This study examines the costs and benefits of pharmaceuticals
in relation to the C-91 amendments to the Patent Act. The report
is divided into two volumes. Volume 1 presents an analysis of the
costs and benefits of C-91. Volume 2 provides more extensive examples
of the benefits of certain classes of new medicines
Executive
Summary
Since 1993, Canadian health
care costs have been increasing at an average annual rate of
approximately 2% - between 1976 and 1992 annual increases in
health care costs ranged from 8% to 19%.
In 1994, total drug expenditures
accounted for approximately 12% of total health expenditures.
This figure includes prescription and non-prescription drugs
as well as wholesale and retail mark-ups and dispensing fees.
Patented prescription drugs accounted for approximately 27%
of total drug expenditures (or 3.3% of total health expenditures).
Between 1993 and 1996, total
drug expenditures increased at an average annual rate of 3.6%
- between 1976 and 1992, annual increases in drug costs averaged
12.8% and ranged from 8% to 25%.
Since 1993, drug prices (as
measured by Statistics Canada) have increased at an annual rate
of less than 1%. The PMPRB reports that the prices of patented
medicines actually declined in 1994 and 1995.
On average, the prices of patented
medicines in Canada are lower than in other industrialized countries.
Annual increases in drug expenditures
and prices were highest between 1976 and 1987 when there was
full compulsory licensing and were lowest after compulsory licensing
had been eliminated in 1993. This suggests that compulsory licensing
was not an effective measure for containing increases in drug
expenditures.
Increases in drug and health
expenditures have been contained by provincial government drug
plans, private drug plans, and the price review of the PMPRB.
Price, population/demographics
and utilization are the three main factors that contribute to
increased drug expenditures. Since 1993, drug prices have been
increasing at a rate of less that 1% per year. Population growth
and ageing have contributed approximately 1.9% to total drug
expenditures each year. Utilization includes several sub-components
such as the effect of the introduction of new medicines and
cost containment measures implemented by public and private
drug plans. As a whole, utilization has contributed approximately
1.5% per year to the increase in expenditures.
New medicines can increase
costs when they are the first to treat a particular disease,
or when they offer a substantial improvement in treatment over
existing therapies. According to the PMPRB, these innovative
products are, on average, 11% cheaper in Canada than in other
industrialized countries.
Generally, new medicines that
offer only incremental benefits over existing drug therapies
(so-called "me-too" drugs) should not increase total
drug expenditures as their introductory prices are restricted
by the PMPRB to the prices of other drugs in the same therapeutic
class. These products may contribute to a reduction in drug
expenditures to the extent that they have to compete on the
basis of price to gain market share.
Inappropriate dispensing and
use of pharmaceuticals can increase drug expenditures. There
is now a greater emphasis on pharmaco-economics and practice
guidelines to ensure that new medicines are cost effective and
sensibly prescribed.
Medicines provide cost effective
therapy that in many cases offer savings to the health care
system. Many new medicines are priced higher than the products
they replace but are more cost effective in the long term.
To request
a copy of the C-91 Background study, contact:
