I received some interesting emails and comments on my last entry:
I've received several viewpoints on why American drugs are cheaper when purchased in Canada. Hgstern made the point that the Canadian government subsidizes drug costs. I did know that but perhaps you can clarify something for me. I thought those subsidies were only for Canadian residents. If a nonresident (ie. an American visitor to Canada or an out-of-country mail order customer) purchases meds at a Canadian pharmacy, does he get the same subsidy?
My sense is that the overall cost to an American is still low because the market simply can't bear much higher pricing owing to the relative strengths of our economies. If Canada is footing the bill than the difference is coming out of the Canadian tax base. This is something I can't imagine would make Canadian taxpayers happy (other than the pharmacy owners).
Maobi pointed out that the pharmaceutical companies may be raising issues of quality control as a red herring to hide their true agenda. I'm shocked to discover gambling here (with apologies to Claude Rains). In truth, I do think, for the reasons I've given, that there is some truth to the argument. Phil Marrow does offer some support for this position. "Some of the batches my be 100% active ingredient (an exaggeration) and another all inactive (not an exaggeration)." This, regardless of whether it's a true concern of the drug companies.
SWBarns suggests that the main reason drugs are cheaper in Canada is that the U.S. carries the development costs for the rest of the world. This doesn't make economic sense to me because there is no unique incentive for a drug company to put all the burden of development on any one country. The balance of supply and demand is really what drives prices. Development costs are only one component of supply. There are others.
You did correctly make the distinction of total cost (total cost divided by total number of pills) vs. marginal cost (the cost of making one additional pill). This is important because so many people don't understand why it may cost 2 cents to make a pill that costs $5 to buy and that this by itself doesn't necessarily represent obscene profits.
Phil Marrow correctly makes the point that the economic status of an intended market is only one criteria of a pricing strategy. It is one of the main ones though. I didn't know that cars produced in Mexico by American manufacturers were more expensive than in the U.S. That's very surprising given the Mexican economy. Any idea of why that's true Phil?
I felt your comments on my entry on physician's declining quality of care were quite apropos. In fact, before I went into academia myself, I volunteered as a clinical instructor for several years. While teaching bright, motivated house officers at Harbor-UCLA Medical Center, not a day went by where I didn't learn something valuable myself. I plan to write more about this on a future post.