“The logic of increasing out-of-pocket expenditures produces perverse results. For example, the introduction of a deductible and co-payments in the Quebec public drug plan in 1996–1997 forced seniors and individuals on social assistance to significantly reduce their use of otherwise essential medications. Seniors decreased their use of essential drugs by 9% while individuals on social assistance decreased their use by over 14%. Emergency visits and hospital stays rose significantly for these individuals, given the detrimental effects associated with their inability to comply with drug prescriptions required for their condition.”
Finally, the Patented Medicine Prices Review Board (PMPRB) sets the prices of drugs based on those in comparator countries, some of whose prices are among the highest in the world – including the countries with massive industry investment – “in order to attract pharmaceutical investments to Canada.” The effect is that by setting patented drug prices at the median of the seven countries that pay the most to the industry, Canada pays more for patented drugs than its needs to. The report argues that “if Canada were to take into account the other representative countries chosen by the PMPRB in its 2005 report, it would slide from fourth to sixth place internationally in terms of [prices paid for] patented drugs. Accordingly, it would save $1.43 billion.”
International Best Practices
The average percentage annual growth in spending on prescription drugs from 2001 to 2007 among OECD nations was approximately 3 percent. Canada leads the pack, ahead of the US, with average growth of approximately 7 percent.
The Swiss pay more for drugs than Canadians do, but 94 percent of the Swiss population gets full public coverage for prescription medicine. Switzerland, furthermore, has found the balance between the trade-offs of industrial support for the pharmaceutical industry and coverage of drug costs for its citizens.
In France, citizens are covered by a national health insurance system, organized by occupation. Public insurance covers prescribed drugs for approximately 99 percent of the population. Likewise, the British National Health Service covers all prescription drugs for all citizens and the same is true in Sweden.
New Zealand, on the other hand, forces competition between international generic drug companies and major pharmaceutical companies, resulting in lower costs, which are entirely covered by the state for all citizens. Unlike Switzerland, New Zealand has focused on paying as little as possible for drugs without concern for the loss of industry investment. Canada, it seems, neither provides full coverage at low expense nor benefits uniformly from industrial research and development (R&D).
The Benefits of a Universal Drug Plan
The main concerns with a universal pharmacare plan are usually the costs to public coffers. Gagnon and Hébert argue, however, that a universal drug plan could save Canadians over 10 billion dollars. They recommend implementing a universal plan that eliminates industrial policies that raise prices without adding R&D value back into the system. In fact, their proposal closely resembles the New Zealand model, in that it prizes low cost drugs without much concern for luring industry investment. Their proposal includes the following cost saving features:
1. Save $502 million on dispensing fees paid to pharmacists
2. Save $246 million by eliminate the monthly deductibles and the 15 year patent protection for drugs in Quebec
3. Save $1.49 billion by eliminating multiple private plans — savings from cheaper administration and tax subsidies for these plans
4. Save $10.2 billion by rigorously reviewing the medical benefits of all drugs and use national size as negotiating leverage with pharmaceutical companies (as in New Zealand)
Making these changes, the authors argue, makes good economic sense while also giving every Canadian full coverage for prescription drugs. Certainly, this plan is not the only option available to policy reformers. The report does show, however, that Canadians may be paying considerably more for prescription drugs than is necessary. Most Canadians, particularly older Canadians and those without private insurance plans, know that drug prices are climbing. This report quantifies the effect of rising prices and suggests that Canada can do much better in providing every citizen with prescription medicine, at lower costs than we are currently paying.
