Posted on 01/25/2003 9:22:28 AM PST by yankeedame
The Cheap Drugs Myth
by Ira Carnahan, 02.03.03
Canada is offered up as proof that price controls would dramatically cut the cost of medicine. The proof has some holes.
In Canada a three-month prescription for Merck's cholesterol reducer Zocor goes for $172. In the U.S., patients who pay retail fork over $328 for the same pills. The media are full of such shocking comparisons aimed at demonstrating that Canadians, thanks to price controls, pay far less for medicine than do Americans. Just one problem: It isn't so. While some high-profile brand name drugs are much cheaper in Canada, other lesser-known drugs and generics are not. In fact, 21 of 27 top-selling generics cost more in Canada than in the U.S., reports a study of lowest available prices by Palmer D'Angelo Consulting, an Ottawa firm that works for brand-ed drugmakers. For all 27 combined, the average Canadian premium is 37%. Why? Just two companies dominate the Canadian generics market, says study coauthor Neil Palmer.
That lack of competition is, ironically, partly a side effect of Canadian drug-price controls. Generic makers find countries with controls on patented drugs less attractive. So fewer jump in when a branded drug goes off patent. The end result: In the U.S., generic drugs cost an average of 74% less than equivalent brand name drugs; in Canada, generics average just 38% less.
Canada's rules can also discourage branded drugmakers from discounting older drugs to compete. John R. Graham of the Fraser Institute in Vancouver explains why: Canada's Patented Medicine Prices Review Board typically sets the maximum price for a new drug by comparing it with similar drugs already on the market. So if companies lowered prices on old drugs, that could cut into profits on new ones, too.
How did the myth of cheap Canadian drugs gain such wide acceptance? It began with a 1992 study by Congress' General Accounting Office and was reinforced by a 1998 report from the Democratic staff of the House Committee on Government Reform. Both studies were flawed. They compared only top-selling brand-name drugs, ignoring lower-priced generics that now make up half of U.S. prescriptions. Furthermore, prices in the studies weren't properly weighted to reflect market share or volume discounts, argues Wharton School health economist Patricia Danzon. Correcting for such flaws, Danzon and Li-Wei Chao, also of Wharton, found that if Americans had paid Canadian prices for the drugs they bought in 1992, they would have saved, at most, 13%.
Yes, the Wharton economists have received research funding from the drug industry, and yes, the price break Canadians enjoy has likely widened since 1992. But it's doubtful that Canada's price controls on patented drugs, as opposed to economics, are the main cause of lower prices there.
The truth is, notes the Fraser Institute's Graham, all kinds of goods cost more in the U.S. than Canada. A turbo Chrysler PT Cruiser retails for $23,100 in the U.S. and the equivalent of $17,800 up north. Yet there's no Canadian Retro Car Prices Review Board. Even bigger price differences are common for goods with high fixed costs but lower variable costs, everything from music CDs to online service. Prices are lower in Canada because incomes there are a fifth smaller and the Canadian dollar is weaker. Producers logically try to recoup most of their high fixed costs from wealthier consumers and charge those who can't pay as much a price closer to marginal cost.
There's another reason for lower drug prices in Canada: lower liability costs. In Canada, judges--not juries--typically set damages, and awards for pain and suffering are capped at $185,000 U.S. Such differences account for a third to a half of the gap, a 1997 study in the Journal of Law and Economics concluded. Yet the politicians and do-gooders who complain most about U.S. drug prices are often the least likely to favor reining in legal costs.
Bargains, South of the Border
Generic(Brand Name) Type U.S. Price vs.Canada Price
--Amoxicillin(Amoxil) Antibiotic 49% less --
Atenolol(Tenormin) Beta-blocker 86% less --
Minocycline (Minocin) Antibiotic 21% less --
Naproxen (Naprosyn) Anti-inflammatory 36% less --
Verapamil (Calan) Calcium channel blocker 43% less
Sources: "Generic Drug Prices," Palmer D'Angelo Consulting, Aug. 2002.
If you look into this a litle, you may find that your doc, like mine, is indifferent to prices and could be prescribing more economically, if you ask.
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