National Pharmacare: Prescription for Restriction

The existence of independent provincial Pharmacare programs and private insurance for prescription drugs is considered by some to be a blot on Canadian medicare. They want these options abolished in favour of National Pharmacare.

Health care costs are rising, and prescription drugs are taking up a larger share of those costs, but the change is a lot less dramatic than people think. Prescription drug costs were 8 percent of total health costs in 1991, and 12 percent in 2001, an average increase of less than half a percentage point a year.

By definition, all components of health costs must add up to 100 percent of total costs. A hundred years ago, electricity was increasing its share of lighting costs from gas, kerosene, and candles. This was not a cause of worry, but a sign of progress. Similarly, rising pharmaceutical spending is part of the solution to managing health costs, not the problem.

Examining the period 1993 through 1998 in Canada, my former colleague Martin Zelder found that changes in government spending on health care had no effect on waiting times for treatment except in the case of pharmaceuticals. Quebec targeted spending increases on prescription drugs, and this was likely associated with an improvement in waiting times, because prescription drugs are often a substitute for treatment in hospital. Frank Lichtenberg of Columbia University determined that switching from older drugs to newer drugs increased a patient’s prescription costs by $18, but reduced hospital costs by $56 and total non-drug costs by $71 in the United States in 1996.

Some might take this as an argument in favour of National Pharmacare: Let’s have the government give free drugs to everyone, in order to minimize other health care costs. Unfortunately, not only are governments lousy at spending enough money on prescription drugs, they are also lousy at choosing the right drugs to spend money on.

Despite 1993 and 1997 federal Liberal Red Book promises of a government takeover of pharmaceutical spending, the Canadian government knows that National Pharmacare will subject it to a financial obligation that Canadians will not tolerate, given their desire for balanced budgets.

All governments in Canada have powerful incentives not to spend adequately on medicines. Much of the money spent on prescription drugs goes to multinational drug makers, and is therefore lost as political capital. These companies cannot bring the system to a halt by striking, so they don’t have the ability to threaten governments like domestic health care workers do. This implies that any government run health care system will under spend and misspend on medicines in favour of noisy local constituencies.

In BC, starting in 1995, the government tried to manage pharmaceutical costs by fully subsidizing only drugs that it thought provided the best value for money in certain categories. Except for cases where Pharmacare gave special permission for more expensive drugs, patients had to pay the full difference between the higher and lower priced drugs. Since 1995, prescription costs in BC have risen much faster than in other provinces. One reason for this is that patients had to spend more of their own money on the more expensive drugs they needed. For the cardiovascular classes, private spending increased seven or eight times. Nevertheless, the program biased patients against more expensive drugs, and did nothing to manage overuse of less expensive ones. Because some patients chose to switch to cheaper drugs, there was likely an increase in angioplasty and coronary artery bypass grafts.

On the other hand, Quebec and Manitoba decided to ration subsidies on the basis of need, rather than drugs selected by the government. Quebec increased the amount patients paid individually, but still capped even the richest seniors’ out-of-pocket expenses at $750 annually, whereas welfare recipients paid up to $250. In Manitoba, the annual cap became 2 or 3 percent of income, and welfare cases were exempt. Both provinces have had superior budgetary results than BC. In Manitoba, where patients faced the most realistic incentives to manage their use of prescriptions, pharmaceutical costs increased by 35 percent during 1996 through 2001, versus 60 percent in BC. In Quebec, there was likely a negative effect on welfare recipients who reduced their use of medication. This supports previous findings on such payments: poor people suffer when faced with monetary costs, whereas the vast majority is capable of spending appropriately on health care.

Evidence from these three provinces leads to the conclusion that positive Pharmacare reform includes transforming centrally managed programs into medical savings accounts that allow Canadian patients and doctors to decide the best treatments, not civil servants. National Pharmacare, where the federal and provincial governments will collude to deny patients the best medicines, is an idea whose time will never come.