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Canadians pay very high prices for generic drugs compared to international norms. The reason is not inefficient or uncompetitive generic drug companies, but provincial government pricing and insurance policies that are distorting the market. This paper by Professor Aidan Hollis, an expert in the economics of pharmaceutical markets, evaluates provincial government policies regarding generic drugs and proposes a new approach which could save governments and private insurers tens of millions of dollars a year.

Canadians pay very high prices for generic drugs compared to interna onal norms. The reason is not ineffi cient or uncompe ve generic drug companies, but provincial government pricing and insurance policies that are distor ng the market. This paper by Professor Aidan Hollis, an expert in the economics of pharmaceu cal markets, evaluates provincial government policies regarding generic drugs and proposes a new approach which could save governments and private insurers tens of millions of dollars a year.

Using data on Irish loan funds, a nineteenth‐century quasi‐bank system, we explore how the capital structure affects managerial agency to impact non‐interest expenses. These organizations had no equity‐holders and were financed by deposits and 'capital', comprising donations and accumulated profits, creating problems of managerial moral hazard. Higher net income (before non‐interest expenses) is associated with higher salaries and other non‐interest expenses. More surprisingly, higher 'capital'–deposit ratios led to higher expenses even after controlling for net income. While this institution is unique, the findings suggest that depositors could assist in controlling expenses in microfinance organizations.

Orphan drugs developed to treat rare diseases are expensive, thus making it difficult for provincial governments to cover their costs and for patients to acquire them. However, a streamlined method of setting guidelines for coverage using a cost-based regulatory model could help patients get access to the drugs while ensuring manufacturers are fairly compensated. Currently, governments can justify covering cost-effective drugs. Manufacturing costs, including research and development, typically put orphan drugs over any threshold of cost-effectiveness because so few patients use them. Thus, governments either decline coverage or end up funding the drugs under pressure from patient advocacy groups. Without adequate compensation for their efforts, manufacturers will have no incentive to develop orphan drugs. A cost-based regulatory model, including yardstick pricing, would improve access to orphan drugs because it creates incentives for companies to lower their costs. Yardsticking means that prices are set using industry benchmarks and firms that successfully lower their costs below those of competitors can profit by it. Under this system, the government could still apply an initial cost-effectiveness test. In cases where that threshold is not met, the cost-based regulatory model would be used to decide upon the maximum price at which the drug would be covered. This would be done through an estimated, benchmarked, capital cost based on the average cost of drug development across the pharmaceutical industry, and take into consideration the probability of success. Such an approach would allow governments to bargain over a drug's price, yet still create incentives for companies to develop orphan drugs at the lowest possible costs.