Canadian study finds higher living standards lead to higher drug prices

July 31, 2012

Free Market Foundation

Canada’s lower prescription drug prices are due to a lower standard of living relative to the United States, not Canadian drug price regulation, concludes a new study from Canada’s Fraser Institute.

Researchers John Graham and Beverley Robson compared American and Canadian wholesale and retail prices for the top 60 drugs, ranked by prescriptions written in the United States. Of the 45 drugs they found to be comparable:

Price differences ranged from a Canadian discount of 98 percent to a Canadian premium of 350 percent at the wholesale level.

At the retail level, prices ranged from a 95 percent discount to a 238 percent premium.

The weighted average retail price of the generic drugs at least 40 percent of the share of prescriptions written in both countries was 7 percent higher in Canada than in the U.S.

Canadians get a smaller discount for patented drugs than name brand, non-patented drugs. This is interesting since Canadian prices are controlled for patented drugs, but not non-patented drugs. The weighted average price of uncontrolled drugs was 65 percent lower in Canada, whereas price controlled drugs were 35 percent cheaper.

Over time, the price differential between Canadian drug prices and those in the U.S. and other developed countries has widened as the gap in living standards has increased:

In 1987, Gross Domestic Product per capita in the United States was only 20 percent greater than Canada’s, and U.S. drug prices were 36 percent higher.

By 1997, U.S. per capita GDP was 46 percent greater, and U.S. drug prices in 1999 were 62 percent higher.

During this period, the median Canadian price for patented drugs declined relative to other developed countries such as France, Switzerland, the United Kingdom, Sweden and Italy which experienced higher growth rates.

Source: John R. Graham and Beverley A. Robson, Prescription Drug Prices in Canada and the United States Part 1: A Comparative Survey; Part 2: Why the Difference? Public Policy Sources, September 2000, Fraser Institute, 4th Floor, 1770 Burrard Street, Vancouver, BC, Canada, V6J 3G7, (604) 688-0221.

For text http://www.fraserinstitute.ca/publications/pps/42/index.html

For more on Health Policies http://www.ncpa.org/pi/health/hedex13.html