Thank you.
Seeing as how I have under 10 minutes, I'll jump right in.
The first slide we have is on recollection. It was roughly a year ago today that the committee requested that the PBO cost a pharmacare program. It was also the committee that provided to PBO the parameters of that pharmacare program.
Very quickly, I'll note that it was to be universally accessible to all Canadians and have a standardized list of drugs that would be reimbursed, and that list would be equivalent to the drugs listed on Quebec's public drug plan. There would be a $5 copayment for all brand-name drug prescriptions, and there would be a copayment exemption for these that would match what the U.K. currently offers as exemptions.
Consistent with our general practice, we reviewed the literature, reached out to stakeholders in the public and private sector, and received feedback along the way. Once the draft was completed, we had it peer reviewed and incorporated the feedback we received.
I'm very happy to be here today to present the results of this year-long collaboration.
This first slide presents a few things. I'll point your attention to the bolded or dark line at the bottom, where you can see that in 2015-16 Canadians spent roughly $28.5 billion on prescription drugs. This amount excludes any over-the-counter medications, and it excludes any prescriptions that were administered in hospitals. I'll turn your attention to the far bottom right of the slide, which shows that in 2015-16 public plans represented roughly 46% of this total expenditure. The remaining amounts were paid for by private insurers or out of pocket.
I would also like to add at this time that the out-of-pocket expenditures do not include any insurance premiums paid to the insurance providers. They are strictly what was paid for the drug itself.
The drug expenditures include the cost of the medication, any markups from wholesale, and any professional fees that were charged.
Lastly, what this table shows is that, consistent with what previous literature has shown, there is a variation in the level of coverage for pharmaceutical drug insurance across the provinces.
The next two slides speak to the government's role currently in pharmaceutical spending and drug insurance coverage.
Beginning with the federal government, we can see that they have some direct spending for some populations, which is estimated at $645 million in 2015-16. They play a larger role in the regulatory area. They also offer some relief to taxpayers through the tax and transfer system. Also, a larger role is that of funding the provinces through the Canada health transfer and the Canada Health Act.
The next slide speaks to the provincial counterparts. You can see on the chart on the right that their spending on prescribed drugs is an estimated $13.1 billion. That is because they're responsible for the delivery of these services and the funding and financing of them. They also have some control, in that they are responsible for creating the formularies, or the specific drugs that will be reimbursed on their plans, and also for stipulating the eligibility criteria for the populations that would receive coverage.
Before jumping into the pharmacare and the results, I would like to take this time to discuss the scope of this report, particularly the scope of the cost estimate that was included in this report.
To be as specific as I can, it reflects the cost to the federal government for the drug expenditures under a pharmacare plan; that is, it includes the cost of the medication, any markups, and any fees. It does not include things such as any savings or costs resulting from a consolidated administration; any new costs from legislation, regulations, or negotiations; and any other impacts to other sectors. Until PBO is provided with a policy including how this program will be implemented, it is really difficult to get at these additional costs.
The next slide shows an overview of the parameters provided by this committee and marries them with PBO's own assumptions that we've made. As shown on the left of the slide, we have our patients currently consuming drugs at current prices and at current volume. Summed up, this is our $28.5 billion. When we're talking about pharmacare, we're talking about a subset of drugs: just those listed on Quebec's public plan.
This is where PBO begins to make some assumptions: first, since it is a single-payer system, PBO assumed that the federal government would be able to negotiate lower prices for these specific drugs, and second, this plan would operate as current public plans do, in that they impose generic substitution. What it means is that if a patient is consuming a brand-name drug, they would be switched over to the generic, which typically costs less, assuming that it is safe to do so and there is one available.
We have the other parameter provided by this committee: the copayments on brand-name drugs. This would be a source of revenue for the government and would bring down the cost of pharmacare.
Also, as shown at the top of the slide, we also have a PBO assumption, which is that because this pharmacare plan is universally accessible, and because the out-of-pocket costs to patients would be reduced to zero if they're purchasing a generic—or $5 if they're purchasing a brand-name drug—we would see an increase in the volume of drugs consumed.
The next two slides walk you through these results, adding on the assumptions one by one. At the beginning, we have our $28.5 billion currently consumed in 2015-16. When we add on the formulary, we're talking about $24.6 billion. When we add on our next assumption of it being universally accessible, we would see an increase in volume of roughly 12.5%. This assumption was applied to all but a select group of drugs on the formulary. This resulted in an increase in costs of roughly $26.3 billion.
Offsetting this increase, however, is PBO's assumption around the price negotiations the federal government would be able to achieve. This was done in a two-step process. The first was that we assumed the federal government would be able to achieve the lowest price currently observed in Canada. Typically this was the price in Quebec, since that is what Quebec demands of the drug manufacturers. On top of that, PBO assumed that there would be a price discount of 25%. This represents an average savings across the board for all of these drugs on the formulary. In reality, when this is negotiated, this could vary significantly drug by drug or drug class by drug class.
We arrived at this 25% by consultation with the stakeholders and with our peer reviewers, who looked at an estimate of what the pan-Canadian pharmaceutical alliance might currently be achieving through their negotiations, and also in recognizing that Canadians typically spend a lot more on drugs compared to other nations. That 25% represents our average best guess, although we do provide sensitivity analysis in the appendix.
The final assumption to get our gross cost estimate is the generic substitution. That's where we arrive at $20.4 billion. To arrive at the net cost estimate for the federal government, we subtract the copayment revenues, net of any exemptions. As well, we subtract the amount the federal government is currently spending on some subpopulations. It's with this that we arrive at our net cost estimate of $19.3 billion.
I've listed the amounts of the net copayments and the direct expenditures underneath the table, as well as one other number: the markups and fees. There are two reasons why I highlighted this. The first reason is that the $7.4 billion associated with markups and fees is a sizable portion of this gross cost and net cost estimate, but it's also to remind myself to tell you that it's because we didn't make any assumptions about what would happen to these markups and fees. We assumed that the rates would remain as currently observed, but we adjusted them to account for this increase in volume. In reality, this is something that could be adjusted or negotiated.
Turning quickly now to the conclusions of the report, first and foremost, our net cost estimate to the federal government for this pharmacare plan is $19.3 billion. This cost estimate of course is sensitive to the parameters provided, as well as the assumptions the PBO made. We do provide some sensitivity analysis.
Next is that patients' out-of-pocket expenditures are expected to decrease, and we estimate by 90% on average. This of course would vary, depending on what the patient currently pays. Under pharmacare their costs could go to zero—or a 100% decrease—if they're purchasing a generic or to $5 if they're purchasing a brand-name drug.
In general, the results suggest that there could be savings under a single-payer system, as long as the savings can be achieved through the assumptions the PBO has made.
The last slide presents our five-year projection for pharmacare, both the gross cost and the net cost estimates. In 2020-21, PBO estimates that the gross pharmacare cost would increase to $23.7 billion and the net cost to $22.6 billion. Again, these projections are also sensitive to what would be coming down the pipeline, market composition, and future drug prices.
That concludes my presentation.
