Why Our Prescription Drugs Are Too Expensive and What We Can Do About It

06/20/2011 07:51 EDT | Updated 08/20/2011 05:12 EDT

The current system for buying prescription drugs in Canada is a hybrid system of multiple public and private drug plans that is totally dysfunctional, for many reasons.

The diversity of drug plans means that Canadians are covered for their drugs according to which province they live, or work, but not necessarily according to their medical needs.

Canadians with inadequate coverage, mostly self-employed or unemployed workers, are often unable to benefit from optimal treatments. More than three million Canadians admitted that they had not filled a prescription in the last year because they could not afford to do so.

Another reason why the system is broken is that Canadians pay way too much for their drugs. Canada is the world's second-most expensive country for detail prices of prescription drugs. Canada also has the fastest rising drug costs among OECD countries: more than 10 per cent per year. Countries with universal pharmacare, like France, United Kingdom, Sweden, Australia and New Zealand, pay less for their drugs, and their costs increase at a much lower rate.

The main reason prescription drugs are so expensive in Canada is because of private insurers. Only in the United States is a greater proportion of prescription drug costs paid for by private insurers. This private coverage is totally inefficient, and the administration fees are much higher for private than for public plans (eight per cent as compared to two per cent).

Insurance companies are normally paid on the basis of a percentage of spending, so they have no incentive to reduce costs. For example, private plans normally do not discriminate among drugs, and gladly agree to reimburse new drugs that are more expensive than existing cheaper and better drugs. According to the independent medical journal Prescrire, of the 104 new drugs introduced in 2009, only three offered a minor therapeutic advance, 95 offered nothing new to improve health outcomes. In addition, the reviewers conclude that 19 of these new drugs should not have been marketed because they posed a potential danger to health. The decision to prescribe a new drug is often the result of drug companies' promotional campaigns and not of evidence-based medicine. Drug companies spend up to $61,000 per physician in order to influence their prescribing habits.

Unlike private insurers, public plans have the ability and obligation to ensure that a patient will get some bang for the buck. British Columbia is the best example of how to go about doing so. In this province, the Therapeutics Initiative, which began as an academic project, pro-actively produces clinical guidelines and encourages a culture of evidence-based medicine among physicians. Because of this, not only do British Columbians have the best therapeutic choices and the best health outcomes in Canada, they also pay on average 8.2 per cent less per capita for their drugs.

Simply by eliminating the waste inherent in private insurance and by improving therapeutic choices, the implementation of universal Pharmacare could save Canadians $2.9 billion per year (around 12 per cent of total costs).

Another major reason why our drugs are so expensive is that we have industrial policies that artificially inflate the prices of brand-name drugs. Canada is always aiming to be the world's fourth-most expensive country for its brand-name drugs as a way to support its pharmaceutical sector.

It is true that the pharmaceutical sector is responsible for around 50,000 jobs (direct and indirect) in Canada and that each job is paid an average of $80,000 a year. This means that Canadians benefit from around $4 billion in spin-offs from this sector. The problem is that these policies are very costly and inequitable. Since the pharmaceutical industry is located almost entirely in Quebec, Ontario and B.C., it makes no sense for example that Nova Scotians should also pay artificially inflated prices to support this sector.

No government should when the total costs of these industrial policies are higher than total spin-offs that Canadians receive from this sector. By implementing universal Pharmacare and also eliminating these policies, we could save $10.7 billion per year (around 43 per cent of total costs). From an economist's point of view, this is nonsense. There are definitely better ways to invest this money, for example by improving health care and by publicly funding medical research.

Marc-André Gagnon is an assistant professor with the school of public policy and administration, Carleton University. He is also a an expert advisor with, a comprehensive and non-partisan online resource designed to help journalists covering health policy issues in Canada.