E-drug: US subsidizes drug prices in Canada? (cont)
---------------------------------------------
Canadian prices are lower than American prices for a number of
reasons, none of which have to do with Americans subsidizing Canadian
prices, although this is one of the lines that drug companies push.
There are three main factors accounting for lower Canadian prices:
1) From 1969-1991 Canada had compulsory licensing to import which
meant in essence that long before the patent expired (actually about
5-7 years after the branded product appeared on the market) a firm
could legally import and sell a generic version of a product in
Canada upon payment of a royalty of 4% to the patent holder. Generic
companies took advantage of this legislation to market their versions
of products with large markets. As time passes this is becoming less
and less of a factor in the difference between American and Canadian
prices.
2) The Patented Medicine Prices Review Board sets a ceiling on the
price of any new patented medicine and also restricts price rises for
patented medicines to the rate of rise in the consumer price index.
Between 1982-87 the Canadian IPPI(pharma) went up 9.0% annually
versus 7.1% for the American index. Over the period 1988-99 the
Canadian IPPI(pharma) only grew at 1.9% per year against 5.1% for the
U.S. PPI(pharma). A graph of year-by-year changes in the two indexes
shows them crossing in the 1986-88 period, the time of establishment
of the PMPRB.
3) The provinces have very large buying power, the public budget for
pharmaceuticals in Ontario is $1.5 billion per year. That gives the
provinces significant buying power which they can use in bargaining
with drug companies. The HMOs in the U.S. simply do not have this
sort of buying power.
There was recently a commentary published in the American Journal of
Managed Care by two economists from a right-wing think tank in
Canada, the Fraser Institute, which claimed that the main reasons for
the difference in U.S. and Canadian prices were the difference in the
buying power of the Canadian and U.S. dollars and the fact that U.S.
drug prices included a large component to cover the cost of any law
suits that might be launched in the U.S. These arguments ignore a
couple of inconvenient facts. First, it is very difficult to
construct a
meaningful scale to measure international differences in drug
purchasing power and second differences between Canadian and American
brand name drugs stretch back to the late 1960s long before
astronomical law suits over drug issues started in the U.S.
Joel Lexchin MD
121 Walmer Rd.
Toronto, Ontario
Canada M5R 2X8
T: +416-964-7186
F: +416-923-9515
e mail: joel.lexchin@utoronto.ca
--
Send mail for the `E-Drug' conference to `e-drug@usa.healthnet.org'.
Mail administrative requests to `majordomo@usa.healthnet.org'.
For additional assistance, send mail to: `owner-e-drug@usa.healthnet.org'.