Health-Care Demagogues

With Canadian-Style Drug Prices in the United States, Americans Would Suffer Canadian-Style Access to Drugs

Doug Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books.

The Bush administration seems ready to push Medicare reform, and Republican legislators are committed to creating a pharmaceutical benefit. The congressional hopper is sure to fill with bills attacking the pharmaceutical industry and probably even a few proposing to nationalize the entire medical system.

Some states aren’t waiting for Washington to act. Maine and Vermont are trying to control drug prices. Florida is restricting the pharmaceuticals that Medicaid will cover.

In Oregon political activists unsuccessfully pushed an initiative for a Canadian-style, single-payer system last November. California State Senator Sheila Kuehl has proposed that her state adopt the same sort of plan.

West Virginia Governor Bob Wise and others score political points by using Canada to attack the drug makers. Pharmaceutical costs are “outrageous,” he says. People are “being taken advantage of” since they pay more than residents of Canada.

It’s an emotional litany worthy of the finest demagogue. Critics routinely heap abuse on the pharmaceutical industry, but only it makes new, life-saving medicines available to all Americans.

Of course, we face real health-care problems. In Governor Wise’s state surgeons went on strike to protest rising malpractice premiums. But rates are rising because of an abusive tort system, not high drug prices.

Despite Governor Wise’s obvious misconceptions, Canadian health care is no model for the United States.

Adjust for the two nations’ differences—the United States has more war veterans and inner-city residents and spends far more on medical research, for instance—and medicine doesn’t look so cheap up north. Indeed, a commission headed by former provincial premier Roy Romanow, appointed last year by the Prime Minister to review Canada’s health-care system, has just published a report advocating a doubling of the national government’s subsidies.

No wonder, given the fact that Canadians routinely stand in long lines for care. In fact, the Vancouver-based Fraser Institute estimates that Canadians are waiting longer than ever before for medical services. The average delay between general-practitioner referral and specialty consultation is 16.5 weeks; the time between the latter and actual treatment is another 9.2 weeks.

Delays for cancer patients run a month or two. The wait is almost seven months for eye care and eight months for orthopedic surgery.

Canadians have only limited access to new technologies. In August, reported Nadeem Esmail and Michael Walker of the Fraser Institute, “While ranking number one as a health care spender [compared to 26 largely European states], Canada ranks eighteenth in access to MRIs, seventeenth in access to CT scanners, eighth in access to radiation machines, and thirteenth in access to lithotripters.”

Total health-care outlays are determined by a “global budget” rather than medical needs. The province of Ontario closed its hospitals around Christmas 1993 because it was out of money. Explained Theodore Freedman, president of Toronto’s Mount Sinai, which was shuttered for two weeks, “This is not about health care. This is about the deficit.”

Patients flee abroad, particularly to America. Provinces contract out treatment, such as for cancer, to U.S. hospitals.

The story is much the same for pharmaceuticals. U.S. politicians have organized well-publicized bus trips to Canada to help constituents purchase pharmaceuticals at lower prices. “There’s no question that prescription drugs cost too much in this nation,” claims Senator Jim Jeffords.

But international cost comparisons must be viewed with skepticism, since there is no “correct” price. Prices overseas generally reflect the lower incomes of many nations and the highly politicized nature of most foreign health-care systems. Exchange rate variations also matter: America’s relatively strong dollar make drugs priced in weaker local currencies seem particularly cheap.

Canada’s economy too, has suffered, with its dollar losing nearly a quarter of its value over the last decade. As a result, many goods are cheaper there than here.

Less Litigation

Canadians also benefit from less, and less expensive, product-liability litigation. Economist Richard Manning estimates that one-third to one-half of the drug price differential between the two countries is due to the higher cost of liability litigation in America. Moreover, the national and provincial governments restrict prices, free-riding on American research and development.

Patricia Danzon of the Wharton School also points to issues involving patent protection, limited use of generics, and continuing availability of prescription drugs without prescriptions. After adjusting for such factors, she and Jeong Kim found, using 1992 data, “that the average U.S. consumer would have paid 3 percent more in Canada.”

More recently, Dr. John Graham, director of the Fraser Institute’s Pharmaceutical Policy Research Center, and Tanya Tabler, a student at the Faculty of Pharmacy at the University of Alberta, surveyed prices on both sides of the border. Although they found costs to be lower in Canada, Graham and Tabler observed that “a shopper can save almost as much money by bargain hunting within his own area as by crossing the border.” Indeed, reliance on U.S. list prices is itself misleading since actual transaction prices are often lower.

Pharmaceutical controls also have sharply reduced Canadians’ access to needed drugs. Even when the national government approves a medicine, provinces often do not cover its use.

For instance, Ottawa added only 24 of 400 drugs considered for reimbursement between 1994 and 1998. Provinces sometimes wait months or years before including pharmaceuticals in their formularies, or use such techniques as “reference pricing,” covering only the cheapest drug within a therapeutic category, irrespective of relative effectiveness.

The consequences are predictable. Canadian physician William McArthur reports that more than a quarter of doctors in the province of British Columbia have had to treat and even hospitalize patients because of government substitutions of medicine; six of ten have seen their patients’ conditions deteriorate.

American health care is a mess. But nationalizing the system will only exacerbate the problems. Drugs, which often cut costs by eliminating the need for other treatments, are part of the solution.

If Governor Wise and his allies nevertheless impose Canadian-style prices on drugs here, Americans will suffer Canadian-style access to drugs. In fact, the impact will be even worse, because Canadian-style pharmaceutical regulation means a Canadian-style pharmaceutical industry—with few new drugs and even fewer new breakthrough medicines.

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