Saturday, September 20, 2008

Canadians Pay 2X As Much For Generics As We Do

From Canada's Fraser Institute's study "Seniors and Drug Prices in Canada and the United States, 2008 edition":

Results (see chart above) show that on average in 2007, prices for the generic drugs that were most commonly prescribed to Canadian seniors were 101% higher in Canada than for identical drugs in the United States.

High prices for generics in Canada are caused by various misguided public policies that shield retail pharmacies and generic drug manufacturers from the competitive market forces that would put downward pressure on the price of generic drugs. Specifically, the reimbursement structure of public drug programs is the primary cause of unnecessarily high prices for generic drugs.

Public drug programs indirectly reimburse retail pharmacies for the cost of prescriptions dispensed to their insured beneficiaries, instead of directly reimbursing consumers or patients (i.e., the beneficiaries). This insulates consumers from the cost of the drugs, thereby removing incentives for comparative shopping, which would put downward pressure on prices.

Additionally, most public drug programs reimburse the cost of generic drugs at a fixed percentage of the brand name original drug. Under fixed percentage reimbursement, there is no incentive for retailers to compete by offering the lowest prices. This is because the buyer (the government) offers every seller the same price, and the price is known in advance. Large, established generic companies take advantage of the fixed price public reimbursement system by offering rebates to retailers that are “bundled” across many products, in exchange for exclusive distribution rights. This frequently results in a virtual monopoly within particular retail pharmacy chains for a particular generic label, and because pharmacies are reimbursed directly, discounts are not passed on to consumers. Thus, exclusive distribution allows pharmacies to charge the same inflated generic prices to public and private payers alike.

HT: Ben Cunningham


At 9/20/2008 8:44 PM, Blogger bob wright said...

I heard an interesting story the other day.

A couple I know that winters in Florida told me a Canadian couple in their park has to pay about $15,000 for a supplemental medical insurance policy to cover them while they are in the states. Apparently, the policy is required by the Canadian government.

The Canadian couple said the cost of the policy was going to keep them from going to Florida in the future.

I'm wondering if any CD readers from Canada can shed some light on this - its validity and veracity.

At 9/22/2008 6:43 AM, Anonymous marmico said...

Only a libertarian Carpe Diem would twiddle their thumbs about a right-wing Canadian think tank on generic drugs while the U.S. financial system implodes.


I'm wondering if any CD readers from Canada can shed some light on this - its validity and veracity

It's true. Public Canadian health care will not cover Canadian residents being raped by U.S. private health care.

At 9/22/2008 10:22 AM, Anonymous QT said...

The cost of insurance for Cdn snowbirds is often affected by pre-existing medical conditions.

A friend of my husband's had his insurance more than double to $7k after he suffered a heart attack (this is going back several years; his wife's insurance was about $2500). Given that we have many snowbirds who are seniors, the $15k you cite seems plausible.

Regular travel insurance normally does not cover pre-existing medical conditions. This is the first that I have heard that the Cdn government "requires" snowbirds to have out-of-country medical coverage. When I look at the net, I find people are using all kinds of different insurance products and living with the restrictions/exclusions rather than looking for the gold cadillac coverage. It looks like you can also pay substantially less than 15k if you shop around and are prepared for $1k deductibles and less coverage.

The Cdn government does not provide out of country coverage. Some provinces will pay for out of country medical treatment if the treatment is not available in Canada. One has to apply in writing and obtain approval prior to arranging for a referral and seeking treatment in the U.S. We looked at this option for my husband with his shoulder injury. Given the time required, we decided to pay personally for the appointment with Dr. Andrews, the foremost orthapaedic expert in the U.S. We were able to include this in our medical expenses claimed on our tax return although obviously not the travel expenses.

Canada cuts off coverage to citizens who are out of country for more than 1/2 a year. Some of my friends arrange their travel plans to ensure that there are in Canada for the required number of days per year. The downside is that they pay the resident rate of tax vs. the lower non-resident rate.

Does this answer your question?


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