Questions need to be raised on the costs of and need for extending public payment for all drugs, writes Jeffrey Simpson.

By Jeffrey Simpson, March 14, 2019

Will the Trudeau government, reeling from the SNC-Lavalin affair, be able to change the political channel with a new national Pharmacare plan in the March 19 budget?

A new drug policy, whatever its shape, will affect the lives of Canadians more profoundly and for much longer than the SNC affair. But will the media pay attention for more than a day before returning to the sniff of scandal? The Liberals had better hope so.

The issue Liberals have been wrestling with is simple. Should they go all in for national Pharmacare – extending public payment for all drugs in the spirit of Medicare, wiping our basic private plans in the process? Or, should they target with public money just those without coverage or struggling to pay premiums?

For months, it appeared the Liberals were more interested in a sweeping national plan than a targeted one. There are good arguments for both approaches, but the all-in one plan will cost more. Are Canadians ready to pay for that approach? That is a fundamental political question for the governing Liberals.

The Liberal Party convention in 2018 adopted a resolution calling for National Pharmacare. The government appointed Eric Hoskins, a former Ontario health minister who had supported universal public drug coverage, to lead an Advisory Council on the Implementation of National Pharmacare. His mandate was not to consider whether National Pharmacare makes sense, but rather how to implement it.

A report from the Liberal-dominated House of Commons Standing Committee on Health supported the “inclusion of prescription drugs dispensed outside of hospitals as an insured service … under the Canada Health Act.” The think tank closest to the Liberal Party, Canada 2020, has endorsed National Pharmacare.

The Trudeau Liberals believe their electoral success depends upon squeezing the New Democrats. Embracing a national scheme for public drug coverage would be consistent with that strategy. But can it be afforded? Do the people really want it, especially when they learn about the costs? Would something less than universal do?

The New Democratic Party has always favoured National Pharmacare. So have health-care unions, Medicare enthusiasts such as Doctors for Medicare, some but not all provincial governments, and a majority of health-care analysts in universities. The reaction of the broad public remains unknown.

The ideology of Medicare

Full public funding for all pharmaceuticals was an early dream of those in Saskatchewan and later across Canada who espoused publicly-financed health-care. Emmett Hall, whose royal commission led to the creation of national Medicare, stopped short of endorsing a form of full public drug coverage over cost concerns, but he did call for programs to face the “burden of drug costs.”

Those who argue for National Pharmacare correctly note that in other democratic countries (the United States excepted,) all pharmaceuticals on national formularies are covered by public financing. This is one important reason why health-care spending in Canada is 70 percent public and 30 percent private, whereas in other countries the public share is above 80 percent.

Sixty-four percent of drug costs in Canada are spent privately, compared to 10 percent of hospital costs and 1.5 percent of physician costs.  It is this gap – 64 percent compared to 10 and 1.5 percent – that advocates of National Pharmacare wish to eliminate by making all formulary drugs for all people free. Or, to be more precise, “free” to the user but obviously not to taxpayers who by one means or another must supply the money to governments for the “free” drugs.

Why has National Pharmacare never taken hold in Canada? After all, it fits within what we might call the “ideology of Medicare” – “ideology” being defined as a framework of ideas and ideals within which all policies must be considered – whereby only the state pays for essential health-care delivered by doctors and in hospitals.

This “ideology” is immensely strong in Canada, propounded by politicians of all stripes, believed by those who consider Medicare a foundation-stone of national identity, and supported within universities where the majority of those who teach and write about health policy are among the most impassioned guardians of the “ideology of Medicare.” Proponents argue that if doctors are paid by the state for their services (even if most are independent entrepreneurs), and if hospitals are publicly-financed as are the drugs used within their walls, then why does the state not cover the cost of all medically-necessary drugs for everyone?

Since there seems little debate about the issues surrounding National Pharmacare, , some fundamental questions should be raised before the country takes the leap.

Assessing the Canadian model

A first question might be: is it axiomatic that extension of the “ideology” would be a good thing? By international standards, Canada’s Medicare is at best an average performer. That no other country uses the Canadian model might raise questions about its extension.

The Canadian system ranked ninth in the Commonwealth Fund’s last assessment of eleven health-care systems. OECD data places the Canadian system above average in some areas, below in others; on balance in the middle ranks, certainly not near the top. One might therefore ask a rude question – why the extension of the existing system that ranks rather weakly in international surveys is going to produce anything other than more middling results?

There are facile and accurate answers to the legitimate question as to why no universal drug coverage. Brand-name pharmaceutical companies are an easy target, the accusation being that they hold politicians and physicians in their thrall, which in an era of no corporate financial contributions to political parties is factually risible but can be politically potent.

Then there is the argument that politicians have simply lacked the necessary will, which is true of course but begs the question of why National Pharmacare has not been deemed (except for the never-elected New Democratic Party) to be a potent electoral promise, at least perhaps not until now.

It could just be that most Canadians are reasonably content with their drug coverage, or at least are not sufficiently dissatisfied to raise a stink since about 70 percent of them have some form of private coverage, Therefore, no groundswell for change has ever materialized. Certainly, no poll has shown that the issue ranks at or near the top of the list of public priorities.

Except for those in the NDP, politicians have always blanched at the cost to the treasury of public drugs for all. If, as some proponents insist today, National Pharmacare would somehow save the treasury billions of dollars, only the most obtuse politicians would turn down a deal whereby much-used and much-needed products could be universally distributed AND save public money. Deals like that – free goods that will save money with hurrahs and votes for the dispensing politicians – would be irresistible.

Certainly, politicians often make elaborate promises based on implausible assertions and bad arithmetic. In the case of National Pharmacare, governments have always hesitated because they discover there is no free lunch. A national plan, however devised, will cost plenty of money, and that money must come from taxpayers, the only questions being from whom, how and how much. Eliminating private plans would save the private sector money to be sure, but that money would have to be replaced and augmented from public sources. And where would that come from?

When Medicare was first introduced in the late 1960s, taxes rose to pay for it. Canadians were willing to accept that trade off. We shall see in today’s climate if they are willing to pay more tax for a national drug plan – unless of course they are persuaded somehow that they will not have to pay higher taxes.

Expanding drug coverage and its costs

Apart from calculations of political gain, two questions underlie public policy. What problem are we trying to address? What are the most effective ways of addressing it?

National Pharmacare is intended to solve two problems: the lack of drug coverage for some Canadians and the high cost of drugs.

Who is without drug coverage? There seems to be a consensus that, as a Parliament Budget Office (PBO) report stated, “an estimated 2 percent of Canadians lack drug coverage.” If so, in what other area of Canadian life would any government consider a multi-billion-dollar investment in a sweeping national plan to solve a problem afflicting 2 percent of the population?

To this 2 percent must be added, according to various reports, an estimated 10 percent (some reports suggest 13 percent) of Canadians who, again in the words of the PBO report, “lack the financial means to pay for their prescriptions.” In other words, they have some sort of coverage but can’t pay the premiums or deductibles. Or, they do not qualify for the many sorts of public plans and lack the means to buy private coverage. Or, it could mean they gamble that they can pay a limited amount for prescription drugs but won’t get clobbered by huge costs should they need very expensive ones.

Just who are these 10 percent is a bit unclear. They would seem, according to a report from the federal and provincial ministers of health, to be part-time workers or self-employed individuals. They are mostly not seniors or the poor, for these are covered by existing public plans. Whether they can afford to pay some or none of drug costs would presumably depend upon their needs and ability to pay, and that might vary considerably.

But assume we lump the 2 percent without coverage with the 10 percent or so who cannot afford all or some of their costs. We are then left with, say, 12 percent of Canadians in some form of need. That would be a little over 4-million Canadians, which still raises the question whether a country where 33-million people are covered by public or private plans needs a complete overhaul of drug policy, wiping out private coverage some of which is actually more generous than existing public plans, rationalizing existing public plans, widening coverage for all at a cost estimated in the billions of dollars, and setting off what would be a difficult negotiations between provinces and Ottawa over which level of government would pay and how much.

Assume the answer is yes, Canada needs a plan to cover those without proper insurance and everybody else, and that only National Pharmacare can do the trick. What would it cost? The answer depends in part about which drugs would be included in a national formulary. What reductions could one big government plan secure from drug companies? The theory is that one big buyer could negotiate lower prices than many public and private plans and substitute lower-cost generic drugs for brand-name ones. This assertion is likely true, but how much lower? If drug prices were lower, economists expect consumption would rise, but by how much? How extensive would be formulary be? Would taxpayers, as in Europe, be charged a deductible for each drug, or would there be no taxpayer contribution as suggested by the Commons committee in keeping with the “ideology” of Medicare?

There are so many variables at play that no precise estimate of costs can be precise. One attempt was made by Kevin Page, the former PBO head who is now at the University of Ottawa. His report favored National Pharmacare but took pains to explain that although a national plan would lower the cost of drugs, Ottawa taking over the private sector role – the migration of costs from consumers and employers to governments role – would drive up the governments’ overall cost burden such that the federal “budget deficit would almost double over the medium term.” The debt-to-GDP ratio would rise such that “federal finances are likely to be rendered fiscally unsustainable.”

Mr. Page also noted that “with provinces being broadly in a fiscally unsustainable position currently, cost-sharing of National Pharmacare would make them that much worse off.” Provinces in general are in a weaker fiscal position than Ottawa, so that “expanding drug benefits without increasing revenues or cutting spending elsewhere at the subnational level of government to offset the additional cost of pharmacare would only exacerbate this problem.”

Mr. Page’s solution: raise the Goods and Services Tax by two points, a rather blithe answer that takes no account of what a large tax increase would do to the overall economy or why such an increase should be used for this program and not many others. It was also a slightly perplexing answer since one point of the GST is supposed to raise $6-$7-billion, so a two-point increase would generate $12-$14-billion, way above even the most expensive estimate of the cost of National Pharmacare. At least Mr. Page tried to give an answer. Most advocates do not.

The Commons committee punted the cost issue. It said merely that Ottawa should “provide additional funding to provinces and territories,” without saying how Ottawa would get the additional money. UBC Professor Steven Morgan, a strong advocate for National Pharmacare, testified that a “new revenue tool would have to be created to raise funds to finance the program.” Et alors? His fellow advocate, Carleton University Professor Marc-André Gagnon talked about raising corporate taxes, or maybe imposing a payroll tax, or maybe raising funds through “general taxation,” which is something like the HST or personal income taxes. In other words, there is agreement among these advocates that higher taxes will be required, but which ones and by how much remains unclear, and politically explosive.

The House committee did not ask whether other more targeted policies could get at those without coverage or too little coverage – policies that would cost much less and hit the right targets instead of blanketing the entire population, most of which is already covered by private or public plans. Surely that kind of option at least deserves analysis, and there are reports that the Trudeau government is leaning towards something more modest and targeted than full-blown National Pharmacare.

What Canadians think about higher taxes for National Pharmacare is unknown, because the issue has never been squarely presented to them. The Angus Reid Institute polled Canadians in 2015 and found a majority in favor a national drug plan provided they did not have to pay for it with higher personal income taxes, health-care premiums or the HST. They favoured only higher corporate taxes.

Even if it could be argued that taxes should be raised, leaving aside on whom and by how much, the question is why higher taxes for National Pharmacare? It is a much-observed tendency in the health-care world among doctors, nurses and other unionized workers, administrators, and others to assert that more money should be spent on health-care. That the K-12 education system or day-care might need more; or that universities in a province such as Ontario now receive more money from student fees than government grants; or that cities need more and better public transit; or that reducing poverty makes good economic and social sense; or that Indigenous Canadians might use a few extra billion dollars, or that …. the list is endless, while the resources are finite.

But in the myopic world of health-care, where demands are relentless and the capacity of government to finance them is stretched, and where population aging will raise health-care spending automatically, advocates never cease demanding more spending on home-care, mental health, nursing, long-term institutionalized care, higher fees for physicians, basic research, you name it, and now a national drug plan, with nary a thought that perhaps money might be spent elsewhere.

High costs of drugs

There is another argument for National Pharmacare that must be considered: its ability to drive down the high cost of drugs in Canada.

Canada’s drug bill is high. In 2016, Canada’s patented drug prices were the third highest among 29 countries in the OECD. Some of that gap is explained by higher prices; some by more extensive drug use. An aging population is going to inflate drug costs because seniors use many more drugs than those in younger age cohorts. Also of note, private and public drug plans’ budgets are inflated by a few patients who need very expensive drugs.

For public plans, 2 percent of beneficiaries account for one-third of spending; for private plans 72 percent of the costs is driven by 14 per cent of members. Spending on biologic and oncology drugs have risen in recent years by double digits. Curative drugs for hepatitis C, developed by brand-name companies, have been particularly costly but effective.

Canadian governments have not been unaware of the country’s relatively higher drug costs and have been acting to restrain them. Provinces have banded together to negotiate for new brand-name drugs that come on the market. The Trudeau government instructed the he Patented Medicine Pharmaceuticals Review Board, charged with keeping the increases in brand-name drugs in line with inflation, to change the basket of countries with which it compares Canadian drug prices. It knocked off the list the US and Switzerland, countries with the world’s highest drug prices. This change will over time have a depressing impact on price increases.

And there is another step that governments could and should take: allow Ottawa to negotiate drug purchases on behalf of the provinces for their various public drug plans. There would be one national formulary drawn up by the provinces, and Ottawa would be the negotiating agent. After all, the federal government authorizes which drugs are safe for the market; it would make sense for it to negotiate for those drugs.

This is what happens in Australia, a federation where the Pharmaceutical Benefits Advisory community negotiates in effect for the states who then draw upon a national formulary. If a Canadian province wished to add to the national formulary, it could do so through negotiations with drug suppliers. If Quebec refuses to join such a national negotiation, fine. It could negotiate for itself but would likely see that the greater bulk-buying power of the nine other provinces acting together would lead Quebec in time to join quietly the national fold.

This would not be National Pharmacare, just an element of it: a national buying effort for public plans. It would be half a loaf towards one of the two objectives now being discussed – lower prices – without embracing the entire apparatus and cost of National Pharmacare. Would provinces object? Maybe, but if national buying relieved a little pressure from their drug budgets probably not. Would citizens object? Probably not if drug prices fell and they did not have to pay higher taxes. Its biggest liability? It lies outside the “ideology of Medicare,” and therefore might lack the political and emotional appeal of National Pharmacare, a policy the Liberals have backed in theory and will reveal in the budget whether they still do in practice, having stared at the costs and then mixed them with political calculations nine months before the next election.

Jeffrey Simpson was for 32 years the Globe and Mail’s national affairs columnist. He is the author of Chronic Condition: Why Canada’s Health-Care System Needs to be Dragged into the 21st Century, which won the Donner Prize in 2012 for the best book on public policy.