Canadian Provinces Overpay for Generics

Today’s Managing Health Care Costs Number is 46%

That’s the percentage of Canadian provincial budgets that are dedicated to health care.  It’s up from 35% in 1999.

Health care cost woes are not unique to the United States!

The rise of health care costs crowds out other important government services, and this is not sustainable.

The Economist  reports that if there is no change in health care inflation, Ontario will spend 80% of its budget on health care by 2030!

What’s the problem?

For one thing, the Canadian provinces are overpaying for generic medications. Each province sets rates for generic medications, and in Ontario these are pegged at 50% of brand name price, and scheduled to drop to 25% later this year.  Generic prices are often 10% or less of the branded product cost in the United States. 

Some will suggest that this is further proof that we should rely on market forces to drive down prices, rather than having the government set prices.  I think this shows that regulatory agencies have a hard time being dynamic in their approach to prices.   It’s likely that regulations to cap prices of brand name medications is effective, but there is no need for price controls for commodity generic medications. In Ontario,  setting prices actually artificially inflates costs.

We’re likely to have arguments in Massachusetts and in the United States about price controls in the coming months and years.   In the US, our high unit costs are the main reason our health care is more expensive than the rest of the developed world.    Price controls work (at least temporarily) in some instances, but they can lead to paradoxically high costs rather than cost savings.