Sickening assumptions

Following a public consultation last year, the House of Commons Standing Committee on Health asked the Parliamentary Budget Officer (PBO) to provide an estimate of the federal cost for a new national pharmacare program. Last week the PBO released its findings.

Pharmacare is proposed as a federal program that would replace all employment-based drug benefits in both the private and public sector, as well as replacing existing federal, provincial and territorial governmentrun drug plans. In other words, pharmacare is intended to be a governmentrun monopoly insurance program for prescription drugs, like medicare is for hospital and physician services.

According to the PBO, if pharmacare had been implemented last year, total drug spending would have been $20.4 billion, which is $4.2 billion less than actual spending. By “total” spending, the PBO means all public sector plus private sector spending together, counted at the retail level, which includes the direct cost of drugs plus wholesale and retail markups, pharmacy dispensing fees and public administration.

But, the PBO’s cost estimate is optimistic to say the least, because it is based on questionable assumptions. Like, for example, that as a monopoly buyer, government could “negotiate” one national drug price down to the lowest price currently paid among any of the multiple public and private insurance plans in Canada for each drug product, plus an additional 25-per-cent discount.

This is doubtful. A price negotiation depends on the willingness of the seller to continue to supply the market at those prices, and average Canadian prices for patented drugs are already 50-per-cent lower than A government-run pharmacare plan will cost taxpayers dearly, Brett Skinner writes. American prices, which is the only benchmark we have for a competitive market price in the world.

Truth be told, the supply of new medicines is not a priority for pharmacare advocates. The PBO explicitly assumed that pharmacare would not cover all drugs approved by Health Canada, but only the ones currently covered under existing public drug plans. Further, pharmacare would require patients to use generic products and impose a $5 co-payment applied exclusively to discourage the use of brandname government-run pharmacare monopoly? The answer is not taxpayers or patients. Pharmacare will be a federal government subsidy to private-sector employers that will be paid by higher taxes and reduced access to new medicines. Meanwhile, the provinces will offload their drug costs onto the federal budget and will probably not pass the savings on to taxpayers.

There is no doubt that taxpayers will be squeezed to pay for pharmacare. The PBO estimated that even a bare-bones pharmacare plan Assuming realistic prices and no changes to the drug benefits currently enjoyed by Canadians, pharmacare would shift over $25 billion off the provinces and the private sector onto the federal budget, including more than $13 billion in new costs for taxpayers. Additional liabilities might result from NAFTA-related compensation triggered by the government takeover of the private drug-insurance industry, which could total at least $4 billion in the first year.

And employers will stop providing drug benefits once everyone is covered under a publicly funded pharmacare program, especially when they can hide behind the government’s insistence that it includes all the drugs that the bureaucrats deem “medically necessary.” This could have serious consequences. Private-sector plans cover more new drugs and with shorter delays than do public-sector programs. Government-run drug plans tend to deprive patients of access to the most advanced medicines available.

CHPI studied this and found that of the 464 new drugs approved for sale by Health Canada from the years 2004 to 2013, 89 per cent (413) were covered by at least one private drug plan compared to 50 per cent (231) that were covered by at least one public plan as of Jan. 31, 2015. The average number of days to insure these new drugs was 132 days for private plans compared to 468 days for public plans.

A government-run pharmacare monopoly will cost taxpayers dearly without any clear benefit for patients. It will reduce access to the most innovative medicines for the 24 million Canadians who currently have employment-based private drug plans, without improving benefits for the 11 million Canadians who are currently eligible for public drug programs.