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How a pharmacare program would use market forces to Canadian benefit

A version of this commentary appeared in the National Post, the Huffington Post and the Yukon News Review

Who’s afraid of universal pharmacare?Canada is one of the world’s most expensive countries when it comes to prescription drugs. Per capita, prescription drug costs are on average 50% higher in Canada and had the fastest yearly growth in the last decade than in other developed countries.

Why is this the case?

Canada is one of the rare developed countries in the world without universal pharmacare, and we are the only country in the world with a universal medicare system that excludes prescription drugs (as if pharmaceuticals are not an essential element of medical treatment).

A staggering 10% of Canadians each year cannot fill a prescription due to financial reasons.

Canadians understand the gaps in our current system and want them addressed. An EKOS poll released just last week shows that 78% of Canadians support the implementation of a universal pharmacare program.

So it was with some surprise that I read the recent op-ed in the National Post, entitled “National PharmaScare” (06/04) which criticized an international conference I co-hosted on universal pharmacare in Ottawa some days ago (http://pharmacare2013.ca/). The author, economist Yanick Labrie from the Montreal Economic Institute explains that a national drug plan would be bad for Canadians because it would reduce drug costs, thus reducing spending in research and development for new drugs and increase drug shortages. Labrie argues instead for expanded private drug plans because they offer more “generous” coverage.

Mr. Labrie should have attended the conference where he would have heard each of these arguments discussed and refuted in turn.

More than 80% of new drugs entering the market today do not represent any therapeutic advance compared to existing, cheaper drugs. If we have drug plans reimbursing any new drug, whatever the cost, and even when there are cheaper, equivalent drugs available, do we really provide incentives for drug companies to invest in breakthrough innovation? In fact the opposite occurs: we give them a huge incentive to bring to market reformulations of existing products.

The pharmacy benefit management company Express Script Canada estimates that private drug plans waste $5.3 billion in reimbursements for drugs that do not provide any additional therapeutic benefits compared to existing formulations. This amount represents 56% of total money spent by private drug plans. At our conference, an executive from Great-West Life explained that in their current form, private drug plans are not sustainable.

In contrast, the universal pharmacare system in the United Kingdom employs market forces in an ingenious way. Through value-based pricing, drug companies get paid according to how much they improve the health outcomes of the population. This creates formidable market incentives for drug companies to focus on therapeutic innovation instead of lavish promotion and copycat drugs.

But would a bulk-purchasing agency for generics create more drug shortages because of lower prices, as Labrie argues? Canada is one of the world’s most expensive countries for generics and we pay, on average, twice as much for the same generic drug in Canada as the United States. Following Labrie’s logic, because we pay more Canada should be less afflicted by drug shortages than countries with universal pharmacare and bulk-purchasing capacities. In fact, we observe exactly the opposite pattern.

Countries that have introduced bulk-purchasing powers use their buying clout to make sure tenders on specific drugs include clauses to avoid the possibility of drug shortages. In an era of global mergers and acquisitions and growing concentration among generic manufacturers, bulk-purchasing is another smart way to use market forces to decrease costs and ensure stable supply.

When it comes to prescription drugs, Canada’s current system is plagued by massive waste, massive costs and plenty of people unable to afford their drugs. Universal pharmacare does not mean an “open bar” for everybody, it means leveraging buying power and using market forces in order to contain drug costs, achieve sustainability and improve the health outcomes of the population.

Economist Bob Evans recently described the main obstacle for the implementation of universal pharmacare in Canada: “Anyone’s spending is somebody else’s income. Universal pharmacare could save billions to Canadians, so there are powerful corporate interests that will do everything they can to make sure it does not happen.”

Marc-André Gagnon is an expert advisor with EvidenceNetwork.ca and assistant professor with the school of public policy and administration, Carleton University.

June 2013

See the poster based on this commentary

This work is licensed under a Creative Commons Attribution 4.0 International License.