Thank you for the opportunity to speak to you today. I hope I can help you in your deliberations on this important issue for Canada. More importantly, I hope that all of you here today have a very happy Valentine's Day.
New Zealand has universal access to pharmaceuticals. It has this at an affordable cost. More importantly, it can fully control the costs of its universal pharmacare program with a somewhat unrivalled precision.
New Zealand has a broad formulary. It has 2,000-plus line items. It has very low copayments by comparison with other countries, in the region of $0 to $5 per item a month. It has very low copayment maxima by comparative standards. No family spends more than $100 a year out-of-pocket on medicines. There are no annual maxima, and there are no lifetime maxima. Costs have grown at a manageable rate over the last 20-plus years, and that's between, on average, about 1% to 3%. During this modest growth in expenditure, the volume of medicines subsidized has grown, sometimes in excess of 8%. Along with all of that, new on-patent medicines and expansion to on-patent medicines have been added to the formulary.
It's clear from the testimony given to this committee, and indeed from the sentiments expressed by its members, that Canada wants universal access to pharmaceuticals for its citizens. The problem, of course, is how to get there.
I've read some of the testimony that you've heard over the last 12 months, and I'm struck by the complexity of the situation. Canada is a vast country and is united as a country under a loose federalism. That makes moving to universal access to pharmaceuticals all the more challenging. New Zealand, by contrast, has a unitary government, and most of its social services are supplied by central government. It's a small land mass and a small population, around the same size as British Columbia.
What does the New Zealand experience of management of pharmacare possibly have to offer Canada? Well, no matter how Canada decides to get there, one key element that it'll need to master to make it feasible is the ability to control the costs of such a scheme or schemes. New Zealand has costs under control, and thus, I believe, there are lessons that can be learned from its approach to gaining this control.
Here are what I believe are the key takeaways from the New Zealand experience.
First, within a jurisdiction, however that jurisdiction is defined, there needs to be a single purchaser. What does this actually mean? It means that the purchaser has to have the power to negotiate. To put it more bluntly, when it says no to a proposal to buy a pharmaceutical, no means no. If a seller can go to another purchaser within the same jurisdiction, the ability to negotiate is diminished. Likewise, if the seller can go to a politician and get a no overturned, the ability to negotiate is lost.
This leads to the second takeaway: the specific decisions about what pharmaceuticals to fund and what not to fund need to be distanced from political decision-making. It's not possible for the drug plan manager to negotiate and manage the costs if his or her day-to-day decisions are at significant risk of being changed. Clearly, drug plan management needs general oversight by our elected representatives and needs to be held accountable for individual decisions. However, this oversight, I believe, is better effected through other levers, rather than by undermining the ability to negotiate. In short, the power of veto should be used judiciously and rarely.
The third lesson is a little technical, but is nevertheless vital: drug plans are better managed by setting an explicit budget and demanding that managers gain the most health benefit possible from within this budget, rather than by setting decision thresholds. I suspect many of you have heard of NICE, the model we look at in the U.K. In NICE, typically decisions are made on the basis of a threshold, usually at cost per QALY, taking into account other things. They may set that threshold at, let's say, 40,000 quid per QALY. That's what I mean by a decision threshold. I don't believe that's a sensible way to approach management in this area, and there are several reasons for this.
First, obviously the funder knows what they're going to face when they set a budget, but more important are the incentives that setting a budget with an explicit objective create for managers and the lever it subsequently offers to politicians. Briefly, the important outcomes that arise from gaining the most health benefit from a fixed budget are as follows.
First, purchasers are given the strongest incentives possible to minimize opportunity costs in their decision-making. Then sellers, faced with purchasers attempting to minimize opportunity costs, are given incentives to offer prices nearer their minimum willingness to sell. By contrast, when thresholds are used, sellers are effectively saying this is the price at which they'll purchase this product. Clearly, this is not a good way to be negotiating prices in any market.
More importantly, the public, when given information, understand rational decision-making in the face of a budget constraint. This has been my learning through my period managing the Pharmaceutical Management Agency in New Zealand. People who have faced the consequences of these decisions, somewhat to their detriment, understand this notion of having to maximize benefit to society within a budget constraint.
Finally, once you have organizational mastery of an explicit objective within an explicit budget, this gives politicians a very powerful lever. It's a lever that allows them to deliberately and consciously reallocate funding between pharmacare and other health care in the manner that they perceive provides the most benefit.
We are all used to the idea of having budgets and being able to reallocate money across different budgets, but frequently those budgets are not stuck to. The difference I'm trying to get at here is organizational mastery of managing the pharmaceutical budget within the budget as set.
All these lessons are structural in nature, which is why I presented them here. If there's one comment I hope you remember from my testimony today, it is this: structure matters in this arena if you want to control costs.
Finally, I have a comment on the key criticism of the New Zealand approach, which I'm sure you're going to hear from my colleagues after the hour. It's often most heavily criticized for its apparent limiting of the range of medicines to which New Zealanders have funding access. In particular, some argue that the rate of adoption of new technology—that is, new chemical entities in this area—is too restrained.
While I might argue about what the word “too” means in “too restrained”, the adoption of new technology in New Zealand is in fact restrained. Creating a fixed budget and requiring its managers to stay within it creates a competitive tension in the marketplace only if the budget cannot fund everything.
I ask simply that you put this criticism in context. All New Zealanders, and I mean every last one of them, have publicly funded access to a very wide range of drugs. This stands in stark contrast to the situation that Canada finds itself in, where some Canadians have access to an even wider range of drugs, while others, most often the working poor, have nothing but out-of-pocket access to this generous array of generously priced pharmaceuticals. This difference is most starkly highlighted by the research you were alerted to earlier last year in the research of Dr. Booth, which pointed out that working-age Ontarians with insulin-dependent diabetes die at a higher rate than 65-plus-year-old insulin-dependent diabetics simply because the older folks have funded access to insulin. Needless to say, this is not an outcome witnessed under the New Zealand approach, and I would certainly hope that this is an outcome that can be dispatched in Canada before too long.
