Pharmacare in Canada
Who Would Benefit From Pharmacare and What are the Risks?
Many countries around the world are facing rising health care costs that are partially attributable to the increasing price of pharmaceuticals. Particularly, high-cost drugs for the treatment of oncology make up a substantial portion of those growing expenditures. Increased pressure on healthcare budgets is motivating many countries to try and find solutions to create more affordable healthcare systems, including considering cost containment measures for pharmaceuticals.
In Canada, the federal government is currently developing plans to implement a national Pharmacare program. Canada is the only country in the OECD with a partially funded health system that excludes prescription medicines. Currently, Canada ranks the 4th highest for pharmaceutical prices out of the 31 countries of the OECD, with Canadians spending 43 percent more per capita for their medicine. Although a very popular program, with just under 90 percent of Canadians in support of a single-payer, publicly funded Pharmacare system, there has been some pushback from the pharmaceutical industry and some interest groups.
Arguments for Pharmacare
More Cheaper and Accessible Medicines
One major benefit of a national pharmaceutical procurement program such as Pharmacare is the ability to reduce the market prices of medicines by increasing the bargaining power of the purchaser. Through economies of scale, the purchaser has the leverage to negotiate better prices which could not be achieved through multiple smaller business contracts.
There are many examples to support the claim that countries with single buyer programs have lower pharmaceutical market prices. Per capita in 2015, Norway spent half as much on pharmaceuticals as Canada. The U.K spent a third less, while Australia spent twenty percent less. One study based on the savings acquired in New Zealand’s single buyer system suggested a potential savings of 21 to 79 percent on prices of pharmaceuticals if Canada adopted similar policies.
Aside from making medicines cheaper to purchase, a Pharmacare program would also standardize the cost and availability of medicines across provinces and territories. Today, each province and territory have separate public plans making the availability, price, and coverage of different medicines vary. Implementing national Pharmacare would consist of constructing a national formulary or list of drugs that are covered and available across the whole country, ensuring that Canadians have equitable access to medicines regardless of where they live.
An Affordable Healthcare System
Another argument for the benefit of implementing Pharmacare is that universal coverage for pharmaceuticals makes the overall health system cheaper. In addition to decreasing prices of medications, Pharmacare mitigates pressure on the health system that results from cost-related prescription non-adherence as well as increased administrative costs from a fragmented health system.
When patients do not have access to their prescribed medicines, their health can suffer. This results in additional costs to the overall health system through increased visits to the doctor’s office and emergency departments. One study in Canada determined that the effect of getting rid of out-of-pocket costs for medicines for diabetes, cardiovascular disease, and chronic respiratory disease would save the health system $1.2 billion a year, with savings found from 220,000 fewer emergency room visits and 90,000 fewer hospitalizations.
It is also argued that national Pharmacare would reduce economic inefficiencies attributed to having many separate, unintegrated coverage plans. One study on the American system suggested administrative costs for their fragmented health system are double those in Canada – 31 percent versus 16 percent respectively. The study suggested that if the American system was streamlined to the Canadian single-payer system (excluding pharmaceuticals), there would be enough savings to be able to fund health insurance for all Americans. In Canada, the total annual savings that are expected from extending the single purchaser model to medicines is estimated to save the health system $5 billion per year by 2027.
Increased Health Equity
This argument suggests that Pharmacare is necessary to create equitable access to healthcare. Those who argue this point suggest no one should be denied access to prescription drugs necessary for people’s health due to cost. In Canada’s health system where prescription medicine is not universally covered, individuals tend to have to rely on limited federal or provincial programs, employment benefits (given they are offered), or resort to paying out-of-pocket costs. The result of this system is those with lower economic status, as well as those with health conditions, are overburdened with those costs, creating health inequities across the population.
In Canada, one in ten Canadians report not being able to take their prescribed medications because of cost-related barriers. Under the current system, twenty percent of Canadians do not have insurance coverage or have inadequate coverage to afford their medicines. One study found that 35.6 percent of people with no insurance and low household income reported prescription non-adherence. Notably, even medium and high-income individuals with drug insurance coverage still have issues related to drug nonadherence due to cost, at about 3.6 percent.
One report estimated that the lack of access to prescription drugs in Canada is causing 370 to 640 deaths from heart disease every year, and 270 to 420 deaths of those with diabetes. Not being able to afford medicines also has consequences that extend beyond an individual’s health. One study reported around a million Canadians had to sacrifice paying for food, heating bills, and other medical necessities to afford their prescriptions. It is argued that these hardships and deaths are preventable under a national Pharmacare system which would ensure access to all Canadians.
Arguments Against Pharmacare
Reducing the Number of Available Medicines
This argument suggests that Pharmacare may put access to new and existing medicines at risk. Some argue a national program would end up replacing private coverage plans which offer much more expansive coverage, thus reducing access to some medicines. Some also suggest that companies would be less likely to introduce medicines to a market if their expected profits are lower.
There is some evidence to suggest when federal programs create drug formularies, they take away the choice that patients might have had between different brands of medicines available through private plans. For example, existing Canadian public plans tend to provide access to generic medications over brand name medications when available, since they are chemically identical, cheaper, and many generics are manufactured within the country.
Reduced market prices are argued to decrease the likelihood that companies would find the Canadian market attractive for their medicines, and thus put at risk access to those medicines. There is evidence that the launch of new medicines is delayed in markets with stronger price controls. One study estimated that a 25 percent reduction in price would result in a six to ten percent reduction in new medicines. However, approximately eight years later, the estimation is down to about four to six percent. One suggested reason is that drug launches prioritize entry into markets with higher expected returns.
Might Increase Drug Shortages
This argument suggests Pharmacare might increase the risk of drug shortages since it monopolizes procurement and selects only a certain variety of medicines on its formulary. Drug shortages are harmful since alternatives can produce unwanted side effects for patients, and some medications such as those for epilepsy cannot be substituted for alternatives. Some suggest Pharmacare is unable to achieve the desired balance between having a diversified number of suppliers, as well as ensuring medicines are affordable.
When one manufacturer is rewarded with a bulk contract, this creates a monopoly that may work to drive out other competitors from the market. It has been argued this can further exacerbate the problems of drug shortages by decreasing available substitutions when one drug becomes unavailable. One example is the shortage of flu vaccines that occurred in New Zealand when a single company was given the contract for their flu supply but could not deliver. This caused delays while alternative contracts were negotiated.
Research on drug shortages shows that they are almost always caused by disruptions in supply. This is most frequently due to issues within the manufacturing process, such as product quality issues. Every supplier does not necessarily have an independent chain of manufacturing from other suppliers, and there are many cases where multiple suppliers rely on the same source of raw materials. One report suggested contracts with suppliers can mitigate issues of drug shortages by ensuring they have backup vendors for their raw materials, alternative sub-contractors at all stages of manufacturing, and ensuring safety stocks.
Decreased Investment in Innovation
Some suggest that reduced revenues from lower drug prices will eat at available funds for research and development (R&D), consequently resulting in less investment in Canada and fewer innovative medications reaching the market. Worsening health outcomes due to fewer newer medicines is a projected result of underinvestment.
Many pharmaceutical companies argue that they rely on profits generated from sales in the US – where patients are paying about 2.5 percent higher than the rest of the OECD – in order to fund R&D. They argue that lowering sales in Canada would put added pressure on their R&D resources and result in less innovative medicines coming to market. It is difficult to determine how large pharmaceutical companies distribute their profits, and how exactly profits are linked (if at all) with their R&D spending since this is often hidden behind confidential business information. However, research suggests that the location where companies decide to invest in R&D is not associated with the market price of medicines, and instead is predicted by the availability as well as the quality of technical infrastructure, labour, and local taxation laws.
Pharmacare, Will it Work?
Aside from being a very popular program, there is a growing body of evidence that Pharmacare has the potential to increase the health equity of the population, relieve the burden on Canada’s struggling health system budget, and save many Canadians money. However, like any large government program, the way that it is implemented will determine its ultimate success. Critics have pointed to the potential side effects of reducing market prices through a single buyer program and national drug formulary, including the potential risk of shortages, reduced choice, and diverted investment.
As the only OECD nation with a partially funded health system, there is room for improvement, and there are many different bodies exploring the costs and benefits of covering prescription medicines for Canadians.
