TORONTO, ON—Government intervention in Canada’s prescription drug market through regulation, price controls, and public drug insurance programs fails to make prescription drugs more affordable for consumers, finds a new report released today by the Fraser Institute, Canada’s leading public policy think-tank.
“Canadian health policies are based on the assumption that many people won’t be able to afford prescription drugs unless government regulates the market and controls prices. But personal drug costs in the U.S. are just as affordable, on average, as in Canada, and the U.S. has a freer and more competitive market than Canada,” said Mark Rovere, Fraser Institute associate director of health policy studies and co-author of Average Personal Affordability of Prescription Drug Spending in Canada and the United States 2011
“The evidence shows that affordability is not a valid justification for broad-based government intervention in prescription drug markets, and that means the public cost of supporting this government intervention is basically wasted money.”
To measure affordability, the report examines per-capita spending on prescription drugs by both Canadians and Americans as a percentage of per-capita Gross Domestic Product (GDP), and as a percentage of per-capita after-tax income in 2010, the most recent year for which data is publicly available.
The results indicate that both Canadians and Americans are spending nearly the same percentage of their per-capita GDP on prescription drugs—in Canada, 1.6 per cent of per-capita GDP, compared to 1.8 per cent in the United States. As a percentage of after-tax income, per-capita spending on prescription drugs was also nearly the same, totaling 2.5 per cent of per-capita personal disposable income in Canada, compared to 2.3 per cent in the United States.
The report also found the number of prescriptions dispensed per capita was nearly the same in both countries in 2010: 14.9 prescriptions per person in Canada versus 12.9 per person in the U.S.
The report concludes that personal affordability of prescription drug spending is virtually identical between the two countries for two main reasons: per-capita American incomes are higher than in Canada, especially after taxes, helping to make personal drug spending a smaller percentage of income in the United States, and Canadian consumers pay more than twice what Americans pay for identical generic drugs.
“High prices for generic prescription drugs offset any potential cost-savings consumers enjoy from lower brand-name drug prices in Canada,” Rovere said.
“Americans also tend to substitute lower-priced drugs for higher-priced versions more often than Canadians.”
A 2010 study co-authored by Rovere confirmed that average retail prices for generic drugs in Canada were 73 per cent of the price of their brand-name equivalents, compared with just 17 per cent of the price of their brand-name equivalents in the United States.
Rovere also notes that Americans enjoy faster access to the latest advancements in drug treatments.
“There is no evidence that government intervention in Canada’s prescription drug market improves affordability or access to prescription drugs for consumers. Governments should rethink the need for regulation, price controls, and public drug insurance, and look for ways to reduce the scope of government intervention.”