Prescription drug prices in the US have long been a topic of debate, especially when compared to the significantly lower prices in neighboring Canada. In 2022, prices of patented drugs in the US were 3.57 times higher than in Canada. Because of this, states like Florida are now exploring ways to lower drug costs, including importing medicines from Canada.
The disparity in drug costs between the two countries has led to various discussions, policy considerations, and even cross-border purchasing by US residents.
But what’s driving this massive price difference? In this article, we’ll explore the reasons why prescription drugs are cheaper in Canada, supported by relevant studies and expert opinions.
Why Are Medications Cheaper in Canada?
Understanding these price differences highlights opportunities for cost-saving measures and informs better healthcare policies. It also helps patients to make informed decisions about their medication choices.
Here are the key factors why prescription drugs in Canada are cheaper:
1. Regulatory Frameworks
Canada has a regulatory body called the Patented Medicine Prices Review Board (PMPRB), established in 1987. They monitor the prices of patented drugs to ensure they aren’t excessively high.
The PMPRB compares Canadian drug prices to eleven other industrialized countries, also called the PMPRB11, including France, Germany, and the UK. This comparison helps keep prices in check, preventing pharmaceutical companies from charging significantly more than they do in other comparable markets.
On the other hand, the US adopts a free-market approach to drug pricing. Here, the government doesn’t regulate prescription drug prices directly, leaving pharmaceutical companies free to set prices. Negotiations then take place between manufacturers, insurance companies, and pharmacy benefit managers (PBMs).
This lack of regulation often results in higher prices, as companies aim to maximize profits.
Did You Know
Canada’s PMPRB11 was once the PMPRB7. The change came when Canada removed the US and Switzerland–countries with higher drug prices–and added six with lower prices (Australia, Belgium, Japan, the Netherlands, Norway, and Spain). This shift came into force on July 1, 2022, and continues to help keep medication costs in Canada more affordable!
2. Pharmaceutical Lobbying
Lobbying allows companies and organizations to shape government decisions to their advantage. This practice has sparked controversy in the US, particularly when large corporations push for laws prioritizing their interests over public needs.
Over the past two decades, the pharmaceutical and health products industry has invested $4.7 billion in federal lobbying efforts. This translates to an average of $233 million annually, positioning it as the top lobbying spender among all industries.
These are the organizations that dominated federal lobbying spending from 1999 to 2018 in the pharmaceutical industry:
| Rank | Organization | Expenditures |
|---|---|---|
| 1 | Pharmaceutical Research and Manufacturers of America | $422.3 million |
| 2 | Pfizer | $219.2 million |
| 3 | Amgen | $192.7 million |
| 4 | Eli Lilly and Company | $166.2 million |
| 5 | Biotechnology Innovation Organization (BIO) | $153.4 million |
According to a study, a significant portion of this money is directed toward members of Congress, particularly those on committees responsible for health-related legislation. Notably, out of the top 20 senators and 20 representatives who received the most contributions, 39 served on these key committees, with 24 holding senior positions.
At the state level, the industry has funneled $877 million into candidates and committees, with nearly half of this amount spent in California alone. These contributions often surged in years when important state referendums on drug pricing and regulation were up for a vote.
While pharmaceutical lobbying also occurs in Canada, its impact on drug prices is more limited due to the country’s regulatory framework. As a result, lobbying efforts in Canada are often directed towards issues like drug approval processes, intellectual property rights, and market access rather than directly on pricing.
3. Single-Payer System
The single-payer system can use its significant purchasing power to negotiate better drug prices with pharmaceutical companies. Since the government represents a large patient base, companies are often more willing to lower their prices to secure access to such a broad market.
The Canadian Healthcare System, established by the Canada Health Act (CHA) in 1984, provides publicly funded healthcare to all Canadians through a single-payer system. This system is primarily financed by taxes and offers essential medical services such as hospital and physician care.
In contrast, the US healthcare system does not have universal healthcare and relies on a mix of public and private insurance. While the US Medicare program is often described as a single-payer system, it differs from a fully single-payer model like Canada’s in several ways.
For example:
-
- Medicare primarily serves individuals aged 65 and older and certain younger people with disabilities.
- Many beneficiaries purchase additional private insurance (Medigap) to cover costs not fully paid by Medicare, such as deductibles and co-pays.
Furthermore, the existence of Medicare Advantage plans, which are managed by private insurers, adds complexity and moves the system further from the simplicity of a pure single-payer model.
Fun Fact
In 2023, the states with the best healthcare systems were Massachusetts, Hawaii, New Hampshire, Rhode Island, and Vermont. On the other end, the states with the lowest rankings were Arkansas, Texas, Oklahoma, West Virginia, and Mississippi.
4. Patent Laws
When generic drugs enter the market, they typically lead to a significant drop in drug prices, often reducing costs by up to 80%. However, the availability of generics is often delayed due to patent extensions by brand-name manufacturers.
US vs. Canadian Drug Patents
In both the US and Canada, drug patents usually last 20 years, but the period of market exclusivity is shorter because of the time needed for drug development and approval. In the US, this exclusivity typically lasts around 12.5 years before generic drugs can enter the market. According to a 2021 study, the period is often shorter in Canada.
Patent Extensions and Evergreening
Patent extensions are designed to compensate for the time lost during drug development. Under Canada’s Comprehensive Economic and Trade Agreement (CETA), patents can be extended by up to 2 years.
On the other hand, the Hatch-Waxman Act allows for up to 5 years of patent extension in the US. However, this act has faced criticism for enabling “evergreening” tactics. This practice involves drug companies making minor modifications to extend their patents and maintain market dominance.
Common evergreening practices may include:
-
- Creating slightly different versions, such as extended-release or liquid forms.
- Combining the drug with another ingredient, even if not necessary, and patent the mix.
- Finding new medical uses for the drug.
- Creating new delivery methods, like special inhalers or patches.
Canada takes a more aggressive stance in challenging patents, which often leads to earlier access to generic drugs. For example, Teva Pharmaceutical Industries Ltd. introduced a generic version of Viagra in Canada in 2012 after the Supreme Court invalidated Pfizer’s patent. In contrast, the US did not see a generic version until 2017.
Specific Drugs and Price Discrepancies
Here are some well-known prescription drugs that are cheaper in Canada than in the US:
| Prescription Drug Name | US Prices(a) | Pharma Giant Prices(b) |
|---|---|---|
| Anoro Ellipta (COPD) | $429 | $180 |
| Cosentyx (Plaque Psoriasis and Psoriatic Arthritis) | $5,623 | $1,299 |
| Epclusa (Hepatitis C) | $25,018 | $22,655 |
| Ibrance (Cancer) | $12,811 | $7,395 |
| Invokana (Diabetes) | $519 | $165 |
| Myrbetriq (Overactive Bladder) | $413 | $114 |
| Plegridy (Multiple Sclerosis) | $7,169 | $2,959 |
| Pradaxa (Blood Clot) | $393 | $120 |
| Tremfya (Plaque Psoriasis and Psoriatic Arthritis) | $11,437 | $3,796 |
| Tresiba (Diabetes) | $616 | $179 |
| Xtandi (Cancer) | $12,076 | $4,788 |
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Frequently Asked Questions
Related Articles
Sources
Zhang, W., Sun, H., Guh, D. P., Grootendorst, P., Hollis, A., & Anis, A. H. (2024). The impact of proposed price regulations on new patented medicine launches in Canada: a retrospective cohort study. Canadian Medical Association Journal, 196(20), E691–E701. https://doi.org/10.1503/cmaj.231485
Wouters, O. J. (2020). Lobbying expenditures and campaign contributions by the pharmaceutical and health product industry in the United States, 1999-2018. JAMA Internal Medicine, 180(5), 688. https://doi.org/10.1001/jamainternmed.2020.0146
Ross University School of Medicine. (n.d.). US vs. Canadian Healthcare: What is The Difference?. Retrieved from https://medical.rossu.edu/about/blog/us-vs-canadian-healthcare
Lexchin, J. (2021). Time to marketing of generic drugs after patent expiration in Canada. JAMA Network Open, 4(3), e211143. https://doi.org/10.1001/jamanetworkopen.2021.1143
Lexchin, J. (2017). Market exclusivity time for top selling originator drugs in Canada: A cohort study. Value in Health, 20(8), 1139–1142. https://doi.org/10.1016/j.jval.2017.05.004
IMS Institute for Health Informatics. (n.d.). Price Declines after Branded Medicines Lose Exclusivity in the U.S. Retrieved from https://www.iqvia.com/-/media/iqvia/pdfs/institute-reports/price-declines-after-branded-medicines-lose-exclusivity-in-the-us.pdf
Sibbald, B. (2016). Brand-name drug costs expected to rise under CETA. Canadian Medical Association Journal, 189(2), E84–E85. https://doi.org/10.1503/cmaj.109-5363
Brophy Marcus, M. (2016). First generic version of Viagra (sildenafil citrate) approved by FDA. CBS News. https://www.cbsnews.com/news/first-generic-drug-for-viagra-called-sildenafil-citrate-approved-by-fda/
Canada’s top court OKs generic Viagra. (2012). Financialpost. https://financialpost.com/legal-post/canadas-top-court-oks-generic-viagra
Government Accountability Office. (2021). U.S. Prices for Selected Brand Drugs Were Higher on Average than Prices in Australia, Canada, and France. Retrieved from https://www.gao.gov/assets/gao-21-282.pdf
