Prescription Drug Prices in
Canada and the United States—Part 3
Retail Price Distribution
Notes
1. Danzon (1999: 46) argues that there is no guarantee that pharmacists will pass on savings from discounts on their drug acquisitions because it is doctors (who are unaware of drug prices), not patients, who drive the demand for prescribed drugs. However, even if consumers are insensitive to prices, competition between pharmacies would reduce prices if those pharmacies enjoyed lower prices for their supplies of drugs.
2. According to Jupiter Communications, on-line drug sales in the United States were US$23 million in 2000 (as cited in National Association of Boards of Pharmacy 2001: 44), barely a scratch on the total of US$97.4 billion sold through retail pharmacies (IMS Health 2001).
3. Sorensen gathered data by recording prices that were written on posters in the pharmacies. New York state law mandates these posters. Green found that posters in pharmacies in New York City were very inaccurate and out of date (2000b, 2001). However, Sorensen ensured that the posters he checked in up-state New York had been updated within the month before his survey (2000: 837).
4. The United Health Alliance, a consulting firm in Bennington, Vermont, runs a program called Medicine Assist, which advises American patients on filling prescriptions through Canadian pharmacies. However, Vermont Governor Howard Dean, a proponent of price controls, has consistently promoted the program since at least June 2000 (Martialay 2000; Blackwell 2001). Therefore, it is unclear whether this program is a straightforward business or political advocacy.
5. Two Internet directories were used: www.yellowpages.ca for Canada and www.yellowpagesinc.com for the United States.
6. On March 21, Graham telephoned Custom House Currency Exchange in Seattle and was quoted a rate of CDN$1.50 per US$1.00 with no commission to buy US$300 worth of Canadian dollars. This was a premium of about 4.62% over the Bank of Canada's noon fix for the exchange rate that day. Assuming this spread was constant, Graham calculated the simple average of the Bank's noon rates for March 5 through March 16, and applied the premium to this average to estimate the rate of CDN$1.48 per US$1.00.
7. Tested with the Jarque-Bera statistic at 5% significance. Prices cannot literally be normally distributed because the normal distribution contains continuous, not discrete, variables. Literal normalness would also imply that some prices were negative at the far left tail of the distribution.
8. This simple function is far from satisfactory. The price per unit is not a linear function of the number of units in a package. That is, for a drug that is distributed in packages of 100 tablets and 200 tablets, the larger package will not necessarily be twice as expensive as the smaller.
9. Zelder has pointed out that only 1% of increased government health spending in Canada is on prescription drugs, although they are the only area (other than capital expenditures) where increased government spending reduces surgical waiting lists (2000). Zelder's analysis indicates that this misallocation of public health dollars may increase overall health costs. The failure of governments to spend adequately on prescription drugs in Canada's socialized health care system is an issue ripe for examination under public choice theory, by examining the strategies of various interest groups at the public trough. However, this study is not that examination.
10. Prescription Drugs Costs Assistance Act (C.C.S.M. c. P115), Specified Drugs Regulation 6/95, registered January 23, 1995, Schedule effective July 3, 2001, Part 2.
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