Why are Canadian Drug Prices Lower?

Some news sources would have you believe that drug prices are lower in Canada only because the Canadian government regulates drug prices and the U.S. government does not. This is only half the story.

Government Regulation

The Canadian Patent Medicine Prices Review Board regulates drug prices to ensure that the prices of patent-protected brand-name drugs are not excessive. In the fifteen years that Canada has regulated drug prices, however, its regulatory agency has taken legal action only four times. In most cases, U.S. drug companies voluntarily lower their prices.

Uniform Drug Prices

Prices in the U.S. vary depending on the buyer’s purchasing power or lack thereof. For example, in Prescription Drug Pricing in Vermont: Drug Companies Profit at the Expense of Older Americans (Dead Link), the findings show that a senior citizen in Vermont paying for his or her own prescription drugs must pay, on average, twice as much for the drugs as the drug companies’ favored customers (large insurance companies and health maintenance organizations). The price of any drug in Canada, on the other hand, is the same for everyone—the government, private insurers or uninsured patients who buy retail.

Provincial Formularies

Each province keeps a formulary (list of drugs) it will cover based on value for money. Drugs that don’t make that list lose a large share of the market so U.S. drug companies will often set their price slightly lower than similar products already listed.


Advertising prescription drugs is one of the most controversial practices of the U.S. drug industry. In the first nine months of 2002, U.S. drug companies spent over $16 billion dollars promoting their products to doctors and consumers. This kind of advertising contributes to higher drug prices and is banned in nearly all other Western countries. Canada’s Therapeutic Products Directorate strictly regulates advertising for prescription drugs.

U.S. Drug Companies Spend Millions Trying to Defend Their Higher Prices

Each year, U.S. drug companies spend hundreds of millions on political influence including lobbying, campaign donations and extensive ad campaigns to defend their high prices. The drug industry employs over 600 lobbyists in Washington alone (more than one for every member of congress) and plans to increase its lobbying budget 23 percent to at least $150 million for fiscal year 2003-2004. This drives U.S. drug prices even higher.

Other Factors

Other factors include the favorable currency exchange rate and difference in average income levels.


Patent Medicine Prices Review Board
Therapeutic Products Directorate

Why Drugs Cost Less Up North (Dead Link)
Prescription Drug Pricing in Vermont: Drug Companies Profit at the Expense of Older Americans (Dead Link)
Ads, Promotions Drive Up Drug Costs (Dead Link)
Drug Industry Spends Huge Sums Guarding Prices (Dead Link)
Pharmaceutical Companies Maintain Huge Profits with High-Priced Pills (Warning: PDF File) (Dead Link)

Originally Posted February 20, 2004.