The ongoing debate about repealing existing public and private drug programs and replacing them with a one-size-fits-all national pharmacare program returned to the headlines with the release of a wide-ranging report from the Parliamentary Budget Officer (PBO) which estimates the cost of a federally administered universal pharmacare plan.
The PBO study is thorough and comprehensive; a refreshing departure from many academic papers on the topic which exhibit an alarmingly limited understanding of the current pharmaceutical access environment, and in some cases, appear to be advocacy masquerading as research. Even so, some assumptions underpinning the PBO estimate require further consideration.
To be clear, the PBO study is not an analysis comparing merits and costs of potential pharmacare programs. Its mandate from the House of Commons Standing Committee on Health was to provide a cost estimate of implementing a universal, comprehensive federal pharmacare program that would replace existing public and private plans, and would cover a standardized formulary of drug benefits. For purposes of the study, PBO relied on Quebec’s Liste de Medicaments as the standardized formulary. So far, so good.
Next the study assumed that generic substitution would be optimized. This would generate additional savings predominantly from those private plans currently paying for brand drugs even when generic equivalents are available. A reasonable assumption.
From here, two somewhat tenuous assumptions limit the study’s usefulness. This is not because the assumptions themselves are inaccurate, rather it’s because their realization is not dependent on the existence of a federal program and indeed they are currently better achieved under the existing pan-Canadian infrastructure.
First is the observation that drug prices vary across the current jurisdictional drug plans and the corresponding assumption that if the lowest (best available) price prevailed in a national plan there would be some additional savings. On its face this is a reasonable assumption, however jurisdictions already attain the lowest price – even lower than the lowest publicly documented list price – for drugs subject to the pan-Canadian Pharmaceutical Alliance (pCPA) process.
The pCPA is run by the public (federal and provincial) drug plans under the auspices of the Council of the Federation with its activities coordinated by an office in Toronto that serves as its secretariat with further, more formal organizational governance expected in the coming weeks.
The pCPA negotiates confidential net effective prices that prevail across all jurisdictions, meaning the lowest price criterion is already achieved under the existing pan-Canadian system for all new drugs introduced in the last several years and all future drugs entering the market. Furthermore, for existing drugs, pCPA has started leveraging two other approaches for getting the best deals: As negotiated agreements for older drugs lapse, pCPA can renegotiate prices under newer market conditions where new alternatives (including generics) may have become available. pCPA has also explored opportunities for class reviews to take an inventory of select drug classes which have experienced significant changes in market dynamics that would improve its negotiating position, or classes which otherwise represent large portions of the drug budget. Suffice it to say that fewer and fewer products will remain outside the reach of pCPA as time marches on.
Secondly, the PBO study assumes an across-the-board discount of 25% off current prices. This assumption generates the greatest amount of savings in the study but is also the assumption of greatest concern. Not because the figure is unrealistic, it is not. Rather the issue is that the pCPA process already achieves this level of discount – and more – under the current pan-Canadian system. And this level of discount could be at risk under a single payer pharmacare program.
The notion that there is greater negotiating (purchasing) power by including the private payer component of the market is, at best, overstated. This is because (as private payers have protested in recent years) pharmaceutical manufacturers are able to offer the public plans substantial discounts only if they are confident private payers will pay the full list price for a product.
If the entire market becomes one customer, flexibility for price discrimination changes the drug pricing calculus such that manufacturers will be able to offer less not more in the way of rebates to a single public plan.
Because each drug product has its own unique set of financial circumstances (cost of goods, return of investment, reservation price, etc.) it is difficult to model the impact of this calculus for the entire market, however experience with individual products highlights the risk that a public only plan may not net any additional savings overall. This is likely well understood within jurisdictional drug programs.
Additionally, the PBO study rightly acknowledges the practical matter that price negotiations – and the attendant savings – under national pharmacare would only come to fruition after several years. The significant groundwork for the anticipated savings has already been invested by the pCPA and another delay to achieve projected savings need not occur. Seven years since pCPA was established, pCPA has completed negotiations for 177 brand products and implemented a pricing framework which applies to all new generics. Together these initiatives save public plans an estimated $1.28 billion each year. It is evident that within a few years almost all drugs will be subject either to a pCPA listing agreement or generic pricing under the pCPA’s generic framework.
Now that pCPA has fully hit is stride, what would be the benefit of replacing this highly specialized expertise with inexperienced federal functionaries?
In other words, “national pharmacare” is simply not necessary to achieve the savings projected in the PBO study. The projected savings and more will be achieved in the current pan-Canadian system.
National Policies, Not Programs
So, if not cost savings, what about the other reasons to have national pharmacare such as universal coverage and equity? In fact, both can be achieved with national policies as opposed to establishing a national program.
Recall that Canada does not have a national health care system per se – it is a patchwork of jurisdictional health cares systems, and while similar in many respects, each have unique characteristics. The imperative success factor is that all the jurisdictional health care systems respect the core principles of the Canada Health Act.
The PBO report estimates that 2% of Canadians have no coverage and 10% are underinsured. Each jurisdiction has drug programs offering coverage to low-income residents, elderly residents and those for whom drugs costs exceed a percentage of income (catastrophic coverage). Still, there are gaps and access barriers for some Canadians.
And in terms of equity, under the current system access to certain medications may be faster or face fewer barriers in some jurisdictions compared to others. However, these tend to be the exception as the review processes at CADTH and INESSS in Quebec provide coverage recommendations that are adopted fairly uniformly across Canada (this is confirmed in a recent report from NPDUIS). Nonetheless, a Canadian pharmacare policy could ensure consistency access across the country.
It is interesting that in recent testimony before the House of Commons Standing Committee on Health
even the most ardent advocates of national pharmacare now appear to give tacit acceptance to a mechanism similar to the Canada Health Act to ensure universal and comprehensive coverage
– that is the provinces continue to deliver their existing pharmacare programs subject to national standards of universality and comprehensiveness, with the pCPA negotiating prices. That would address the major issues leaving the role of the private insurance drug coverage and potential contribution by the federal government in covering provincial pharmacare budgets – the two are linked in that continuation of existing employer sponsored private plans would lower the cost to government of implementing universal drug coverage.
So rather than repeal and replace the current drugs plans that are well integrated into their respective jurisdictional health care systems, why not establish policies at the national level that address issues of universality and equity similar to the Canada Health Act (perhaps even without the need for legislation)? That is, all jurisdictions would agree to ensure coverage for all its citizens to certain minimum standards. Standards that would include limits for co-payments and out of pocket costs as well as provide access to all drugs recommended by CADTH and INESSS subject to successful pCPA negotiations – a common set of drugs that form a de facto national formulary.
What about private drug plans? To date, most of the national pharmacare models see only a limited role for private plans to cover only those drugs that the national plan chooses not to cover. But really ideology is the only basis for replacing private drug coverage with first dollar public coverage at taxpayer expense (as is the case with OHIP+ for children in Ontario). There is an opportunity cost of replacing private coverage with tax payer funded public coverage such that there are fewer public health dollars available to fund new drugs and other health technologies. In addition, without revenues from private coverage, there may be unintended consequences to bridging and other patient support programs offered by some manufacturers that directly benefit patients until public reimbursement is available.
Finally, it seems none of the proponents of a national pharmacare program have considered the practical matters of implementation including access disruption and costs. Consider the Phoenix payroll initiative or Shared Services Canada for examples of ambitious federal programs that promised savings and efficiencies through centralization and consolidation but instead resulted in increased costs and significant disruptions in service delivery.
So instead of repealing and replacing the current programs let’s work together on the policies to improve coverage. Let’s establish the core Canadian principles and universal standards for comprehensive drug coverage program and allow the jurisdictions to administer their individual programs in a manner consistent with their administration of other health services.
Neil Palmer is the Founder and Principal Consultant at PDCI Market Access Inc. and a former staffer at PMPRB. The views expressed are his own. No financial support was received from any organization for the preparation of this article.