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Introduction

Public attention in the United States and Canada has recently focused on differences among the prices of prescription drugs in the two countries. Because of these price differences, a number of American residents who live close to the Canadian border have come to Canada to have their prescriptions filled in Quebec, Ontario (CBC television, The National, February 18, 2000) and more recently, British Columbia (CTV Vancouver, The Noon News Hour, May 3, 2000). To serve this market, at least one group of medical entrepreneurs plans open a clinic just north of the border between the state of Washington and British Columbia (Fong 2000).

Reports from the United States indicate that prescriptions can be purchased at significantly lower costs in Canada than in the United States. In 1998, Representative Bernard Sanders initiated a study that compared prescription drug prices in Vermont to prices in Canada and Mexico (US House of Representatives 1998). The report concluded that it appeared that drug companies were engaged in a form of discriminatory pricing that victimized those who were least able to afford it. In the fall of 1999, the CBS news program, 60 Minutes, featured this subject and reported that bus-loads of American seniors had traveled to Ontario and Quebec to obtain prescription drugs. President Clinton ordered a study of prescription drug costs in America, which was submitted in April 2000 (US Department of Health and Human Services 2000). Hillary Clinton, campaigning for a seat in the American Senate, promised legislation that would permit New York pharmacists to buy low-cost prescription drugs from Canada (Clinton 2000).

Some American jurisdictions, such as Maine, plan to impose explicit price regulation on pharmaceuticals, for which Canada's Patented Medicines Prices Review Board is to be the model.

The goal of this study is to identify the effects of price regulation in the Canadian and American markets. It looks at wholesale and retail prices for a sample of high-volume prescription drugs sold in the United States and Canada. It seeks to answer the questions:

1. What would the average American pharmacy pay for drug X if it were to pay the Canadian price?
2. What would the average American drug consumer pay for drug X if he were to pay the Canadian price?

This survey contributes to the discussion of prescription drug prices by examining a much larger set of data than other recent lists (Clinton 2000; Gorton 2000) and including prescription drugs other than patented drugs.

Given that the Canadian government explicitly regulates prices of patented drugs and the United States government does not, the authors expect that the results of this survey will be an important input for researchers who seek to explain the effects of the different regulatory systems in the two countries. Because the Canadian government regulates the prices of patented drugs only, we have sought especially to identify differences between the prices of patented and of non-patented drugs.

Identifying an objectively selected sample that contains both significant patented and non-patented drugs is a challenge. For the most part, classical price indexes capture prices of patented drugs, which dominate sales volume. A sample including non-patented drugs permits the authors to observe differences between relative prices for drugs that are subject to price regulation in Canada (patented drugs) and those that are not (non-patented drugs). We believe that the sample that we have collected is the largest since a study using 1992 data to construct a variety of classical price indices (Danzon 1996).

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