The Fraser Institute

The Fraser Institute

September 15, 2008 07:00 ET

The Fraser Institute: Media Release; Canada's Central Planning Approach to Regulating Prescription Drug Prices Provides No Cost Savings

TORONTO, ONTARIO--(Marketwire - Sept. 15, 2008) - Heavy-handed interference in prescription drug markets by Canadian governments provides no overall cost-savings for consumers compared to the free-market approach of American governments, according to a new report from independent research organization The Fraser Institute.

The Cost Burden of Prescription Drug Spending in Canada and the United States examines per capita spending on prescription drugs by both Canadians and Americans using the most recent publicly available data from 2007. The results confirmed that per capita prescription drug expenditures made up roughly the same percentage of income in both countries.

"The Canadian experience is a clear example of the negative effect of government regulations and central planning on the prices of generic drugs and access to the newest innovative medicines," said Brett Skinner, the Institute's director of health, pharmaceutical and insurance policy research and lead author of the report.

As a percentage of income before taxes, per capita spending on prescription drugs was 1.5 per cent of per capita gross domestic product (GDP) in Canada compared to 1.7 per cent in the USA.

As a percentage of after-tax income, per capita spending on prescriptions in Canada was 2.5 per cent of personal disposable income (PDI) compared to only 2.3 per cent for Americans.

The research shows that the number of prescriptions dispensed per capita in each country is also approximately the same. In 2007, 13.7 prescriptions were dispensed per person in Canada versus 12.6 prescriptions per person in the United States.

According to Skinner, these results are explained by the inflated prices of generic drugs in Canada.

"Even though Canadian prices for brand name drugs are lower than American prices for the 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 American prices for identical drugs," he said.

Research from another annual study by Skinner confirms that Canadian prices for generic prescription drugs were on average 112 per cent higher than U.S. prices for identical drugs in 2007. At the same time, Canadian prices for brand name prescription drugs in 2007 were on average 53 per cent lower than American prices.

"Canadians pay more than Americans for generic drugs because Canadian government policies shield generic drug companies and pharmacy retailers from competitive free market forces that would put downward pressure on prices for generic drugs," Skinner said.

Skinner also points out that other research shows that Americans have access to more new drugs than Canadians and that the U.S. attracts proportionally more investment from the pharmaceutical industry.

"Add it all up and there are no advantages at all from Canada's approach to prescription drug policy. It's time for governments to act in the interest of taxpayers and patients, and adopt more market-based approaches to drug insurance."

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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