insurance Policy Research and lead author of the study.

By contrast, Canadian prices for the brand name drugs most commonly prescribed for people aged 60 years and over were 57 per cent lower on average than American prices for identical products. This is down from 2003 when Canadian prices for the most commonly prescribed brand name drugs for seniors were on average 36 per cent lower than American prices.

The study's findings are important because most publicly funded drug programs base eligibility for benefits on age. Most public drug plans also try to restrict public reimbursement to generic drug products only. Therefore, the high average prices for generic drugs most commonly prescribed to seniors in Canada are having a significant impact on the cost of public drug programs, unnecessarily raising the burden on taxpayers.

A Fraser Institute study released in June, Canada's Drug Price Paradox, estimated that across the entire market for prescription drugs in Canada, the total potential savings lost as a result of inflated prices for generic drugs and inefficient substitution of medicines was between $2.9 billion and $7.5 billion for 2007 alone.

The study also found that Americans substitute generic versions of drugs for their brand-name originals at higher rates than Canadians. Lower prices for generic drugs driven by market pressures in the United States create positive incentives for American consumers to make rational cost-benefit choices regarding their use of medicines.

By contrast, Canadian public policies often try to force generic substitution by government edict and yet fail to achieve rates of substitution as high as a relatively freer market in the United States.

Both studies used data from IMS Health Canada Inc., Canada's most authoritative independent source of information about retail drug sales. The data included the 100 most commonly prescribed brand name drugs and the 100 most commonly prescribed generic drugs in Canada along with primary data on nationally representative U.S. prices for identical drugs.

"Canadians should put the blame squarely where it belongs - bad government policies. High Canadian generic prices are caused by government policies that shield retail pharmacies and generic manufacturers from competitive market forces that would put downward pressure on generic drug prices," Skinner said.

"Generic drug prices in the U.S. are much cheaper because governments south of the border tend to rely on competitive free market forces to discount the prices of generic drugs."

The Fraser Institute is an independent research and educational organization with offices in Canada and the United States and partners in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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