Why Are Drugs Cheaper in Canada?

The Food and Drug Administration (FDA) has approved a plan allowing Florida to import certain medications from Canada at far lower prices than those drugs can be obtained in the United States, the first program of its kind in the nation.

It’s well-established that the cost of medication is high in the United States; multiple studies have found that the U.S. spends more on prescription drugs than other developed nations. An analysis by the Government Accountability Office found prices for some of the most prescribed brand-name drugs were an average of 2.82 higher in the U.S. than prices in Canada.

A variety of factors go into determining the exact dollar amount each patient pays for their prescriptions, including their insurance plan and whether the medication they are seeking is available as a generic.

Generic medications are more affordable and compose 80% of total medications prescribed in the U.S. But for brand-name medications that aren’t available as generics—because a pharmaceutical company has patented the drug—prices can run high. This makes up the vast majority of the U.S. drug spending.

Prices are lower in Canada partly because the country has negotiated maximum prices with drug companies, something the United States has not done. Under the Inflation Reduction Act, the U.S. will be able to negotiate maximum prices for certain drugs for Medicare patients, but that process is in its early stages.

As it stands, each insurer negotiates drug plans with pharmaceutical companies, creating a disjointed system that can result in a huge variety in what each patient pays out-of-pocket for drugs. That negotiation often happens via pharmacy benefit managers (PBMs), intermediaries that earn fees that increase the higher the cost of the drug.

While the costs of drugs before insurance are far higher than what most Americans actually pay, out-of-pocket costs are still higher in the U.S. than in most peer nations, data from the Organization for Economic Cooperation and Development shows. Americans spent an average of $133 out-of-pocket in 2021 on prescription drugs. That’s compared to $11 in the United Kingdom, $58 in Germany and $132 in Canada. (Those with chronic illnesses and older adults pay much more; people ages 65 to 79 averaged $456 out-of-pocket in the U.S.)

Florida’s program seeks to import medications specifically targeting chronic illnesses, including HIV/AIDS, psychiatric disorders, and prostate cancer. Officials estimate the state can save up to $183 million on these drugs in a year. But the program will be limited to Florida residents who receive state or government-administered health care, such as those on Medicaid, inmates, and patients at county health departments. Canadian restrictions on exports aimed at preventing drug shortages may impact the volume of drugs Florida will ultimately be able to import. 

Floridians who are privately insured or uninsured and people outside of Florida can only access prescription drugs imported from Canada by directly purchasing them from an online Canadian pharmacy. Individually importing drugs is not legal in the United States in most cases, but the FDA provides guidelines for when it is permissible to do so, including limiting the import to a three-month supply and attesting that it is only for personal use. Some 2 million Americans were estimated to have imported their medication in 2020.

Lucia Mueller, president of PharmacyChecker, a company that compares drug prices at U.S. and vetted international pharmacies, said blood pressure medication, inhalers, and non-refrigerated diabetes medications are some of the most common drugs she sees people choosing to personally import. Patient assistance programs can help cover the costs of more expensive medications, but applicants must meet certain income requirements to qualify.

“That’s where people fall through the cracks,” Mueller told Verywell. “A lot of people that come to our website are insured, it’s just what we call underinsured.”

Public health advocates like Mueller, who also serves on the board of the nonprofit Prescription Justice, argue that importation needs to be expanded more broadly to help bring down the cost of drugs in the United States. Mueller said different regulatory standards abroad pose a barrier to commercialized importation, but that several countries have comparable regulations. She also pointed to the fact that most of the active ingredients used in the U.S. drug supply are manufactured internationally.

“I really do think there could be parallel importation between the U.S. and the E.U.,” she said. “Working in tandem with them makes total and complete sense.”