Provinces must stand together on drug purchases

At the recent Council of the Federation meeting, the provinces (except Quebec) announced that they would begin bulk purchasing generic drugs to reduce health-care costs. They also flagged the need to both expand and accelerate group pricing on brand-name pharmaceuticals.

This is a long time coming and a step in the right direction. Now, we need to see solid action and not good intentions or half-measures. Early attempts at similar programs were close to failure.

This article was published by The Globe and Mail on July 31st, 2012.  To see this article and other related articles on The Globe and Mail website, please click here

In September, 2010, all the provinces except Quebec announced their intent to create an alliance for the bulk purchasing of the most expensive prescription drugs. Since then, only two products have been purchased this way.

Considering that more than 60 new patented drugs enter the Canadian market every year, not to mention numerous generic products, it is pretty clear that the bargaining power obtained through this first attempt at a bulk-purchasing alliance was disastrous.

As the Council of the Federation’s own report suggests, bulk purchasing is not an option any more, it is a necessity.

Until 2006-2007, the “official price” of prescription drugs was the price that the purchaser would normally pay. Since then, many drug companies have developed a new global strategy: Inflate the official price of their drugs and then secure agreements with individual purchasers by negotiating rebates. Getting rebates on prices is now the norm, not the exception.

Why this new strategy? In 2006, the U.S. Medicare program (which provides health-care coverage for seniors) agreed with pharmaceutical companies that they would not use their huge bargaining power to negotiate rebates on prescription drugs – Medicare would pay the official price, whatever it may be.

The indirect result was an incentive for pharmaceutical companies to inflate official prices, even if it meant negotiating rebates afterward for other purchasers.

The U.S. Congressional Budget Office estimates that Medicare will spend an additional $112-billion in the next 10 years because of the inflated official pricing of pharmaceuticals. This amounts to a kind of corporate welfare for pharmaceutical companies – hardly the neediest of businesses – borne by the American taxpayer.

Canada could find itself in the same position if it does not flex its collective muscle. In other words, an effective bulk-purchasing strategy for medications is now imperative.

That’s not what we’ve done so far. Instead of developing a real national strategy, most provinces (except Quebec and Newfoundland and Labrador) decided to concentrate only on standalone agreements for very expensive brand-name prescription drugs, through what are called product listing agreements (PLAs). The idea is simple: The province lists the official ex-factory price in its formulary but secures important confidential rebates for its public drug plan.

In addition to a lack of transparency, the problem with this way of doing business is that it is not good for everyone. Patients who pay for drugs out of pocket, or those who pay a co-insurance or a deductible, are still paying the full price. PLAs are also detrimental to private drug plans – the costs of which are typically borne by employees – since private plans will still have to pay the full price. In other words, savings are secured only for some.

Some pharmaceutical companies also employ another tactic, commonly known as “whip-sawing.” Companies secure a PLA with one province – say, Ontario – by offering the province the largest rebate possible. They then pressure other provinces to list the product through a PLA offering at a much lower rebate. The other provinces have little choice than to pay the higher price because patient advocacy groups will accuse them of offering substandard treatment compared with Ontario.

By choosing to stand alone in the way that they have purchased prescription drugs in the past, provinces collected some crumbs in terms of savings, but they consolidated a system that remains inefficient and inequitable for Canadian workers and patients. It also puts the smaller provinces at a disadvantage because, alone, they will never be able to obtain the same savings from PLAs as their larger cousins.

Every new drug in Canada should be purchased through a national bulk-purchasing agency to maximize savings for the benefit of all Canadians.

In fact, the smartest path would be to establish a national drug plan with no deductible or co-insurance payment, which will ensure equity of funding and access to essential medicines for all Canadians.

Nothing is restraining our governments from standing together and implementing a bulk-purchasing agency at the national level – as their own report highlights.

The other possibility is for our governments to do nothing and act like a deer in the headlights, while pharmaceutical companies reap ever-larger profits – and patients pay.

Marc-André Gagnon is an expert adviser with and assistant professor with the School of Public Policy and Administration at Carleton University.

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