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Prescription drug prices within US and Canada vary too widely to be equalized

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Release Date: August 30, 2001
There is no such thing as one Canadian or one American price for a prescription drug and policy-makers who seek to equalize Canadian and American pharmaceutical prices face an impossible task. These are the findings of a new study Prescription Drug Prices in Canada and the United States: Part 3 - Retail Price Distribution released today by The Fraser Institute.

The study found that although Canadian prescription drug prices are lower than American prices, there are significant differences in prices within the United States and Canada, as well as between areas in the same country.

"We hear about Americans who claim that they save money, some say up to 60 percent, by filling their prescriptions in Canada. That is very misleading because in some cases a consumer can save as much by bargain hunting at home as he can by crossing the border," says John R. Graham, acting director of the pharmaceutical policy research centre at the Institute and the study's author.

Price Comparisons

The study examined retail prices of three patented drugs in three areas in the United States near the Canadian border, as well as three neigbouring areas in Canada. The areas selected were within Washington and British Columbia, North Dakota, Minnesota and Manitoba, and New York and Ontario. The three drugs selected are widely dispensed and used by many patients for an extended period. Fifty pharmacies in each area (300 total) were canvassed for prices of one dose of each drug.

Savings

Because there are a variety of prices charged by Canadian and American pharmacies, American patients can save money by bargain hunting at home as well as by crossing the border (Table 1). There is a large difference in the savings earned by the American customer, depending on the pharmacies from which, and to which, he or she travels.

"Differences among services offered by individual pharmacies explain some of the price variations. The income differentials among regions within one country may also explain price differences. For example, prices in the North Dakota and Minnesota areas are cheaper than in the Washington and New York areas," notes Graham.

Government Intervention and Prices

An understanding of government intervention helps to clarify the conditions under which drugs are priced. Each state and province intervenes differently in the market. All of the jurisdictions selected for the study have programs that subsidize prescriptions for some of their residents
High government subsidies do not ensure favourable access to prescription drugs.

Although all three Canadian provinces subsidize prescription drugs heavily, patients in the American states have better access through the non-taxable benefit of health insurance. The effect of subsidies on prices is unclear. Cash prices in Canada vary around the government reimbursement rates, indicating that subsidies do not prevent pharmacies from charging different prices to non-subsidized patients.

"The difference between prices paid for prescription drugs in Canada and the United States continues to be an issue of public attention. Without understanding the causes of price differences between pharmacies, crude efforts to equalize prices threaten to jeopardize the entire distribution chain for prescription drugs," concludes Graham.

Prescription Drug Prices in Canada and the United States-Part 3: Retail Price Distribution is the third paper in a Fraser Institute series, which includes Prescription Drug Prices in Canada and the United States, Part 1: A Comparative Survey , and Part 2: Why the Difference?


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