Price Controls and Overall Drug Spending
Some Ohioans are clamoring for government to help control prescription drug prices. They have formed groups like the Coalition for Affordable Prescription Drugs to promote bureaucratic systems of price controls such as those of Canada. The Canadian system, however, tends to push up overall spending on prescription drugs, despite the low prices for some brand name ones.
This occurs primarily because the price-controlled system is unattractive to generic drug makers. Only two companies dominate the generic drug market in Canada. Once the patent on a brand name drugs lifts, few companies enter the market keeping prices high. According to the Wall Street Journal, “on average, brand-name drugs cost about three times more than their generic equivalents."[1]
Generics now account for 46 percent of prescriptions filled in the United States. By substituting cheaper prescription drugs for brand name drugs, where possible, Americans save money over their Canadian counterparts.
According to a 1999 study conducted by University of Pennsylvania health care professor Patricia Danzon, the total cost of generic and patented drugs sold in Canada was three percent more expensive than that of the United States because generic drugs are cheaper in the United States and Americans are buying more of them.[2]
Americans can also benefit by shopping around. A study performed by the Colorado’s Independence Institute compared prices for one drug at 100 different pharmacies throughout Colorado. They found that considerable savings could be obtained just by shopping around for the best prices. In one Colorado neighborhood, the Institute compared the prices of two pharmacies located just 300 feet apart. The price difference between the two pharmacies was $83.80 a month, or $1,000 a year.[3]
Unfortunately, too few Americans take advantage of such simple suggestions. Many instead place pressure on the government to enact price controls. The result of price controls, though, is an increase in demand and a stifling of supply. Inevitably this leads to rationing and a bureaucratic system that decides who gets what drug.[4]
Canadians, for instance, are routinely denied access to newer and more expensive drugs. Some even cross the border to the United States in order to buy them. Nonetheless, Maine and other states, including Ohio, are attempting to emulate Canada.
Ohioans would be better off if they took an active role in reducing their drug spending by through shopping around rather than clamoring for intrusive price controls that will only increase prescription drug spending in the long run.
Notes
[1] Francesco Fiondella, “Lessons in the Hunt for Cheaper Drugs,” The Wall Street Journal, 11 March 2003.
[2] Patricia M. Danzon, “Price Comparisons for Pharmaceuticals: A Review of U.S. and Cross-National Studies,” The Wharton School, The University of Pennsylvania, April 1999.
[3] “Consumers Can Save Money By Shopping for the Best Prescription Prices, Study Shows,” (Denver, CO: Independence Institute, 24 August 2000). Available at http://www.independenceinstitute.org.
[4] Lawrence W. Reed, “Counting the Cost of Prescription Drug Price Controls,” (Midland, MI: Mackinac Center for Public Policy, 31 May 2000).
Jen Melby is a former research intern with The Buckeye Institute.
