Momentum has been building for a national pharmacare program since a June meeting of provincial health ministers.

Canada’s new Health Minister, Jane Philpott, says she plans to be in touch with her provincial counterparts to begin the preliminary work of establishing a new health accord which, according to some health experts, could include at least the broad outlines of a national pharmacare program. The 2004 Health Accord expired March 31st, 2014 after the Harper government refused to renegotiate it.

So what can Canadians expect from their new federal government when it comes to making prescription drugs more affordable?

In contrast to other policy areas, the Liberal election platform planks on pharmacare were strikingly vague. According to the platform:

“We will improve access to necessary prescription medications. We will join provincial and territorial governments to negotiate better prices for prescription medications and to buy them in bulk – reducing the cost governments pay to purchase drugs.”

Not too many clues here as to where the new Trudeau government might end up on pharmacare. That said, Ontario’s Liberal government has been a strong provincial advocate for an aggressive approach to drug coverage and was extremely critical of the Harper government’s hands-off approach to the issue. Given the close ties between the two Liberal governments, most observers expect the new federal government to be active in future national pharmacare talks.

That next health ministers meeting is expected to take place on January 21-22, 2016 in Vancouver and federal health Minster Philpott has said she will be attending.

The challenge

Most health care groups agree that there has never been a greater need for a national pharmacare program.

Private health insurance plans sponsored by employers are expensive and are a rarity in the growing “precarious work” segment of the labour market dominated by low-wage, part-time jobs.

Moreover, provincial drug plans covering workers vary considerably in breadth and depth of coverage. As a result, if you are in the labour force but are not covered by an employer-sponsored plan, your access to prescription drugs will vary widely depending upon the province you live in.

And even with some sort of private or public coverage, many Canadians cannot afford the co-payments and deductibles associated with current plans. As a consequence, one in five Canadian households cannot afford the prescription medicines they need.

At the same time, there is increasing agreement that Canada is paying far too much for drugs. Fragmented public and private plans and the lack of a national formulary (a drug formulary is a list of prescription drugs used by government to identify drugs that offer the greatest overall value), has resulted in Canada having the second highest prescription drug costs of all countries in the OECD.

Who pays what now

So how are prescription drugs currently paid for in Canada?

Provincial drug plans, which cover certain groups such as the elderly and people on social assistance, along with private insurance plans, each account for 36 per cent of prescription costs in Canada. Out-of-pocket payments by patients account for 22 per cent; compulsory social insurance policies, such as workers’ compensation, cover 4 per cent; and federal drug plans that cover First Nations and other targeted populations account for 2 per cent.

In other words, private spending currently accounts for over half of all spending on medically necessary drugs in Canada – and that spending is very inefficient.

Three pharmacare options

Broadly speaking, there are three options being put forward for improving the affordability of prescription drugs and lowering overall costs to Canadians. These are:

Expanding universal medicare to include the cost of selected prescribed drugs;

Enhancing so-called “catastrophic” drug coverage currently provided by the provinces; and

Implementing the Quebec hybrid model in all provinces.

The universal, public option

Under the universal, publicly-funded pharmacare model being touted by many health care experts, Canada’s universal, public health care system would be expanded to include the cost of selected medicines at little or no direct cost to Canadians.

In other words, under the universal pharmacare model, there would be no needs-based charges such as deductibles, co-payments, or risk-rated premiums.

Public, universal pharmacare would also be a single-payer system likely with a publicly accountable management agency mandated to negotiate with drug companies to secure the lowest costs and best health outcomes for Canadians.

Enhancing existing “catastrophic” coverage

The enhancement of existing provincial “catastrophic” drug programs has the backing of several interest groups and think tanks.

Catastrophic drug coverage simply means that that there is an upper limit – defined as a percentage of net income – that an individual or family can pay in terms of out-of-pocket drug expenses. After paying that amount, the government picks up most or all of prescribed drug costs.

Eight Canadian provinces currently have some sort of “catastrophic” drug programs which establish upper limits on annual drug costs geared to income for those who lack other coverage.

The problem is that only three provinces have limits below about 5 percent of family income. For example, Ontario has a 4% upper limit and in the Ontario case, this means that someone with a net income of $50,000 would have to incur out of pocket expenses of $2,000 on prescription drugs to qualify for the provincial “catastrophic” plan.

Most proposals to build on existing provincial catastrophic programs call for setting a national upper limit of 2% or 3% of net income above which the government (i.e. provincial drug programs) would pick up the tab for most prescribed drugs.

These proposals also call for the federal government to pick up the tab for enhancing provincial catastrophic programs to ensure that all provincial governments can afford to pay for the lower, uniform upper limits.

The Quebec model

In 1997, Quebec created a drug coverage system where it is mandatory for workers to enroll in private plans when they are available. Those for whom no private drug plan is available end up in the mandatory public plan. Thus, all Quebecers are covered by some form of drug insurance.

Premiums can be very expensive, and patients still have to pay out-of-pocket a maximum co-payment of 32.5 per cent when purchasing prescriptions. This can add up to more than $1,000 per year.

Evaluating the three pharmacare options

Universal pharmacare

The chief advantage of the universal pharmacare model, of course, is that all Canadians would have prescription drug coverage at little or no cost.

Under the public, universal model, there would also be a massive shift of costs – from employers and employees who are paying for private insurance or paying out of pocket, to the public treasury. The upside of this public, single-buyer approach is that overall (but not government) spending on drugs would almost certainly be driven down because of the much greater leverage over the drug companies that a single, public buyer would have.

Moreover, a universal pharmacare program would be a boon to private employers (and some unions). According to a Canadian Medical Association Journal (CMAJ) article, in a best-case scenario, the private sector would save $9.6 billion annually under universal pharmacare; in a worst-case scenario, it would save $6.6 billion. The base-case scenario, or most likely outcome, would see annual savings of $8.2 billion.

That said, most studies suggest that under a universal pharmacare program, there would be an increase in government spending on drugs – although not as much as one might expect. Again, according to the CMAJ article, costs to government would increase by about $1.0 billion (worst-case scenario $5.4 billion net increase, best-case scenario $2.9 billion in net savings to government).

A private to public shift on this scale would almost certainly be met with a wall of political opposition from powerful private interests who benefit handsomely from the current arrangements. Insurers, for one, would not take such a shift lying down. Nor, for that matter, would drug companies (generic and name brand) or pharmacists. These groups all have very aggressive trade associations that would lobby hard for their members’ interests.

Catastrophic coverage

By definition, existing “catastrophic” coverage under provincial drug programs means the programs only kick in when drug costs for patients exceed very significant levels of income. Because out-of-pocket spending in many families will never reach the level that would allow them to qualify for the programs, even prescriptions for urgently needed drugs can go unfilled because patients have difficulty paying for them.

In other words, even with a reduced upper limit of 2 or 3 percent of family income as proposed by advocates of this approach, a “catastrophic” plan that pays for a family’s drug costs only if they exceed the upper income limit, clearly does not result in the same degree of financial protection that the provincial health insurance plans covering doctors and hospitals do.

On the other hand, the enhanced catastrophic approach is less costly to government (although not necessarily to the economy as a whole) than a universal plan that requires no out-of-pocket expenses for indivduals. It also has the virtue of targeting those with the highest drug costs and hence the greatest financial risk.

Quebec model

The general consensus is that under the mandatory Quebec pharmacare program, access to drugs improved but by keeping a fragmented system based on multiple public and private plans, Quebec has not developed the needed institutional capacity to contain costs.

Private sector analysts estimate that up to $5 billion spent by Canadian employers on private drug benefits is wasted because private drug plans are not well positioned to manage drug pricing or the prescribing and dispensing decisions of health professionals.

To remedy that problem, a report for the C.D. Howe Institute recommends that provincial governments work to lower prices paid by private insurance companies through a “transparent” system of drug pricing in Canada.

According to Åke Blomqvist and Colin Busby in their report for Howe:

“The federal government should pass new regulations to move towards a more transparent and uniform model of pricing patented drugs in a way that is consistent with Canada’s implicit commitments to contribute toward covering the cost of developing and testing new pharmaceuticals. The natural way to do this would be to build on the model that has already been created through the Pan-Canadian Pharmaceutical Alliance (PCPA), under which a number of Canadian provinces have jointly negotiated the prices of selected drugs that are supplied under existing provincial plans. As a major purchaser of drugs (under plans for veterans and the military, Non-Insured Health Benefits for First Nations and Inuit, among others), the federal government already has a direct interest in negotiating lower drug prices. Integrating these negotiations with those under the PCPA and with the regulations under the Patented Medicine Prices Review Board (PMPRB) makes sense. Joint purchasing should be extended to all types of drugs, and all drugs should be available at the negotiated prices to private insurance plans as well as to the provincial and federal ones.

Would this work? Not according to one of Canada’s foremost experts on drug pricing, Marc-André Gagnon. According to professor Gagnon:

“Recommending that Canada have a transparent system for drug pricing is equivalent to saying that our governments cannot negotiate deals. This would not lower prices for the private insurers incapable of negotiating on their own. And it would eliminate the opportunity for governments to save hundreds of millions of dollars per year on behalf of taxpayers.”

Next Steps

When pharmacare hits the agenda at the health ministers’ meeting expected to be held in Vancouver in late-January, the fundamental question facing Canada’s health ministers will be whether they pursue an admittedly less-than-perfect version of pharmacare or hold out for the public, universal program that most health experts consider ideal.

Don’t expect any final decisions by the ministers in January. Pharmacare has been on the agenda of health ministers meetings for decades and the decisions made by our politicians on the drug affordability issue will have more to do with their willingness to take on the powerful opponents of universal, public pharmacare – principally the insurance industry and drug companies – than with policy ideals.

But at the very least, the momentum for a national program shown at the June health ministers meeting, combined with the openness of Health Minister Philpott to engage with the provinces on the issue, suggests there is cause for optimism.

The next few months should be interesting.

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