What’s the Issue?
Pharmaceutical costs have risen consistently over the past 30 years, both in real terms and as a share of healthcare costs. The overall effect of increased drug utilization on spending is controversial.
- Drugs can substitute for other more expensive forms of healthcare spending. For example, some drug expenditures potentially offset expensive hospitalizations or physician visits.
- Drugs can increase healthcare spending. Drugs are expensive, they can increase physician visits for prescription refills, and their so-called prophylactic use can result in the ‘medicalization’ of heretofore healthy patients. This can encourage healthy patients to see themselves as unhealthy and require more medical attention.
The research and development of innovative drugs is complex.
- Drug companies research the pathology of how diseases progress and how drug therapies can counteract them. This research is expensive and risky because of the large number of failed trials that never reach the market.
In theory, patents guarantee firms the right to sell their drug exclusively for 20 years.
- In practice, drug companies’ exclusive selling privileges wind up being much shorter than the 20-year guarantee. This is because patents must be applied for once the drugs’ use is first hypothesized but before clinical trials begin.
- Other times, the drug companies’ exclusive selling privileges go beyond the 20-year guarantee while patent rights are disputed in the courts. Generic firms are free to produce drugs after patents expire, but litigation can lead to substantial delays and costs to generic companies.
- In the end, Paris and Docteur (2006) find that period between the initial launch of a drug and the entry of a competing generic lasts 12.9 years on average.
The mechanism for price-setting is very different for pharmaceuticals compared to other goods. Although prices are ultimately set by the firms producing the drugs, they must remain within guidelines established by several branches of government before they can be approved for sale.
- A federal body called the Patented Medicine Prices Review Board regulates prices for patented drugs. Provincial bodies set prices for generic drugs, those with the same medicinal ingredients as the brand-name drug which companies can produce after the patent has expired. For both patented and generic drugs, prices are set through external benchmarking, where drug prices are compared with those in other developed countries as well as similar established drugs.
- Provincial bodies regulate generic drug prices by setting a price cap and then allowing several generic companies to compete in the marketplace. The price cap is usually a fraction of the brand-name drug’s price.
Canadian patented drug prices are generally lower than those in the USA, but still higher than many other developed countries. However, Canadian generic drug prices are substantially more expensive than the USA and most developed countries.
- Recently, some provinces have adopted product listing agreements (PLAs), in which provincial governments negotiate with drug companies for lower prices in return for adding their drugs to the provincial formulary. The provincial formulary is a master-list of drugs that public or private insurers within the province will reimburse prescriptions for.
- In some countries, notably New Zealand, drugs for the country are purchased in bulk, forcing drug companies, both brand-name and generic, to compete with one another to win the contract. Drug costs in New Zealand are significantly lower.
The Canadian Agency for Drugs and Technologies in Health (CADTH) conducts a Common Drug Review (CDR) for all new drugs. The CDR reviews clinical evidence for safety and effectiveness of the drug treatment. It also reviews the cost effectiveness of the drug by examining how much healthcare value the drug provides relative to its cost. This evidence is used to provide a recommendation to provincial governments on whether provincial insurance plans should cover it. Public drug plans must also consider the budget impact of a new drug; there may be insufficient budget to fund a new drug even when cost-effectiveness is attractive.
Pharmaceutical companies have distinctive advertising strategies.
- Detailing and sampling are the most widespread.
- Pharmaceutical sales representatives visit with physicians, explaining their products’ advantages, and often provide free samples for their patients.
- Proponents argue that it is an important way of disseminating the latest information and research, while critics believe it provides biased information in favour of expensive, profitable treatments.
- Direct to Consumer Advertising (DTCA) involves targeting ads directly to patients touting the benefits of drugs.
- With the exception of vaccines, full-product DTCA is outlawed in Canada. But the widespread prevalence of American media still exposes Canadians to the advertisements.
- ‘Reminder’ and disease-oriented ads are allowed in Canada as long as the brand name of the drug is not mentioned. Reminder ads are advertisements that state a drug’s name, but not its purpose or effectiveness. Disease-oriented ads include information about a medical condition and encourage people to talk to their physician about possible treatments, but don’t mention a product by name.
- Pharmaceutical and industrial policies are intertwined. Pharmaceutical firms provide jobs for both research and development, and manufacturing. Governments compete with one another to bring these jobs to their province or their country.
- CONFLICTS OF INTEREST: A special collection of articles in JAMA Internal Medicine documents blatant conflicts of interest between healthcare and industry. From pharma-affiliated guideline writers to tweeting oncologists who take industry cash, the problem is pervasive, worrisome, and detrimental to patients, says writer/producer Michael Joyce.
- Big Pharma vs Everyone by Paul Christopher. Canada’s drug costs are among the highest in the world and our health plans are cracking under the strain. How can we get costs under control before it’s too late?
- Canada needs a comprehensive system of universal drug coverage to eliminate variations between the provinces and territories, a citizen-driven panel looking at the idea of national pharmacare recommends. Read the full article here.
- High stakes in ballot battle over rising prescription drug costs by Trudy Lieberman. Big PhRMA is worried. It has poured an unprecedented amount of cash into defeating a ballot initiative that would take a baby step toward controlling sky-high prices of prescription drugs, for which Americans have spent seven percent more this year than they did in 2015. It was the largest increase in 24 years.
- For the past 40 years, Health Canada has turned over control of the drug ads that doctors see in medical journals to an organization called the Pharmaceutical Advertising Advisory Board (PAAB). On its website, the PAAB is described as an “independent review agency whose primary role is to ensure that healthcare product communication for prescription, non-prescription, biological and natural health products is accurate, balanced and evidence-based.” In our view, the code has serious weaknesses. Read more of Joel Lexchin and Barbara Mintzes’ article here.
- It’s no secret that professional sports is big business, but the pressures put on some team doctors to nurse high-priced star players back to health is leading to the over-prescription of drugs and ultimately harming the athletes in the long run, an investigation by the Fifth Estate reveals. EvidenceNetwork’s own expert Dr. David Juurlink weighs in.
- Most of Canada’s provinces and territories have come together to create the Pan-Canadian Pharmaceutical Alliance (PCPA) to negotiate for better brand name and prescription drugs.
- A June 2013 C.D. Howe Institute Report demonstrates that Canada’s provincial pharmacare systems have flaws not found in other developed countries that could be addressed by integrating prescription drug coverage into the broader healthcare system. In “Rethinking Pharmacare in Canada,” authors Steven Morgan, Jamie Daw and Michael Law find that integrating pharmaceuticals into the healthcare system by covering medically necessary prescription drugs at little cost to patients would result in improved performance on key pharmacare policy goals. For the report go to: http://www.cdhowe.org/pdf/Commentary_384.pdf
- Drug Expenditure in Canada 1985 to 2012. Drug spending continues to increase in Canada; overall annual growth has slowed to its lowest rate in 16 years. Drug Expenditure in Canada, 1985 to 2012 updates trends in drug spending in Canada, primarily from retail establishments, in total, by public and private payers, and by type of drug (prescribed and non-prescribed). Provincial/territorial and international comparisons are included.
- Myth: When it comes to drugs and devices, newer is always better. There’s a well-known logical fallacy called an “appeal to novelty”. It captures a simple mistake we’ve probably all made: assuming that something is better just because it’s newer. For many consumer products in our society (cars, cell phones, computers, TVs), we tend to think that newer means higher performance, safety, and efficiency, and this notion also applies to healthcare.
- CIHI (2013) found that from 2000-2009, prescription drug expenditures rose at an annual average rate of 9.3%. This increase was caused by increased utilization and a shift to more expensive drugs. Since 2009, growth in drug expenditures has slowed considerably. Annual percentage increases from 2010 to 2012 average only 3.8%, a very significant reduction. Furthermore, the annual percentage increases themselves have been falling every year from 2008 onwards, with 2012’s increase of 3.2% being the lowest such increase since 1996. This drop is largely attributed to the ‘patent cliff’ which occurred when a number of pharmaceutical companies’ top sellers lost their patent protection, causing lower prices for those prescriptions. Drug costs as a share of health care spending rose from 9.5 to 15.9% from 1985-2012. This report also examined how the costs of pharmaceuticals are spread among the main actors in Canada. It found that private insurers pay for 35% of all pharmaceuticals, which includes both prescription and over-the-counter drugs. It found the public sector, including all levels of government, funds 45% of pharmaceutical costs, while out-of-pocket payments accounted for the remaining 20%.
- PMPRB (2012) investigates the prices of patented drugs in developed countries, and finds that as of 2011, Canada has cheaper drugs than Switzerland, Germany and the USA, but more expensive prices than Sweden, France, Italy and the UK.
- PMPRB (2010) lists generic drug price ratios between Canada and other developed countries, and demonstrates that Canada’s generic drug prices are among the highest in the world.
- Health Council of Canada (2010) provides a detailed description of how generic drug prices are established in Canada among the various actors and branches of government.
- Out-of-pocket expenditures are commonly faced, even by those with private insurance, where individuals often pay a deductible or a co-payment. Many patients do not have the capacity to pay for their drugs. Law et al (2012) found that 9.6% of Canadians who received prescriptions did not adhere to the treatment due to costs. This number rises to 35.6% for those with low income and no insurance.
- There is a strong relationship between poor health and poverty, meaning in many cases, the most vulnerable struggle to pay for their drugs. In 1996, Quebec started requiring patients to pay part of the cost of all drugs purchased. As a result, a Journal of American Medical Association study shows that patients reduced their use of less essential drugs and essential drugs, even though they suffered significant adverse health effects.
- There is sometimes public pressure on governments to cover all possible treatments, regardless of their cost. Often, this pressure comes from patient advocacy groups for a particular disease without regard for the costs of the treatment. Pharmaceutical firms fund many patient advocacy groups, leading to concerns about the impartiality of these groups’ policy agendas (Herxheimer, 2003; Jones, 2008).
- Some research (Karaca & Wiggins (2006)) suggests that, in isolated cases, rising drug spending may have a beneficial impact on overall healthcare expenditures by preventing more expensive medical interventions down the road. Other research (Zhang and Soumerai (2007)) disputes the validity of these claims.
- Moynihan, Heath & Henry (2002) and Conrad (2005) examine how drug companies have promoted their products by what is called the ‘medicalization’ of new diseases.
- The overall costs for pharmaceutical firms to develop drugs are difficult to pinpoint because private drug manufacturers do not make their data available. One often-cited paper by DiMasi, Hansen & Grabowski (2003) found these costs to be $802 million, after deducting past failures and opportunity costs. However, it is impossible to test the validity of this claim because DiMasi et al. have kept their data secret. The methods behind these findings have been seriously questioned by other researchers such as Light & Warburton (2011). A recent systematic review by Morgan et al (2011) found that estimates in the literature varied nine-fold, from $161 million to $1.8 billion, with no one estimate being widely accepted by those reviewing the evidence.
- Industry Canada (2012) documents employment in the pharmaceutical sector, which currently stands at 27,016 people, primarily in Ontario and Quebec. However, this estimate includes only direct employment from pharmaceutical manufacturers, and ignores indirect employment in research and development, and wholesaling and distribution by firms hired by pharmaceutical firms. These figures are difficult to identify as the categories are either not published by Statistics Canada or combined with other firms. Morgan et al (2010) used 2008 data to arrive at a rough estimate of indirect employment, finding approximately 10,000 jobs for research and development, and a further 26,000 jobs in wholesaling and distribution.
- Scherer (2004) provides estimated costs for pharmaceutical companies’ promotion strategies for new drugs. In 2001, ‘detailing’ efforts cost pharmaceutical companies $5 billion in the USA. Detailing includes face-to-face meetings between salespeople and physicians, advertising in academic journals, etc. Pharma companies spent a further $11 billion distributing free samples of new drugs to physician. This calculation is based on the retail value of the drugs as opposed to production costs.
- An alternative to industry-funded detailing known as ‘academic detailing’ is conducted by pharmacists or other health professionals. This form of detailing is funded by universities, health regions, or governments, and provides unbiased information to physicians. Academic detailing is a proven way to change prescribing behaviour.
- Two medical ethicists have recently shown that drugs which pharmaceutical companies market most aggressively to physicians and patients tend to offer less benefit and more harm to most patients.
- A recent report from the Health Council of Canada highlights the need for more monitoring of drug safety and effectiveness in Canada noting that while pharmaceuticals can offer significant health benefits, “there are also many risks associated with their use.”
- Evidence is mounting that drug studies sponsored by the pharmaceutical industry are more likely to report findings favourable to the sponsor’s interests (Lunde et al (2012), Lexchin (2012), Bekelman et al (2003), Sismondo (2008)) than independent research studies.
- In many countries, a study must be registered with a Clinical Trial Registry (such as United States Library of Medicine) prior to its commencement. This prevents companies from concealing results from negative studies. Currently, Canada does not have a similar mandate.
So What Are the Issues When Reporting on Drugs?
- Richard Horton, the editor of the highly respected UK medical journal the Lancet, testified before the UK Select Committee on Health in 2005 about the pharmaceutical industry and medical journals. He argues: “the extent of the commercial sponsorship of medical research and its intrusion into the academic sphere is one of the gravest threats to the independent evaluation of new medicines — indeed to the notion of an independent science base. Without greater scrutiny of the interaction between private and public sectors, the health of our population will continue to be put at risk by biased, over-interpreted, and misreported research findings. At present, our population is part of a largely unregulated experiment involving poorly investigated new medicines that have been licensed on the basis of insufficient data.” See more.
- Ben Goldacre: Battling bad science. A good, accessible summary of how to pick out good versus bad science, and the issues in pharma research, how patients and doctors are “sold” drugs using bad science — told in most entertaining way.
- Stories about new health care interventions can easily become misleading stories about miracle cures. Over-simplification or laziness can muddle the appropriate tradeoffs involved in healthcare decisions. Healthcare journalists are challenged to analyze the claims by suppliers while researching the actual costs or benefits of adopting new treatments. Alan Cassels, project leader of Media Doctor Canada and Expert with EvidenceNetwork.ca and Joel Lexchin, York University have created a rating instrument for stories about new drugs or other treatments.
- HealthNewsReview.org, a non-partisan site run by journalism professor Gary Switzer at the University of Minnesota, has also created a toolbox of questions for journalists reporting on stories about new drugs or other treatments:
- What’s the total cost? Regardless of how costs are split between governments, insurers and individuals, in the end, Canadians will end up paying for everything.
- How strong is the evidence? Not all studies are equal. There are many important issues and limitations, including the study’s sample size, how big is the effect, as well as the appropriateness of extrapolation, to consider before trusting the accuracy of any study’s conclusions.
- Is this really a new approach? Newer drugs do not necessarily provide significantly better results than previous treatments. In fact, companies often call drugs ‘new’ even when there is no new innovation involved; they are often part of an existing class of drugs already available to patients.
- Who’s promoting this? There is a wide range of sources of varying reputations reporting on health care. Independently verifying any claims they make is vital and necessary.
- Do they have a conflict of interest? Many workers throughout the health care industry, from pharmaceutical manufacturers to physicians who are paid to be on a company’s speaker panel or advisory board, have vested interests in different drugs. As such, information from health care professionals should not necessarily be taken as unbiased. While industry-funded studies are not necessarily unreliable, be wary of reports that don’t follow the principles of impartiality.
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