Why brand-name drugs are cheaper in Canada, but generic drugs aren’t

Why brand-name drugs are always cheaper in Canada, but generic drugs aren'tWe are sometimes asked why we include a number of U.S.-based pharmacies in the eDrugSearch.com pharmacy directory, since prescription drugs are so much cheaper at Canadian pharmacies. One of the main reasons is that U.S. pharmacies often sell generic drugs at lower prices than their Canadian counterparts.

A new study by the Fraser Institute, “Canada’s Drug Price Paradox,” compares Canadian and American drug prices for the 100 most commonly prescribed brand-name drugs, as well as the 100 most commonly prescribed generic drugs. The study found that while brand-name drugs are much more expensive in the United States, generic drugs cost more in Canada.

After currency adjustments, Canadian retail drug prices for brand-name drugs in 2007 averaged 53 percent lower than the United States — compared to 51 percent lower in 2006 and 43 percent lower in 2003.

Canadian retail drug prices for generic drugs, meanwhile, averaged 112 percent higher than United States prices, compared to 115 percent higher in 2006.

The Fraser Institute, which is attached to conservative political causes, blames the disparity in generic drug pricing on three Canadian government policies that “distort” prices. These policies are:

  • Provincial and federal drug programs direct public reimbursement of prescriptions to pharmacies instead of consumers; as such, it insulates customers from the costs and removes incentives for comparison shopping, which would pressure companies to lower prices.
  • Public drug programs reimburse generics at a fixed percentage of the original, brand-name drug; under such a program, there is no incentive for retailers to compete and undercut prices.
  • Federal prices controls on patented drugs unintentionally prevent brand-name drug companies from reducing prices on these products once a patent expires; these price controls create an artificial incentive for brand-name companies to resist competing on the basis of price with generic firms for sales of off-patent drugs.

The Fraser Institute argues that Canada’s disruption of the free market with price controls has had the unintended impact of raising prices of generic drugs. It argues that free markets allow companies like Wal-Mart to foster price competition with their $4 generic drug program, which has been matched by several other major retailers.

This is all certainly true.

But you know what? It’s also true that brand-name drugs are so expensive in the United States for the same basic reason: a lack of price competition.

Why is there a lack of price competition in the United States, the supposed home of free and unobstructed markets? Because the government has been giving drug companies monopoly protection of their drugs — which they are allowed to extend for years and years by playing games with the FDA.

Guess what? When there’s a monopoly, it ain’t a free market. You pay what you’re told to pay, and if you don’t like it, you’re out of luck.

The Fraser Institute fails to point that part of the problem out.

And really, this failing is a microcosm of what’s been wrong with U.S. policy toward the pharmaceutical industry over the past three decades. Politicians say they’re in favor of free markets, but their behavior suggests that they are actually in favor of big business, even when big business is opposed to free markets.

Coincidentally, these are the same big businesses that line politicians’ pockets and fill their campaign war chests.

We are cautiously optimistic that things will change in the current administration. But this can only happen if Americans continue to support President Obama’s agenda for change — and are not dissuaded by Big Pharma disinformation.



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Comments (4)

its called the constitution buddy. it allows the inventer of goods to make a profit. Free Market also implies you are free not to purchase the drugs. If you were providng a service would you give it away. I doubt it. Would you give away your secret so someone else could steal your idea and make millions.

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