Why do prescription medications cost so much more in the U.S. than Canada?

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The price gap between American and Canadian drugs continues to grow at a record pace. But what is causing the price of Canadian medications to remain stable while the price of American medications skyrockets? There are two primary reasons:

1. Price Controls

In Canada, a government review board places a maximum market price for all new brand name drugs entering the market, and allows prices to rise only at the rate of inflation. These controls protect the consumer from price gouging by the major pharmaceutical companies and reduce the price difference between brand name and generic drugs.

2. U.S. Consumers Bear the Entire Burden of R&D — and More

American consumers pay roughly 3000 percent more than the actual manufacturing costs, because we are the only nation that does not have price controls and negotiate our drug prices. In a sense, we are bearing the cost of the world’s R&D. However, the prices Americans pay are still excessive — and in fact, drug companies are increasingly pocketing their huge profits rather than reinvesting them. For example, in 2002, 78 new drugs were approved by the FDA. Of those, only 17 were deemed by the FDA to have new active ingredients, and only seven were found to be improvements over the older drugs. On top of that, of the seven found to be an improvement over the older drug, not one of them came from U.S. companies.

The U.S. government is taking baby steps to improve this situation. With Democrats gaining control of Congress, new House Speaker Nancy Pelosi has unveiled a plan to have Medicare negotiate with drug companies for lower prices. This plan — further discussed at The Health Care Blog — is supported by 74 percent of Americans, including 70 percent of Republicans.

 
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  • Dan

    The U.S. does not pay but a fraction of the R&D costs of thier meds. The NIH often does the actual research, so in essence, a patient is paying for a med twice from a big pharma company. Other reasons include the development of numerous and unnecessary ‘me too’ drugs by big pharma, which reasonably should lower the price of that particular class of medication, but instead, and with great elation, keeps the price of these copies at the price of the others, because that is what the market will bear for the benefit of thier shareholders.

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  • George

    Dan is correct that there are entirely too many “me too” drugs on the market — Why, because physicians will prescribe based on what is detailed to them by Pharma, not what is the best and most economical product. A prime example: Prilosec, a great drug for acid reflux, as it was approved to go over the counter, Nexium was released by the same company and exclusively marketed to physicians, minimal, if any significant improvements, but patients who were not having any problems taking Prilosec were switched to Nexium. Many of these examples can be found — if a patient has been stable on a generic, why switch to something new, just because it is now available? If we stop prescribing the “me toos”, industry will be forced to stop making them and focus on the un treated needs.

  • iGuide

    Another sad aspect of drug pricing is that drug companies are more tempted to develop the most profitable medications, instead focusing of the ones needed to save lives. For example, we have seen a recent influx of expensive drugs for erectile dysfunction. Also, the drug companies seek the most profit, that is selling at a high price which only a smaller portion of consumers are willing to pay, because that is more profitable than selling at a lower price which more people can afford. But, the current system leaves many unwilling to spend on health care (either out of inability or disgust for the system) and the rest throwing too much of their earnings (either themselves, or via their employers mind-bogglingly-high payments) at medicine. I think even having to talk about this kind of nonsense is silly, we so badly need price controls in the United States that its not even funny anymore.

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  • J. V.

    The facts are it is simply greed. The drug lobbies have pull on the politicians. No controls are set in place for price. While any compnay deserves to make a fair profit for thier product, they should not be allowed to rape the public. It’s just what the oil companies do. They make billions in profits. If their profits drop by a couple of million they start crying poverty. The point is they are still making “profit”. Alos, I never understand why it falls upon U.S. citizens alone to flip the bill for the R&D. If the cost of this expensive part of drug making was evenly shared globally, drugs would be much more affordable for everyone any the companies could sillmake a fair profit. It’s all about $$.

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