There’s a few things you have to realize. First, the U.S. does not have a free market when it comes to prescription medications. What it has is thousands of government-sponsored monopolies. A patent is essentially a monopoly granted by the government, although patents are temporary in nature, they last for a significant amount of time.
I’m not saying patents are bad things, but a patented drug is not being sold on the free market, it’s being effectively sold in a highly regulated market, sometimes with no competitors at all. Sometimes there are competitors, but because of the nature of prescription drugs sometimes two medications that try to treat the exact same thing (say, erectile dysfunction) may not actually be in direct competition as drug A and drug B may be prescribed exclusively to persons with non-overlapping forms of ED (this is just an example, I know nothing about ED drugs in general.)
In Canada, the government puts price ceilings in place in order to regulate how much the companies with government-sponsored monopolies can sell their drugs for in Canada.
Big drug companies are okay with this for two reasons:
They still make a profit in Canada
They have to do this in order to protect their patent. If they refuse to play by the Canadian price-board’s controls, they lose their Canadian patent, Canadian companies can start producing generic versions of the medication and then people in the U.S. will start ordering that cheap, generic version from Canadian pharmacies. This has wide-reaching effects that more significantly hurt a pharma company than the paltry loss of profits in Canada.
Saying drug companies make a profit in Canada is counterintuitive. Drug companies typically need to make a huge amount of profit from drugs before their patent expires and generics start flooding the market. It’s a relatively short window, and that means they can’t afford to “just sell at a profit.” If you appropriate the costs of research into the equation, then drug companies couldn’t survive if there were price controls globally like there are in Canada. Sure, they’d make money on a pill-by-pill basis, but not near enough to recoup the massive research costs before their patent expired.
It’s not a direct association that higher drug prices in the U.S. are caused by Canadian price controls, but they do have an affect on the U.S. drug market and the decision making of pharmaceutical execs. If the Canadian price controls were removed, our prices wouldn’t drop, Canadian drugs would just become more expensive–the pharmaceutical companies will always work to maximize profit, and they have no reason to reduce prices in the U.S. when they already know people are buying at the current price (many prescription drugs have very inelastic demand, ie demand not easily influenced by price fluctuations, because certain drugs people HAVE to have, and will make significant sacrifices to obtain them up to a certain point when they just simply cannot afford the meds despite their best efforts.)
The best solution is probably, believe it or not, more regulation of the drug companies and a global price control scheme that is agreed upon by all major pharmaceutical consuming countries. Drug companies would also be required to reduce the amount of money they spend on advertising. The idea of direct-to-consumer advertising for prescription medication is kind of dubious at best. Medication isn’t like soft drinks or clothes. If you see a medication that you think you could use, it’s not like you can simply say to your doctor, “hey, I like this can you prescribe it for me?” Doctors make the decision to prescribe medications based on your condition (or if you’re a cynic based on which pharmaceutical rep is giving them the best perks/kick backs), any allergies you may have to certain medications and et cetera.