A universal drug plan could reduce spending on prescription medications in Canada by billions each year, a new Canadian study suggests, which contradicts long-held beliefs that such coverage would put too much strain on the public purse.

Researchers say that if Canada could bring drug prices in line with what other developed countries pay and boost rates of generic drug use, a universal drug plan could reduce total spending on prescription drugs in this country by $7.3 billion per year, a 32 per cent decrease.

Government costs under a universal drug plan would only increase by about $958 million, the researchers said.

It may seem counterintuitive that it is possible to save money when implementing a universal drug benefit plan, said Dr. Steven Morgan, professor of health policy at the University of British Columbia School of Population and Public Health.

Benefits of single-payer system

But Canada is currently not purchasing prescription drugs on the global market in the most cost-effective and efficient way, he said.

"Because we don't have a single-payer system, because we don't have a single drug plan for any given province or for the entire country, we end up fragmenting our purchasing power," Morgan told CTV News.

"So by having a single-payer system through a universal pharmacare program you create much stronger buying power on the world market, and it's through that buying power that you get better prices."

For example, under the current system, Canada pays up to five times as much for the same generic drugs as New Zealand does, Morgan noted.

"In many cases, they are from the same company," he said.

The study was published Monday in the Canadian Medical Association Journal.

Canada the odd one out

The researchers note that all countries with universal health insurance offer universal drug coverage, with the exception of Canada.

Currently, prescription drugs in Canada are funded by what the researchers call "a patchwork" of public and private plans that vary among the provinces and leave "many Canadians with little or no drug coverage at all."

Government drug plans, both federal and provincial, cover about 36 per cent of the total prescription drug costs in Canada, while private plans cover another 36 per cent of total costs.

Using data from the 2012-13 fiscal year, the researchers determined that governments already spend $9.7 billion on public drug plans in Canada, including coverage for First Nations populations, senior citizens and social assistance recipients.

Another $2.4 billion is spent on drug plans for public sector employees.

Therefore, governments are already paying the majority of prescription drug costs in Canada, "but they're doing it in a market that has inflated prices and doesn't always have the cost-effective product choice decisions being made," Morgan said.

Meanwhile, private sector spending on private health plans accounts for $5.7 billion, and patients without insurance pay another $4.5 billion in out-of-pocket expenses.

Three scenarios for savings

Using the 2012-13 data, the researchers created three scenarios for a universal drug plan: an expected outcome, and then best- and worst-case scenarios.

They looked at prescribing patterns and costs of different drugs, as well as the three sources of funding: public drug plans, private plans and out-of-pocket spending.

They determined that overall spending under a universal drug plan would drop to $15.1 billion, or by $7.3 billion. The best-case scenario calls for a $9.4 billion reduction, while the worst-case scenario calls for a $4.2 billion reduction.

While the study predicts a $958 million increase in cost for government, the best-case scenario model anticipates savings of $2.9 billion. The worst-case model calls for an increase of $5.4 billion.

For the private sector, the researchers found that employers and unions that offer drug benefits could save $8.2 billion if a universal drug plan were in place. The best-case scenario for these private plans is $9.6 billion in savings, while the worst-case scenario is still $6.6 billion in savings.

The researchers note that factors have not been included in their study that could result in even further savings to government. Universal drug coverage would eliminate the need to offer tax incentives to employers to provide benefits for their employees. A single-payer system would also reduce administrative costs, they said.

Among the losers under a universal drug plan would be drug companies, who would sell their products at a reduced price, and chain drug stores that make a significant amount of money off of Canada's expensive drug pricing regime, Morgan noted.

However, access to medication could also reduce demand for other health services, which would reduce spending in other areas of the health system, the researchers concluded.

With a report from CTV's medical specialist Avis Favaro and producer Elizabeth St. Philip