The Fraser Institute

The Fraser Institute

February 23, 2005 06:02 ET

Government interference in pharmaceutical markets costs Canadians $2 billion to $5 billion annually

TORONTO, Feb. 23 - Generic drugs are on average 78 percent more
expensive in Canada than in the United States, according to a new study
"Canada's Drug Price Paradox: The Unexpected Losses Caused by Government
Interference in Pharmaceutical Markets," released today by The Fraser
Institute.
The study calculates that Canadians could save between $2 billion and
$5 billion annually if governments allowed the pharmaceutical market in Canada
to be as competitive as the US market.
"Governments claim that price regulations reduce drug costs for
Canadians," said Brett Skinner, author of the study and director of
pharmaceutical and health policy research at the Institute. "Yet the data show
that Canadians actually pay more than they should for non-patented drugs -
especially for generics, because government policies that were supposed to
make drugs cheaper, instead reduce competition and drive up prices."
US prices for generic drugs are lower because the American market has
more generic manufacturers competing for sales, which leads to lower prices
and higher voluntary rates of generic drug use in the United States. By
contrast, only a few firms with little serious competition dominate the
Canadian generic market. This leads to inflated prices and lower rates of
generic use.
The study finds that only two generic companies accounted for 68 percent
of all prescriptions dispensed among the 100 top selling generics in 2003, and
only five companies accounted for 95 percent. The data also shows that
Canada's generic market is divided up into individual product monopolies on
pharmacy shelves, often with only one or two companies taking all the sales
for individual products, while not competing for sales of other products.
"If our market were as competitive as the US, we could expect our prices
for generic drugs to fall at least as low as US levels and our voluntary use
of generic drugs to increase to US levels, resulting in significant economic
savings," noted Skinner.
The study suggests that price controls and other policies distort the
pharmaceutical market, reduce competition and harm Canadian consumers by
causing inflated prices for non-patented drugs, and suggests that Canadians
would be better off if governments repealed such policies.
"Government pharmaceutical policy is simply failing to provide better
outcomes than competitive markets could," Skinner concluded.
Ironically, the study finds that Canadians have little to fear from the
removal of price controls on patented drugs because market prices would not be
much different from current government-imposed prices anyway.
The data show that market-priced off-patent brand drugs sell at nearly
the same discounts as price-controlled patented brand drugs (42 to 43 percent
below US prices) suggesting that the removal of price controls would not lead
to US-level prices in Canada.
"Governments cannot justify intervening in pharmaceutical markets through
price controls based on the belief that market prices would be too high. In a
competitive market, lower average Canadian incomes will keep prices low
relative to prices in higher income markets like the United States," Skinner
said.


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Established in 1974, The Fraser Institute is an independent public policy
organization with offices in Vancouver, Calgary, and Toronto.

The media release and study (in PDF) are available at
www.fraserinstitute.ca

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