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why are Canadian prescription drugs so cheap?

It’s projected the United States will spend roughly $200 billion dollars on prescription drugs this year. The high cost of pharmaceutical treatments has people looking for relief and they’re turning their eyes to Canada. Many of the most popular prescription drugs can be found north of the border for discounts in the range of 30 to 80 percent. That’s led politicians to call for their constituents to start buying drugs from Canada, even as the Department of Justice is suing a company for helping people do just that. But the legal issues aside, why are Canadian drugs so much cheaper? Greg Dahlmann finds out.
(originally aired September 18, 2003)
4:32 | listen: RealAudio · mp3

Swing by the website for the American drugstore chain C-V-S... and you’ll find 30 capsules of the arthritis drug Celebrex go for 88.59. But over at the website for The Canadian Drugstore Inc. -- a Toronto-based pharmacy – 30 Celebrex are going for 43.49. Yep... that’s a discount of more than 50-percent.

So, why the price difference? Well, in large part because the Canadian government says it should be that way. Prescription drug prices in Canada are regulated by a government body called the Patented Medicine Prices Review Board. The P-M-P-R-B – as it’s also known – has been setting wholesale prices since Canada extended patent protections for prescription drugs in the late 19-80s. John Meyers is general counsel for the Canadian International Pharmacy Association.

{JM: PMPRB} :29
“That board monitors drug prices and essentially limits what the pharmaceutical companies can charge for their products in Canada. And that particular board has Canadians not paying the highest prices or the lowest prices in the world, but somewhere sort of a mean of about 7 other countries. So, our prices are set in Canada according to an analysis of what’s going on in the world market.”

That meant in 2002 Canadians were paying about one-percent more than the average prices from six European countries plus the United States.

The regulated Canadian price for a patented drug is the maximum allowable price. The drugs can be sold for less and often are due to a few factors. First, health care in Canada is socialized, which means provincial governments can negotiate low prices because they represent such a large portion of the market. And secondly... there’s the relative strength of the American dollar versus Canadian currency. Devon Herrick is a healthcare economist with the National Center for Policy Analysis... a think tank that promotes free markets.

{DH: softer economy} :19
“People cannot afford to pay as much, in American dollars let’s say. But when you look at what the Canadians, the effort they expend for these drugs – with lower wages and the cheaper Canadian dollar – you could probably say the effort they put out to buy these drugs is probably not that much less than what the American consumer would experience as well.”

Even with the significantly lower prices... drug companies are willing to sell their products in Canada because of the way drug manufacturing works. The biggest costs come from research and development and marketing. Actually producing a pill is relatively inexpensive. So, drug companies are able to sell at relatively low prices and still make a profit... as long as they’re covering the rest of their costs somewhere else... usually the United States.

That set-up breaks down when U-S consumers start buying prescription drugs at Canadian prices. David Webster heads up a health industry consulting group in Bethlehem, Pennsylvania. He says the pharmaceutical companies didn’t really pay much attention when small numbers of Americans first started buying drugs from Canada. But now, Webster says drug firms are concerned about their 200-billion dollar main market.

{DW: evaporate} :13
“The pharmaceutical industry will not let that kind of revenue – and they’re investors I might add – will not stand by while that kind of revenue evaporates.”

A handful of drug companies have already responded by cutting back on supplies to the Canadian market. David Webster says if this trend continues, it could lead to the drug companies deciding to offer their products at just one price... the higher U-S one. And if Canada won’t buy them for that much... it won’t get the drugs.

The Canadian International Pharmacy Association’s John Meyers doesn’t see that price switch happening any time soon.

{JM: price harmonization} :30
“What’s of concern of course, is if the drug companies make good on their promises to curtail supplies in Canada, could that affect Canadian patients. They’ve also threatened to not introduce new products in Canada as a way of punishing Canada for being an outlet for American consumers. So, there are a lot of things out there that could alter the landscape, but at least in the short term, I don’t see price harmonization.”

One area where Canada and the U-S are on equal pricing terms is generic prescription drugs. Generics aren’t subject to price regulation in Canada... so they’re sold at whatever price the market sets. In fact... generic drugs often sell for less in the United States.

For the Health Show... I’m Greg Dahlmann.



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