Social Policy in Ontario

If you like Canada’s liquor, transit and electricity monopolies, you’ll love the medicine cartel

Posted on March 11, 2017 in Health Policy Context

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NationalPost.com – Opinion/FP Comment
March 2, 2017.   Terence Corcoran

Canada, as you may know, is a stickler when it comes to corporate competition. We have a federal commissioner of competition — John Pecman — whose sole job is to ensure Canada has as market-oriented an economy as possible. Just this week, at a banking conference in Toronto, Pecman laid down the Competition Bureau’s raison d’être, which is “ensuring that both consumers and businesses prosper in a competitive and innovative marketplace. We do this by cracking down on cartels and abuses of market power, reviewing mergers and ensuring truth in advertising.” As part of its mandate, Pecman said the bureau “advocates the benefits of increased competition in regulated sectors of the economy.”

In that latter role, may we suggest the bureau take a look at a possible early crackdown on a proposal to create cartel-like structures and abuse of market power taking shape within one of those regulated sectors of the economy. Canadians already have experience with state cartels and monopolies — liquor sales, electricity pricing, health care wait times, public transit.

The hot proposal — championed by the media, activists and the federal Liberals — is universal drug coverage. New support for the idea comes in a study published this week in the Canadian Medical Association Journal (CMAJ). The study, led by UBC health economist Steven Morgan, claims billions of health dollars could be saved if Canada were to adopt universal public coverage of prescription medications, aka, pharmacare.

The pharmacare regime supported in the journal study would install a universal government-buying operation, presumably via tender, for all prescription drugs, a move the study’s authors say would “save billions of dollars annually.” Even if the government only brought in a limited universal pharmacare system for a small number of so-called “essential medicines,” billions could still be saved.

The study claimed to have evidence that universal drug-buying monopolies (called monopsonies in economics) can slash up to 80 per cent off the cost of 117 medicines identified as essential. The headline numbers look big. Examples of universal bulk buying of drugs reduced costs by 47 per cent in the United States, 60 per cent in Sweden and a whopping 84 per cent in New Zealand. In dollar terms, the net savings on an annual basis from universal buying of these drugs by the government would approach $3 billion, and could be as high as $5.4 billion.

Big numbers, but big problems. For starters, the CMAJ Canada-foreign gap looks extremely high compared with other studies. The Patent Medicines Prices Review Board reported last year that the difference in generic prices between Canadian and foreign markets was more like 19 per cent in 2014, and heading lower as generic prices continue to fall.

Any international price comparisons are bound to take us deep into a pharmaceutical jungle where thousands of drugs are sold by hundreds of companies to billions of people and institutions around the world. Take New Zealand, which the CMAJ study finds has drug prices that are 84 per cent below Canada’s prices. New Zealand is a unitary state with one level of government, a tiny population of 4.5 million, and no local pharmaceutical industry. All drugs are imported.

We’ve got monopolies on liquor, electricity, transit… now they want to add medicine

The CMAJ study compared prices of 51 drugs on New Zealand’s official drug formulary. Prices look very low in New Zealand, although no details were provided as to why or how the price gap could be so huge. Could it be that the international drug companies use New Zealand as a fringe market where products are dumped?

The study also did not mention New Zealand’s persistent problems with shortages of prescription drugs in a system that uses tenders to grant drug makers supply monopolies.

The claim that Sweden’s drug costs were 60-per-cent lower was based on a comparison of 28 drugs, although in 12 of the comparisons Swedish prices were higher or about identical. The CMAJ study, in other words, extrapolated billions in savings on the basis of lower prices on 16 drugs on Sweden’s universal list imposed on a country whose health care system is notorious for some of the world’s longest health care waiting lists and unavailable doctors.

The CMAJ pharmacare example from the United States has limited application to Canada. It used data from the U.S. department of veterans affairs, which negotiates drug prices for America’s 20 million veterans. Of 55 drugs compared, 12 were equal to or higher in price than in Canada. In any case, the U.S. veterans affairs drug purchase system remains a relatively small part of the overall national market. It is large enough to be big, but not so big it exerts market power or threatens national competition in the industry.

The CMAJ study is built on classic central planning claims that large government monopolies, as buyers or sellers, can streamline an industry, reduce costs, control the market and remove wasteful duplication. But the functioning reality is another matter. Quebec has something like universal pharmacare but its costs keep growing. A 2015 report said the province needed increased political intervention to bring it under greater control and reduce fly-away expenses.

Nobody would argue that Canada’s pharmaceutical system is cheap or the most efficient. Thanks to a balkanized regime under the control of provincial jurisdictions with a heavy federal oversight, the dominant structure is one of central planning, not market forces.

The typical result of state monopoly control, in microcosm, is health-care wait times. The Ontario government holds a monopoly on the supply of magnetic resonance imaging (MRI) in the province. Current wait times for MRI appointments is four to five months compared with the official government target of 28 days.

Health care, and especially the looming threat of a national pharmacare cartel, looks like a job for the competition police in John Pecman’s office.

http://business.financialpost.com/fp-comment/terence-corcoran-if-you-like-canadas-liquor-transit-and-electricity-monopolies-youll-love-the-medicine-cartel

Tags: budget, economy, Health, ideology, jurisdiction, mental Health, standard of living

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