How About Those Cheap Canadian Drugs, Eh?
Jesse Kline | July 12, 2010
America likes its drugs. This year, Americans will spend over $300 billion on prescription medications and the costs have been rising for sometime. For those who suggest that price controls are the answer, however, new evidence would suggest otherwise.
A recently published study from Fraser America compared individual spending on prescription drugs in both Canada, where the government controls prices, and the United States, in which pharmaceutical companies operate in a much freer market. Contrary to popular belief, the study found that Canadians and Americans spend a similar amount of their personal disposable incomes—and, in the aggregate, as a percentage of gross domestic product—on prescription medication.
Due to a government imposed price ceiling on name brand medications, Canadians pay 53 percent less than Americans. Because the price of generic drugs in Canada is not subject to market forces, however, those drugs are 112 percent more expensive. As the Fraser America study reports:
Our research shows that government interference in the prescription drug market in Canada leads to distortions affecting prices and supply, and does not produce personal affordability advantages for consumers (on average). People in Canada spend approximately the same share of their income on prescription drugs as people in the United States, where the supply and prices of prescription drugs are generally determined by market forces.
Moreover, research indicates that government interventions, such as price regulations, negatively affect economic incentives for businesses to invest in innovative medicines. Unlike Canada, the United States is a global leader in the production of innovative medicines because it has the appropriate incentives in place to encourage private investment in scientific research and development.
Thus, not only does government interference in the prescription drug market offer no personal affordability advantages to consumers, but it also deters private investment in the development of ground-breaking medical innovations...
reason.com |
