OBJECTIVE: This paper compares the prices of top selling generic drugs in Canada with prices for comparable generics in the United States (updating a 2002 study). METHODS: We compared manufacturer prices of 21 top selling (in 2004) generic prescription medicines in Canada that were marketed in both Canada and the US. Sources of Canadian prices included government reimbursed prices for Quebec, British Columbia and Saskatchewan. US prices were sourced from the Federal Supply Schedule (FSS) and three state Medicaid program Maximum Allowable Cost (MAC) lists. The prices of a subset of 11 drugs that appeared in both studies were compared to investigate trends. RESULTS: Of the 21 leading generic drugs, 20 had higher prices in Canada. Canadian prices were higher than US prices on all measures: Mean: +238%; Weighted Mean: +259%, Median +128%. If Canadians could access FSS prices for the 21 sample drugs, annual savings would exceed C$440 million. If the price differences observed are extrapolated to all generic drugs sold in Canada, annual savings could exceed C$1 billion. Canadian prices were also higher than state Medicaid MAC prices: Mean: +44%; Median: +15%. When comparing the 11 drugs that were included on both studies, a clear trend emerges: US prices have decreased 31% since 2001, while Canadian prices have remained stable. CONCLUSIONS: US prices of top-selling generics are lower than those in Canada and the price gap is widening. US generic prices are now on average 238% lower than those in Canada compared to 155% in 2001. Provincial government policies that establish Canadian generic prices at a percentage of branded products are one of the factors that appear to discourage price competition. Unlike Canada, US generic prices typically fall over time as more manufacturers enter the market and compete for government contracts and formulary listings.