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Why Canada's System For Buying Prescriptions Drugs Is Broken

April 19, 2011

3-minute read

The current system for buying prescription drugs in Canada - a hybrid system of multiple public and private drug plans - is totally dysfunctional.

First, the diversity of drug plans means Canadians are covered for their drugs according to the province in which they live or work, not necessarily to their medical needs.

Second, Canadians with inadequate coverage, mostly self-employed or unemployed workers, are often unable to benefit from optimal treatments. More than three million Canadians admit they had not filled a prescription in the last year because they could not afford to do so.

Another reason why the system is broken is that Canadians pay way too much for their drugs. Canada is the world's second most expensive country for "detail" prices - which equals the money the drug company gets, the wholesaler markup, the pharmacy markup, dispensing fees plus taxes - of prescription drugs. Canada also has the fastest-rising drug costs among OECD countries: more than 10 per cent per year. Countries with universal pharmacare, like France, Britain, Sweden, Australia and New Zealand, pay less for their drugs, and their costs increase at a much lower rate.

The main reason prescription drugs are so expensive in Canada is because of private insurers. Only in the U.S. is a greater proportion of prescription drug costs paid for by private insurers. This private coverage is inefficient and the administration fees are higher for private than for public plans (eight per cent as compared to two per cent).

Insurance companies are normally paid on the basis of a percentage of spending, so they have no incentive to reduce costs. For example, private plans normally do not discriminate among drugs and gladly agree to reimburse new drugs that are more expensive than existing cheaper and better drugs.

According to the independent medical journal Prescrire, of the 104 new drugs introduced in 2009, only three offered a minor therapeutic advance, while 95 offered nothing new to improve health outcomes.

The reviewers conclude 19 of these new drugs should not have been marketed because they posed a potential danger to health. The decision to prescribe a new drug is often the result of drug companies' promotional campaigns and not because of evidence-based medicine. Drug companies spend up to $61,000 per physician in order to influence their prescribing habits.

Unlike private insurers, public plans have the ability and obligation to ensure a patient will get some bang for the buck. British Columbia is the best example. Under the Therapeutics Initiative, which began as an academic project, B.C. proactively produces clinical guidelines and encourages a culture of evidence-based medicine among physicians.

Because of this, not only do British Columbians have the best therapeutic choices and the best health outcomes in Canada, they also pay on average 8.2 per cent less per capita for their drugs.

Simply by eliminating the waste inherent in private insurance and by improving therapeutic choices, the implementation of universal Pharmacare could save Canadians $2.9 billion per year (around 12 per cent of total costs).

Another major reason why our drugs are so expensive is we have industrial policies that artificially inflate the prices of brand-name drugs. Canada is always aiming to be the world's fourth-most expensive country for its brand-name drugs as a way to support its pharmaceutical sector.

It is true the pharmaceutical sector is responsible for around 50,000 jobs (direct and indirect) in Can-ada and each job is paid an average of $80,000 a year. This means Canadians benefit from around $4 billion in spinoffs from this sector. The problem is these policies are very costly and inequitable.

Since the pharmaceutical industry is located almost entirely in Quebec, Ontario and B.C., it makes no sense, for example, that Nova Scotians should also pay artificially inflated prices to support this sector. No government should when the total costs of these industrial policies are higher than total spinoffs that Canadians receive from this sector.

By implementing universal Pharmacare and also eliminating these policies, we could save $10.7 billion per year (around 43 per cent of total costs).

There are definitely better ways to invest this money; for example by improving health care and by publicly funding medical research.

Marc-André Gagnon is an assistant professor with the school of public policy and administration at Carleton University. He is also an expert adviser with, a comprehensive and non-partisan online resource designed to help journalists covering health policy issues in Canada. He is co-author of The Economic Case for Universal Pharmacare, published by the CCPA. This piece was originally published in The Montreal Gazette.

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