TORONTO, ON - Canadian prices for generic prescription drugs
in 2006 were on average more than double American prices for
identical drugs, according to a new study from independent
research organization The Fraser Institute.
Canada's Drug Price Paradox 2007, found that Canadian prices for generic prescription drugs
were on average 115 per cent higher than U.S. prices. At the
same time, Canadian prices for brand name prescription drugs
were on average 51 per cent lower than American prices.
An earlier version of the study published in 2005 found that
prices for generic drugs were 78 per cent higher in Canada. By
contrast, prices for brand-name drugs were 43 per cent lower in
Canada on average.
"These new findings show that prices for generic drugs in
Canada have increased relative to the U.S., while prices for
brand-name drugs have decreased," said Brett Skinner, The
Fraser Institute's Director of Health, Pharmaceutical and
Insurance Policy Research and co-author of the study.
"Canadians pay more for generic drugs because government
policies shield generic drug companies and pharmacy retailers
from normal market forces that would naturally reduce
This study estimates that in 2006 alone, misguided
government policies cost Canadians between $2.5 billion and
$6.6 billion in unnecessary spending due to inflated prices for
generic drugs and inefficient use of medicines. Over the four
years from 2003 to 2006, the total amount of money wasted could
range from as high as $20 billion to more than $26 billion.
"Since the U.S. market is not distorted by the kinds of
government policies that exist in Canada, Americans benefit
from dramatically lower prices for generic drugs," Skinner
Some key Canadian policies that distort generic drug pricing
• Drug programs direct public reimbursement of
prescriptions to pharmacies instead of consumers. This
insulates consumers from the cost thereby removing incentives
for comparative shopping that would put downward pressure on
• Provincial drug programs also reimburse generic drugs
at a fixed percentage of the brand name original drug. Under
fixed-percentage reimbursement, there is no incentive for
retailers to undercut each other to win sales. This is because
the buyer (government) offers every seller the same price, and
the price is known in advance.
• Large established generic companies exploit the
reimbursement system to offer rebates to retailers that are
"bundled" across many products in exchange for exclusive
distribution rights. This frequently results in a virtual
monopoly within particular retail pharmacy chains for a
particular generic label. Because pharmacies are reimbursed
directly, discounts are not passed on to consumers.
• Governments also force generic substitution for
brand-name drugs. Under these circumstances, generic products
no longer have to compete on price to overcome consumer
loyalties toward brand-name drugs. Consumers who need the drug
will buy it at a higher price because they have no choice.
Skinner notes that while Canadian governments try to force
patients to use generics in place of brand-name medicines, U.S.
governments tend to let consumers make their own choices.
"Despite government efforts to force generic use in Canada,
the evidence shows that Americans substitute generics for brand
name drugs at much higher rates than Canadians," he said.
The study found that of the total prescriptions dispensed in
Canada in 2006, 44 per cent were for generic drugs and 56 per
cent for brand name drugs. In the U.S., 63 per cent of
prescriptions were for generics with just 37 percent for brand
"Price incentives in a free competitive market encourage
efficient substitution of generics for brand name drugs when
appropriate while preserving consumer choice," Skinner
"Canadians would be much better off if federal and
provincial governments repealed policies that distort the
market for prescription drugs. That would lead to lower prices
and greater voluntary use of generics. And in the absence of
massive cross-border demand from American consumers, Canadian
prices for brand-name drugs should remain significantly below