How do price caps on generic drugs affect cost and supply?


Study Title: The pricing of generic drugs and its impact on market structure, competitiveness and security of supply

Principal Investigator: Aslam H. Anis. PhD, FCAHS. Professor, School of Population and Public Health, University of British Columbia

Start and End Date: 2017 – 2020

Why do this research?

In Canada and worldwide, setting price-caps on generic drug prices relative to branded products has been employed to make generic markets more competitive and to reduce drug costs. On April 1, 2014, the Pan-Canadian Pharmaceutical Alliance Generic Pricing Framework required new generic drugs to be priced as a 75% (85% if no product listing agreement with brand), 50% or 25% of the brand name price depending on the number of generic competitors. Fourteen commonly-used generic drugs have been priced at 18% of brand.

Setting the price-cap at the wrong level can lead to inefficiencies such as high provincial drug plan expenditures because prices are still too high or fewer new generic entrants, more generic exits and even the possibility of drug shortages because prices are too low. Our goal is to assess whether current price-cap regulations including the Pan-Canadian Generic Pricing Framework are efficient. This study constitutes a practical starting point toward determining the impact of different price-caps on generic pharmaceutical industry and generic market competition across Canada. It has the capacity to produce rapid results to guide policymaking.

What will be done?

We aim to examine the impact of provincial and national Maximum Accepted List Price (MALP) regulations on the Canadian generic drug market, in terms of these specific outcomes:

1) Market entry by generic manufacturers;

2) Market exit;

3) Market shares of generic products;

4) Total drug expenditures;

5) Drug shortages.

Our goal is to assess the impact of price-cap regulations on different Canadian generic drug market outcomes and especially the supply and availability of generic drugs. The findings will be used to guide policy-making to ensure fair pricing and reduced risk of generic drug shortages in Canada.

Who is involved?

This is a drug level analysis so no patients will be involved. A team of health economists will be working on this research to produce results that will help develop government policy.

Who is funding this research? Canadian Institutes of Health Research


Paul Grootendorst, MA, PhD, Professor, Leslie Dan Faculty of Pharmacy, University of Toronto;  Aidan Hollis, PhD, Professor, Department of Economics, University of Calgary;  Chris Ingram, BA, CPA, CGA; Manager, Supply Initiatives, Medical Beneficiary and Pharmaceutical Services, BC Ministry of Health; Larry Lynd, PhD, BSP, Professor and Director, Collaboration for Outcomes Research and Evaluation (CORE). Other Affiliations. Scientist, Centre for Health Evaluation and Outcome Sciences (CHEOS); Wei Zhang, PhD, Assistant Professor & Program Head, Health Eonomics, Centre for Health Evaluation and Outcome Sciences (CHEOS)