Pharmacare Advocates Need To Narrow Their Focus

One has to admire the skillful advocacy of Steve Morgan and his colleagues. About once a year, they produce a “new” paper telling us why Canada should have universal comprehensive public pharmacare.

They keep presenting the same arguments about how some other countries are paying much less than we do for their prescription drugs, and pointing to people with chronic conditions struggling to pay for their medicines. The media lap it up. It was the headline story on The National on Feb 27th and the Globe and Mail wrote an approving editorial on March 1st.

The most recent iteration compares the cost of 117 “essential” medicines in Canada compared to Sweden, New Zealand, and the US Department of Veterans Affairs.

  1. It is important to understand how those lower prices are achieved. Each of New Zealand, Sweden, and the US agency has a rigorous tendering process for drugs which are produced both by the brand name supplier and various generic imitators. Only the winning bidder has its product paid for by the national program.

    This greatly restricts choice, but should not make any difference for drugs that are supposed to be identical. New Zealand is even more restrictive, being willing to fund only one reference drug per category.

    For the system to work in Canada, patients and their physicians would have to accept a tightly restricted formulary, and foreign makers of generic drugs would have to be able to compete with domestic suppliers on an even playing field.

    Helen Stevenson is a retired Assistant Deputy Minister of Health in Ontario. She says that they tried the tendering system, but were unable to make it work. It would be very unwise to proceed on any scale until that problem is solved.

  2. The auction system only works when there are multiple suppliers. For many recently introduced drugs, the patent holder is the only one licensed to produce the product. Government can influence pricing by regulation or negotiation, entirely independent of whether or not there is a universal program. Being adjacent to the US makes it difficult for pharmaceutical companies to accept lower prices than they get in the US.

    Federal Minister of Health Jane Philpott says they are working on this.

  3. There is no particular need for a pharmacare program to be national. Ontario and Quebec both have populations bigger than Sweden or New Zealand, or the number of veterans in the United States, so either province has the necessary population base. The US agency achieves its results without being part of a universal program.
  4. National programs are not cheap. Sweden had to scale back on its original extensive program, which included lifestyle drugs such as Viagra. Even after cutting back, they pay a maximum income tax rate of 60% and an HST equivalent of 25%. Canadians are unlikely to support that.
  5. Insurance plans, mostly from private employers, fund 35% of prescription drugs. Using tax dollars to provide corporations with relief from that expense hardly qualifies as a priority.
  6. Almost every media story on the topic includes a patient struggling to cope with the ongoing coast of drugs for a chronic illness. The stories exaggerate the problem, neglecting to mention that provinces have programs to support such patients.

    Ontario’s aims to limit the patient’s cost to 4% of income. Some of the sample countries have co-pays that add up; in Sweden’s case, the maximum is $350.

There is a real opportunity to save money, but it rests on the possibility of using auctions to lower prices on those drugs that have multiple suppliers.

A sensible pilot project might involve the drug programs provided by the province of Ontario to seniors and low-income families. If it works, other provinces and private plans could probably access the same pricing and in turn add to the effectiveness of the auction.

There are obstacles. Formularies will be restricted to the drugs whose suppliers make winning bids. Canadian based suppliers will have to compete with global competitors—subject, of course, to quality requirements. Pharmacists will be unhappy with the cut in their margins.

Perhaps these explain the failure of Ontario’s efforts at running a successful auction process.

Dr. Morgan makes a plausible case that we can save money on those drugs that are subject to competitive pricing pressure. Good.

Can we find a way to make an auction system work in existing government-funded programs? If so, let’s use the savings to further reduce the threshold below which low income families have to pay for their drugs.

And let’s stop pretending that Morgan’s examples make a case for a national pharmacare program.

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