Taking on Big Pharma

Posted on September 11, 2010 in Health Debates

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NationalPost.com – Opinion/Full Comment
September 10, 2010.   John Ivison

When it comes to health-care policy, if the Liberals and the NDP are like brand name prescription drugs, the Conservatives are more like generic copycats. For the past three elections, the Tories’ strategy has been to shadow the health policies of the opposition parties, so that you couldn’t squeeze a credit card between them.

But now the opposition parties are on the move, having judged the public is far ahead of the politicians when it comes to willingness to experiment with Canada’s medicare system, as long as it promises to maintain service levels. A poll by the Canadian Medical Association last month revealed widespread fears over costs and services as the population ages.

The NDP’s response under its energetic new health critic, Megan Leslie, is to draft a private members’ bill proposing a national pharmacare plan to pay for expensive prescription drugs, which will form the basis for party policy at the next election. She is critical of the Conservative government’s lack of leadership in the run-up to 2014, when the current federal/provincial funding deal, with its 6% annual increases, comes to an end.

“2014 is practically tomorrow and if Harper is still Prime Minister there won’t be much of a medicare system left. There is no interest in this at a federal level,” she said.

Her solution is to “re-imagine health care” and for Ottawa to set up an arm’s-length federal agency that manages a formulary of listed drugs and uses its purchasing power to drive down prices. “Other countries play hardball but we’re such suckers,” she said.

Michael Ignatieff, the Liberal leader, said in an interview with Postmedia News last week the question of how prescription drugs are paid for is something the Liberal Party is “looking actively at.”

Barely noticed as Canadians baked in early August, the country’s provincial premiers made an announcement that might yet prove profound and save taxpayers hundreds of millions of dollars every year when it comes to the purchase of prescription drugs.

The premiers agreed in principle to set up a national agency, similar to one envisaged in Ms. Leslie’s bill, that will bulk buy up to $10-billion in drugs every year, using their combined purchasing power to wring cost concessions from drug companies. Prescription drugs represent the fastest growing item on the health budget and the second-largest category of spending, so the scope for savings are considerable.

“We’re really just beginning to understand how much we can do together,” said Ontario Premier Dalton McGuinty – which just shows what short memories politicians have, since the premiers have been here before. On that occasion, nearly 10 years ago, the first ministers failed to follow through with their good intentions in the face of political pressure from Big Pharma.

The difference this time is the precarious financial position of all the provinces. Health care currently accounts for 46¢ of every dollar spent in Ontario and is projected to rise to 70¢ within 12 years unless costs are controlled.

In the past, the provinces have looked for leadership from Ottawa. In fact, in 2004 the Conservatives supported a national pharma strategy but when he became Prime Minister, Stephen Harper backed away from that commitment, in keeping with his belief that health is a provincial jurisdiction into which Ottawa should not wander blithely.

But there are signs the federal government may be moving from its preferred position in the bleachers, and the issue is expected to come up again when provincial health ministers meet their federal counterpart in St. John’s, NL., next week.

Tim Vail, director of communications for federal Health Minister Leona Aglukkaq, said Ottawa would be a “willing partner” in a common drug purchasing agency, pointing out that the federal government is the fifth biggest spending “jurisdiction” on pharmaceuticals, in its role as health provider to aboriginal Canadians and the armed forces.

Ottawa joining the provinces as a partner may be welcomed by advocates of a national strategy, but it falls far short of the leadership role envisaged by the NDP and others like the left-leaning Canadian Health Coalition. Mr. Vail was far less enthusiastic about an enlarged role for the federal government in such a program. “If the provinces wanted the federal government to take a leadership role and run the organization, we’d want to see the details,” he said.

The reasons for any federal reluctance are clear – drug plans are increasing in costs at the rate of 15% a year. Why would any government want to risk more exposure to such rising costs?

Yet – uncomfortable as it may be for conservatives who think expanding government’s role in health care is like giving an arsonist a blowtorch – there is plenty of evidence to suggest that, when it comes to pharmaceuticals, the state needs to become more involved to unleash the full competitive force of the market and save taxpayers billions of dollars.

The pharma industry is not like other businesses, since its long patent periods allow brand name companies to act as effective monopolies. Pharma companies claim, with some justification, that they need to recoup the research costs undertaken to produce “innovative medicines.” They point out that Canadian brand name drugs are 8% lower than the international median. But none of that means taxpayers have to be passive price-takers.

University of British Columbia health economists Robert Evans, Clyde Hertzman and Steve Morgan have looked at the experience of New Zealand, which created a management agency, Pharmac, to keep spending on prescription drugs within target budgets. Pharmac saw its expenditure per capita grow at just 0.15% a year between 1996 and 2006, a period in which Canadian public drug expenditure grew at 11.3%. The implicit savings to Canada’s public drug plan would have been $7-billion a year. The authors predicted the savings would have doubled to $14-billion, if Canada’s public drug plan covered the same percentage of drugs as New Zealand’s (Pharmac covers 80% of all drugs in New Zealand; public plans in Canada cover less than 50% of all prescription drugs.) The secret of Pharmac’s success is a national purchasing strategy that enables it to negotiate price rebates from manufacturers, steering purchases toward the lowest bidders.

“The competitive market works but in the pharmaceutical sector, it must be created and protected by public initiative,” said the authors, who proposed a comprehensive plan that would cover the entire population for drugs to treat specific health conditions like diabetes, asthma, cardiovascular diseases and depression. Over time, they envisaged that savings similar to those achieved in New Zealand would allow expansion to other classes of drugs.

The downside, of course, would be that it would require the transfer of billions of dollars currently covered under private plans into public plans, even if some of that cost was defrayed by an end to the corporate tax breaks offered to companies that provide private insurance to their employees.

At the moment, Ottawa has no incentive to take on the entrenched interests that would oppose such a national program.

“Governments will not take on the political costs of confronting the pharma industry unless they are on the hook for all or most of the cost,” said Messrs. Evans, Hertzman and Morgan (Ottawa currently contributes just 20¢ of every dollar provinces spend on health).

It speaks to the relative desperation of the McGuinty government in Ontario that it went head to head with the province’s pharmacies in cutting the price it pays for generic drugs to 25% of brand name pharmaceuticals from 50%.

No wonder — Ontarians were paying 22 times more than New Zealanders for one generic blood pressure drug. British Columbia and Alberta have since followed suit in cutting generic prices, while Quebec has a law that says it cannot pay any more than the lowest-paying province.

Yet Ottawa cannot wash its hands of health care forever. The Evans report quotes public policy pioneer Aaron Wildavsky’s 30-year-old Law of Medicinal Money, namely “costs will increase to the level of available funds … that level must be limited to keep costs down.” No federal government can stand by indefinitely and watch provincial governments being swamped by costs they cannot control. If it does, it risks being replaced by rival parties that are prepared to intervene.

That, at least, appears to be what Ms. Leslie and Mr. Ignatieff are betting on.

National Post

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