Faking a drug crisis
Health policy in Canada is not evidencebased. For proof, look no further than the new drug-price regulations being implemented by the federal government, and its ongoing consideration of a new public monopoly drug-insurance program known as Pharmacare. The cost of patented drugs is the phoney excuse driving both.
The government recently announced new rules that will arbitrarily regulate a lower ceiling price for patented drugs — even though its own data show that current prices have grown slower than inflation, and are below the median of comparable countries.
Pharmacare is proposed as a federal program that would replace all employmentbased drug benefits in both the private and public sector, as well as replacing existing federal, provincial and territorial government- run drug plans. This despite the fact that it 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.
So, does the overall cost of patented drugs really justify extreme new regulations and an expensive new program?
The Canadian Health Policy Institute (CHPI) exam- ined the total direct-cost burden from patented drugs using the most recently comparable publicly available data from the Patented Medicine Prices Review Board (PMPRB), the Canadian Institute for Health Information (CIHI) and Statistics Canada. The facts show that, after adjusting for real economic factors like population, general price inflation, the economy and other health- care costs, the total direct- cost burden from patented drugs is stable and moderate.
Public hype about patented drug costs is partly caused by the way the data are reported by the government’s own health statistics agency. The “drugs” cost numbers published by CIHI include spending on patented and non-patented (i.e. off- patent brands and generics) drugs, and prescribed and non- prescribed drugs. CIHI costs are also counted at final prices (manufacturer prices, plus wholesale and retail price mark- ups, pharmacy dispensing fees and sales taxes). A little- known fact is that CIHI “drugs” costs also include the administrative expenses of public drug plans, as well as spending by pharmaceutical companies on drug research.
The actual health system costs attributable directly to the manufacturers of patented drugs are only a fraction of the total “drugs”- related costs published by CIHI. According to PMPRB, the total direct cost of manufacturers’ sales of patented drugs was $ 15.5 billion in 2016, which accounts for less than 41 per cent of the $ 37.8 billion in total drugs- related expenditure reported by CIHI for the same year.
Adjusting for population and inflation reveals that patented drugs have actually experienced near-zero real cost growth for the last decade. Measured in constant 1990 dollars, per capita spending on patented drugs in 2016 was $261, showing relatively flat real growth from $258 in 2006.
A similar trend can be seen relative to the total national economy.
Sales of patented drugs have accounted for less than one per cent of GDP for the last 27 years, and were roughly the same percentage of GDP in 2016 (0.76 per cent) as in 2002 (0.75 per cent).
Costs have actually declined as a share of total health spending. Patented drugs accounted for only 6.7 per cent of the $232.9 billion reported by CIHI for total health spending in Canada in 2016, a smaller percentage than in the year 2001 (7.1 per cent).
The direct cost burden of patented drugs on the public health system is even smaller. Using data from CIHI and PMPRB’s National Prescription Drug Utilization Information System, CHPI estimated that the direct costs of patented drugs covered under federal, provincial and territorial public drug plans was roughly $ 5.9 billion in 2016, representing only 3.7 per cent of the $159.4 billion in total health spending by federal, provincial and territorial governments in the same year.
If governments are going to cite the cost of patented drugs to justify their policies, they should at least get the basic facts correct. There is no affordability crisis to justify expanding drug price regulation, or a new national government-run pharmacare monopoly.
PATENTED DRUGS HAVE ACTUALLY EXPERIENCED NEAR-ZERO REAL COST GROWTH FOR THE LAST DECADE.