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Very interesting! Two quick questions:

- I would assume one outcome would be for brand-name Rx cos who create the drug to drive up their reported development costs (and thus the later generic costs based on %), in order to minimize losses from repeats of the Ramipril scenario. Any evidence the developers are doing this?

- Is the SK percentage of 35% versus ON 25% an adjustment related to much smaller market size? (I'm ignoring the "hardball" aspect of your sentence and just noticing the differential.)

Great post!

How about a Vickrey auction? The subsidy is set as a fraction of the second lowest price. This is how the obamacare private insurance subsidy works.

Reply to Shangwen
Brand prices are not based on development costs, so there is not point in changing reported development costs.
Firms with high prices naturally wish to justify the high prices, but since the market is global, there is no impact from Canada particularly on incentives to artificially inflate estimates of development costs. Ramipril was a huge victory for Sanofi, the brand company. Even after it paid damages to Apotex, it was way ahead.

I don't believe that the SK pricing has anything to do with market size. Alberta is now obtaining lower prices than Ontario.


For Jeff
Auctions are problematic because of their impact on incentives for generics to litigate, and because of the possibility of shortages, unavailability, etc. However, they would no doubt lead to lower prices for drugs that were genericized.

Paul and I have a paper on the topic.

The paper on tendering:

Thanks for the excellent post.

Is the current provincial pricing model for generics causing any of the major drug shortages that have been seen in the healthcare field in Canada over the past year?



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