Thank you very much. I appreciate the invitation to speak today.
I am going to keep my remarks to pharmaceutical policy and the management of pharmaceutical technologies, in part, because I run a research network funded by the Canadian Institutes of Health Research, which involves experts in pharmaceutical policy at universities across Canada, and in part because I host an annual meeting of decision-makers in the pharmaceutical sector from 12 countries around the world that are reasonably comparable to Canada. And so I bring some insights gathered over years of research and knowledge exchanged both with academics and policy-makers on this file.
Pharmaceuticals are arguably the biggest technological cost driver in the Canadian health care system. Data from the Canadian Institute for Health Information suggest that from 1980 to 2005, pharmaceuticals were by far the fastest-growing component of health care costs. Pharmaceutical spending during this era in Canada grew elevenfold. No other component of the health care system grew more than fivefold over the same period.
Today we are spending more on pharmaceuticals than we are on all of the care provided by all of the doctors in this country. Pharmaceuticals are also a good case for understanding the financial impacts of technology in health care, in part, frankly, because Canada does such an exceptionally bad job of managing this cost driver.
First, it is important to say and be clear that drugs can and do save lives and improve the health of patients and populations. Waves of new drugs have come to market since the 1960s that have expanded the range of conditions that we can now treat out of hospital in quite a considerable way. Some of these drugs are unquestionably cost-effective and value for money in our health care system, but no new technology commands its own utilization.
It is systems that drive the financial impact of technological change in health care. People often talk about the idea of unleashing innovation in health care systems, but, in fact, systems ought to be designed to very carefully harness innovation so that we get the best possible improvements in the level and distribution of health in our population for the investments we are making.
The problem in Canada is that nobody holds the reins in the pharmaceutical sector. We are the only system in the world that offers universal coverage of medical and hospital care yet excludes the prescription drugs used outside the hospital. Our patchwork of private and public drug plans in Canada effectively leaves nobody in charge of managing this critically important component of the health care system.
What is the result? Paradoxically, our fragmented system means that many Canadians are unable to use the drugs that perhaps they should. Last year my colleague Michael Law and I published a paper in the Canadian Medical Association Journal showing that one in ten Canadians cannot afford to fill the prescriptions their doctors write for them. By international standards, that is a very poor record on access to medicines and therefore a very poor record on access to important health technologies.
Yet spending on pharmaceuticals in Canada is greater and growing faster than in every other OECD country, with the exception of the United States, which is hardly a lofty comparator for us as a nation, given that the U.S. has the most expensive health care system in the world, .
A study by my colleagues and I published a few years ago in the British Medical Journal showed that in British Columbia, 80% of the increase in prescription drug costs from 1996 to 2003 was attributable to the use of new, patented medicines that had entered into therapeutic categories established by earlier innovations. What was important about that finding was that these newer patented medicines were priced, on average, at four times the level of older generic alternatives within the same therapeutic categories.
People in the federal government would be right to point out that we have a system that limits the list prices of medicines in Canada to levels established by list prices of medicines in seven comparator countries. While list prices may be in fact kept to levels found in other countries, this does not equate to management of the pharmaceutical technologies in question.
Per capita spending on pharmaceuticals in Canada was well below the median in our seven comparator countries during the 1980s. This was just before waves of blockbuster drugs came to market in therapeutic classes that still dominate the pharmaceutical sector today: drugs for gastrointestinal disorders, anti-depressants, hypertension drugs, cholesterol medicines, asthma treatments, and the like.
During the era of the blockbuster drug, pharmaceutical costs in Canada grew faster than most other OECD countries. In fact, by 1997, per capita spending on pharmaceuticals in Canada was then equal to the median of the seven comparator countries that we use for pharmaceutical price regulations.
At that time, the National Forum on Health had called for universal first-dollar pharmacare, in part because it was clear that would be an effective mechanism for managing pharmaceutical technologies and the costs they impose on the health care system. We did not move forward on the recommendation for a universal pharmacare system as per the call from the National Forum on Health, and since then per capita spending on pharmaceuticals in Canada has continued to outpace other OECD countries.
As of 2010, the most recent year for which data are available, per capital spending on pharmaceuticals in Canada has exceeded the median of our seven comparator countries by $280. To put this in perspective, if we had held our spending at the level of our median comparators over this period, we would now be spending $9 billion a year less than we are today—that's $9 billion, with a “b”.
The root cause of our trouble in managing pharmaceutical costs is that our system is fragmented. Again, it bears emphasizing that no reasonable comparator country with universal health insurance excludes prescription drugs from the management and financing of health care.
Because pharmaceuticals are integral to all health care systems of our comparator countries, the managers and the practitioners in those systems have far greater opportunity and incentive to consider very carefully the value proposition of pharmaceutical technologies. They would have appropriate incentive to adopt technologies that are of value for money and to reject those that are not. They would also have more purchasing power and legitimate authority in price negotiation with suppliers.
The pharmaceutical industry is changing today, and changing quite dramatically. I believe Canada needs to be prepared to manage these changes, in particular to manage the changes in technology that we can expect over the next decade.
First, increased generic availability is currently providing us with a window of opportunity for considerable savings. Patent expiry is in effect the end of the innovation cycle in any sector, including pharmaceuticals, and it offers a tremendous opportunity for payers to secure real value from innovations of yesterday. International evidence shows that universal coverage of generics is the best mechanism to secure savings for payers, access for patients, and rewards for manufacturers who are willing to compete on price.
Once we have a system in place to secure generic savings, we must be prepared for the changes in technology coming from the patented pharmaceutical sector. The pharmaceutical industry's research and development pipeline is currently filled with specialized drugs that come at very high costs. We used to think in pharmaceutical policy that hundreds of dollars per patient was an expensive price for a drug. Then it was thousands of dollars per patient. Now it is hundreds of thousands of dollars per patient for drugs used to treat specialized diseases and conditions. We need to develop a national strategy for sorting out the innovations that represent value for money and, frankly, for saying no to the rest. It's a tough political challenge, and I think we need a national framework for it.
Finally, the global pharmaceutical industry is making a profound change in its pricing paradigm for these technologies. In a sense, today's list prices for pharmaceuticals are tantamount to list prices found on auto dealership lots. Nobody is meant to pay those prices; instead, they are meant to be a starting point for negotiations, where secret rebates will be paid between the manufacturer and the insurer. Those rebates ought to be negotiated on a framework that sets the price at a level that represents value for money in the health care system relative to other investments that could be made. This is a profound change in pricing, and it is a profound challenge for a system that is as fragmented as ours.
I think Canada needs a national strategy for managing these new technologies, for negotiating their prices and, most importantly, for making sure that Canadians can access the care or technology they may need, and that no patient and in fact no province is left paying artificially inflated prices when they do so.
Thank you very much.
