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Pharma Pain: Canada Must Revamp its Drug Pricing Policies or Face Shortages as U.S. Demand Siphons Off Our Supply
Skinner warns that Canada’s policy of forcing drug prices down may turn out to be a Pyrrhic victory now that American consumers have discovered the charms of buying Canadian medicines over the Internet.
Canada must change its pharmaceutical pricing policies if it is to prevent the siphoning-off of our drug supply to a much larger and wealthier group of American consumers. The cross-border trade must be banned, or federal price regulations and provincial monopsony (monopoly buyer) power must be replaced with more efficient cost-control mechanisms, to allow normal market pricing in Canada. Options include greater consumer cost-sharing and non-universal drug programs focused only on truly catastrophic needs. Previous research has demonstrated that too much government interference in pharmaceutical markets creates a host of distortions that are harmful to Canadian consumers. Minimizing government interference would not only make Canadians better off overall, it would also eliminate the conditions that drive the Canada-U.S. cross-border drug trade.
Canadians – and Europeans – have benefited from a steady supply of new, cheap medicines, because U.S. customers pay market prices for theirs. This allows pharmaceutical companies to make the bulk of their profits in the U.S., invest plentifully in new R&D, and still sell pills for marginal profits abroad. This system is falling apart, however, as American consumers demand the same price breaks as their cousins North of the border.
Unless pharmaceutical companies are suicidal, their first impulse will be to limit drug supplies to Canada so as to maintain profit levels, thus putting Canadian customers into direct competition with American consumers. This is a battle Canadians are bound to lose.
All wealthy nations could, of course, use government pricing power to pay less for patented medicines. But we’d also get fewer new medical miracles in the future. The reason we are even having this debate is because we’ve taken the miracles we do have for granted.
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