When the topic of health care and pharmaceutical drugs comes up, the discussion usually turns sooner or later to the high prices we pay. At the upcoming meeting of the Council of the Federation in Yukon, the Canadian health care system will certainly be on the agenda. Inevitably, the issue of drug prices will be raised, as well as that of a national pharmacare plan, whereby government would buy drugs in bulk in an effort to reduce costs. But for all our sakes, let's hope this idea doesn't carry the day.
First of all, proponents of pharmacare fail to understand one simple fact, namely that the development of new drugs is a risky and expensive adventure. The prospect of high prices for new drugs that lengthen our lives, help cure diseases, reduce pain, and improve the delivery of health care is what attracts companies to develop new drugs, and is thus the main driver behind pharmaceutical innovation.
Government attempts to artificially reduce the prices of new drugs now will thus ultimately backfire, eroding the incentives for drug research and development. One study estimated that if the American government had intervened to limit the rate of growth of drug prices to the rate of growth of the consumer price index between 1980 and 2001, from 330 to 365 fewer new drugs would have been introduced in the United States–roughly one third of all drugs introduced in that period.
Such a decrease in the number of new drugs coming to market would have serious negative consequences for patients and their families and friends. As Frank R. Lichtenberg, Professor at Columbia University and one of the most recognized experts on pharmaceutical innovation, reiterated in a recent MEI Research Paper, it is largely thanks to such new drugs that life expectancy has increased so dramatically in recent years.
An earlier scientific study of his looking at 30 developing and high-income countries from 2000 to 2009 found that 73% of the increase in life expectancy at birth during this period was due to the increase in the fraction of newer drugs consumed.
Though they can seem pricey at first glance, the introduction of new pharmaceutical therapies also allows doctors and hospitals to substitute them for a wide array of more expensive (and less efficient) medical treatments. As Professor Lichtenberg found in a study of cancer patients in Canada, if no new drugs had been registered between 1980 and 1997, there would have been 1.72 million additional cancer patient hospital days in this country in 2012 — almost twice as many as there actually were.
These extra hospital days would have cost an additional $4.7 billion, whereas total spending on cancer drugs, old and new, was an estimated $3.8 billion that year. This illustrates how, by replacing costlier hospital care, new drugs actually reduce public health care spending. This is something pharmacare activists don't want Canadians to hear.
Equally important, monopolistic drug insurance plans are simply not all they're cracked up to be. Specifically, they tend to keep spending in check by rationing access to new drugs. In simple terms, rationing means less adequate treatments for Canadians.
In New Zealand and the United Kingdom, both often cited by pharmacare proponents, rationing has had negative unforeseen consequences. In New Zealand, of all the drugs approved in the country from 2009 to 2014, barely 13% were reimbursable by the public insurer, placing it last among 20 countries evaluated. In the United Kingdom, likely as a result of restricted access to many proven drugs, patients have lower survival rates for various cancers than in most industrialized countries.
Currently, around 98% of the Canadian population has drug insurance coverage, either private or public. Governments could craft policies that would provide even better access to medicines.
But replacing our current mixed public-private plans, administered by the provinces, with a national drug insurance monopoly is definitely not the solution. It would harm Canadians, putting patients at risk and increasing the cost of our health care system in the long run.
Jasmin Guénette is Vice President of the Montreal Economic Institute. The views reflected in this op-ed are his own.