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Government intervention in prescription drug markets provides little benefit for Canadian consumers

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Release Date: June 10, 2010
TORONTO, ON—Government intervention in prescription drug markets in Canada produces no overall cost-savings for consumers, compared to relatively more free market-based policy approaches in the United States, concludes a new report from the Fraser Institute, Canada’s leading public policy think-tank.

“Much of Canada’s prescription drug policy is based on the assumption that greater government intervention in the market such as regulation of drug prices will provide more affordable access to drugs. But our research finds that, on average, these policies have not resulted in personal advantages for Canadians compared to the United States,” said Mark Rovere, Fraser Institute associate director of health policy research and co-author of The Average Personal Affordability of Prescription Drug Spending in Canada and the United States.

“If other indirect factors are taken into account, there are probably net socioeconomic costs associated with government intervention.”

The report examines per-capita spending on prescription drugs by both Canadians and Americans in 2009, the most recent year for which data is publicly available. The results indicate that both Canadians and Americans are spending the same percentage of their income on prescription drugs on a per-capita basis.

In both Canada and the United States, per-capita spending on prescription drugs was 1.7 per cent of per-capita gross domestic product (GDP).  

As a percentage of after-tax income, per-capita spending on prescription drugs in Canada was slightly higher, totaling 2.6 per cent of per capita personal disposable income, compared to 2.3 per cent in the United States.

The report also found that the number of prescriptions dispensed per capita was roughly the same in both countries: 14.2 prescriptions were doled out per person in Canada versus 12.7 prescriptions per person in the United States in 2009.

Although per-capita incomes are higher in the U.S. than Canada, Rovere points out that one of the main reasons prescription drug spending is virtually identical between the two countries is because Canadian consumers pay more than twice as much for identical generic drugs than Americans do.

“The price differential in generic drugs offsets any potential cost-savings consumers could have enjoyed from the availability of lower-priced brand-name medicines in Canada,” Rovere said.

Research from a previous study by Skinner and Rovere confirms that Canadian prices for generic prescription drugs were, on average, 112 per cent higher than U.S. prices for identical drugs in 2007. At the same time, Canadian prices for brand-name prescription drugs were on average 53 per cent lower than American prices.

Rovere also notes that U.S. policies that rely more on markets to determine pharmaceutical prices provide Americans with access to more new drugs than Canadians, and that the U.S. attracts proportionally more investment from the pharmaceutical industry.


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