The Economic Case for Universal Pharmacare: Costs and Benefits of Publicly Funded Drug Coverage for all Canadians
By Marc-André Gagnon with the assistance of Guillaume Hébert
From The Canadian Centre for Policy Alternatives and Institut de recherche et d’informations socio-économiques
Executive summary
A public drug insurance plan should form an integral part of a country’s pharmaceutical policies. The plan must tie together social programs designed to provide a minimum of well-being for all citizens, health policies designed to optimize public health, industrial policies aimed at attracting foreign investment, intellectual property policies, and tax policies designed to ensure greater fairness in redistributing wealth.
A drug insurance plan that includes a drug assessment process can also help distinguish between drug products in order to ensure the quality, safety, and cost-effectiveness of prescription drugs. A drug insurance plan is not only a way to compensate for or reimburse drug expenses, but also a way to control costs through efficient pharmaco-economic assessment of new drugs and by developing bargaining power when dealing with powerful transnational drug companies.
The complexity of these various aspects of Pharmacare must be considered in order to determine the best drug insurance plan to meet the common goals of a community.
As far back as 1964, the Royal Commission on Health Services recommended that a universal drug insurance plan be established for all Canadians. The National Health Forum, under JeanChrétien in 1997, recommended universal drug coverage. The Romanow Commission in 2002 recommended catastrophic drug coverage as a first step towards universal Pharmacare. But the National Pharmaceuticals Strategy, implemented since 2004, has failed to achieve even catastrophic drug coverage for all Canadians.
The lack of political enthusiasm for Pharmacare can mainly be explained by fears of the escalating costs such a plan is expected to entail. But this argument, which also predominates in the media, is completely lacking in substance.
The sound economic analysis included in this report shows that the rational implementation of universal Pharmacare, with first-dollar coverage for all prescription drugs, would not only make access to medicines more equitable in Canada and improve health outcomes, but also generate savings for all Canadians of up to $10.7 billion in prescription drugs. Canadians cannot afford not to have universal Pharmacare.
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Universal pharmacare touted as way to save billions
André Picard, Public health reporter
Globe and Mail, Monday, Sep. 13
Creating a national pharmacare program could slash more than $10.7-billion off Canada’s $25-billion-a-year drug bill, according to a new study that dismisses out-of-hand the notion that a public drug plan is unaffordable.
“Canadians cannot afford not to have universal pharmacare,” said Marc-André Gagnon, an assistant professor in the School of Public Policy at Carleton University in Ottawa.
The report, being released Monday in Ottawa, argues that Canada’s jumbled assortment of public and private plans and wildly varying drug policies across jurisdictions is inefficient, costly and inequitable.
But, above all, it says Canada pays too much for drugs – between 16 and 40 per cent more than other industrialized countries – in a bid to attract pharmaceutical investment.
In fact, the vast majority of the purported savings – $10.2-billion – would come from adopting a drug-purchasing policy based on market competition and the assumption prices would drop 37 per cent. That would likely provoke a backlash from the pharmaceutical industry and may be politically unpalatable, researchers concede. However, in a number of other scenarios presented in the study, Prof. Gagnon shows, even without purchasing drugs at that lower price, a national program would still deliver net savings of ranging from $2.6-billion to $4.5-billion.
The report suggested that doing rigorous drug reviews and price negotiations, as done in New Zealand, could generate annual savings of $9.3-billion. Savings from cheaper administration costs, eliminating federal tax subsidies to insurance plans and eliminating multiple private plans would produce more than $1.4-billion in savings, for a total of about $10.7-billion.
He said consumers would be better served by a national drug pricing and purchasing system and drug policies aimed at improving access and affordability rather than the current approach where the desire to attract investment in the pharmaceutical sector inflates prices.
The 120-page paper, prepared for the Canadian Centre for Policy Alternatives, argues that countries with national pharmacare programs, such as the U.K., France, Australia, New Zealand and Sweden, all have lower drug prices.
Prof. Gagnon said there is no question that drug spending has risen sharply – an average of 10.5 per cent a year since 1985. This demonstrates that it is virtually impossible to control costs with the current system. It has also created a “perception that pharmacare program would eventually place an untenable burden on public finances,” he said.
The reality though is that costs have increased twice as quickly in private drug plans as in public plans – in large part because they do not have bulk purchasing power. Administrative costs are also higher in private plans compared to public plans – eight per cent versus two per cent.
The report suggested that rigorous drug reviews and price negotiations could generate annual savings of $9.3-billion. Savings from cheaper administration costs, eliminating federal tax subsidies to insurance plans and eliminating multiple private plans would produce more than $1.4-billion in savings, for a total of about $10.7-billion.
Prof. Gagnon said one of the most troubling aspects of Canada’s current regime is that it is inequitable. Public drug plans cover those over the age of 65 and recipients of social assistance, while others tend to depend on private plans offered through their employers.
However, there are big gaps. As many as eight million Canadians do not have adequate coverage for prescription drugs, according to the paper. That lack of access can often translate into higher medical costs.
Prof. Gagnon concedes that a universal pharmacare program would increase prescription drug use – an estimated 10 per cent overall. But it is argued that those additional costs would be more than offset by cost savings that come from adopting other policies.
A major impediment to creating a national pharmacare program is that health is a provincial responsibility. But the study argues that pharmacare does not need to be a federal program but a national one, where provinces and territories agree to a common set of standards to “ensure coherence.”
The way to create a cost-effective plan, Prof. Gagnon said, is to adopt the best practices from existing plans.
B.C., in particular, is held-up as a model. The province has the lowest per capita drug costs, its residents use the least medication per capita and they pay the lowest unit prices for their drugs. That is because B.C. has aggressively used policy like therapeutic substitution – where the drug plan pays for the cheapest equivalent drug, usually a generic.
Currently, prescription drug prices are established by the Patented Medicines Prices Review Board, based on the median price in seven other countries. In the paper,
Prof. Gagnon argues that while that process ensures consistency, it also keeps drug prices artificially high because its formula includes the four countries with the most expensive prices in the world.
The case of the missing drug plan
Editorial
Globe and Mail
Tuesday, Sep. 14, 2010
Canadians are used to broken promises about how their governments will make drugs cheaper and more widely available. Some may therefore find a radical solution enticing, touted in a new study: the creation of a national public pharmacare program. But nationalization is the wrong approach. Instead, Canadians should expect results soon, especially if they hold health ministers, meeting in St. John’s this week, to account for their latest commitments.
Although we aspire to provide good public health care in Canada, we already have a two-tier system: much psychological and dental care, and 55.5 per cent of drug expenses, are paid privately, either out of pocket or through private plans. This squeezes the working poor and the self-employed, who do not have employer-provided plans but who make too much money to qualify for public subsidies.
So some may take heart from a new study for the Canadian Centre for Policy Alternatives, promising more coverage and national savings of up to $10.7-billion if a national public plan is created.
Such a plan would, however, result in costs governments are ill-equipped to handle, and effectively result in a transfer of taxpayer funds to richer Canadians currently covered by private plans. Meanwhile, all drug costs, regardless of who pays, are increasing, at a rate of 10.5 per cent a year since 1985.
A hint of a better path comes from the study itself; it suggests the largest share of savings would likely come not from nationalization but from “the cancellation of the industrial policies artificially inflating drug costs.”
Ontario and B.C. have already begun to innovate, with cuts to the prices it will pay for generic drugs, savings that should benefit private plans too. Fresh off these reforms, they promised at the health ministers’ meeting to take the lead on a “pan-Canadian purchasing alliance” for drugs and medical supplies.
The provinces need to act fast to overcome their jurisdictional concerns and implement the plan. For the savings, once achieved, should be directed back to vulnerable Canadians, by helping to fund a national catastrophic drug plan.
Catastrophic drug care – life-preserving medication that is expensive and not covered by existing plans – holds a special place of shame in Canadian politics. A 2003 first ministers’ meeting ended with a vow that governments would “take measures, by the end of 2005-06, to ensure that Canadians, wherever they live, have reasonable access to catastrophic drug coverage.”
Yet almost nothing has been done. The federal government has lost interest and the provinces have largely let the issue drop. With the recession, ongoing price increases, and high prices for new cancer drugs in particular, Canadians are more vulnerable to unnecessary financial hardship and risks to their health.
Solving the drug needs of all Canadians won’t come with one policy change. But a catastrophic drug plan, funded in part through other savings in the drug system, is within reach. Governments have promised much; they should be able to deliver this one, crucial, thing.
The pros and cons of universal Pharmacare
Eliminating waste and inefficiency would cut the cost of many drugs, but a fully private system would cover more new medications faster
By Marc-Andre Gagnon
Vancouver Sun, September 16, 2010
The current system for buying prescription drugs in Canada is a hybrid system of multiple public and private drug plans. This system is totally dysfunctional, for many reasons. The diversity of drug plans means that Canadians are covered for their drugs according to which province they live in, or where they work, but not necessarily according to their medical needs.
Patients with inadequate coverage, mostly self-employed or unemployed workers, are often unable to benefit from optimal treatments. More than three million Canadians admitted not filling a prescription in the last year because of costs they couldn’t afford.
Another reason the system is broken is that Canadians pay way too much for their drugs.
Canada is the world’s second most expensive country for retail prices of prescription drugs. Another problem is that Canada has the fastest rising drug costs among Organization for Economic Cooperation and Development countries: more than 10 per cent per year. Countries with universal Pharmacare, like France, the United Kingdom, Sweden, Australia and New Zealand, pay less for their drugs, and their costs increase at a much lower rate.
The main reason prescription drugs are so expensive in Canada is because of the importance of private insurers. This private coverage is totally inefficient, and the administration fees are much higher for private than for public plans (eight per cent as compared to two per cent).
Public plans have the resources for pharmaco-economic assessment in order to make sure that, if a drug is reimbursed, patients will get some bang for their bucks.
Another reason drugs are so expensive is because of suboptimal therapeutic choices. Drug companies spend about $30,000 per physician in Canada to influence their prescribing habits.
Among the provinces, British Columbia has benefited for many years from its Therapeutics Initiative and its proactive capacity to produce clinical guidelines and develop among physicians the culture of evidence-based medicine.
Because of this, not only do British Columbians have the best therapeutic choices and the best health outcomes in Canada, but on average they pay 8.2 per cent less per capita for their drugs.
Simply by eliminating the waste inherent in private insurance and by improving therapeutic choices, the implementation of universal Pharmacare could save Canadians $2.9 billion per year (around 12 per cent of total costs).
Another major reason our drugs are so expensive is that, in addition to our patent policy, we have industrial policies that artificially inflate the prices of brand-name drugs.
Canada is always aiming to be the world’s fourth most expensive country for its brand-name drugs as a way to support its pharmaceutical sector. By implementing universal Pharmacare and by eliminating these policies, we could save $10.7 billion per year (around 43 per cent of total costs).
Considering that in Canada, the pharmaceutical sector is responsible for around 50,000 jobs (direct and indirect) and that each job is paid an average of $80,000 a year, it means that Canadians benefit from around $4 billion in spinoffs from this sector.
The total costs of industrial policies that artificially inflate the costs of drugs to support the pharmaceutical industry are thus higher than total spinoffs that Canadians receive from this sector. Paraphrasing John Maynard Keynes, Canadians would be better off hiring people to dig holes and refill them.
I am confident, however, that ways can be found to use this money more efficiently, for
example, by improving health care and by supporting R&D through public funding.
Marc-Andre Gagnon is an assistant professor with the School of Public Policy and Administration, Carleton University. This article is based on his study — The Economic Case for Pharmacare — recently released by the Canadian Centre for Policy Alternatives ( www.policyalternatives.ca).
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