who purchase prescription drugs from Canadian pharmacies via the
Internet, or cross the Canadian border to buy drugs, do so because
it saves them money. The federal government in Canada plays a
key role in reining in drug prices through a regulatory agency
that sets limits on the amount pharmaceutical companies can charge
governments also play an important part in keeping drug prices
down through their lists of preferred drugs -- or formularies.
The provinces account for some 45 percent of drug spending through
the coverage they provide for seniors and welfare recipients.
By taking drug costs into consideration when developing their
lists of pharmaceuticals that will be covered, the provinces provide
a strong incentive to keep prices down.
The U.S. pharmaceutical
industry has been opposed to any such price controls on the U.S.
drug market. Its interests are often represented on Capitol Hill
by the Pharmaceutical Research and Manufacturers
of America, which had a total lobbying budget of some $7.5 million
in 2000, and often argues that price controls will decrease the
amount of money available for finding new drugs.
will be best served by more investment in discovering new medicines,
investment that would be cut off by price controls," Alan
Holmer, president and CEO of PhRMA, said during his participation
in a November 2003 roundtable discussion that The Economist sponsored.
the pharmaceutical industry's political pressure, the United States
is unlikely to adopt similar price controls because it would be
too risky, Uwe Reinhardt, a professor of economics and public
affairs at Princeton, told PBS's Frontline.
see, within certainly the next 10 years, that we would have drug
price controls [in the United States] First of all, that's extremely
difficult to do. You can do it when you're Canada, because whether
they set the price 10 percent higher or lower, that's not going
to impact an industry a whole lot. But when the biggest economy
in the world does that that will have a huge impact on the global
pharmaceutical industry. And what politician wants to be responsible
for that? So I think we'll try everything in the book before having
that kind of price control," Reinhardt said during a November
federal system for overseeing drug prices
When a company seeks a Canadian drug patent, it must agree to
follow government guidelines that keep it from charging prices
deemed excessive. Both prescription and over-the-counter drug
prices fall under the jurisdiction of Canada's Patented Medicine
Prices Review Board, created in 1987. Those prices are set according
to guidelines that ensure:
- the price
of most new patented drugs does not exceed the price of the
costliest drug already on the market that treats the same disease;
- the prices
of breakthrough drugs that are substantially more advanced than
other treatments cannot be higher than the median price charged
in France, Germany, Italy, Sweden, Switzerland, the United States
and the United Kingdom;
- a drug's
price cannot increase more than the inflation rate; and
- a patented
drug's Canadian price can never be the world's highest.
In most cases,
the board regulates the prices manufacturers charge to wholesalers,
hospitals and pharmacies. It does not control prices wholesalers
and retailers charge.
drugs are on the market, manufacturers can raise prices without
board approval; if the board finds that a manufacturer is charging
an excessive price in any Canadian market, it investigates those
If the investigation
confirms that the price is too high and the manufacturer does
not lower it, the board can mandate a public hearing. If, after
that hearing, the board finds that a drug was too expensive, it
can order the manufacturer to reduce the price and take measures
to offset the excess money it has already earned.
2003, the board reported that almost 90 percent of patented drugs
on the market for all of 2002 were within the price guidelines.
Commenting on the remedies available to the board when prices
are too high, Dr. Robert Elgie, chairman of the Patented Medicine
Prices Review Board, said those measures are seldom necessary.
"By and large, voluntary compliance works."
credits its price guidelines with keeping drug prices under control.
In 2002 the review board reported a 1.2 percent decline of the
average manufacturer's price of patented medicine in 2002. This
continues a ten-year trend of average drug price increases being
lower than the rate of inflation as measured by the Consumer Price
drug spending in Canada has still increased - rising an estimated
7.7 percent in 2002 - due primarily to increases in the total
amount of medications sold annually.
minister of health oversees the review board, it is independent
of the federal Health Canada agency.
By Karyn Schwartz, Online NewsHour