Thursday, June 28, 2012 – The number of notices of prescription drug supply disruptions in Quebec has risen considerably in recent years, from 33 in 2006 to 207 in 2010. The multiplication of cases of drug shortages coincides with provincial governments’ continued lowering of the price caps for generic drugs, according to an Economic Note published today by the Montreal Economic Institute (MEI).
“There’s a reason why the current shortages are largely in injectable drugs,” explains Yanick Labrie, author of the Economic Note. “These are products whose manufacturing process is more complex and expensive. Since profit margins are slimmer, it therefore becomes less interesting for companies to produce them. This is an example of how price caps set by government can have unintended consequences and lead to shortages.”
The problem is amplified by certain procurement practices within hospital networks that favour using a single supplier. For example, sending out a call for proposals and awarding an exclusive contract to the least expensive supplier produces savings in the short term, but it risks entailing future shortages by pressuring numerous potential suppliers to leave the market. It would be more prudent to adopt the approach of countries like Australia, whose policy is to divide procurement contracts for particular drugs and award them to several suppliers.
The author also points out that long approval delays on the part of Health Canada and the resulting high costs constitute barriers to the arrival of new medications. It would be desirable to accelerate the approval of similar prescription drugs produced and approved in other industrialized countries. The resulting increased competition could even encourage domestic manufacturers to invest more in order to avoid supply disruptions.
The Economic Note entitled How Can We Prevent Prescription Drug Shortages? was prepared by Yanick Labrie, economist at the MEI. It can be consulted free of charge on our website.
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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.
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