Why Are Drug Prices High?

Canadians now spend $34 billion per year on pharmaceuticals. That is almost a thousand dollars for every man, woman and child--- considerably more than most citizens of other OECD countries spend on comparable or better drug plans. In New Zealand, for example, a national drug formulary aggressively pursues the most cost effective drugs and negotiates the best obtainable prices.  Even countries such as France, Italy and Spain spend less than Canadians do for the same basket of drugs.  According to a recent study conducted by several experts on drug policy published in the Canadian Medical Association Journal, Canadians could save $8 billion dollars per year on prescription drugs  (well over 20% of our total costs) if we had a single–payer system of pharmacare.  More people would be covered—thereby making drug policy more consistent with the basic principle of universal medicare-- and administrative costs would be lower.  Economies would be realized through three different mechanisms: the benefits of bulk purchasing; the negotiation of lower prices; and the substitution of generic drugs for more expensive brands.  So why hasn’t it happened?

It almost did. In 2004, B.C. ‘s Liberal premier Gordon Campbell, Alberta’s Conservative premier Ralph Klein, and Saskatchewan NDP premier Lorne Calvert all agreed that the federal government was more able than the provinces to finance a national pharmaceutical plan. All of the other premiers readily agreed (with Quebec premier Jean Charest of course insisting on the right of Quebec to opt out and run its own parallel plan). Unfortunately,  the new Liberal prime minister, Paul Martin , had too much on his plate and too little time to deliver it. The death blow came when Stephen Harper’s Conservative government was elected in 2006, and began its policy of implementing targeted tax cuts rather than “expensive” social programs. But what if the “expensive social program” actually saved billions per year by lowering drug costs? Let’s just say that Stephen Harper did not enter politics to save medicare, but rather something closer to the opposite.

The Conservatives’ role in driving up drug prices was not just due to this act of omission, but also to a considerable act of commission that came a few years later with the negotiation of the Canada-European Trade Agreement  (CETA).  Canada needs to encourage investment in research, development and manufacturing, but that neither explains nor justifies our history of higher prices.  Remember when Brian Mulroney first  angered seniors by improving patent protection for drugs and making generic drugs more expensive, way back in 1987? At that time, the pharmaceutical industry promised to spend 10% of sales revenues on R&D in exchange for higher prices. What happened? Research spending has been well below 10% since 2002.  How can we be confident that drug companies will serve consumers any better under CETA?