A prescription for reining in drug costs

Posted on July 18, 2011 in Health Debates

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TheGlobeandMail.com – news/commentary/opinion
Published Monday, Jul. 18, 2011.    Helen Stevenson

Canadians are well aware that their health-care system is expensive and getting more so, which has prompted much debate. Prescription drug costs are acknowledged to be one of the problems to be tackled. I have recently published a white paper looking at some of the ways that might be done.

First, some context. Approximately 98 per cent of Canadians benefit from some sort of drug insurance plan – either a provincial government-funded public plan or an employer-funded private-sector plan. Canadian drug prices have been rising steadily for decades, to the point where they are now the second largest health-care expense after hospitals. They have become the elephant in the room – unavoidable and unmanageable. As a result, drug plans have become incredibly expensive to run.

Over the past few years, the public sector has moved to bring rising costs under control. There remains much to be done, but provinces have leveraged their purchasing power and lawmaking ability to impose a measure of restraint on the system and in the process find savings for their drug plans that measure in the billions of dollars.

On the private side, however, very little action has been taken. Companies offering drug plans to their employees are now dealing with benefit costs that rise by 10 per cent every year. Canadian companies are spending about $200-million a week on prescription drugs. And contrary to what many people may assume, that isn’t just bad news for the companies. It’s bad news for everyone.

It’s bad news in the short term because prices aren’t magically absorbed by the insurance companies. They’re passed back to employers, who aren’t going to magically absorb them either. They’re going to get that money back, whether it’s by charging more for benefits, lowering salaries or increasing the price of their products and services. The first two options hurt employees, and the third option hurts us all. This is bad news in the long term because if the rising cost of private-sector drug plans isn’t brought under control, these plans will soon be too expensive to maintain at all. And millions of Canadians will face losing their drug insurance.

Fortunately, just as the public sector moved to bring costs under control, the private sector can as well. In my white paper, I argue that for too long, companies have taken a blank-cheque approach to funding drug plans. Any drug, any price, any time. But it’s too expensive and it isn’t necessary.

There are a number of steps that companies can take to bring costs under control, and one way or another, they all involve putting an end to blank cheques. They include promoting the use of generic drugs, which offer the same health benefits for what is usually a lower price. They also include making better decisions about what drugs to fund. Many expensive new drugs offer real health benefits and should absolutely be funded, but many others do not offer any more benefit than existing less expensive drugs. Those should not be funded. Other steps include better administration and encouraging employees to comparison shop for cheaper drugs.

Private-sector drug plans are vital and must be preserved. They provide drug coverage to millions of people who need it, and provide companies with a way to attract and retain employees. There is no reason they can’t continue to do so, as long as companies begin managing their plans a little better. And that starts with an end to blank cheques.

Helen Stevenson, former executive officer of Ontario Public Drug Programs and former Ontario assistant deputy minister of health, is president and CEO of Reformulary Group.

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