December 2007: No Excuse For Denying Drug Coverage

It’s time to end Canadians’ long wait for Pharmacare
December 1, 2007

Canadians have been waiting for Pharmacare since the early 1960s when it was proposed by the Royal Commission on Health Care. However, despite repeated promises in the ensuing decades from the National Forum on Health and even the Liberal party itself during the 1997 election, Pharmacare still remains beyond our grasp.

As a result, we have a situation where 3% of Canadians, or about one million people, are considered uninsured because they pay more than 4.5% of their gross family income for prescription drugs, and an additional 3.3 million who pay 2.5% of their income for drugs and are labeled underinsured.

The Ontario government estimates that 19% of the population of that province, or nearly 2.5 million people, lack adequate insurance. According to a recently published study out of Toronto’s Hospital for Sick Children, a significant number of children lack timely access to necessary medications because of economic problems.

The poorest fifth of the Canadian population spends more money out-of-pocket on prescription drugs than the richest fifth. For people over 65, it makes a significant difference which province you live in when it comes to drug therapy. A low-income senior in Saskatchewan, with average drug use in 1998, would have paid $500 out-of-pocket, but the same person with the same drug use in Ontario would pay less than one-tenth that amount.

Internationally, Canadian public spending on drugs as a percent of total drug costs, or on a per capita basis, ranks near the bottom of the list of industrialized countries. The only place that consistently has a worse record than Canada is the United States.

Proposals from Senator Michael Kirby and Roy Romanow have abandoned the idea of first-dollar universal drug coverage in favour of some form of catastrophic coverage. In the case of Kirby, coverage would start once people had spent 3% of their annual income on prescription medication; Romanow suggests a $1,500 deductible. In 2003, provincial First Ministers pledged “by the end of 2005/06, to ensure that Canadians, wherever they live, have reasonable access to catastrophic drug coverage.” However, that pledge has now been superseded by the National Pharmaceutical Strategy, and in its June 2006 report all that it could offer was a set of principles that had been developed for coverage and a recommendation for further study.

Catastrophic drug coverage, while better than nothing for those currently without any insurance, would still leave low-income people vulnerable to high drug costs. In Ontario, the minimum wage of $8 an hour translates into an annual income of $16,000. If Canada adopted the Kirby proposal, that minimum-wage person would be spending about $480 per year on drugs--a considerable portion of her disposable income after accounting for shelter and food.

On equity grounds alone, there is a strong argument for Pharmacare, but, beyond equity, Pharmacare will help Canada control rising prescription drug costs. Retail prescription drug costs are rising at about 8-10% per year after controlling for inflation, and since the late 1990s Canada has been paying more for medications than for doctors.

One of the main factors accounting for this continual inflation is the use of newer and more expensive drugs in place of older, less expensive products. For example, by 1998/99, over half of the $1.9 billion being spent by the Ontario Drug Benefit Program was on drugs introduced since 1992/93. A 2002 analysis done by Green Shield, a non-profit insurance company, found that the price of a prescription for generic drugs barely changed from 1997 while the price for one that contained new patented medications went up by 9% percent a year.

Provincial drug plans have been largely attempting to deal with rising drug expenditures by shifting costs onto users of the system. This was the approach that Quebec used when it decided to expand its drug insurance system without increasing government expenditures. Prior to the change in the Quebec system, people on social assistance were exempt from any co-payments, and seniors paid $2 per prescription. After the change, those on welfare had to pay up to $50 per quarter and the elderly were subject to deductibles and co-payments that ranged from $200 to $925 per year. These charges meant a drop in essential drug use of more than 9% for welfare recipients, and just under 15% for the elderly, with corresponding increases in hospitalizations, physician visits, and trips to emergency departments. (Quebec has recently eliminated the co-payments for those on welfare.)

Encouraging the use of private drug insurance will also do little to either control costs or improve equity. Most private drug plans in Canada are much less effective in cost control measures than public plans, and administrative costs in private plans run around 8% compared to 2-3% in large provincial plans. Moreover, private insurance through the workplace is a regressive way of providing benefits. Currently, the portion of insurance received through the workplace that is paid for by the employer is exempt from personal income tax. According to Stabile, the value of the subsidy that an individual receives through private insurance is based on his/her marginal tax rate. In a progressive tax system, like the one that exists in Canada, that translates into higher subsidies for those earning higher incomes. In fact, people in the highest 20% income bracket receive a benefit more than three times greater than those in the lowest 20%.

Monopsony buying power--where a single buyer controls the bulk of the market, like that used in the Australian Pharmaceutical Benefits Scheme--helps keep costs for individual drugs 9% lower than those in Canada. Other measures, like tendering for generic products available from multiple companies and cross-price subsidization (requiring lower prices for already listed drugs in return for accepting new listings) that have cut the New Zealand drug budget by almost 50% (Pharmaceutical Management Agency 2006) stand little chance of success in a world of multiple payers.

Finally, Pharmacare has the potential to help improve the way that doctors prescribe. Pre-marketing trials test drugs on selected groups of patients, but, when the products are released on the market, they are the object of intense promotional pressure and often end up being prescribed to large numbers of patients who were excluded from the clinical trials. This heavy prescribing takes place long before the full safety profile of new drugs is known and therefore exposes patients to potentially serious problems.

In the United States, it’s estimated that Vioxx caused an additional 88,000-140,000 excess cases of serious coronary artery disease in the five years it was on the market. New drugs not only pose safety problems, but for the most part they also fail to offer any major new therapeutic benefits. Figures from the 2005 annual report of the federal Patented Medicine Prices Review Board show that only slightly more than 10% of all new drugs are significantly better than existing medications that are generally much less expensive.

Economic incentives and disincentives can be used to limit the prescribing of new drugs, but once again these disincentives are only going to be successful when they apply to the majority of prescribing decisions.

Furthermore, if government was paying the bulk of the drug costs, it would probably have much more of an incentive to ensure appropriate use, if for no other reason than to keep costs down. In Australia, the federal government provides about $25 million annually to the independent National Prescribing Service, whose mission is to improve drug prescribing by doctors and drug use by consumers.

The usual argument mounted against a first-dollar Pharmacare system, similar to what already exists for doctor’s visits and hospitalizations, is that it is unaffordable. To begin with, this line of reasoning simply ignores the reality that we are already paying for prescription drugs to the tune of almost $18 billion per year. The question is not whether the country can afford the cost, but rather how will the cost be met?

Currently, government accounts for a little under half of all costs, private insurance covers 34%, and the rest is paid out of pocket. If government were to pick up the entire tab, then it is inevitable that public spending would increase, probably by about $7.7 billion annually. But, even allowing for increased use of prescription drugs by groups now not covered at all or under-covered, total spending on medications would actually drop by between 9-10% because of lower administrative costs and the lower prices that could be achieved through national bargaining power.

Right now we are funding prescription drugs the way that Americans fund their entire health care system. We have rejected the American approach for doctors and hospitals because we have recognized that it is inefficient and inequitable. It’s time to reject that approach to paying for prescription drugs. Pharmacare makes sense on all three grounds: equity, economic efficiency, and effective prescribing. It’s time to stop waiting for it.

(Joel Lexchin is a professor in the School of Health Policy and Management at York University.)