“On balance, it is hard to argue that Canada currently contributes less than its fair share to global R&D inputs, in comparison to most other countries,” said Wyonch.
February 25, 2019—Canada should not be classified as a “free rider” in drug pricing according to a new report from the C.D. Howe Institute. In “High Drug Prices, Big R&D Spenders and “Free Riders”: Canada in the Topsy Turvy World of Pharmaceuticals,” authors Åke Blomqvist and Rosalie Wyonch find that relative to its peers, Canada does less free riding on US research and development spending.
All countries, especially those with high per-capita incomes, face an inevitable tension between the obligation to pay their fair share of global financing for R&D, and their desire to save money for the taxpayers, private insurers and patients who pay for drugs.
The report finds that Canada is less of a free rider than most other developed countries. Conversely, evidence suggests that US consumers pay more than their fair share towards pharmaceutical R&D due to high prices. The US example notwithstanding, published prices of patented pharmaceuticals in Canada are comparable to or higher than those of most other developed nations, as are our contributions to business R&D through direct funding and tax expenditures.
“On balance, it is hard to argue that Canada currently contributes less than its fair share to global R&D inputs, in comparison to most other countries,” said Wyonch.
This report compares how patent law and pharmaceutical regulation help determine drug prices in Canada, the US, and major countries in Europe and Australasia. It also examines what policies Canada could pursue to help overcome criticism that it is a free rider, while simultaneously avoiding paying more than its fair share. With complex interactions between price regulation, patent laws, and R&D tax incentives and subsidies, it is difficult to determine whether Canada’s contributions to global pharmaceutical R&D are “optimal.”
The report recommends that Canada pursue a two-track strategy. In the short run, Canada benefits from, and should aim for, the lowest drug prices that can be attained without provoking retaliation from our main trading partners. In the long run, Canada should work with our trading partners and international agencies toward a model of global R&D funding that overcomes the free rider problem and moves us closer to a more efficient management of this aspect of the global commons.
“If we are going to move toward a national pharmacare model with a continued role for private insurance and provincial plans, private insurers should have access to the same price concessions, confidential discounts, and rebates as the provincial plans,” said Blomqvist. “Centralized price negotiations through an agency like the pCPA would be a more flexible approach than explicit price regulation.”
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information please contact: Åke Blomqvist, Adjunct Research Professor at Carleton University and Health Policy Scholar at the C.D. Howe Institute; Rosalie Wyonch, Policy Analyst, C.D. Howe Institute; Laura Bouchard, Communications Officer, C.D. Howe Institute: Phone: 416-865-9935; email: lbouchard@cdhowe.org