A version of this commentary appeared in the Globe and Mail, Huffington Post and the Penticton Herald
Canadians spent almost $23-billion on prescription drugs at retail pharmacies in 2012/13 — or over $650 per capita, according to the findings from the Canadian Rx Atlas published this week by the UBC Centre for Health Services and Policy Research. That is a lot of money. However, after adjusting for general inflation, spending per capita actually fell over the past five years — despite the fact that the population is getting older.
The size of the fall in spending per capita was not large (about 1%) but the finding is significant. Inflation-adjusted spending per capita on prescription drugs in Canada has not declined over any five-year period since World War II.
As impressive as it is, the slowdown in total spending on prescriptions in Canada masks dramatic changes in the pharmaceutical sector. Beneath the calm surface lies a rapid decline in spending on widely used medicines to treat relatively common conditions, and even more dramatic increases in spending on medicines used by relatively few people who suffer from serious conditions.
Five years ago, almost $9-billion — 40% of all retail spending on prescription drugs — was spent on drugs to treat high blood pressure, high cholesterol, heartburn and depression. Although these treatments only cost about a dollar per day, they are so commonly used they have been the dominant drivers of pharmaceutical costs since the 1980s and 1990s.
These drugs continue to be used frequently; however, patents on many brands of these drugs expired over the past five years and few newly-patented brands have entered the market. Thus, largely because of increased availability and use of lower-cost generics, annual spending on these previously-dominant drug classes fell by $2-billion over five years.
That is good news if you are an uninsured patient, a company providing employees drug coverage, or a government running a public drug plan. But the budgetary relief that comes from the “genericization” of drug classes to treat common conditions won’t last long for two reasons.
First, most blockbuster drugs in these classes have lost their patents. There will simply be fewer opportunities to control drug spending by switching to new generic entries on the horizon.
Second, the pharmaceutical industry has already found a new revenue model. Whereas the industry’s business model was historically focused on developing drugs to be prescribed in large numbers for common conditions, future revenue growth in developed countries like Canada lies primarily in treatments for less common but more serious conditions.
Indeed, data in our Rx Atlas show that spending on specialty drugs to treat conditions such as cancer, HIV, and multiple sclerosis has increased dramatically. The fastest growth occurred for immunosuppressants to treat inflammatory conditions such as rheumatoid arthritis and psoriasis, where spending grew by nearly $1-billion over the past five years.
Far fewer prescriptions are filled for these specialty drugs than for the blockbuster drugs of the recent past. But the prices of the new treatments are staggering. The average cost per prescription for drugs to treat inflammatory conditions was over $2,000 last year. Many new drugs now cost over $5,000 per prescription.
Over a third of drugs currently in development by the pharmaceutical industry are specialty drugs. Thus, “niche” components of drug spending will likely be significant cost drivers for the foreseeable future.
Many of the specialty drugs in the R&D pipeline, like the ones that drove recent spending in Canada, are biologics. Being the products of biological, not chemical, production processes, some of the regulatory and policy tools in place for traditional pharmaceuticals do not readily apply to biologic drugs. Notably, whereas policy makers have over 40 years of experience encouraging the production of generic versions of chemical drugs, they have far less experience doing the same for biologics.
The trend toward high-cost, specialty drugs is a global one. But it will require domestic policy responses. Pharmacare policy will need to be revisited to ensure equitable access when truly effective treatments come available. Furthermore, tough but fair drug pricing policy will need to be established to place reasonable constraints on prices charged to treat patients with serious health needs.
One thing that seems certain is that the current lull in drug spending in Canada will be short lived. For it will be several years before generic competition brings the costs of specialty drugs down the way it has recently done for the blockbuster drugs of yesteryear.
Steve Morgan, PhD is Professor in the School of Population and Public Health and incoming Director of the Centre for Health Services and Policy Research, University of British Columbia. Kate Smolina, PhD is a postdoctoral fellow in pharmacoepidemiology and pharmaceutical policy at the Centre for Health Services and Policy Research, University of British Columbia.
This work is licensed under a Creative Commons Attribution 4.0 International License.