Social Policy in Ontario

TheGlobeandMail.com – Opinions
Published on Tuesday, Apr. 13, 2010.   Jeffrey Simpson

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Pharmacies big and small are furious at the Ontario government’s attempt to cut the cost of generic drugs. Cheering Ontario quietly are all the other provinces.

If Ontario can pull this off, other provinces will not be far behind, because they are all struggling with rising health-care costs, including the cost of drugs.

The angry reaction to Ontario’s proposals – to stop pharmacists from getting payments from generic manufacturers in return for selling their products – is typical of what any government can expect as it grapples with health-care costs. The entire health-care sector is a maze of interest groups, businesses, unions and professional associations, each protecting turf and previous gains. Remove or reduce any previous gain, and get ready for a battle. If you doubt it, check the advertisements now running from the Ontario Medical Association portraying doctors as nice, friendly, reliable people – all to soften up the public for OMA negotiations over fees next year.

Ontario estimates savings of $500-million with this new policy on generic drugs. That seems impressive, but place it against the almost $50-billion the province will spend next year on health-care. The savings amount to 1 per cent of the total health budget.

Premier Dalton McGuinty, in the latest budget, promises to lower yearly increases in the health-care budget from 6 to 3 per cent. This $500-million represents about a third of what his government will need to reach that target. Pharmacists, of course, won’t agree, but drug costs are stretching provincial budgets, and that of private insurance plans, and are expensive for individual consumers. Even if they accept this proposition, they naturally want Ontario to find savings elsewhere. Just where remains unspoken.

Drug spending, as a share of national spending on health, has been rising for years. It now stands at almost $30-billion, or about 18 per cent, compared to 28 per cent for hospital and 13.5 per cent for physicians. Of the $30-billion that Canadians spend on drugs, about 40 per cent comes from public plans. Drug costs, from 1985 to 2008, have increased at an annual average rate of 9.4 per cent, compared to a 6.6 per cent annual increase for overall health expenditures.

Drugs, of course, can save money. They can replace costlier treatments in hospitals, or allow patients to be discharged more quickly. In 2007, 64 new patented drugs were introduced to the market. Sometimes, new drugs replace existing drugs at much higher costs.

Drug costs aren’t rising, contrary to popular mythology, because of patented drugs. These have been rising at slightly below the rate of inflation. But Canadians are big overall drug consumers: the second-highest per capita after Americans, according to the Organization for Economic Co-operation and Development.

One thing Ontario and all provinces should do is create a national drug formulary, a change recommended in the 2002 Romanow report on health care in Canada. Each province maintains its own formulary, and negotiates with drug suppliers to meet its needs. This is crazy, since the provinces together, representing 33-million people, would likely negotiate better prices than any individual province could.

Of course, provinces will disagree at the margin about which drugs should be included in their formularies, but they could surely agree on 90-95 per cent of the drugs common to all formularies. Drug companies don’t like this prospect, which is a good reason for doing it.

If provinces are going to get a grip on rising health-care costs – and they must – then the McGuinty government’s approach is as good a place to start as any. Yes, some pharmacies are going to cut hours of service, and perhaps staff or services. But there isn’t a single major change in the health-care system that won’t gore somebody’s ox. And the money consumers might save will be worth the slight inconveniences from pharmacies changing a few of their practices.

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