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How universal pharmacare might just save our health care system
Canadians over-pay f or pharmaceut ical drugs by $8 billion every year
A version of this commentary appeared in the Huffington Post and the Yukon News When the topic of universal drug coverage comes up in this country, the debate of ten runs aground on the question of cost. In an environment of government austerity, f ew seem willing to embrace the idea of a new, national government program. But a single-payer, universal system would not bankrupt the health care system. Quite the opposite, in f act; we’re paying too much f or prescription drugs now, and a singlepayer system might just be what would save our health care system because it would be cheaper — a lot cheaper. T he f irst way a single-payer system f or prescription drugs lowers total costs f or medicines is through reduced administration costs. Drug plans spend a considerable amount of money on administration. T his includes a range of tasks, such as negotiating contracts, identif ying benef iciaries, collecting revenues, processing claims, providing inf ormation, managing risk and marketing. A 2010 report by the World Health Organization estimates that administrative costs f or private health insurance are on the order of about 15 per cent of spending in wealthy countries, including Canada. T he same report estimates that administrative costs f or public health insurance systems in wealthy countries are only 5 per cent of spending — public estimates f or Canada are even lower, about 2 per cent. Administrative costs dif f er because, when there are multiple insurers in a system that must compete with each other, most administrative costs are duplicated by every insurer. For-prof it insurers must also provide their shareholders a return on investment. In contrast, there is no duplication of administrative costs in a single-payer system and some administrative costs — such as marketing — are eliminated altogether. T he additional costs of administration and prof its required in a multi-payer system add up substantially. Given that about $10-billion worth of prescription drugs are f inanced through private insurance in Canada, a single-payer system could reduce administrative costs in the system by approximately $1 billion per year. A multi-payer system also reduces the bargaining power of insurers and thereby increases the costs of drugs f or Canadians. T his is particularly important now that drug prices are increasingly being determined through the negotiation of conf idential rebates paid directly by manuf acturers to insurers. An insurer acting as a single payer on behalf of an entire province or country has considerable purchasing power. In ef f ect, manuf acturers will give single-payer systems their best available prices because the rewards of accessing the entire market f or a province or country are great — especially when the alternative is to lose the entire market. Research has shown that the single-payer f or pharmaceuticals in New Z ealand negotiates brand-name drug

prices that are roughly 40 per cent lower than Canadian prices. Even the United Kingdom, with a high concentration of pharmaceutical sector investment, pays 18% less than Canada f or patented drugs. If we had UK prices f or those drugs here, we would save $3-billion per year. T he discounts single-payers can achieve on generic drug prices can be even bigger. Canadian provinces recently announced that they were working together to limit the prices of six top-selling generic drugs to just 18 per cent of brand name prices in Canada. T his would save governments approximately $100 million. T hat sounds impressive — but the prices agreed upon by governments here are about ten times higher than prices single-payer systems achieve in other countries. Savings on that order applied to all generic drugs would reduce drug costs in Canada by $4-billion per year. A single-payer pharmacare system could save Canada $8-billion per year through lower drug prices and improved administrative ef f iciency. But implementing a system that would deliver better drug coverage at lower cost will nevertheless require political will. It would be the biggest health ref orm of a generation and likely would meet strong resistance f rom those whose incomes are dependent on excess spending in our current system. Recently over 200 policy-makers, patient advocates, health prof essionals, manuf acturers and insurers came together f or PharmaCare 2020, a national symposium to promote clarity about the f uture of prescription drug coverage in Canada. T his conf erence set a dialogue in motion that has been a long time coming. It’s pretty clear: We need to start working together to f ix our broken health system. We can’t af f ord not to. Steve Morgan is an expert advisor with and Associate Professor and Associate Director of the Centre for Health Services and Policy Research at the University of British Columbia. Follow Steve on Twitter @SteveUBC.

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