In a recent survey by the Canadian International Pharmacy Association, they determined that 64% of Americans purchase their drugs online from Canada because of high costs in the U.S.
Approximately 30% reported having to skip doses, split pills, or even chose not to fill their prescription because of high costs.
Why are drug prices in Canada vs the U.S. so much lower? Why are Americans paying so much more for their prescription drugs? What are the contributing factors?
Why Are Drug Prices Cheaper in Canada?
Revenue generated from drug production in the U.S. has more than doubled in the past 10 years. In 2016 alone, the U.S. brought in more than $328.6 billion in prescription drugs sold in pharmacies, mail-order outlets, grocery stores, warehouse clubs, and similar businesses.
Drug Prices in Canada vs USA
Pharmaceutical companies are a thriving business, and clearly, they thrive at the expense of the average American vs Canadian for several reasons.
In the United States, drug companies have an unusual ability to function relatively unregulated. They set their prices regardless of inflation and demand. They also factor in the research and development costs of the drugs and their uniqueness or effectiveness.
Drug companies in the U.S. can also raise their prices substantially for no apparent reason.
In Canada, the government sets a ceiling cost. First, the price must be comparable to another drug that treats a similar condition.
They also do price comparisons for the same drug in countries with similar standards of living, such as France, Switzerland, Australia and the United Kingdom.
Most of these countries have price controls as well, so the prices can never rise too quickly or too high. They also use centralized price negotiations, national formularies, and comparative and cost-effectiveness research for determining price ceilings.
Research and Development Costs
Pharmaceutical companies invest hugely in research and development and future potential for profit. You should know that only one out of every 12 1/2 drugs under development ever move beyond the testing phase. Also, a drug can take up to 14 years to develop. Drug companies can invest as much as $2.6 billion to get any one drug to your local pharmaceutical dispensary.
Drug companies care only about global profits, not about the profits from any single country. This means because the U.S. doesn’t have price controls, Americans end up paying the cost for R&D. The other countries that have price controls only pay for the cost of production.
In Canada, the Patented Medicine Prices Review Board (PMPRB) at the Federal level caps the price of drugs. At the provincial level, the government is in charge of the funding of all health care services. For pharmaceutical coverage, each provincial drug plan sets specific price and drug product substitution laws.
Most provinces have mandated that a cost-effectiveness analysis of each new drug be done to help determine if the drug should be extended coverage under the provincial or the private drug plans.
The provincial drug benefit plans will only pay the price of the lowest generic drug for a condition, so most Canadians who are covered under private drug benefit plans receive generic drugs.
Choosing generic drugs over the more expensive brand name drugs is actually a very good choice in most cases since they are identical and provide the same benefits.
This encourages price competition among drug companies producing similar medications.
Provinces also regulate how much pharmacies can charge for dispensing fees. This savings is passed on to the consumer.
In Canada, new drugs and medical technologies tend to be adopted more gradually.
The PMPRB will assess not just whether a new drug is effective but whether it is more effective than existing therapies — and, in some cases, whether it is cost-effective.
As a result, while U.S. per-person drug utilization may be similar to that in other high-income countries, the mix of drugs Americans consume can include a higher proportion of newer, more expensive medications — yet with no evidence of better health outcomes.
In the U.S., Pharmacy Benefit Managers (PBM) have the task of helping benefit payers through annual drug savings, promotion of generic drugs and cheaper prescription alternatives.
Unfortunately, this is not consistently the case, and many contracts are ambiguous and often benefit PBMs at the expense of employers. Due to the convoluted wording of the contracts, the PBM often keeps the savings and doesn’t pass them on to the consumer.
As a result, drug choice in the U.S. does not necessarily mean a lower cost for the drugs.
Americans are more likely than Canadians to take drug companies to court for adverse reactions to drugs. They are more likely to file class action lawsuits that can represent huge losses for a drug company.
American judges are more likely to hand out huge liability settlements. In Canada, liability settlements are capped at $250,000.
The cost for these settlements is, naturally, passed on to the consumer. A study found that 26 drugs cost over 100% more in the U.S.; however, removing liability would lower that rate to 45%.
Standard of Living
The United States has a substantially better standard of living than Canada. In the ranking of countries by standard of living, the U.S. ranks 15th, and Canada ranks in the 21st position.
The idea is, the pharmaceutical company can maximize its profits by engaging in “price discrimination”—that is, selling the product in different markets at different prices depending on the gross domestic product per capita.
Canada does not allow direct-to-consumer (DTC) advertising of prescription medicines. The United States does.
Drug companies spend billions of dollars annually advertising their medicines on TV, billboards, in print media and at sporting events.
They pass the cost of this advertising on to the consumer, which results in higher costs overall.
In Canada, pharmaceutical companies may only advertise to physicians or medical communities. This does involve a cost to the drug companies, but not nearly as substantial as in the United States.
Your Best Option
Because of these many reasons for the inequities in drug prices in Canada vs U.S.A., you most likely are ready to make the switch from purchasing your prescription drugs at the local warehouse club to purchasing them online.
You can still find competitive prices if you know how to look. Check out our Drug Prices Comparison tool today!