Why are drugs cheaper in Canada (and elsewhere)?

My Brain

[maui_hawaii]

Here is my assessment:

They are not. Not in reality.

Right now you’re probably sitting there thinking, “Whoa’, that’s totally different that everything I’ve heard” or “it’s cheaper for me, so it’s cheaper”. Let me explain why I am right.

The difference is social systems (namely socialism) and trade policy. Those are the two biggest factors.

Imagine you are a drug manufacturer. What is your largest cost? Is it manufacturing? Not a chance. Your biggest cost is by far development of newer and more cutting edge drugs. The actual manufacturing could be pennies on the dollar in comparison. Quite often the actual manufacturing is farmed out to local manufacturers in the host country. They aren’t really selling the drugs across the border, but rather the know-how to a contractor…in say Canada or Europe.

Because of our system we have taken a lead in developing new drugs. The vast majority of medicine and medical practices are developed here in the US. Why? Because can afford (and do spend money on) the R&D costs.

Now let’s say you develop some really good cancer treatment drug (a fictional example) and it cost you billions in development. Because of the dominant view that drugs are developed for the good of mankind, the drug companies sell drugs in places like Canada where they literally cap what they can be sold for.

What ends up happening is the foreign markets actually in many ways drive up the costs of our prices at home, in other ways they kind of drive down prices. More of the former than latter. Let me explain that seeming contradiction.

First off, one MUST recoup costs of development. Those billions are spent on your cancer drug no matter what.

In a purely ‘Canadian’ system it would take 100 years to recoup the R&D costs of your new drug, if ever. It’s because of price controls.

If the US adopted the socialist price control system it would completely bankrupt the entire industry in less than 10 years thus making everyone worse off. It would happen also if we allow the importation of drugs. 2+2=4.

The R&D costs MUST be recouped one way or another, and the quicker that happens, the faster we get more and better drugs. We are looking at turn-over. One won’t reinvest money they don’t have or have not yet gotten back. Who will pour money into a money losing venture?

Here is how Canada (and others) drive up our drug costs: because of their system they force US consumers to foot the bill of R&D costs. Those costs are simply spread over less consumers. We have a smaller market (compared the entire world) that is the one actually paying for the R&D. Our cancer drug costs are simply not allowed to be priced in globally. They quite literally force us to pay for our own R&D and recoup the costs all by our lonesome (that THEY are benefiting from). Our companies are not allowed to price drugs internationally so that the R&D costs are spread out among more of the people that actually consume the product. We are not allowed to treat foreigners as actual market participants.

In short, the US consumer is subsidizing everyone else’s “right” to have drugs. If the global drug market was not segmented, on average the US consumer would pay 60% less and everyone else would pay 25% more.

How they drive down costs is that what little they do contribute financially does help the drug companies. It’s still though an unfair system. The international markets want something for nothing. If we cut them off from the pot we are SOBs. If we make them pay for what they get we are SOBs. It’s a lose-lose situation.

If the US companies refuse to supply their markets everyone does what China threatened to do: Go buy a few bottles in the US, reverse engineer and manufacture the drugs on their own. Then the drug companies get NOTHING and all patents are disregarded. In other words the drug companies are trapped in the system.

The US is the only place in the world where the costs of drug development can be recouped. That’s the simple truth of it. If that market goes, the whole industry dies. That is why the drug companies are so opposed to drug importation. It would in essence Canada-fy our drug market and seriously stifle the development of drugs.

We don’t want that.

Instead of complaining about the drug companies maybe we should complain about the socialism overseas. Truth is, if you are American, you are paying for some old Canadian lady’s drug bill. That’s what it amounts to.

[<1/1,000,000th%]

Drugs for which the patent still is in effect in Canada are no cheaper here than they are in the USA.

That's because the Canadian government sets prices for drugs in Canada. That's why fewer drugs are available. Even fewer if you don't have private insurance.

[Brilliant]

You're missing the forest for the trees. Yes, drugs ARE cheaper in Canada than the US, and it is because they have the foresight to pass the cost of development onto the US consumer by regulating their prices--in effect watering down the patent protection by saying, "OK, we'll let you have a monopoly on this drug, but you've got to charge what we say you can charge."

In effect, this is a trade war. The Canadians are free riders on the American consumer. The American consumer is paying the freight. If the American consumer did not pay more, then the drug companies would not be able to develop these drugs. But why should the American consumer bear all the cost? The Canadian consumer is getting the benefit for free.

My suggestion is that we tell the drug companies that they can't sell their drugs in this country for more than they charge in Canada and other countries. That would force them to either cut their prices here, increase them overseas, or stop selling their drugs overseas. And that would put pressure on Canada and other countries to relax their price controls and pay their fair share.