Why Canadians need universal pharmacare

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, 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 3 million Canadians admitted not filling a prescription in the last year because of costs they couldn’t afford.

Another reason why the system is broken is that Canadians pay way too much for their drugs. Canada is the world’s second most expensive country for detail prices of prescription drugs. Another problem is that Canada has the fastest rising drug costs among OECD countries: more than 10% per year. Countries with universal Pharmacare, like France, 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. Only in the United States is a greater proportion of prescription drugs paid for by private insurers. This private coverage is totally inefficient, and the administration fees are much higher for private than for public plans (8% as compared to 2%). Insurance companies are normally paid on the basis of a percentage of spending, so they have no incentive to reduce costs. For example, private plans normally make no discrimination among drugs, and gladly agree to reimburse new drugs that are more expensive than existing cheaper and better drugs.

Public plans have the resource for pharmaco-economic assessment in order to make sure that, if a drug is reimbursed, patients will get some bang for their bucks. Taking into account that most new expensive medicines are “me-too” drugs (slightly modified versions of existing drugs) and that they are often shown to be no better, the current practice of not discriminating between new drugs is not a way to offer more choice to patients, but rather to make them pay more for less.

Another reason why drugs are so expensive is because of sub-optimal therapeutic choices. Drug companies spend about $30,000 per physician in Canada in order to influence their prescribing habits. The problem is that therapeutic choices are often the result of drug companies’ promotional campaigns and not of evidence-based medicine. Among the provinces, British Columbia has benefited for many years from its Therapeutics Initiative and its pro-active capacity to produce clinical guidelines and develop among physicians the culture of evidence-based medicine. So it is the province that has best ensured that prescribing practices reflect clinical evidence instead of promotional strategy. Because of this, not only does British Columbians have the best therapeutic choices and the health outcomes in Canada, but on average they pay 8.2% less per capita for their drugs. No wonder why drug companies want to abolish the Therapeutics Initiative.

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% of total costs).

Another major reason why our drugs are so expensive is because, 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. The problem is that these policies are very costly. By implementing universal Pharmacare and by eliminating these policies, we could save $10.7 billion per year (around 43% 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 spin-offs 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 spin-offs that Canadians receive from this sector. From an economist’s point of view, this is nonsense. 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-André Gagnon is an Assistant Professor with the School of Public Policy and Administration, Carleton University. This op-ed is based on his detailed and documented study – The Economic Case for Pharmacare – recently released by the Canadian Centre for Policy Alternatives (http://policyalternatives.ca).