Don’t blame prescription drugs for increased healthcare costs
NationalPost.com – FullComment/Letters
Oct 9, 2012. Brett Skinner, Special to National Post
The federal government is in the midst of a strategic initiative to expand and liberate Canada’s international trading relationships. Few policies could be more important to securing a rising standard of living in Canada. Of all the recent trade agreements the government has pursued, the Comprehensive Economic and Trade Agreement (CETA) currently being negotiated between Canada and the European Union is among the most promising. Yet, the CETA might be in jeopardy because of Canadian reluctance to adopt higher European standards on intellectual property rights. Canadian negotiators have said this is a sensitive issue because of alleged concerns about the effect that stronger intellectual property safeguards for new drugs might have on health-care costs. Such concerns are not supported by the facts, and Canada is potentially risking a historic economic opportunity over a misunderstanding about the actual impact of drugs on healthcare costs.
The public cost of health care is indeed something to be concerned about. Data from Statistics Canada and the Canadian Institute for Health Information (CIHI) show that from 2001 to 2010, government health spending across Canada grew at an average annual rate of 7.5%, compared to only 5.7% growth of total available provincial revenue including federal transfers and only 5.2% growth for the whole economy (GDP). Long-term trends are similar. Government spending on health has grown faster on average than GDP since 1975. And government health spending is on trend to exceed half of total available revenues in six of the provinces by 2017, up from roughly a quarter of revenue in the early 1970s.
But the cost of drugs is not causing this problem. Prescription drugs account for too small a percentage of government health spending to make a big difference. Indeed, if governments spent nothing on drugs, their spending on all other medical goods and services would still be rising at an unsustainable rate. Prescription drugs accounted for only 9.0% of total government spending on health in 2010, down from 9.6% in 2005. Excluding prescription drugs, all other health spending categories are growing faster than both GDP and total available provincial revenues, while accounting for 91% of all government spending on health.
The focus on patented medicines is equally divorced from reality. Patented types of prescription drugs accounted for only 5.2% of total government health spending in 2010, down from 6.8% in 2005. Data from the federal Patented Medicine Prices Review Board (PMPRB) show that average prices for existing patented drugs in Canada have grown at a slower annual pace than the general rate of inflation for 21 of the 23 years between 1987 and 2010.
When viewing drugs versus other types of health expenditures, governments should think like investors: with a long-term assessment of the relative return on investment. Drugs are a cost-efficient substitute: They decrease risks, improve recovery times and reduce more costly expenditures on other forms of medical treatment. Columbia University economist Frank Lichtenberg has estimated that on average, the use of newer medicines is associated with a reduction in other types of health spending by 7.2 times as much as the associated increase in spending on newer drugs. The research suggests that if we had invested less in new drug technologies and relied instead on older, less efficient types of medical treatment, we would have ended up with even higher overall healthcare costs than we have right now.
There is a lot at stake for our economy if the trade agreement with the Europeans falls apart because of a misdiagnosis of the impact of patented drugs on health spending. According to the Department of Foreign Affairs and International Trade, Europe is Canada’s second-largest merchandise export market after the U.S.A. In 2011, Canadian exports to the EU increased by 16.1%, while two-way trade reached $92.1-billion, up from $82.4-billion in 2010. Canada-Europe trade is expected to grow further under the new agreement because it will reduce barriers to exporting our goods and services to a wealthy market of nearly 500 million people — almost 15 times the size of our current market.
Furthermore, health care is a provincial responsibility. The federal government is ill-advised to use trade policy to solve provincial health spending problems, or to allow important national decisions to be influenced by false notions about the causes of unsustainable growth in healthcare costs.
Brett J Skinner is CEO of Canadian Health Policy Institute (CHPI) and Editor-in-Chief of CHPI’s online journal Canadian Health Policy.
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