The Fraser Institute

The Fraser Institute

November 26, 2007 06:00 ET

The Fraser Institute: Government Drug Policies in Canada Offer No Cost Advantage Over U.S. Drug Policies

TORONTO, ONTARIO--(Marketwire - Nov. 26, 2007) - Government policies around the pricing and reimbursement of prescription drugs in Canada do not produce lower costs for Canadians compared to Americans, according to a new study from independent research organization The Fraser Institute.

On average Canadians are spending about the same percentage of their incomes on prescription drugs as Americans, according to The Cost Burden of Prescription Drug Spending in Canada and the United States.

"American public policies rely more on free market forces like private insurance, price signals, consumer choice and competition to determine the premium paid for new drug innovations as well as to discount the price of generic drugs," said Brett Skinner, the Institute's Director of Health, Pharmaceutical and Insurance Policy Research and lead author of the study.

"In Canada, governments increasingly rely on public drug programs, price controls, formulary restrictions, forced generic substitution and central planning."

The study compared total per capita spending on prescription drugs in Canada and the United States. Using the most recent publicly available data from 2006, the study found that prescription drug expenditures made up roughly the same percentage of income before taxes in both countries. In Canada, per capita spending on prescription drugs was 1.5 per cent of per capita gross domestic product (GDP) compared to 1.6 per cent for Americans.

Per capita prescription drug expenditures were a slightly higher percentage of after-tax income in Canada than they were in the United States with Canadians spending 2.5 per cent of their personal disposable income (PDI) on prescription drugs compared to only 2.2 per cent for Americans.

The results cannot be explained by differences in the number of prescriptions taken by Canadians and Americans. The study found that the number of prescriptions dispensed per capita in each country is approximately the same. In 2006, 13 prescriptions were dispensed per person in Canada versus 12.3 prescriptions per person in the United States.

"Even though Canadian prices for brand name drugs are lower than U.S. prices for identical drugs, consumers in both countries spend roughly the same percentage of their personal income on drugs because the price of Canadian generics is more than double U.S. prices for identical drugs," Skinner said.

He suggested the root causes of high generic drug prices in Canada are government policies that shield retail pharmacies and generic drug manufacturers from competitive market forces that would naturally put downward pressure on generic drug prices.

"Other research shows that Canadians who rely on the country's public drug programs don't have the same degree of access to new medicines as do Americans. The evidence makes it clear that Canadian prescription drug policies do not produce lower costs or better choice for Canadians," Skinner said.

"When you factor in the positive influence American prescription drug policies have in terms of stimulating investment and research on new medicines, you can see that U.S. policies produce better outcomes for its citizens than is the case in Canada."

The Fraser Institute is an independent research and educational organization with offices in Calgary, Montreal, Tampa, Toronto, and Vancouver. 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

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