The Economics of Prescription Drug Prices, Government Intervention, and the Importation Of Drugs from Canada

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Executive SummaryPrescription drugs are one of many elements of the U.S. health care system that are semi-regulated through mechanisms such as patent law, professional regulation over prescriptive powers, and pharmacy distribution systems.Pricing strategies for prescription drugs before and after patent expiration are designed to maximize the recapture of research costs during patent life while preserving market share after patent life.In Canada, drug pricing is controlled by the Patent Medicines Prices Review Board (PMPRB), which compares the price of a given drug in other European nations and the U.S. in order to determine the price in Canada.Drug prices in the U.S. are approximately one-third higher than in Canada; Canadian prices are currently 5%−10% below foreign prices.While allowing the importation of lower-priced drugs from Canada may have short term benefits in lowering health care costs, the longer term effect of lowering the incentives for drug innovation may outweigh the short-term benefits.

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