#REAL LIVES 2007 CRACK PLUS#
Insurers have attempted to limit this markup by reimbursing pharmacies only for the wholesale cost of the drugs dispensed, plus a fixed markup and a dispensing fee. While pharmacies appear competitive, they are able to mark up prices substantially because consumers with insurance are relatively insensitive to price. Generally, price regulation is applied because a firm has the ability to exercise market power. And the current process of price setting is unpredictable, unfair, opaque, and politicized. Changing this number frequently is even worse. Regulating the price based on a number that is not in any way related to cost is a strategy that is guaranteed to distort the market. And some are very cheap to produce, less than 5% of the brand price. Some drugs are relatively expensive to produce, and should be priced above 25% of the branded product. Prices in competitive markets - and generic drugs are very competitive - should be related to cost. This pricing strategy is hopelessly wrong. The only discernable rationale for these percentages is that they are round numbers. Over the past few years in Ontario, generic prices have faced a ceiling based on the price of the equivalent brand product: The ceiling started at 75%, and then was revised to 50%, and then unexpectedly revised again to 25%. Prices are set arbitrarily and change suddenly and substantially. Unfortunately, Canadian regulations around generic drug pricing seem to be based on exactly the opposite set of principles. There are some basic principles: Price should be related to cost the process of price setting should be fair, and preferably open and subject to appeal through an independent authority and the goals of the regulation should be explicit. Price regulation is an exceptionally powerful tool for controlling markets it is also dangerous and needs to be deployed judiciously.
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