Evidence contradicts Ottawa’s cost control rationale for single-payer pharmacare.

Brett J Skinner | CHP Opinions | 18 MAR 2024

Evidence contradicts Ottawa’s cost control rationale for single-payer pharmacare 

By Brett Skinner, PhD, and CEO of Canadian Health Policy Institute (CHPI).

Supported by the NDP, Justin Trudeau’s Liberal government recently announced it would work with the provinces to implement universal prescription drug benefits for contraceptives and diabetes medications. NDP leader Jagmeet Singh told media the initiative should be a precursor to a national single payer pharmacare program, which he argued was necessary to control the cost of patented medicines.

Canada currently spends over $110 million per year on a national bureaucracy to control prices for patented medicines. Several agencies are engaged in price regulation (Patented Medicine Prices Review Board or PMPRB), health technology assessment (Canadian Agency for Drugs and Technology in Health), national reimbursement negotiations (Pan-Canadian Pharmaceutical Alliance or PCPA), and centralized vaccine procurement (Public Health Agency of Canada). Plus, there are initiatives underway for a federal super bureaucracy (Canada Drug Agency).

Provincial and federal drug plans are single payers for public reimbursement in their jurisdiction. The PCPA acts like a national monopsony. It is very likely that public payers already obtain the lowest possible prices at which our market would still be supplied.

A 2017 report from Ontario’s Auditor General, found the province’s drug plan negotiated rebates averaging 36 percent off list prices for patented drugs. Pharmacare advocates are betting a single payer can demand deeper discounts without jeopardizing the availability of new medicines in Canada.

It’s a gamble, because research confirms excessive price regulation or abusive monopsony bargaining can destroy the commercial viability of introducing new drugs to markets, reducing access to the latest therapeutic advancements.

Single payer pharmacare is unlikely to produce extra savings because patented drug costs are not out of control. In a recent study I examined prices and expenditures for patented medicines using the most recent data from the Canadian Institute for Health Information (CIHI) and PMPRB.

According to the PMPRB, bilateral foreign-to-Canadian comparisons of patented medicines using matched products at purchasing power parity, showed average prices were higher in seven of the 11 other reference countries in 2022. The average price ratio across the seven countries was 22.3 percent higher than Canada. The PMPRB no longer reports prices from the United States and Switzerland because they are deemed to be high-cost jurisdictions, but they would likely exceed Canada too.

Direct spending on patented drugs is less than commonly believed. CIHI reported national (public and private; retail and hospital) spending on drugs totaled $49.4 billion in 2022. But the numbers include costs for patented and non-patented drugs, prescribed and non-prescribed drugs, pharmacist fees, public drug plan administration, and even R&D spending by pharmaceutical companies. CIHI data exclude rebates.

Precise data from the PMPRB, show gross national sales of all patented drugs at manufacturers list prices were $18.4 billion in 2022, which is only 37 percent of the total drugs and related expenditures reported by CIHI.

After accounting for rebates, net national expenditure on patented medicines totaled $15.6 billion, or only 4.7 percent of $334.4 billion in overall national health expenditure in 2022.

In the same year, net public (provincial and federal drug plans, workers compensation boards, and mandatory social insurance and health premiums) spending on patented medicines was $5 billion, or only 2.1 percent of $240 billion in total public health expenditure.

The evidence shows that there is no cause for alarm about the cost of patented medicines in Canada. Governments seeking savings should look closer at the 95.3 percent ($319 billion) of health spending not attributable to patented medicines prices.

Considering the net health and economic benefits associated with pharmaceutical innovation, we should probably be spending more to improve access to new drugs. Patented medicines represent the most scientifically advanced therapies – often the most efficient, and sometimes the only means for treating disease.

Using a single payer for cost control also raises moral questions. A universal single payer would exploit its national monopsony on public drug reimbursement to extract rebates from manufacturers; essentially delaying or denying our access to new medicines until pharmaceutical companies agree to reduce prices. Is it ethical to leverage a price negotiation by withholding access to new therapies?

Copyright (C) Canadian Health Policy Institute Inc.