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Canada's drug price paradox: the unexpected losses caused by government interference in pharmaceutical markets


Fraser Institute Digital Publication
February 2005

Canada's Drug Price Paradox The Unexpected Losses Caused by Government Interference in Pharmaceutical Markets Brett J. Skinner
Executive summary / 1
Background / 5
Data / 7
Methodology / 13
Findings / 15

Analysis / 19
Conclusions / 35
Appendix A: Verification of Canadian/US generic price differences / 37
Appendix B: Tables / 39

Notes / 70
References / 73

About this publication
About the author / 77Acknowledgments & Disclosure / 78 Publishing information / 79How to use the interactive features in this document / 80 About The Fraser Institute / 81


Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
Governments in Canada defend their interference in pharmaceutical markets by claiming such policies reduce prescription drug costs for Canadians. Yet, this study shows that Canadians pay much more than they should for generic drugs and that this is because of the very government policies that were supposed to make prescription medicines cheaper in the first place. This study also finds that price controls on pat-ented drugs are unnecessary because market prices in Canada would often be nearly the same as government-imposed prices anyway. Even worse, price controls distort the pharmaceutical market in ways that harm Canadian consumers. In sum, govern-ment pharmaceutical policy is failing to provide better outcomes than competitive markets could. The cost of this government failure is significant: Canadians spent at least $2 billion more in 2003 than they would have if there were a competitive market for prescription drugs in Canada. In fact, if consumers' opportunity costs are included in the analysis, the losses could reach nearly $5 billion annually. These conclusions are drawn from some basic facts established by this study. First, Canadian prices for generic prescription drugs are on average 78% high- er than in the United States at the retail level. This is surprising because Canadian incomes are lower than US incomes and economic theory suggests our drug prices should be lower as well. One reason Canadian prices are so much higher is that the American market is far more competitive. The effect of Canadian policies has been to give established generic producers unfair advantages that they have exploited to establish individual product monopolies on pharmacy shelves through exclusive dis-tribution agreements with retailers. By contrast, the US market is characterized by a large number of companies and healthy competition for sales of generic drugs, which leads to lower prices and higher voluntary rates of using generic drugs in the United States. If our market were as competitive as that of the United States, we could expect our prices for generic drugs to fall to US levels and our rates of using generic drugs to increase to US levels.
Second, only patented, brand-name drugs are subject to government-imposed price controls while non-patented, branded drugs have prices set by market forces. Yet, this study finds that market-priced brand drugs are at the same retail levels as price-controlled brand drugs (42% to 43% below US prices). Importantly, this remains true even when they have no generic competition: 30% of the top 00 brand-name drugs in this study were non-patented and 7% of these drugs had either no generic competitors at all or no generic competition over the biggest selling formulations. Therefore, these drugs enjoyed similar market exclusivity as patented drugs but without being subject to price controls. The prices for these drugs—prices set by the market—were 38% lower on average than the US prices for the same drugs. Additionally, 57% of these drugs had Fraser Institute Digital Publication


Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
no competition from either generics or from a price-controlled drug in the same ther-apeutic class. The Canadian prices of these drugs also averaged 38% less than prices for the same drugs in the United States. This suggests that if price controls on patented drugs were repealed, the price of patented drugs would not likely rise much higher than the current levels. This analysis demonstrates that justifications for intervening in pharmaceutical markets through price controls based on the belief that market prices would be too high for people to afford are wrong. In a competitive market, lower average Canadian incomes will keep prices low relative to prices in the United States. Therefore, price controls in Canada are at best unnecessary. Theoretically, price controls can also artificially inflate the price of branded drugs even after their patents have expired. This is because Canada's price control mechanism mandates that the price charged for a newly patented drug cannot exceed the highest price already charged for previous drugs in the same therapeutic category. Thus, (in the absence of intervening factors like brand loyalty) once a branded drug comes off patent, the manufacturer has a disincentive to lower its price, even in the face of competition, so as not to inadvertently reduce the maximum entry price that can later be charged for a new drug in the same class. As mentioned in a previous study the brand resistance to price reductions caused by the Canadian price-control mechanism also creates a higher price ceiling for generic competitors. If generics face less cost competition from brands, they can get away with charging a higher price. This analysis suggests that price controls on patented drugs have created perverse incentives for both branded and generic drug pricing that encourage higher prices for all non-patented drugs (including both branded and generic drugs) than would occur in a competitive market. Too often, proponents of government interference in markets fail to count all of the costs of such policies. Once the findings from this study are projected either onto existing Canadian rates of use for brand and generic drugs, or also on to rates of use resembling the US experience, it is shown that Canadian pharmaceutical policies are costing Canadians nearly $2 billion directly in the price of generic drugs and perhaps up to $5 billion in total once all consumer opportunity costs from voluntary substitu-tion are included. This does not even include the added opportunity costs Canadians suffer because of pharmaceutical policies that lead to lost investment and employ-ment related to pharmaceutical R&D.
These findings support the conclusion that Canadian consumers would be bet- ter off if price controls on pharmaceutical drugs were abolished; if the federal govern-ment repealed policies that lead to a lack of competition in the generic drug industry; and if, as part of normal buyer-seller contract negotiations, third-party payers like provincial governments and private insurers demanded full disclosure of the rebates on generic drugs offered to pharmacy retailers in exchange for monopolies on phar-macy shelves.
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by Government Interference in Pharmaceutical Markets
Adjusting for the purchasing power parity of the Canadian and US dollars, the retail price for Canadian generic drugs was 78% more on average than for the same generic drugs in the United States. Of the 00 top-selling generic drugs that were generically available in both markets: d 74% were priced higher in Canada than in the United States: Canadian prices for these drugs averaged 6% higher than US prices d 26% were priced lower in Canada: Canadian prices for these drugs averaged 33% lower than US prices d Surprisingly, one drug that was available generically in Canada but not in the US was actually 4% more than the price of the US branded drug equivalent.
By comparison, brand-name drugs cost 43% less in Canada on average than in the United States. Of the 00 top-selling branded drugs common to both markets: d 93% were less expensive in Canada than in the United States: Canadian prices for these drugs averaged 43% lower than US prices d 7% were more expensive in Canada than in the United States: Canadian prices for these drugs averaged 3% higher than US prices d 70% were patented and subject to price controls; 30% were non-patented and therefore not subject to price controls: patented drugs were 43% lower than US prices on average, while non-patented brand name drugs were 42% lower than US prices on average.
d 7% of the non-patented, non-price-controlled brand-name drugs had no com- petition from generic producers and were therefore enjoying the same market exclusivity as patented drugs. Prices for these market-priced brand-name drugs averaged 38% lower than US prices for the same branded drugs—and this was achieved without government-imposed price controls. By comparison, patented brand-name drugs (mentioned above) that were under government-imposed price controls were only 43% less expensive on average relative to the US price for the same drug. Data is based on a sample of retail prices, volumes, dosages, and formulations for the top 00 generic drugs with the highest prescription volumes in Canada in 2003 repre-senting nearly ⅔ of the entire generic market as well as a sample of the top 00 brand-name drugs with the highest prescription volumes in Canada in 2003 representing Fraser Institute Digital Publication


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nearly ¾ of the entire brand name market. This dataset is matched to primary data gathered on actual US retail prices, which are verified as representative against list prices, known bulk discounts, and published third-party reimbursement prices for the same drugs. If Canada eliminated price controls on patented medicines and achieved a pharmaceu- tical market that was as competitive as that of the United States, net savings for Cana-dians could reach $5 billion annually for total retail pharmacy sales of generic and brand-name drugs alone. The savings would result from greater competition for sales of non-patented drugs—especially generics—leading to much lower prices and greater voluntary use of generics as well as continued low prices for brand name drugs.
d Generic prescription drug prices would be expected to drop dramatically from current levels and generic substitution rates would increase considerably as they have in the United States.
d Prices for the 70% of brand-name prescription drugs that are patented drugs would remain near current levels, which are significantly lower than US prices because of lower average incomes in Canada. Prices for the remaining 30% of brand-name, prescription drugs that are non-patented and not under price controls would remain at current market levels, which are already nearly as low as price-controlled drugs even when they face no generic competition.
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In a recent study, Generic Drugopoly: Why Non-patented Prescription Drugs Cost More in Canada than in the United States or Europe , I reviewed published research from authoritative government sources, including Canada's Patented Medi-
cines Price Review Board (PMPRB) and the US Food and Drug Administration (FDA)
comparing Canadian to US and international prices for prescription drugs. Using a large sample of drugs, the PMPRB study concluded that
generic drugs were priced higher in Canada than in a group of comparison countries
used for imposing price controls on patented drugs in Canada that included France,
Germany, Italy, Sweden, Switzerland, the United Kingdom and the United States; as
well as the additional countries of Australia and New Zealand. Most surprisingly, both the Canadian and US studies found that Canadian generic prescription drugs tended to be priced higher than their US equivalents. These findings confirmed earlier private-sector research that found Canadian generic drugs to be more expensive than US generic drugs on average. Those findings were surprising because Canadian incomes are lower than incomes in many of the other countries studied, especially the United States. There-fore, one would expect to find lower average Canadian prices for products like generic drugs as well because the marginal, per-unit production costs of products like drugs are quite low while the average costs, which include research and development expens-es, are much higher. This difference in average and marginal costs creates flexibility for the manufacturer to use price differentiation but only when markets that are less sen-sitive to price changes (usually high-income markets) can be segmented from markets that are more sensitive to price changes (usually low-income markets). When markets can be segmented, then prices can be set differently to maximize profits in each mar-ket. The fact that authoritative sources found that Canadians have lower incomes on average but pay higher prices on average for generic drugs than other countries was counter to economic theory and recommended further investigation into the reasons that this was occurring.
I examined this question and found that a lack of competition in the Canadian generic industry partly explained why prices were higher than expected in Canada. The Canadian generic drug industry was controlled by relatively few companies compared to countries like the United States, Germany, or France where generic drug prices are lower. An analysis of the generic market suggested that the low level of competition in Canada's generic drug industry permitted monopoly-style pricing power to be exer-cised by a few large companies. Further research revealed that this "generic drugopoly" had in fact been created by policies of the Canadian government that often accidentally, and sometimes intentionally, favoured the industry over its commercial competitors.
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I calculated the difference between the international median price and the Canadian median price for generic prescription drugs based on the PMPRB's pub-lished data and found that Canadians pay at least 30% more than they would if the domestic drug industry was as competitive as other international markets. The study estimated that for consumers of generic drugs who made up 42% of the market in Canada, this amounted to a lost savings of at least $80 million in 2004, based on the expected value of sales revenues to generic manufacturers. The findings of my review of the research in this area proved quite controver- sial. Therefore, in order to verify the findings of the PMPRB, the US FDA and oth-ers, I decided to undertake my own primary research into drug pricing, comparing prices in Canada and the United States and investigating the degree of competition in the Canadian generic drug industry. This new study examines prices over a larger market basket of drugs than has been previously studied and investigates competi-tion for sales of generic drugs. Furthermore, the study recalculates the lost savings to Canadian consumers as a whole based on this additional research into generic drug prices and new research into the effect of price controls on patented and non-patented branded drug prices; and considers hypothetically the overall cost trade-offs to the total group of consumers on both sides of the border from the adoption of different pricing regimes and the associated differences in drug-use patterns.
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by Government Interference in Pharmaceutical Markets
The data in this study refer only to prescription drugs in Canada and the United States. Non-prescription or over-the-counter (OTC) drugs are excluded. Prices and volumes apply to retail pharmacy sales only and include pharmacy mark-ups and professional fees unless otherwise stated. Direct government or institutional sales are excluded.
The Canadian dataset used for this study comprises the following three separate lists of drug products: d the top 00 brand-name drug products in Canada ranked by the number
of prescriptions dispensed, representing 72.9% of the total number of brand name prescriptions dispensed in the Canadian market; d the top 00 generic drug products in Canada ranked by the number of pre-
scriptions dispensed, representing 63.6% of the total number of generic pre-scriptions dispensed in the Canadian market for 2003; d a separate list of all manufacturers in the Canadian generic market for each of the top 00 generic drug products in 2003 and their associated market shares defined by the number of prescriptions dispensed for each product.
All Canadian data were purchased directly from IMS Health Canada. Brand name and generic drug-product data was sourced from IMS Health's CompuScript data-base. According to IMS Health, the CompuScript database estimates the number of prescriptions dispensed by Canadian retail pharmacies. The CompuScript sample is drawn from a panel of over 4,700 pharmacies, which represents approximately two-thirds of all retail pharmacies in Canada. The sample, stratified by province, store type (chain or independent), and store size (large or small), comprises over 2,000 stores and is representative of the total number of stores in Canada. Records are collect-ed electronically each month from participating pharmacies. After passing through various quality-control checks the sample data are projected to the total number of pharmacies in each province and provincial totals are summed to provide a national estimate. The data elements available include extended units. The extended unit may be pills (for oral solids), millilitres (for liquids), doses (for some inhalers) and grams (for powders). Also available is the cost of the prescription as dispensed. This includes all mark-ups and the pharmacist's professional fee. Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
Specifically, the Canadian dataset included the following elements: d drug product name d active ingredient(s) (i.e. common drug name) d formulation (e.g. orals, solid) d extended unit type (e.g. tablets) d available dosage strengths per drug product (e.g. 50 mg tablets, 00 mg tablets, 20mg/5ml liquid) d total prescriptions dispensed per drug product d total prescriptions dispensed per drug product by dosage strength d total extended units dispensed per drug product d total extended units dispensed per drug product by dosage strength d average extended units dispensed per prescription, per drug product by dosage strength d total cost of dispensed prescriptions per drug product including all pharmacy mark-ups and professional fees d average prescription cost per drug product including all pharmacy mark-ups and professional fees d all manufacturers in the Canadian generic market for each of the top 00 generic drug products in 2003 and their associated market shares defined by the number of prescriptions dispensed for each product.
The data does not represent a random sample of the entire market for brand name and generic prescription drugs in Canada. However, with the CompuScript database representing two thirds of all pharmacies in Canada, and the datasets selected for this study representing between nearly two thirds and three quarters of the entire number of prescriptions dispensed for each of their respective classes of drugs, it is reasonably safe to extrapolate these findings to the total market for brand-name and generic pre-scription drugs in Canada.
Identification of the patent status of brand-name drugs and the number and types of competing manufacturers was also verified for accuracy and completeness against data accessible on the website of the Canadian federal government's Thera-peutic Products Directorate (TPD). This site contains menu links to the Patent Regis-try, which lists currently patented prescription drug products and their expiry dates as well as already expired patents dating back to 2002. The TPD site also links to the Drug Products Database (DPD) which contains a list of active and inactive pre-scription drug products, showing all of the formulations, drug identification numbers (DIN), patent numbers, and every manufacturer. The site allows searches under man- ufacturer, drug product name, active ingredient, patent number and DIN.
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Comparing Canadian drug prices with American drug prices is complicated by the lack of published data that identifies actual prices paid by consumers in the United States. Inquiries with IMS Health Canada indicate that there is no publicly acces- sible source of data on final retail consumer purchases for the entire market like that used by IMS Health in Canada to estimate sales volumes and spending. Further, IMS Health indicated that their American operation does not maintain a similarly struc- tured set of US data comparable to the Compuscript database and, in any case, esti-mates of the costs for the US data that was available made obtaining it unaffordable for this project. Moreover, the reality is that retail prices vary significantly among retailers and geographic locations, making it difficult to extrapolate small samples across the entire market. Estimating retail prices from manufacturers' direct price or wholesale price is also difficult because detailed data on actual prices paid to manufacturers and whole-salers by retailers varies widely depending on individually negotiated rebates. Detailed price and rebate data is kept private by retailers, wholesalers, and manufacturers because it is proprietary commercial information. So, while IMS Health can reasonably estimate an average price for the Canadian market, it is difficult to obtain the same degree of accuracy when estimating average prices in the United States. Nonetheless, it is possible to derive a reasonable estimate of prices based on available data identifying manufacturers' list prices, actual pub-lished upper-limit prices for US government agencies, actual retail prices published online with major (national) US pharmacies, published research estimating the size of rebates offered to major third-party payers, and the percentage of retail sales affected by third-party reimbursement.
For this study, US data on drug prices, drug formulations, dosage strengths, and prescription sizes were obtained from the following sources. 2004 Thomson™ Red Book®
Average Wholesale Prices (AWP) The Red Book® (RB) is the central source of data on manufacturers' list prices for the US pharmaceutical market. Prices listed in the RB are labelled as Average Wholesale Price (AWP). The RB bases its published AWP on the following: d AWP as reported by the manufacturer.
d Or, AWP calculated based on a mark-up specified by the manufacturer (includes manufacturers, re-packagers and private labellers). This mark-up is typically based on the Wholesale Acquisition Cost (WAC) or Direct Price Fraser Institute Digital Publication
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(DP), as provided by the manufacturer, but may be based on other pricing data provided by the manufacturer.
d Or, when the manufacturer does not provide an AWP or mark-up formula from which AWP can be calculated, the AWP is calculated by applying a stan-dard 20% mark-up over the manufacturer-supplied WAC. If a WAC is not pro- vided, the standard mark-up is supplied to the DP.
According to the publisher, the data has not been subjected to any independent analy- sis to determine or calculate the actual AWP paid by providers (this includes retail-ers, hospitals, physicians, and others buying from the wholesaler or directly from the manufacturer for distribution to a patient) to wholesalers. The publisher also does not independently investigate the actual WAC paid by wholesalers to manufacturers or DP paid by providers to manufacturers but relies on the manufacturers to report the
values for these categories as described above. oreword]
For the purposes of researching US drug prices, it is especially important to note that RB-listed AWP is not reflective either of average prices or of the actual pric-es paid by wholesalers or pharmacies in the United States. This is because AWP is only used as a benchmark for calculating individually negotiated discounts and rebates to large government and private-sector third-party payers like Medicare, Medicaid, Vet-eran Affairs, Federal Supply Services, private insurers, health maintenance organiza-tions (HMOs), and pharmacy benefit managers (PBMs), as well as bulk retail buyers. Therefore, AWP data does not provide a realistic picture of actual prices for drugs in the United States. Nevertheless, it is possible to use AWP to make a rough estimate of actual pric- es in the market by first accounting for the proportion of the market for prescription drug sales in the United States that is affected by third-party payer rebates and dis-counts. For instance, there is data available that estimates the numbers of prescrip-tions that are reimbursed by third-party payers versus those that are paid for by cash customers. According to research published by Canada's Patented Medicines Price Review Board (PMPRB), the proportion of cash customers in the US market has been steadily decreasing in recent years, from 63% of retail prescriptions in 990 to only 25%
by 998. [] Therefore, at least 75% of retail prescriptions in the United
States are reimbursed by third-party payers, and are therefore sold at prices that are significantly lower than the RB prices. Second, it is also possible to estimate the magnitude of the discounts achieved over the three quarters of the market for retail prescription drugs that is covered by third-party reimbursement. The size of the discount from AWP depends on the par-ticular terms of the rebates negotiated by third-party payers and the class of drugs concerned. PMPRB research indicates that because of volume discounting, generic drug prices tend to be 50% to 60% below AWP, while branded drug prices are 3% to Fraser Institute Digital Publication
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5% below AWP. [] As mentioned above, these discounts apply to at
least three quarters of the market. The validity of the PMPRB's estimate of the size of the average discount is con- firmed by comparing RB list prices with actual prices paid by US government agen-cies from the US Federal Supply Schedule (FSS). In the United States, prices for drugs purchased by federal agencies are set by the Federal Supply Schedule (FSS). FSS prices match the lowest price obtainable in the American market. According to the US Gen- eral Accounting Office (GAO), average FSS prices for generic drugs are more than 50%
below the RB price. Moreover, the US Department of Veteran Affairs (VA) has been
able to negotiate prices even lower than FSS prices through purchase contracts for
select drugs. [
Because three quarters of the market obtains retail drug discounts that are similar in size to the FSS price, the average retail price for drugs in the United States is obviously much lower than the RB AWP price and, especially for generic drugs, may in fact be strongly skewed toward the lower FSS price. Inasmuch as the actual primary data on retail prices that was collected for this study approximates the kinds of dis-counts achieved by FSS and other third-party payers, it may be reasonably assumed that average prices are reflected in the retail price data presented here.
Federal Upper Limit (FUL) price The RB also publishes the Federal Upper Limit (FUL) price for generic drugs when such a price is available. The FUL price is that reimbursed by Medicaid (the US Feder-
ally-funded, state-run, health insurance program for low-income people) for prescrip-
tion drugs for its beneficiaries. According to the State Medicaid Manual, these reim-
bursement limits were established to ensure that the US Federal Government acts
as a prudent payer by taking advantage of current market prices for multiple-source
drugs. The RB provides a table of FUL discounts by State. [ [] These data indicate that the FUL discounts are not as large on average
as those of either FSS or other third-party payer prices.
This study will compare the AWP listed in the RB to the FUL price when avail- able to establish the difference between listed AWP prices and this set of actual prices over the US sample of drugs that match the top 00 brand-name and top 00 generic drugs in Canada. The FUL prices represent a conservative estimate of actual prices because the discounts from AWP are smaller than those achieved by FSS and other third-party payers.
Nevertheless, neither AWP nor FUL prices are used to compare directly to IMS Health's Canadian retail price data. Instead, actual US retail pharmacy prices are used to compare to the actual Canadian retail pharmacy prices. AWP and FUL prices, estimates of third-party insurance coverage, and the magnitude of bulk discounts Fraser Institute Digital Publication
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achieved by insurers are merely used to verify that the US retail prices collected for this study can be reasonably generalized across the US market.
Costco® and Walgreen's® Actual Retail Prices (RP)
The resources available to this project did not permit the mass primary collection of US retail price data on a scale that would achieve a representative sample size that could be extrapolated to the entire market. Instead, the research design called for a comparison of AWP to FUL and at least one actual US retail price for each of the drugs in the Canadian sample. For ease of data collection and to make the sample as representative as possible, this study primarily used the online pharmacy drug-price information and ordering services of Costco® and Walgreen's®, two major US retail pharmacy chains, to obtain actual US price and other drug information for compari-son to the Canadian data purchased from IMS Health. The Costco® price-search ser- vice was primarily used; Walgreen's® was used to supplement missing data. According to the retailers, pharmacies located in Costco® retail outlets nationwide offer pricing
consistent with those listed on the website, which reflected the full-cash purchase
price including pharmacy mark-ups and professional fees. [] Walgreen's®
list prices also reflected the full cash purchase price. [ The actual
price data from Costco® and Walgreen's® was collected between July 2, 2004 and
August 5, 2004 and verified as of October 5, 2004.
The data elements included in the US dataset are as follows: d drug product name d active ingredient (s) (i.e. common drug name) d formulation (e.g. orals, solid) d extended unit type (e.g. tablets) d available dosage strengths per drug product (e.g. 50 mg tablets, 00 mg tablets, 20mg/5ml liquid) d standard extended units dispensed per prescription, per drug product by dos- d prescription cost per drug product including all mark-ups and professional fees.
compares the Canadian and US data elements described above.
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The data sources used for this study listed drug dosage strengths and prescription sizes that sometimes differed between Canada and the United States for the same drug products. In order to make the data comparable between markets, all drug prices were converted to common dosage units. In almost all cases, this was measured in terms of a price per milligram of active ingredient. By converting to a price per dosage unit, prescriptions of various sizes and dosages could be made comparable for each drug product.
Canadian sales volumes per formulation and dosage for each drug product were available in the Canadian dataset. Unfortunately, the same level of detail was not available from the three sources of US price data. To improve comparability on aver-age pricing, this study assumed that US sales volumes would follow Canadian pat-terns and made volume-weighted adjustments to the US data so that it would match Canadian sales volumes per drug formulation and dosage.
Data sources contained many entries for generic drug products as there are multiple manufacturers in the market producing the same active ingredient. There-fore, in the Canadian dataset, all generic manufacturers producing the same active ingredient were aggregated into one entry with a weighted average price based on actual sales volumes per product for all common dosage strengths and drug formula-tions. In the US data set, an average of all listed RB prices for generic manufacturers producing the same active ingredient was calculated and used to calculate a represen-tative price based on Canadian volume weights.
In order to make prices comparable across currencies, the Canadian prices were converted to US dollars at the 2003 US-to-Canadian currency Purchasing Power
Parity (PPP) rate of .2 Canadian dollars to the US dollar set by the Organisation for
Economic Cooperation and Development (OECD). [ The PPP is used to
reflect a currency's actual purchasing power relative to the same basket of goods in different countries. PPP is a useful measure for consumers who will only shop in their domestic markets because it should accurately reflect their transaction costs (exclud-ing indirect costs) in their own country The Canadian dataset is current through the full year 2003, representing the most recent full year of data available at the time of research. By necessity, actual US retail price data was obtained through primary research and was therefore current to the summer of 2004. In order to keep US data on AWP and FUL prices comparable to actual US retail price (RP) data, the 2004 edition of the Red Book® was used. The difference in years between the Canadian and US datasets required the US data to be adjusted to remove the effect of normal price inflation that occurred between 2003 and 2004. According to the US Bureau of Labor Statistics, the 2003 annual inflation Fraser Institute Digital Publication
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rate for pharmaceutical preparations averaged 4.5%. []
This figure is conservative when compared to the claims made by drug-price advocacy groups like Families USA that have reported drug-price inflation rates as high as 6.5%
in 2003. [ Therefore, US prices were adjusted to remove the 4.5%
inflation that took place between 2003 and 2004 in order to make the Canadian and
US prices comparable across time periods.
Due to the fact that all prices have been converted to US dollars, d Canadian to US price differences are stated as a percentage of the US price: e.g., price difference = (CAD – US) / US; d US domestic prescription-drug price differences are stated as a percentage of the AWP: e.g., price difference = (AWP – FUL) / AWP; price difference = (AWP – RP) / AWP.
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Prices for generic drugs in Canada are higher on average than US prices The findings of this study confirm earlier published research on Canadian and US generic prescription drug prices from the following chronologically listed sources: d The Fraser Institute []
d Palmer D'Angelo Consulting International []
d Patented Medicines Price Review Board of Canada []
d US Food and Drug Administration, Department of Health and Human Ser- d US Food and Drug Administration ]
All of these studies have found that prices for generic prescription drugs are higher on average in Canada than in the United States. Only one published study in the literature, that by Danzon and Furukawa ],
found that Canadian generic drug prices were on average lower than in the United
States. However, that study included non-prescription (over-the-counter) drugs in its
data sample and is, therefore, not comparable to the prescription-only prices studied
here. Danzon and Furukawa also used data from the IMS Health Midas set, which is
recorded at manufacturer-price levels, excluding wholesaler and pharmacy mark-ups
and, therefore, is not comparable to the retail price data sets used in this study. Their
study also used 999 data, making the comparison to this one somewhat dated. In my
opinion, Danzon and Furukawa also did not adequately adjust for the applicability of
bulk discounts to the market. For instance, Canada's PMPRB cites US government
estimates that more than 75% of the market is covered by third-party insurance and
therefore obtains prices discounted below list prices. [ Danzon and Furu-
kawa do not indicate what percentage of the market is covered by third parties in their
estimate. The discounts they discuss are even much smaller than the conservative
standard 20% mark-up applied by the Red Book® to estimate AWP when a manufac-
turer does not supply the list price. ] Their estimated discounts are
also much smaller than those estimated by the PMPRB or the US government. There-
fore, it is my opinion that Danzon and Furukawa's estimates of US price levels are
significantly overstated at the retail level.
The top 00 generic drug products sold in Canada in 2003 measured by the number of prescriptions dispensed from retail pharmacies are ranked in Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
An analysis of the top 00 generic drug products sold in Canada in 2003 identi- fied 59 separate generic active ingredients, which are listed in Of these 59 active ingredients, 6 were not at all available, or not yet generically available, in the United States. This left 43 active ingredient drug compounds that were generi-cally available in both Canada and the United States. Summary of findings on generic prices
d In a direct comparison between actual retail prices in Canada and the US for all 43 drugs that were generically available in both markets, the Canadian price averaged 78% higher than the US price for the same drugs.
d Of all 43 drugs that were generically available in both markets, 32 (74% of the sample) were more expensive in Canada.  (26%) were less expensive.
d For the generic drugs that were more expensive north of the border, Canadian prices averaged 6% higher than US prices. For the generic drugs that were
less expensive in Canada, the Canadian price averaged 33% lower than US
prices. []
See [ to this study for a discussion verifying these price comparisons.
Prices for branded drugs in Canada are lower on average than US prices The price of brand-name drugs in Canada follows the pattern one would expect: Cana- dian prices are lower on average than US prices. There are two possible explanations for this. First, the findings are consistent with the fact that Canada, unlike the United States, imposes price controls on patented medicines and most of the 00 top-selling branded drugs are patented. Second, Canadian average incomes are lower than US incomes and, therefore, even without price controls, economic theory predicts that Canadian drug prices should be lower on average than US prices.
The top 00 brand name drug products sold in Canada in 2003 measured by the number of prescriptions dispensed are ranked in Of the top 00 brand-name drugs in Canada for 2003, eight (8) were either not available in the United States, not listed in the RB or an equivalent brand name could not be identified. This left 92 equivalent branded drugs available in both markets in the sample. Summary of findings on brand-name prices
d The Canadian prices for the 92 drugs available in both markets averaged 43% lower than prices for the same drugs in the United States.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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d Of these 92 drugs, 87 (95%) were less expensive in Canada than in the United States. The Canadian prices for these drugs averaged 48% lower than US prices for the same drugs. The remaining five (5%) were more expensive in Canada than in the United States. Canadian prices for these drugs averaged 3% higher than US prices for the same drugs. d 70% (64) of the sample are patented drugs and are under government-imposed price controls in Canada. The prices for these drugs averaged 43% lower than for the same drugs in the United States.
d 30% (28) of the sample are non-patented and therefore not subject to price controls in Canada. The prices for these drugs averaged 42% lower than US prices for the same drugs. d 7% (20) of the non-patented brand name drugs had no generic competitors. The prices for these drugs averaged 38% lower than prices for the same drugs in the United States.
d 57% (6) of the non-patented brand-name drugs had no generic competitors as well as no competition from patented brand-name drugs in the same thera- peutic class. The prices of these drugs also averaged 38% lower than US prices for the same drugs.
d Five brand-name drugs were non-patented, had no generic competitors, and no competition from either patented or other non-patented brand-name drugs
in the same therapeutic class. Canadian prices for three of these five single-
source drugs ranged between 62% and 66% lower than US prices for the same
drugs. [
Verifying the reliability of the Data— comparing US AWP to FUL and RP This study compared the AWP listed in the RB to the FUL price when available to establish the difference between listed AWP prices and this particular set of actual prices over the US sample of drugs that match the top 00 brand-name prescription drugs and the top 00 generic prescription drugs in Canada. By establishing this dif-ference, we shall make it clear to the reader that the AWP is only a benchmark for negotiating purchase discounts and that any analyses citing AWP as an actual price are completely unreliable. Secondly, it will become apparent that the FUL prices used in this comparison are higher than those achieved by FSS and other private third-party payers, which the PMPRB has estimated to range between 50% and 60% below AWP and cover at least 75% of the market. Third, comparing AWP to the actual retail price (RP) will make it apparent that a large percentage of the remain-ing 25% of the consumer market without third-party insurance coverage also obtains Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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prices for generic drugs that are similarly discounted from AWP because they make their drug purchases from large retail pharmacies that also negotiate bulk rebates from manufacturers.
Summary of findings for AWP, FUL, and RP prices d For the 43 generic drugs that were available in both the United States and Canada from the list of the top 00 generic drugs in Canada, 36 had FUL price data available in the RB. Stated as a percentage of the AWP price, the pub-lished data indicates that for those 36 drugs the US FUL was 68% lower than the listed AWP on average.
d Actual retail prices were also obtained for the 43 generic drugs from the list of the top 00 generic drugs in Canada that were available in both the United States and Canada. Stated as a percentage of the AWP, the data showed that the US RP was 59% lower than the listed AWP on average. This is consistent with the size of the discounts obtained by third-party insurers and govern- ment agencies covering 75% the market.
d For the 92 branded drugs that were available in both Canada and the United States, the RP was 9% lower than the AWP on average. No FUL prices were available for brand-name drugs because they only apply to generic drugs.
What these comparisons illustrate is that the AWP cannot be relied upon as a repre- sentation of actual prices and that, for generic drugs in particular, a very high percent-age of the market pays prices that are dramatically lower than AWP. Therefore, the average price in the market is heavily skewed toward the kinds of discounts described above, thus verifying the reliability of the retail price data collected for this study.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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Explaining high prices in the generic industry Lack of serious competition
In my previous research ], I cited data available to the PMPRB that indi-
cated the two largest generic companies in the industry accounted for 62% of the entire Canadian generic market by volume of sales in 998/99. This figure is slightly higher than data from the Canadian Generic Pharmaceutical Associ-ation (CGPA) that reports the two largest companies in its membership accounted for 23.6% of the 356 million total prescriptions filled in Canada during 2003 or nearly 58% of the 45 million (40.6% of 356 million) generic prescriptions dispensed in Canada.
[
According to the data used for this study, the two largest companies in the generic industry accounted for more than 68% of the total number of prescriptions
dispensed, and almost 64% of the total revenue from sales of the top 00 generic drugs
in Canada. [ This is higher than both the PMPRB's and the CGPA's
estimates of commercial concentration in the Canadian generic drug industry over
the entire market basket.
It is also important to note that the CGPA claims that its 2 member companies made up 90% of the market for generic drug sales in Canada in 2003 based on volume
of sales. ] However, the data obtained by this study indicates that the larg-
est five generic companies in the market accounted for almost all of the market—more
than 95% of all prescriptions dispensed and all revenue from sales over the top 00
generic drugs [ in Canada for 2003.
To provide a context for judging whether this represents a lack of a competitive market in Canada, it is useful to contrast these figures with markets in other coun-
tries where prices for generic prescription drugs are lower. In the United States for
instance, it took 0 of the largest companies to account for approximately 60% of the
generics industry in 998/99—roughly equal to the percentage controlled by only two
companies in Canada. [ During the same period, in France the 0
major suppliers represented only 20% of the generic drugs market and in Germany the
largest 7 major generic manufacturers represented a total market share of only 28%.
[
Furthermore, relatively few generic companies control almost the entire mar- ket for public spending on generic drugs in Canada. My previous research reviewed a PMPRB analysis of the distribution of market share by company for public expendi-tures on generic drugs in selected provincial programs over the 00 top-selling drug products on the market during 999/2000. The data indicated that one company Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
alone captured 50% of all public spending for drugs in these provinces while the
top three companies captured 82% of the market for publicly funded sales of drugs.
[
Yet even these startling figures do not indicate the full degree of commer- cial concentration in the Canadian generic industry. If commercial concentration in the Canadian generic drug industry is studied on a product-by-product basis, the virtual monopoly (or duopoly) position some companies enjoy over certain product markets is made more obvious. This study obtained a separate dataset from IMS
Health showing the market share of all generic competitors in the market for each
of the 00 top-selling generic active ingredients in Canada defined by the number of
prescriptions dispensed in 2003. Due to its length, the data is pr
pendix B). Reading through the table, it becomes evident that there are many
cases where only only two companies control almost 00% of the market for a gener-
ic product. In a significant number of cases, this occurs with only a single generic
company accounting for virtually 00% of all prescriptions dispensed1, 2, 3
and 4
illustrate the way in which some generic companies monopolize the market on
a product-by-product basis.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
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Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
Rebates and exclusive distribution agreements
It is difficult to document just how the big, established, generic companies might be able to erect barriers to entry in the Canadian market. In an attempt to discover the answer, I conducted a series of qualitative interviews with pharmaceutical pricing policy analysts from government agencies in Canada, with various experts from the private sector who have had broad-ranging experience in the branded and generic drug industries, as well as with major retail pharmacy chain stores. Expert opin-ion suggested that the dominant established generic companies might be negotiat-ing exclusive retail distribution agreements to achieve local monopolies on pharmacy shelves for their products. Specifically, it is alleged that the dominant generic compa-nies offer to retailers rebates that are "bundled" across many products in exchange for exclusive distribution rights, resulting in a monopoly on the pharmacy shelf for their particular generic brand. The pharmacies have a huge incentive to accept these arrangements because the retailer allegedly keeps the difference between the rebate offered by the generic manu-
facturer and the reimbursement paid by the provincial drug-benefit plan. The differ-
ence can be substantial with some estimating that generic rebates might amount to
nearly 60% off the public reimbursement rate. Given that nearly half (47%) ]
of all prescriptions dispensed are paid for through public drug-benefit plans, this rep-
resents a huge windfall to the pharmacies and provides the generic companies with a
virtual monopoly of the market for those drugs matching their product lines—all at the expense of taxpayers. The experts I talked to suspected that similar arrangements might apply to private insurance drug-plan reimbursement as well, thus making the scope of the issue even larger and potentially inflating costs for insurers and insured as well as employers that provide drug benefits for their employees.
The Canadian Press has corroborated that these types of deals actually exist between generic companies and pharmacies. A 2003 report contained details of how
the government of Quebec intended to launch court proceedings later in 2004 to
demand compensation from Canadian generic drug manufacturers for allegedly pay-
ing kickbacks to 85% of provincial pharmacies worth 30% to 50% of the value of the
medicines sold and totalling $500 million annually. The report also indicated that a
class-action lawsuit by a Montreal law firm is also being pursued on behalf of consum-
ers who paid inflated prices for generic drugs because of such arrangements. ] In spite of this attention to the issue, it still remains difficult to document
the scope and scale of manufacturer-to-retailer rebates because they are held as pro-
prietary commercial secrets. The ability to conduct a rebates-for-monopoly strategy
depends on third-party insurers not being aware of the actual manufacturer's price.
Certainly, if Canadian health ministries and private insurers were aware of discounts larger than those used for setting reimbursement rates, they would act to reduce the reimbursement price to match the actual rebate offered by manufacturers Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
(plus a standard mark-up and dispensing fee for the pharmacy). In turn, if pharmacies had to disclose and thus pass along generic discounts instead of keeping the difference then they would have no incentive to accept rebates that were bundled across broad product lines. Instead they would negotiate based on the best price for each individual product. Thus the big generic companies would not be able to insist on monopoly dis-tribution of their products in exchange for rebates. This is the way the system is supposed to work. However the lack of publicly available rebate information makes it impossible to know whether the reimbursement price paid by public drug-benefit programs and private insurers is based on accurate estimates of the actual discounts being traded between generic manufacturers and pharmacies.
The experts with whom I discussed these issues also suggested that giving rebates in exchange for monopoly product distribution might violate federal laws against business collusion. This prompted a search of cases before Canada's feder-al Competition Bureau. However, this research did not reveal any record of specif-ic actions taken to investigate the issue of commercial concentration in the generic industry or the retail pharmacy industry. Nonetheless, the Competition Bureau's investigation process is only initiated in response to a formal complaint from the pub-lic and I could find no record of a complaint about generic industry concentration or collusion being registered with the Bureau. First-mover structural advantages as barriers to entry
This still leaves open the question why potential competitors have not attempted to buy the same retail monopoly-distribution position as the big established Canadian generic firms. There are a couple of possible explanations for this. First, newer, small-er generic companies would have difficulty achieving the same sorts of monopoly arrangements with pharmacies because they do not offer product lines that are broad enough to offer the same volume discount across as many products as the big play-ers. Therefore, they do not have the product capacity to compete with the negotiating power of the big firms.
Second, foreign competitors might simply have had difficulty overcoming the initial structural advantages that accrued to established Canadian generic compa-nies from favourable government policies since the late 960s. This may explain why a gigantic Israeli-owned multinational generic drug maker like Teva decided in 200 to buy the second-largest generic firm in Canada (Novopharm) instead of competing on a product-by-product basis in the Canadian market. In my previous research, I briefly outlined the ways in which pharmaceutical policies in Canada have at one time or another favoured the special commercial inter-
ests of the domestic generic-drug industry against both foreign competition and its
brand-name rivals. [] The fact that public policy in Canada has tended
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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to favour the special commercial interests of established generic drug companies was
thoroughly documented in my previous research and confirmed by the statements of
several Federal Cabinet Ministers and senior civil servants. [] Based on
this research, it seems reasonable to speculate that established Canadian companies
have likely used the cumulative sum of both permanent and temporaradvantages
created by various public policies over time to entrench dominant positions in the
market regarding product distribution networks.
For instance, Canadian companies could have used first-mover advantages to entrench relationships with physicians, who through their prescribing habits can direct demand to their products. Importantly, physician-directed demand is facili-tated only when patients are immune from any direct cost for their personal drug consumption. Coincidentally, consumer immunity from costs is the primary feature of full insurance schemes like those of the various government drug-benefit programs in Canada. Such first-mover advantages would allow companies to build brand-style consumer loyalties to particular generic labels that foreign competitors would have difficulty competing against unless they could engage in a massive campaign to sway physicians to alternative products.
Forcing generic substitution
Government decisions to mandate generic substitution for filling prescriptions can also contribute to artificially inflated prices for generic products. According to recent
research comparing pharmacare programs in Canada, nine out of 0 provincial gov-
ernments mandate that pharmacists fill prescriptions with generic versions of non-
patented brand-name medicines, unless the physician specifies otherwise. [
Forced generic substitution means that generic companies do not need to com- pete on price against consumer loyalties toward brand drugs, relying on increased vol-umes for profit maximization. Instead, they can benefit from consumer demand that is less sensitive to higher prices because of government-imposed substitution rules. This allows them to obtain high sales volumes at premium prices, counter to what would occur in a competitive market.
In a competitive market for drugs, the only mechanism for increasing sales volumes and obtaining higher prices at the same time is through direct-to-consum- er (DTC) advertising. However, DTC advertising preserves the voluntary exchange mechanism of market transactions and leaves consumer choice intact. Because con-sumers can satisfy their individual preferences in the market, allowing DTC to com-pete with price as an influence on consumer demand results in superior outcomes to government-imposed generic substitution, which denies such freedom.
For instance, while many public and private third-party payers in the United States also use forced generic substitution to contain costs, competition among insurers Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
by Government Interference in Pharmaceutical Markets
means that many customers prefer insurers who offer choice, and forced substitution is therefore not as widespread. This in turn has meant that generic drugs in the United States have had to compete on price more aggressively to overcome brand loyalties that are further fortified by aggressive direct-to-consumer advertising by brand companies. This has resulted in much lower prices for generic drugs relative to non-patented brand- ed drugs in the United States than in Canada.
Price control paradox The findings of this study clearly show the perverse effects that price controls have on the Canadian drug market, leading ironically to higher instead of lower prices for both brand name and generic drugs.
To begin, this study confirms that all branded prescription drugs are signifi- cantly cheaper in Canada than in the United States (43% on average); whether they are patented or non-patented. But, it is important to note that only patented drugs are subject to government-imposed price controls while non-patented, brand drugs have market prices. Looked at separately, 70% of the top 00 brand-name drugs in Canada are patented and are, therefore, under government-imposed price controls. By comparison, 30% of the top 00 brand-name drugs are non-patented and therefore not subject to price controls. Notably, the group of patented, price-controlled drugs cost 43% less on average than the same drugs in the United States, while the non-patented, brand-name drugs priced on the competitive market cost 42% less on average than the same drugs in the United States. Ironically, brand-name, non-patented drugs that were not under price controls were priced at nearly the same discount from US prices as the brand-name, patented drugs that were under price controls. Importantly, this remains true even when the latter have no generic competi- tion and even when they do not also compete with a price-controlled drug. Recall that 30% of the top 00 brand-name drugs in this study were non-patented. Of these drugs, 7% (24) had either no generic competitors at all or no generic competition over the biggest selling formulations. Therefore, these drugs enjoyed similar market exclusiv-ity as patented drugs but without being subject to price controls. These market-priced drugs were 38% lower on average than the US price for the same drug. Additionally, 57% (6) of these drugs had no competition from either generics or a price-controlled patented branded drug in the same therapeutic class. These market-priced drugs also averaged 38% less in Canada than in the United States. Meanwhile, 70% of the 00 top-selling brand-name drugs were patented and therefore subject to government-imposed price controls. These price-controlled drugs averaged 43% lower than US prices for the same drugs—very near to the same price relative to US prices on aver-age when compared with market-priced drugs. This suggests that, if price controls on Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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patented drugs were repealed, the price of patented drugs would not likely rise much higher than current levels. This analysis demonstrates that government justifications for intervening in pharmaceutical markets through price controls based on the belief that market prices would be too high for people to afford are wrong. Therefore, price controls in Canada are at best unnecessary.
Theoretically, price controls can also artificially inflate the price of branded drugs even after their patents have expired. This is because Canada's price control
mechanism also mandates that the price charged for a newly patented drug cannot
exceed the highest price already charged for previous drugs in the same therapeutic
category. Thus (in the absence of intervening factors like brand loyalty), once a brand-
ed drug comes off patent, it has a disincentive to lower its price, even in the face of
generic competition so as not to reduce inadvertently the maximum entry price that
can later be charged for a new drug in the same class. The resistance to price reduc-
tions caused by the Canadian price-control mechanism also creates a higher price
ceiling for generic competitors. As mentioned in my previous study [],
the lack of competitive incentives for brands caused by the price-control rules theo-
retically creates an artificially high price ceiling for generic drugs. If generics face less
cost competition from brands, they can get away with charging a higher price. This
analysis suggests that price controls on patented drugs have created perverse incen-
tives for both branded and generic drug pricing that encourage higher prices for all
non-patented drugs (including both branded and generic drugs)
than would occur in a
competitive market.
Hypothetical policy analysis— what if Canadians and Americans swapped pharmaceutical policies? It is probably safe to assume that many Canadians and Americans believe that a Cana- dian-style pharmaceutical policy ultimately means more savings for Canadians and that the United States could benefit from adopting such policies. This section will hypothetically estimate the potential costs and benefits from Canada adopting poli-cies permitting a competitive market for drugs similar to those of the United States, and of the United States adopting interventionist, Canadian-style drug policies. This analysis assumes that, if Canadians adopted American-style, pharmaceutical pol- icies that allow drug prices to be set in the competitive market, this would eventually lead to US-style prices and patterns of use. Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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Canada/US drug spending and price differences According to the 2003 data obtained for this study, the total value of the retail brand- name prescription drug market in Canada was $2.2 billion CAD or $0. billion US (using 2003 US$ PPP) over 98.7 million (6%) prescriptions dispensed. The retail market for generic prescription drugs in Canada was worth $3. billion CAD or $2.6 billion US over 27.8 million (39%) prescriptions dispensed. Taken together, the total retail market for prescription medicines in Canada equaled $5.3 billion CAD or $2.6 billion US over 326.5 million prescriptions. The data also indicated that the average Canadian prescription price for all branded drugs was $55.34 CAD or $45.74 US; $60.9 CAD or $49.75 US for non-pat-ented brand-name drugs without generic competition; and $23.40 CAD or $9.34 US for generic drugs. The average US prescription price for brand-name and generic drugs was not determined directly from the price data collected for this study, which was converted to an averaged price per dosage unit before being recorded. Nevertheless, for the pur-pose of the rough calculation used in this analysis, a reasonably accurate estimate can be quickly derived by applying the actual Canadian/US retail price differences observed in this study to the known average Canadian prescription prices for brand-name and generic drugs. Recall that after currency equalization using 2003 US$ PPP, this study found Canadian prices for generic drugs to be 78% higher (.78 times the US price) on average than US prices for the same drugs and the prices for Canadian brand name drugs to be 43% lower (0.57 times the US price) on average than the US price for the same drugs. Therefore, 2003 average US prescription prices were approximately $0.87 US for generics and $80.25 US for brand name drugs. Expected prices for branded and generic drugs
in a competitive market
An accurate cost/benefit analysis of Canada adopting American-style, pharmaceuti- cal policies that allow drug prices to be set in the competitive market must account not only for existing price differences, which reflect US market prices, but also for the expected behaviour of Canadian prices for branded and generic drugs in a com-petitive market given lower Canadian average incomes. This is important because it is not necessarily true that prices for both generic and branded drugs in Canada would automatically migrate to American levels if Canada adopted US-style pharmaceutical policies. While this could be reasonably expected to occur for generic drugs, given that the US generic industry is far more competitive than Canada's, the same could not be said for branded drugs. In fact, as long as the US and Canadian markets remain segmented, the Canadian prices for branded drugs are likely to remain dramatically lower than US prices because of lower average Canadian incomes. This means that, if Canada adopted a more competitive market in pharmaceuticals, Canadians could Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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continue to enjoy significantly lower branded drug prices (both patented and non-patented) and also have the benefit of dramatically lower generic prices.
Recall that overall the top 00 Canadian brand-name drugs averaged 43% less expensive than the same drugs in the United States. Looked at again in more detail, 70% of these are patented and are, therefore, subject to government price controls. This separate group of price-controlled drugs also averaged 43% lower than in the United States. The remaining 30% of the top 00 brand-name drugs sold in Canada are not patented and therefore not subject to price controls. As a separate group, these drugs priced on the competitive market averaged 42% lower than US prices for the same branded drugs. Further, 7% of these non-patented drugs had no generic com-petition; thus they enjoyed de facto market exclusivity equivalent to patented drugs. The prices set in a competitive market for these single-source drugs were 38% lower on average than the same drugs in the United States—almost as low as price-controlled drugs but without government-imposed prices. Additionally, even those drugs that faced no competition from either generics or a price-controlled patented drug in the same therapeutic class were priced 38% lower on average than the same drugs in the United States.
Remember also that price controls on patented drugs have the unintended con- sequence of dissuading branded drugs from competing with generic drugs on price by creating a disincentive to reduce the price when a patent expires. In the absence of price controls, non-patented branded drugs would be expected to compete more aggressively with generic drugs on price because they would no longer risk undermin-ing the introductory price of new drugs in the same therapeutic class. Therefore, prices for non-patented brand-name drugs should theoretically be under pressure to decline even further if there were a competitive market in pharmaceutical pricing, i.e., no price controls on patented medicines. However, the downward pressure on prices can be countered by the effects of consumer loyalties to branded drugs that are reinforced by direct-to-consumer (DTC) advertising. In the United States, for instance, there is some evidence that brands do not reduce prices very much after patents expire. This is likely due to the widespread use of strategies like DTC advertising to develop brand loyalty in the United States. Therefore, in order to be conservative, this analysis assumes that branded drug prices will not decline in the absence of price con-trols but will simply stay roughly the same as the actual experience of non-patented, non-price-controlled brand drugs without generic competition in Canada.
These observations mean two things: 1 It is reasonable to assume that in the absence of price controls, Canadian prices for
both patented and non-patented brand drugs would remain roughly as low as current levels for those non-patented brand-name drugs that have no generic competition and do not compete with a price-controlled patented drug in the same therapeutic class. Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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2 In a free and competitive market, Canadian generic drug prices would gradually
become at least as low as US prices for the same drugs.
Expected use of branded and generic
drugs in a competitive market

A complete estimate of the full costs and benefits of Canadians adopting American- style, pharmaceutical policies that allow drug prices to be set in the competitive mar-ket also requires that adjustments be made for expected changes to patterns of use associated with branded and generic drugs in a competitive market. It is reasonable to assume that lower US prices for generic drugs relative to their branded equivalents account for the higher rates of generic substitution observed in that market relative to Canada. Therefore, if Canadian generic drug prices fell to US levels or below, this would likely lead to an increase in Canadian generic drug substitution to US levels Recall that the data used in this study indicated that the number of Canadian generic prescriptions dispensed in Canada is currently 39% of the 326.5 million pre-
scriptions dispensed in 2003. ] Now consider that in fact the US
pattern of using generic and brand-name drugs is virtually the reciprocal of the Cana-
dian pattern of use: in the United States, generic drugs accounted for about 5% of the
total number of prescriptions dispensed in 2002 [ and this is predicted
to grow to 60% by 2005. [ If, in response to lower generic US-style prices,
Canadian generic substitution levels reached the expected 2005 American rate of 60% of total retail prescriptions dispensed in the market, then a different picture emerges of costs and benefits from adopting US pharmaceutical policies. If the Canadian generic substitution rate equaled 60% of the total market, then approximately 95.9 million prescriptions of the 326.5 million total number of pre-scriptions dispensed in 2003 would be accounted for by sales to generic manufactur-ers, leaving 30.6 million prescriptions accounted for by branded drug sales. If these adjusted levels of use are multiplied by average US prices for generic and branded prescriptions, an estimate of the costs and benefits from adopting US pharmaceutical policies in Canada can be calculated.
The analysis presented above indicates that in a market equally as free and competi- tive as that in the United States: 1 Canadian prices for both patented and non-patented brand drugs would remain
close to current levels; and Canadian generic drug prices would fall to US levels.
2 The pattern of Canadian use of branded and generic drugs would mimic the patterns
of use in the United State's competitive market.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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Based on the assumptions that arise from the data and analysis presented in this paper, an estimate can be made of the savings Canadians could achieve by adopting a more competitive market in pharmaceuticals. If Canadian prices for both patented and non-patented branded drugs would remain near current levels in the absence of price controls, then the 2003 average Cana-dian branded drug prescription price would be expected to go no higher than $49.75 US, which is approximately the Canadian current average market prescription price for non- patented brand drugs without either generic competition or competition from a price-controlled patented drug in the same therapeutic class. If generic prices would fall to US levels, then the average generic prescription price would be expected to be at least as low as $0.87 US, which is already the current average generic drug price in the United States. If the Canadian brand/generic ratio of use approximated the expected US ratio, then brands would account for 40% (30.6 million) of the 326.5 million prescriptions dispensed in Canada in 2003, while generics accounted for 60% (95.9 million).
Using expected Canadian brand-name and generic drug prices, as well as expected brand versus generic rates of use yields a total market value of $8.4 billion US or $0.4 billion CAD for retail prescription drug sales for the year 2003. This is approximately $4.9 billion (32%) less than the actual 2003 $5.3 billion CAD total for retail sales of branded and generic drugs together.
Calculation 1: Total Canadian spending on prescription drugs under expected prices and use CAD Brand = $49.75 US per Rx * 30.6m = $6.5b US CAD Gen = $0.87 US per Rx * 95.9m = $2.b US CAD Total Rx Cost: Expected Pricing and Use = $6.5b + $2.b = $8.6b US = $0.4b CAD Current CAD Total Rx Cost: $5.3b Total Savings: $5.3b − $0.4b = $4.9b
According to this final analysis, Canadians could save approximately $5 billion CAD annually from adopting pharmaceutical policies that allow drug prices to be set in the competitive market. Looked at another way, Canadians currently suffer economic losses amounting to nearly $5 billion annually over total retail sales of brand-name and generic pharmaceuticals because of government interference in the competitive market that leads to a lack of competition in the generic drug industry and higher prices for non-patented drugs—especially generic drugs.
In fact, if this same analysis is performed under the same price assumptions, but using existing Canadian brand/generic patterns of use, Canadians still come out ahead by nearly $2 billion annually from the removal of government interference in pharmaceutical markets.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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Calculation 2: Total Canadian spending on prescription drugs under expected prices and current Canadian use CAD Brand = $49.75 US per Rx * 95.9m = $9.7b US CAD Gen = $0.87 US per Rx * 30.6m = $.4b US CAD Total Rx Cost: Expected Pricing and Use = $9.7b + $.4b = $.b US = $3.4b CADCurrent CAD Total Rx Cost: $5.3b Total Savings: $5.3b − $3.4b = $.9b
Based on the data supplied for this study, the 2003 average Canadian brand-name prescription price is $45.79 US and the generic price is $9.34 US. Using the average drug-price differences between Canada and the United States found in this study, it was estimated that the actual 2003 average US brand-name prescription price was approximately $80.25 US, while the average generic prescription price was about Applying Canadian prices and brand/generic rates of use to the total size of the US market permits an analysis of the costs and benefits to Americans from adopting Canadian-style pharmaceutical policies, which it is assumed will eventually lead to Canadian-style prices and patterns of use. However, it should be noted that the normal Canadian market price is substantially lower than the normal US market price because Canadian average incomes are so much lower than US incomes. Nonetheless, if it was unconcerned with negative consequences, the US government could impose prices that matched the current Canadian levels if it desired. For the purpose of estimating the total trade-off from the US adopting Canadian drug policies, this analysis assumes that any attempt at US price controls would adopt the current Canadian price.
As mentioned above, the US brand/generic ratio of use is expected to be 40:60 as of next year. The Canadian brand/generic ratio of use based on the 2003 data used for this study was 6:39, approximately reciprocal. Additionally, the estimated total number of retail prescriptions that will be dispensed in the United States by the end of this year is 3.5 billion. Therefore, the current number of prescrip-tions dispensed in the US market for branded drugs was approximately .4 billion and for generic drugs, 2. billion.
Calculation 1 under current US prices and use US Brand = $80.25 * .4b = $2.4bUS Generic = $0.87 * 2.b = $22.8b US Total Retail Rx Cost: US Pricing and Use = $2.4b + $22.8b =
$35.2b US
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Calculation 2 under Canadian prices and use US Brand = $45.74 * 2.b = $96.bUS Generic = $9.34 * .4b = $27.b US Total Retail Rx Cost: CAD Pricing and Use = $96.b + $27.b = $23.2b US
This means Americans would save $2 billion (9%) off the current total retail pharma- cy market cost of all prescription drugs by adopting policies that led to Canadian-style prices, or about $3.42 per prescription on average. However, imposing price controls would undoubtedly lead to other indirect, and more significant, costs that are harder to quantify but should be included in this analysis if the total real costs from such a policy are to be fully understood.
For instance, price controls on branded drugs could theoretically achieve some savings ($3.42 US per prescription on average) but only for those drugs currently on the market. The effect that price controls would have on the development of new drugs would likely be to curtail the number of new medicines being brought to market. This is because bringing a new medicine to market costs on average over $800 million US,
and only  in 0,000 drug compounds discovered are finally approved for sale on the
market. [ Therefore, innovative drug makers need to obtain the high-
est price that each of their markets will bear in order to fund the research costs and
investment risks associated with inventing new medicines. The opportunity cost from
the US government imposing below-market prices for drugs that, in turn, led to a
reduction in the development of new medicines is extremely difficult to quantify and
so will not be fully attempted in this analysis. Nevertheless, one can quickly appreci-
ate the relative scope of this lost value if even a single therapeutic class of medicines
would not have been brought to market. For example, according to IMS Health, cholesterol-reducing drugs used to com- bat heart disease earned revenues of $3.9 billion US in 2003; this figure represents the
quantifiable value of this medicine to consumers. [] If price controls had
discouraged the research and development of this single drug therapy alone, the entire
initial savings from imposing Canadian-style price controls on US sales of pharmaceuti-
cals would be wiped out in the form of lost treatment options for heart disease. Thought
of in different terms, if only the top three drug products sold in the United States in 2003
(Lipitor + Zocor + Prevacid = $5.2 billion) had not been developed, then any theoretical savings from price controls would be similarly cancelled by the fact that the drugs would never have been developed in the first place—the market value of which exceeds the value of price reductions from Canadian-style price controls. []
Price controls would also no doubt affect investment and employment in the industry leading to general economic losses and job losses among a significant num-
ber of highly skilled, highly paid workers. According to a study by the Milken Institute
[:
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d the US biopharmaceutical sector employed over 406,000 people in 2003 d each job directly created by biopharmaceutical companies created an additional 5.7 jobs spin-off jobs in the overall economy d biopharmaceutical jobs paid over $72,000 US per year on average. It is also important to note that the pricing of drugs on the competitive market in the United States also attracts the world's highest level of investment in pharmaceuti- cals. According to the PMPRB (Canada's federal price-control agency), spending on pharmaceutical research and development in the United States was the highest in the world among the group of countries (including Canada, France, Germany, Italy, Sweden, Switzerland, the United Kingdom and the United States) used for setting price controls in Canada. In fact, spending on pharmaceutical R&D in the United States for the year 2000 accounted for 6% of the total spent by this group of coun-tries: 56% more than the other seven countries combined. In contrast, the Canadian government's intrusions in the market are associated with levels of pharmaceutical investment that are among the lowest in the developed world. For instance, the same PMPRB study found that spending on R&D in Canada was only .8% of the total for the same group of countries. Looking at these comparisons, it becomes apparent that the United States, with its relatively more competitive pharmaceutical market, enjoys greater overall societal benefits than countries where citizens permit their governments to interfere in mar-kets. Pharmaceutical investment adds billions to the American economy and provides thousands of highly skilled, highly paid jobs as well. Adding this to the analysis would certainly raise the costs of the United States adopting Canadian-style pharmaceutical policies far above those estimated here.
Additionally, one should not forget that countries that impose price controls currently get away with paying artificially lower government-controlled prices for pat-ented drugs by "free riding" on the fact that American consumers pay higher prices for patented drugs, thereby subsidizing the cost of innovation for the rest of the world. This is because the United States is the only market that currently allows manufactur- ers to adjust prices freely based on consumer demand in order to recover the cost of bringing new medicines to market. Other countries prevent this through price con-trols. However, if the United States also adopted price controls and this led to a glob-al slow-down in developing innovative new drugs, then the free ride would be over; countries like Canada could not count on paying government-controlled prices (even though, as this study shows, for relatively lower income countries such savings are illusory when markets can be segmented anyway) and still benefit from global innova-tion in pharmaceuticals. Thus, it is not even in the interest of Canadians to encourage their American neighbours to adopt Canada's current interventionist policies.
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Therefore, instead of adopting Canadian-style price controls that would achieve only insignificant direct savings and would likely lead to the decline of global pharma-ceutical development, US policy makers should be encouraging their trading partners to abandon government interference in pharmaceutical markets, including the lifting of price controls in those countries. Such a change in the global market would take some pressure off US patented drug prices and more fairly distribute the global costs of bringing new medicines to market; and as the Canadian cost/benefit analysis shows, would also lead to greater overall benefits for non-American consumers as well.
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Governments in Canada defend their interference in pharmaceutical markets by claiming such policies reduce prescription drug costs for Canadians. Yet this study shows that Canadians pay much more than they should for generic drugs and that this is because of the very government policies that were supposed to make prescription medicines cheaper in the first place. This study also finds that price controls on pat-ented drugs are unnecessary because market prices in Canada would often be nearly the same as government-imposed prices anyway. Even worse, price controls distort the pharmaceutical market in ways that harm Canadian consumers. In sum, govern-ment pharmaceutical policy is failing to provide better outcomes than competitive markets could. The cost of this government failure is significant: Canadians spent at least $2 billion more in 2003 than they would have if there were a competitive market for prescription drugs in Canada. In fact, if consumers' opportunity costs are included in the analysis, the losses could reach nearly $5 billion annually. These conclusions are drawn from some basic facts established by this study. First, Canadian prices for generic prescription drugs are on average 78% high- er than in the United States at the retail level. This is surprising because Canadian incomes are lower than US incomes and economic theory suggests our drug prices should be lower as well. One reason Canadian prices are so much higher is that the American market is far more competitive. The effect of Canadian policies has been to give established generic producers unfair advantages that they have exploited to establish individual product monopolies on pharmacy shelves through exclusive dis-tribution agreements with retailers. By contrast, the US market is characterized by a large number of companies and healthy competition for sales of generic drugs, which leads to lower prices and higher voluntary rates of using generic drugs in the United States. If our market were as competitive as that of the United States, we could expect our prices for generic drugs to fall to US levels and our rates of using generic drugs to increase to US levels.
Second, only patented, brand-name drugs are subject to government-imposed price controls while non-patented, branded drugs have prices set by market forces. Yet, this study finds that market-priced brand drugs are at the same retail levels as price-controlled brand drugs (42% to 43% below US prices). Importantly, this remains true even when they have no generic competition: 30% of the top 00 brand-name drugs in this study were non-patented and 7% of these drugs had either no generic competitors at all or no generic competition over the biggest selling formulations. Therefore, these drugs enjoyed similar market exclusivity as patented drugs but without being subject to price controls. The prices for these drugs—prices set by the market—were 38% lower on average than the US prices for the same drugs. Additionally, 57% of these drugs had Fraser Institute Digital Publication
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no competition from either generics or from a price-controlled drug in the same ther-apeutic class. The Canadian prices of these drugs also averaged 38% less than prices for the same drugs in the United States. This suggests that if price controls on patented drugs were repealed, the price of patented drugs would not likely rise much higher than the current levels. This analysis demonstrates that justifications for intervening in pharmaceutical markets through price controls based on the belief that market prices would be too high for people to afford are wrong. In a competitive market, lower average Canadian incomes will keep prices low relative to prices in the United States. Therefore, price controls in Canada are at best unnecessary. Theoretically, price controls can also artificially inflate the price of branded drugs even after their patents have expired. This is because Canada's price control mechanism mandates that the price charged for a newly patented drug cannot exceed the highest price already charged for previous drugs in the same therapeutic category. Thus, (in the absence of intervening factors like brand loyalty) once a branded drug comes off patent, the manufacturer has a disincentive to lower its price, even in the
face of competition, so as not to inadvertently reduce the maximum entry price that
can later be charged for a new drug in the same class. As mentioned in a previous
study, [] the brand resistance to price reductions caused by the Canadian
price-control mechanism also creates a higher price ceiling for generic competitors.
If generics face less cost competition from brands, they can get away with charging a higher price. This analysis suggests that price controls on patented drugs have created perverse incentives for both branded and generic drug pricing that encourage higher prices for all non-patented drugs (including both branded and generic drugs) than would occur in a competitive market. Too often, proponents of government interference in markets fail to count all of the costs of such policies. Once the findings from this study are projected either onto existing Canadian brand and generic rates of use, or also on to rates of use resem-bling the US experience, it is shown that Canadian pharmaceutical policies are cost-ing Canadians nearly $2 billion directly in the price of generic drugs and perhaps up to $5 billion in total once all consumer opportunity costs from voluntary substitution are included. This does not even include the added opportunity costs Canadians suf-fer because of pharmaceutical policies that lead to lost investment and employment related to pharmaceutical R&D.
These findings support the conclusion that Canadian consumers would be bet- ter off if price controls on pharmaceutical drugs were abolished; if the federal govern-ment repealed policies that lead to a lack of competition in the generic drug industry; and if, as part of normal buyer-seller contract negotiations, third-party payers like provincial governments and private insurers demanded full disclosure of the rebates on generic drugs offered to pharmacy retailers in exchange for monopolies on phar-macy shelves.
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Appendix A: Verification of Canadian/US
generic price differences
The Canadian/US generic drug price differences found in this study are given added weight when compared to a rough calculation of average US generic prescription costs derived from data published by The US Generic Pharmaceutical Association (GPhA). This quick calculation confirms the external validity of the size of the price differ- ences found in this study.
The GPhA claims total revenue from sales of generic drugs in 2003 equaled $6 billion US not including pharmacy mark-ups and dispensing fees. GPhA also claims to have accounted for 5% of all prescriptions dispensed in 2002. []
In fact, some economists predict the generic share of the US market will reach near-
ly 60% by 2005. [ If this estimate is accurate, then generic prescription
volumes will grow by 3% per year on average between 2002 and 2005, thus reaching
roughly 54% of the total market in 2003. Additionally, IMS Health reports that total prescription volumes in the US mar- ket are expected to reach approximately 3.5 billion by the end of 2004 growing 3% over 2003 volumes. ] Therefore, the estimated 2003 generic prescription
volume was approximately $3.4 billion and the generic share of the 2003 total volume
of prescriptions was .8 billion (54% of 3.4 billion). If the US generic industry's 2003 total revenue from sales of $6 billion US is divided by the total number of generic prescriptions dispensed in 2003 of .8 billion, then the average price per generic prescription in the United States would be approxi-mately $8.89 US. This price does not include pharmacy dispensing fees and mark-ups. In order to estimate the US average prescription price based on the data published by the generic industry itself, the pharmacy mark-up must be included.
Data exists that permits the Canadian pharmacy mark-up to be estimated and this can be used to estimate an approximate US pharmacy mark-up. According to the dataset used for this study, the total value of retail sales in the Canadian generic drug market is more than $3. billion CAD. The CGPA claims $2.2 billion CAD in total sales revenue for the generic manufacturers. This implies that the Canadian phar-macy mark-up is at least 4% over manufacturers' prices. If the US pharmacy mark-up is similar to the Canadian rate, then the average US generic prescription price is $8.89 + 54% = $2.53 US. Now consider that the average Canadian prescription price based on the dataset used for this study was $23.40 CAD or $9.34 US using 2003 US$ PPP for currency equal-ization. This means the average Canadian generic prescription price ($9.34 US) is at least 54% higher than the US price ($2.53 US) based on this rough alternative analysis.
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This estimate adds weight to the overall findings of this study, which also found Canadian generic drug prices to be significantly higher on average than US prices. And, even though the size of the price difference is somewhat smaller than the esti- mates drawn from my data, this should not be seen as a contradiction of the findings from this study because, unlike the calculation above, the price comparisons con-ducted in this study are not calculated on a per prescription basis. Instead, this study converted drug prices to a price per dosage unit that was common to both markets making the final drug price truly comparable across markets; a necessary method-ological step because drug formulations, dosage strengths, and prescription sizes vary between prescriptions in the US and Canadian markets. The difference in methodology likely accounts for the difference in average pric- es encountered here, with the study's finding of an average difference of 78% being a more accurate estimate of actual average price differences between the United States and Canada per common unit of active ingredient.
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Appendix B: Tables
Table 1: State Medicaid drug discounts from average wholesale price (AWP)
New Jersey
New Mexico
District of Columbia
North Dakota
Rhode Island
South Dakota
AVERAGE ALL
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Table 2: Comparison of Canadian and US data elements
Canadian data elements
US data elements
d Drug product name d Drug product name d Active ingredient(s) (i.e. common drug name) d Active ingredient(s) (i.e. common drug name) d Formulation (e.g. orals, solid) d Formulation (e.g. orals, solid) d Extended unit type (e.g. tablets) d Extended unit type (e.g. tablets) d Available dosage strengths per drug d Available dosage strengths per drug product (e.g. 50 mg tablets, 00 mg tablets, product (e.g. 50 mg tablets, 00 mg tablets, 20mg/5ml liquid) 20mg/5ml liquid) d Total prescriptions dispensed per drug product d Total prescriptions dispensed per drug product by dosage strength d Total extended units dispensed per drug d Total extended units dispensed per drug product by dosage strength d Average extended units dispensed per d Standard extended units dispensed per prescription, per drug product by dosage prescription, per drug product by dosage d Total cost of dispensed prescriptions per d Average prescription cost per drug product d Prescription cost per drug product d All manufacturers in the Canadian generic market for each of the top 00 generic drug products in 2003 and their associated market shares defined by the number of prescriptions dispensed for each product Fraser Institute Digital Publication
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Table 3: Top 100 generic prescription drug products in Canada for 2003
ranked by number of prescriptions dispensed
Estimated number of
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Table 3 (continued): Top 100 generic prescription drug products in Canada for 2003
ranked by number of prescriptions dispensed
Estimated number of
ESTROGENIC SUBCONJUGATED Fraser Institute Digital Publication
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Table 3 (continued): Top 100 generic prescription drug products in Canada for 2003
ranked by number of prescriptions dispensed
Estimated number of
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Table 4: Separate generic active ingredients within the top 100
generic drug products sold in Canada in 2003
Active ingredient (S)
Not available generically
in the United States
OXYCODONE/ ACETAMINOPHEN ESTROGENIC SUB CONJUGATED ACETAMINOPHEN/ CODEINE Fraser Institute Digital Publication
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Table 4 (continued): Separate generic active ingredients within the top 100
generic drug products sold in Canada in 2003
Active ingredient (S)
Not available generically
in the United States
ACETAMINOPHEN/ CODEINE/ CAFFEINE Fraser Institute Digital Publication
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Table 5: Price differences between US AWP, US FUL, US RP and CAD RPover the
43 active drug ingredients available in both Canada and the US in 2003
US FUL to US
CAD to US RP
RP difference
difference
available
difference as percent of
difference
as percent
in United as percent of
SALBUTAMOL/ SEREVENT DISKUS OXYCODONE/ ACETAMINOPHEN Fraser Institute Digital Publication
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Table 5 (continued): Price differences between US AWP, US FUL, US RP and CAD RP
over the 43 active drug ingredients available in both Canada and the US in 2003
US FUL to US
CAD to US RP
RP difference
difference
available
difference as percent of
difference
as percent
in United as percent of
ACETAMINOPHEN/ CODEINE ACETAMINOPHEN/ CODEINE/ CAFFEINE Source: author's calculation based on study data. Fraser Institute Digital Publication
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Table 6: Top 100 brand-name drug products in Canada for 2003
ranked by the number of prescriptions dispensed
Product Name
Estimated
Label not Patented number of
available in Canada dispensed
4 TYLENOL W/COD #3 ESTROGENIC SUB CONJUGATED MERCK SHARP & DOHME BRISTOL-MYERS SQUIBB Fraser Institute Digital Publication
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Table 6 (continued): Top 100 brand-name drug products in Canada
for 2003 ranked by the number of prescriptions dispensed
Product Name
Estimated
Label not Patented number of
available in Canada dispensed
BRISTOL-MYERS SQUIBB ETIDRONIC ACID/ CALCIUM BOEHRINGER INGELHEIM FLUTICASONE/ SALMETEROL BOEHRINGER INGELHEIM SALBUTAMOL/ IPRATROPIUM BOEHRINGER INGELHEIM 54 DILANTIN SODIUM RABEPRAZOLE SODIUM DICLOFENAC/ MISOPROSTOL BOEHRINGER INGELHEIM BRISTOL-MYERS SQUIBB Fraser Institute Digital Publication
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Table 6 (continued): Top 100 brand-name drug products in Canada
for 2003 ranked by the number of prescriptions dispensed
Product Name
Estimated
Label not Patented number of
available in Canada dispensed
72 TYLENOL W/COD #2 MERCK SHARP & DOHME 80 ZITHROMAX PEDIATRI BOEHRINGER INGELHEIM 89 NOVOLIN GE NPH TIMOLOL/ DORZOLAMIDE 99 BIAXIN PEDIATRIC Fraser Institute Digital Publication
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Table 7: Price differences between US AWP, US RP and CAD RP over the 43
active drug ingredients available in both Canada and the US in 2003
Brand product name
Brand label
US AWP to US RP difference
CAD to US RP difference
not available in
as percent of US RP
as percent of US RP
@ 2003 US$ PPP
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Table 7 (continued): Price differences between US AWP, US RP and CAD RP over
the 43 active drug ingredients available in both Canada and the US in 2003
Brand product name
Brand label
US AWP to US RP difference
CAD to US RP difference
not available in
as percent of US RP
as percent of US RP
@ 2003 US$ PPP
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Table 7 (continued): Price differences between US AWP, US RP and CAD RP over
the 43 active drug ingredients available in both Canada and the US in 2003
Brand product name
Brand label
US AWP to US RP difference
CAD to US RP difference
not available in
as percent of US RP
as percent of US RP
@ 2003 US$ PPP
ZITHROMAX PEDIATRI Source: author's calculation based on study data. Fraser Institute Digital Publication
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Table 8: Distribution of the market for the top 100 generic drugs in Canada for 2003
Number of drug products
among the top 100 generics
Table 9: Competition in the generic industry for retail sales in 2003
Percent of total
Value of sales
Percent of total
volume for
in ($000s)
value of sales for
top 100 drugs
top 100 drugs
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Table 10: Share of the generic market per active ingredient drug product
by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
APO-HYDRO 1074 ATX NOVO-HYDRAZIDE 0170 NVP HYDROCHLORTHIAZIDE 0175 PDO BIO-HYDROCHLOROTHI 0803 P8I HYDROCHLOROTHIAZID 0178 DUC HYDROCHLOROTHIAZID 0172 SAN RATIO-CODEINE 0282 RAT CODEINE CONTIN 1095 PUF CODEINE PHOSPHATE 0378 AAS LINCTUS W/COD 0178 AAS CODEINE PHOS 0151 GSK CODEINE PHOSPHATE 1094 SBX CODEINE PHOSPHATE 0177 NVR CODEINE PHOS 0579 AHP RATIO-SALBUTAMOL H 0202 RAT APO-SALVENT CFC FR 1102 ATX APOTEX INC/NU-PHARM INC** GEN-SALBUTAMOL PF 0393 GN3 PMS-SALBUTAMOL 1094 P8I NOVO-SALMOL 1084 NVP RHOXAL-SALBUTAMOL 1095 RXP SALBUTAMOL 0300 PL/ SALBUTAMOL 0396 PDO APO-LORAZEPAM 1185 ATX APOTEX INC/NU-PHARM INC Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
NOVO-LORAZEM 0485 NVP PMS-LORAZEPAM 1089 P8I PRO-LORAZEPAM 0786 PDO DOM-LORAZEPAM 1102 DMI DOMINION PHARMACAL SAB-LORAZEPAM 0701 SBX APO-AMOXI 0884 ATX APOTEX INC/NU-PHARM INC NOVAMOXIN 0179 NVP GEN-AMOXICILLIN 0898 GN3 LIN-AMOX 0296 LSN LINSON PHARMA INC PRO-AMOX 1185 PDO PMS-AMOXICILLIN 1102 P8I SCHEIN AMOXICILLIN 0800 SEI GEN-METFORMIN 0495 GN3 NOVO-METFORMIN 0494 NVP APO-METFORMIN 0995 ATX APOTEX INC/NU-PHARM INC PMS-METFORMIN 0297 P8I RATIO-METFORMIN 0601 RAT RHOXAL-METFORMIN 1297 RXP RIVA-METFORMIN 0400 RVA METFORMIN 1296 PDO RHOXAL-METFORMIN F 1297 RXP DOM-METFORMIN 0101 DMI DOMINION PHARMACAL METFORMIN 0497 PP4 METFORMIN 0201 ZYP PHL-METFORMIN 0203 PL/ APO-FUROSEMIDE 0676 ATX NOVO-SEMIDE 0876 NVP FUROSEMIDE 0680 PDO Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
BIO-FUROSEMIDE 0803 P8I FUROSEMIDE 0583 SBX FUROSEMIDE 0983 AHP RATIO-FUROSEMIDE 0492 RAT PMS-CONJUGATED EST 1083 P8I RATIO-OESTRILIN 0151 RAT APO-METOPROLOL-L 0587 ATX APOTEX INC/NU-PHARM INC NOVO-METOPROL 0386 NVP PMS-METOPROLOL-L 1097 P8I GEN-METOPROLOL-L 0796 GN3 METOPROLOL 1285 PDO DOM-METOPROLOL-B 0696 DMI DOMINION PHARMACAL APO-ATENOL 0888 ATX APOTEX INC/NU-PHARM INC RATIO-ATENOLOL 0396 RAT NOVO-ATENOL 0291 NVP PMS-ATENOLOL 1198 P8I GEN-ATENOLOL 0795 GN3 DOM-ATENOLOL 1198 DMI DOMINION PHARMACAL RHOXAL-ATENOLOL 1297 RXP RIVA-ATENOLOL 1001 RVA PRO-ATENOLOL 0489 PDO SCHEIN ATENOLOL 0896 SEI PHL-ATENOLOL 0399 PL/ ATENOLOL 0497 PP4 ATENOLOL 0799 FPI MED-ATENOLOL 0696 M.P MEDICAN PHARMACEUTICALS Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
APO-SIMVASTATIN 0103 ATX GEN-SIMVASTATIN 0203 GN3 RIVA-SIMVASTATIN 0303 RVA PREM SIMVASTATIN 0603 PP4 GEN-GLYBE 0191 GN3 APO-GLYBURIDE 1191 ATX APOTEX INC/NU-PHARM INC NOVO-GLYBURIDE 1191 NVP RATIO-GLYBURIDE 0492 RAT PMS-GLYBURIDE 0498 P8I GLYBURIDE 0998 PL/ GLYBURIDE 0792 PDO DOM-GLYBURIDE 0698 DMI DOMINION PHARMACAL GLYBURIDE 0497 PP4 PENTA-GLYBURIDE 0797 PT9 RIVA-GLYBURIDE 1101 RVA PMS-CLONAZEPAM-R 0396 P8I APO-CLONAZEPAM 0995 ATX APOTEX INC/NU-PHARM INC GEN-CLONAZEPAM 0597 GN3 NOVO-CLONAZEPAM 0899 NVP RHOXAL-CLONAZEPAM 1297 RXP CLONAZEPAM 1296 PDO RATIO-CLONAZEPAM 1294 RAT DOM-CLONAZEPAM-R 0996 DMI DOMINION PHARMACAL RIVA-CLONAZEPAM 1101 RVA PHL-CLONAZEPAM 0296 PL/ TARO-WARFARIN 1000 TAR APO-WARFARIN 1200 ATX Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
GEN-WARFARIN 0802 GN3 APO-RANITIDINE 0387 ATX APOTEX INC/NU-PHARM INC GEN-RANITIDINE 0396 GN3 NOVO-RANIDINE 0789 NVP RATIO-RANITIDINE 0190 RAT PMS-RANITIDINE 1000 P8I RHOXAL-RANITIDINE 1001 RXP RANITIDINE 1087 PDO SCHEIN RANITIDINE 0500 P8I RIVA-RANITIDINE 1102 RVA RANITIDINE 0497 PP4 MED-RANITIDINE 0599 M.P MEDICAN PHARMACEUTICALS BETADERM 0879 TAR RATIO-ECTOSONE 0285 RAT BETAMETHASONE 0187 PMC RIVASONE 0694 RVA BETAPRONE 0795 NE1 OCCLUCORT 0890 MCD APO-AMITRIPTYLINE 0675 ATX AMITRIPTYLINE 1076 PDO NOVO-TRIPTYN 0172 NVP AMITRIPTYLINE 1077 PRL AMITRIPTYLINE 1289 P8I AMITRIPTYLINE 0596 CN.
AMITRIPTYLINE 1073 SAN AMITRIPTYLINE 1087 DUC Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
APO-DILTIAZ CD 1196 ATX APOTEX INC/NU-PHARM INC RATIO-DILTIAZEM CD 1296 RAT NOVO-DILTAZEM CD 1000 NVP RHOXAL-DILTIAZEM C 0201 RXP DILTIAZEM CD 0998 PDO GEN-DILTIAZEM 0296 GN3 DILTIAZEM HCL 0502 SBX DILTIAZEM 0497 PP4 MED-DILTIAZEM 0197 M.P MEDICAN PHARMACEUTICALS RATIO-MPA 0796 RAT GEN-MEDROXY 0497 GN3 NOVO-MEDRONE 1296 NVP APO-MEDROXY 0702 ATX DOM-MEDROXYPROGEST 0603 DMI DOMINION PHARMACAL PMS-MEDROXYPROGEST 0103 P8I PENTA-MEDROXYPROGE 0998 PT9 APO-OXAZEPAM 0979 ATX OXAZEPAM 0180 PDO NOVOXAPAM 1282 NVP PMS-OXAZEPAM 0295 P8I BIO-OXAZEPAM 0803 B02 APO-NAPROXEN 0882 ATX APOTEX INC/NU-PHARM INC NOVO-NAPROX 0982 NVP GEN-NAPROXEN EC 1199 GN3 RATIO-NAPROXEN 0484 RAT NAPROXEN 0683 PDO PMS-NAPROXEN 0394 P8I Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
RIVA-NAPROXEN 0300 RVA NAPROXEN 1097 SBX RHODIAPROX 0198 RXP APO-LISINOPRIL 1296 ATX GEN-ZOPICLONE 0898 GN3 APO-ZOPICLONE 1196 ATX APOTEX INC/NU-PHARM INC PMS-ZOPICLONE 0999 P8I RATIO-ZOPICLONE 0601 RAT DOM-ZOPICLONE 1299 DMI DOMINION PHARMACAL RIVA-ZOPICLONE 0702 RVA ZOPICLONE 0197 PDO APO-PRAVASTATIN 0301 ATX APOTEX INC/NU-PHARM INC LIN-PRAVASTATIN 0700 LSN LINSON PHARMA INC NOVO-PRAVASTATIN 0103 NVP RATIO-PRAVASTATIN 0203 RAT PRAVASTATIN 0103 PDO PMS-PRAVASTATIN 0803 P8I BIO-PRAVASTATIN 0701 BIH RHOXAL-PRAVASTATIN 0903 RXP APO-SERTRALINE 0999 ATX APOTEX INC/NU-PHARM INC GEN-SERTRALINE 1100 GN3 NOVO-SERTRALINE 0899 NVP PMS-SERTRALINE 0802 P8I DOM-SERTRALINE 0702 DMI DOMINION PHARMACAL RHOXAL-SERTRALINE 0802 RXP RATIO-SERTRALINE 1002 RAT Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
RIVA-SERTRALINE 1002 RVA SERTRALINE 1201 PDO APO-PREDNISONE 0382 ATX NOVO-PREDNISONE 0172 NVP PREDNISONE 0159 PDO RATIO-PREDNISONE 0684 RAT APO-TRAZODONE 0595 ATX APOTEX INC/NU-PHARM INC PMS-TRAZODONE 0993 P8I NOVO-TRAZODONE 0295 NVP GEN-TRAZODONE 1197 GN3 RATIO-TRAZODONE 0694 RAT TRAZODONE 0496 PDO DOM-TRAZODONE 0696 DMI DOMINION PHARMACAL TRAZODONE 1098 PL/ SCHEIN TRAZODONE 1000 SEI APO-TEMAZEPAM 0996 ATX APOTEX INC/NU-PHARM INC PMS-TEMAZEPAM 1096 NVR NOVO-TEMAZEPAM 0597 NVP GEN-TEMAZEPAM 0797 GN3 CO TEMAZEPAM 1002 CBT TEMAZEPAM 0797 PDO RATIO-TEMAZEPAM 0401 RAT APO-ALLOPURINOL 0681 ATX NOVO-PUROL 1081 NVP ALLOPURINOL 0282 PDO Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
NOVO-LEXIN 0280 NVP APO-CEPHALEX 0888 ATX APOTEX INC/NU-PHARM INC PRO-CEPHALEXIN 0489 PDO PMS-CEPHALEXIN 1295 P8I PENTA-CEPHALEXIN 0797 PT9 APO-PEN-VK 0186 ATX APOTEX INC/NU-PHARM INC NOVO-PEN-VK 0170 NVP PENICILLIN V 0179 PDO RATIO-NADOPEN V 0160 RAT PENICILLIN V POT 0172 SAN APO-ALPRAZ 1090 ATX APOTEX INC/NU-PHARM INC GEN-ALPRAZOLAM 0495 GN3 NOVO-ALPRAZOL 0991 NVP RATIO-ALPRAZOLAM 0790 RAT ALPRAZOLAM 0791 PDO ALPRAZOLAM 0497 PP4 PMS-INDAPAMIDE 0499 P8I GEN-INDAPAMIDE 0495 GN3 APO-INDAPAMIDE 1096 ATX APOTEX INC/NU-PHARM INC RATIO-INDAPAMIDE 0396 RAT NOVO-INDAPAMIDE 1097 NVP RIVA-INDAPAMIDE 0302 RVA DOM-INDAPAMIDE 0999 DMI DOMINION PHARMACAL INDAPAMIDE 0697 PDO Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
APO-DIVALPROEX 0599 ATX APOTEX INC/NU-PHARM INC NOVO-DIVALPROEX 0499 NVP DIVALPROEX 1201 PDO PMS-DIVALPROEX 0202 P8I APO-FLUOXETINE 0496 ATX APOTEX INC/NU-PHARM INC NOVO-FLUOXETINE 0396 NVP PMS-FLUOXETINE 1295 P8I RATIO-FLUOXETINE 0300 RAT CO FLUOXETINE 0500 CBT GEN-FLUOXETINE 0898 GN3 RHOXAL-FLUOXETINE 0401 RXP DOM-FLUOXETINE 0696 DMI DOMINION PHARMACAL FLUOXETINE 1296 PDO RIVA-FLUOXETINE 0302 RVA PHL-FLUOXETINE 0499 PL/ PMS-METHYLPHENIDAT 0790 P8I RATIO-METHYLPHENID 0896 RAT METHYLPHENIDATE 0296 PL/ NOVO-CYCLOPRINE 0694 NVP GEN-CYCLOBENZAPRIN 0697 GN3 APO-CYCLOBENZAPRIN 0995 ATX APOTEX INC/NU-PHARM INC PMS-CYCLOBENZAPRIN 0796 P8I RATIO-CYCLOBENZAPR 0196 RAT CYCLOBENZAPRINE 1296 PDO RIVA-CYCLOPRINE 1201 RVA DOM-CYCLOBENZAPRIN 1198 DMI DOMINION PHARMACAL Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
APO-DOMPERIDONE 1297 ATX APOTEX INC/NU-PHARM INC RATIO-DOMPERIDONE 0293 RAT NOVO-DOMPERIDONE 0997 NVP PMS-DOMPERIDONE 0898 P8I DOMPERIDONE 0698 PDO DOM-DOMPERIDONE 0599 DMI DOMINION PHARMACAL PHL-DOMPERIDONE 0299 PL/ PMS-GABAPENTIN 0201 P8I NOVO-GABAPENTIN 0702 NVP APO-GABAPENTIN 1101 ATX DOM-GABAPENTIN 0402 DMI DOMINION PHARMACAL PHL-GABAPENTIN 0203 PL/ APO-DIAZEPAM 0679 ATX DIAZEPAM 0678 PDO NOVO-DIPAM 1073 NVP STRESS-PAM 0177 SBX PMS-DIAZEPAM 0994 P8I DIAZEPAM 0174 SAN PMS-CARBAMAZEPINE 1098 NVR APO-CARBAMAZEPINE 0680 ATX APOTEX INC/NU-PHARM INC NOVO-CARBAMAZ 1088 NVP GEN-CARBAMAZEPINE 0400 GN3 TARO-CARBAMAZEPINE 0994 TAR CARBAMAZEPINE 0583 PDO PHL-CARBAMAZEPINE 0399 PL/ Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
NOVO-SPIROTON 0284 NVP APO-METRONIDAZOLE 0682 ATX TRIKACIDE 0584 P8I METRONIDAZOLE 0178 PDO NOVO-NIDAZOL 0571 NVP METRONIDAZOLE 0486 AHP PMS-LITHIUM CARBON 0796 P8I APO-LITHIUM CARBON 0301 ATX LITHIUM CARBONATE 0100 PL/ PAL-LITHIUM CARBON 0400 PDN GEN-VERAPAMIL SR 0396 GN3 NOVO-VERAMIL SR 0696 NVP PMS-VERAPAMIL SR 0999 P8I APO-VERAP 0789 ATX APOTEX INC/NU-PHARM INC DOM-VERAPAMIL SR 0500 DMI DOMINION PHARMACAL RIVA-VERAPAMIL SR 0902 RVA VERAPAMIL 0791 PDO VERAPAMIL 1095 SBX RATIO-VERAPAMIL 0890 RAT TARO-VERAPAMIL 0595 TAR VERAPAMIL 1093 AHP MED-VERAPAMIL 0700 M.P MEDICAN PHARMACEUTICALS PENTA-VERAPAMIL 0797 PT9 APO-PROPRANOLOL 0380 ATX APOTEX INC/NU-PHARM INC NOVO-PRANOL 1081 NVP Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
DOM-PROPRANOLOL 0296 DMI DOMINION PHARMACAL PROPRANOLOL 0180 PDO PMS-PROPRANOLOL 0684 P8I PROPRANOLOL 1196 SBX APO-FOLIC 0678 ATX NOVO-FOLACID 0170 NVP FOLIC ACID 1190 SBX FOLIC ACID 0159 STY FOLIC ACID 0784 ADA FOLIC ACID 0174 VLT FOLIC ACID 1091 P/P FOLIC ACID 0163 GSK APO-FLUCONAZOLE-15 0400 ATX GEN-FLUCONAZOLE 0702 GN3 NOVO-FLUCONAZOLE-1 0802 NVP PMS-FLUCONAZOLE 0602 P8I APO-HYDROXYZINE 0187 ATX NOVO-HYDROXYZIN 0387 NVP PMS-HYDROXYZINE 0589 P8I PRO-HYDROXYZINE 1087 PDO RIVA-HYDROXYZIN 0300 RVA HYDROXYZINE HCL 0488 SBX HYDROXYZINE 0997 CYT APO-FLURAZEPAM 0382 ATX FLURAZEPAM 0583 PDO NOVO-FLUPAM 0280 NVP Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
PMS-FLURAZEPAM 0589 P8I APO-IBUPROFEN 1183 ATX APOTEX INC/NU-PHARM INC IBUPROFEN 0685 PDO NOVO-PROFEN 0885 NVP RATIO-IBUPROFEN 1183 RAT NOVO-QUININE 0166 NVP QUININE SULFATE 1099 ODA QUININE SULFATE 0157 STY QUININE SULFATE 0584 PFZ PMS-PROCYCLIDINE 1184 P8I PROCYCLIDINE 0798 PL/ APO-TETRA 0383 ATX APOTEX INC/NU-PHARM INC TETRACYCLINE 0162 PDO NOVO-TETRA 0165 NVP TETRACYCLINE 0596 PRL TETRACYCLINE 0894 DIL TRIMETHOPRIM W. SULFAMETHOXAZOLE APO-SULFATRIM DS 0179 ATX APOTEX INC/NU-PHARM INC NOVO-TRIMEL 0177 NVP PROTRIN DF 0180 PDO RIVA-SEP DS 0400 RVA HYDROCHLOROTHIAZIDE W. TRIAMTERENE APO-TRIAZIDE 0484 ATX APOTEX INC/NU-PHARM INC Fraser Institute Digital Publication
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Table 10 (continued): Share of the generic market per active ingredient drug
product by manufacturer over the 100 top-selling generic drugs in 2003
Generic active
Drug product
Percent share
of total Rxs
dispensed in 2003
NOVO-TRIAMZIDE 1281 NVP PRO-TRIAZIDE 0985 PDO RIVA-ZIDE 0300 RVA ACETAMINOPHEN W. OXYCODONE RATIO-OXYCOCET 0484 RAT LINSON PHARMA INC RIVACOCET 1201 RVA PMS-OXYCODONE-ACET 1002 P8I ACETAMINOPHEN W. CODEINE W. CAFFEINE RATIO-LENOLTEC #3 1185 RAT ACETAMINOPHEN W/CO 1192 WSC ACETAMINOPHEN W/CO 0178 PE7 NOVO-GESIC CODEINE 0686 NVP ACETAMINOPHEN W/CO 1192 STY ACETAMINOPHEN W/CO 0795 TRI ACETAMINOPHEN W. CODEINE RATIO-EMTEC 0484 RAT PMS-ACET W/COD 1194 P8I ACET-CODEINE 30 0594 PMQ Notes: * Brand name companies competing as generics. ** Apotex and Nu-pharm are commercially affiliated.

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1 For this study, price comparisons were also calculated using current market exchange
rates. However, because the US$ exchange rate is applicable only to a very small percentage of consumers who are willing or able to shop in both countries, the PPP conversion should be considered the more accurate currency adjustment measure for general comparisons. Economists also universally accept PPP conversion as the most accurate way to make average prices in different markets truly comparable. (Advice courtesy of Dr. Mark Mullins, PhD Economics, Director of Ontario Policy Studies, The Fraser Institute.) Furthermore, the use of straight US-to-Canadian 2003 market exchange rates did not significantly affect the number of drugs that were more or less expensive in Canada but affected only the magnitude of price differences. Nonetheless, present market exchange rates virtually match the PPP between the Canadian and US dollars used for this study.
2 See earlier section describing US data and Appendix A for a further discussion
verifying the reliability of the data used in this study.
3 These experts insisted on anonymity because of the risk to their employment.
4 For instance, some policies that gave domestic generic companies advantages
over their foreign-owned rivals like "early working exceptions" to patent laws have been removed by subsequent regulation in the form of Health Canada's "notice of compliance" requirements. Nonetheless, first-mover advantages established before the rules changed persist in some markets. 5 One obvious example is Health Canada's prohibition against the import of cheaper
generic drug products from other countries. Part of the justification for this non-
tariff barrier to trade was contained in the following excerpt from a Health Canada
enforcement directive: "There is also evidence of patients ordering prescription drugs
directly from foreign suppliers as a means of avoiding the higher costs of the same drugs
available from Canadian suppliers. This situation results in a competitive disadvantage
to domestic companies who are compliant with product and establishment regulations
in addition to fee regulations." ]
6 It is important to point out that other studies have also found that the prices for
branded drugs that are not patented and are, therefore, not under price controls in either the United States or Canada, have been found to be much cheaper in Canada Fraser Institute Digital Publication
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than in the United States. The average US price on the competitive market for these drugs was 96% higher than the Canadian price on the competitive market for the same drugs. 7 This assumption is also dependent on a further assumption that the Canadian price
elasticity of demand for drugs will mimic US patterns under similar policies. Given the similarity of the markets, there is little reason to doubt that this in fact would be the case. If anything, the presence of direct-to-consumer advertising in the United States and its effect in generating brand loyalty likely makes US consumer demand less price elastic than Canadian, thus reinforcing the main assumption as conservative.
8 Please refer again to note 7.
9 The GPhA website contains data showing the average branded prescription price to be
$84.2 US in 2003. This is very close to the estimate derived from observed Canada-US retail price differences found in this study, which was $80.25 US for 2003. However, the GPhA website had some problematic data that is sourced to the US National Association of Chain Drug Stores showing the 2003 average generic prescription price to be $30.56. However, this number is highly suspect for error. When average prescription price data is projected over the total number of prescriptions dispensed in the market, it produces a generic market value that exceeds GPhA claims about total revenue from sales for their industry by over 240%. For instance, if the average prescription costs provided by GPhA are multiplied by the number of generic prescriptions dispensed in the US market (5%), the total value of generic prescription sales would be $54.55 billion in 2003. Yet the GPhA website claims only 8% of total revenue from sales (or $6 billion in 2003) of prescription drugs in the US was accounted for by generic drugs. Part of the difference between the two estimates of the total value of US sales for generic drugs could be accounted for because the larger figure includes pharmacy dispensing fees and mark-ups. However this would mean that pharmacies typically add 240% to the price of generic drugs in the United States, which is a highly unlikely mark-up. Similar data on Canadian generic sales indicates a difference between industry revenues and final pharmaceutical sales of only about 4%. The difference between the GPhA claims of industry revenues of $6 billion in 2003 and the $22.8 billion in final retail sales calculated in this section is 43%. This is close enough to the Canadian pharmacy mark-up to verify the reliability of the average US prescription prices established by this study's calculations. It appears that the GPhA has either cited incorrect data for average prescription prices or is seriously understating the generic industry's revenue from sales on its website. Inquiries with GPhA on this issue (October 2, 2004) provided partial explanations but did not fully resolve the discrepancy. In a written reply, a senior policy advisor stated: "My best guess at this point—and it is only conjecture—is Fraser Institute Digital Publication
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that the discrepancy relates to a combination of: (a) different years for the data sources, (b) dispensing fees, and (c) other as yet unknown factors." 10 IMS Health reports the total US retail pharmacy market to be worth $69.8b at
wholesale prices, over the 2 months ending July 2004, which does not include discounts to retailers. The entire US market including non-federal hospitals, clinics,
federal facilities, home healthcare, HMO's, and miscellaneous as well as the retail
pharmacy market equalled $26.4 billion in 2003. [
11 IMS Health reports that generic prescriptions captured 8% ($7.3 billion of $26.4
billion total) of total sales revenue for prescription drugs in the United States in 2003.
[
Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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Associated Press (2004). "Task Force: Drug Bargains in US Surgeon General Group: Savvy Shoppers Can Find Cheaper Drugs." Washington, DC: AP. Appeared at CNN.
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Canadian Generic Pharmaceutical Association [CGPA] (2004). Market Trends 2003. Toronto and Montreal. <> (as of
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Graham, John, and Tanya Tabler (forthcoming). Canadian Pharmacare: Performance, Incentives, and Insurance. Vancouver, BC: The Fraser Institute.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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About the author
Brett J. Skinner is Acting Director of Pharmaceutical and Health Policy Research for The Fraser Institute and works from the Institute's Toronto office. He is a Ph.D. candi- date in Public Policy and Political Science specializing in health policy at the University of Western Ontario (London) where he has lectured in both the Faculty of Health Sci-ences and the Political Science Department. He earned a B.A. (Hon) from the Univer-sity of Windsor (Ontario) and an M.A. in Public Policy and Political Science through joint studies at the University of Windsor and Wayne State University (Michigan). Mr Skinner has also worked as a Consultant and Policy Analyst for the Insurance Bureau of Canada's (IBC) National Health Issues Program in Toronto, Ontario. Recent Fraser Institute publicationsGeneric Drugopoly: Why Non-patented Prescription Drugs Cost More in Cana- da than in the United States and Europe (2004). • Paying More, Getting Less: Ontario's Health Premium and Sustainable Health Care (2004). • "The Problem with Public Health Insurance" (2004). Fraser Forum (February).
Other publications • "Ontario's Health Premium Is Not the Answer" (2004). National Post (August 4).
• "The Cross-border Internet Drug Trade and Access to Medicines in Canada" (2004). Toronto: 50Plus.
Definitely Not the Romanow Report: Achieving Equity, Sustainability, Account- ability and Consumer Empowerment in Canadian Health Care (2002). Hali-fax: Atlantic Institute for Market Studies (AIMS).
Improving Canadian Health Care: Better Ways to Finance Medicare (2002). Halifax: AIMS.
The Non-Sustainability of Health Care Financing under the Medicare Model (2002). Halifax: AIMS.
The Benefits of Allowing Business Back into Canadian Health Care (2002). Halifax: AIMS.
Medicare, the Medical Brain Drain, and Human Resource Shortages in Health Care (2002). Halifax: AIMS.
Fraser Institute Digital Publication
Canada's Drug Price Paradox: The Unexpected Losses Caused
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The author would like to acknowledge with gratitude the comments and suggestions of Dr. Michael Walker, Executive Director, The Fraser Institute, Dr. Mark Mullins, Director of Ontario Policy Studies, The Fraser Institute, and Nadeem Esmail, Senior Health Policy Analyst and Manager of Health Data Systems, The Fraser Institute; as well as the external members of the peer review panel selected for this paper. The views expressed by the author are not necessarily those of The Fraser Institute, its sup-porters and members, nor those colleagues gratefully acknowledged here. Because the author's employer receives charitable donations from research-based pharmaceutical manufacturers, the author has chosen to disclose financial relation-
ships in accordance with the policies of the International Committee of Medical Jour-
nal Editors. [] The author acknowledges with grati-
tude those who financially support The Fraser Institute and this research including
research-based pharmaceutical companies (whose contributions make up less than 5%
of The Fraser Institute's budget) as well as the general membership and other support-
ers of the Institute. With respect to this manuscript, no drug-maker or other donor
had any input into the collection, analysis, or interpretation of the research, nor in the
manuscript's writing. Nor did any drug-marker or other donor preview this manu-
script before publication.
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Canada's Drug Price Paradox: The Unexpected Losses Caused
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