Provinces must stand together on drug purchases

At the recent Council of the Federation meeting, Canadian provinces (except Quebec) announced that they will begin bulk-buying different generic drugs to reduce health care costs.  They also flagged the need to both expand and accelerate group pricing on brand name pharmaceuticals.

This is a long time coming and a step in the right direction.  Now, we need to see solid action and not good intentions or half measures.  Early attempts at similar programs, for example, were close to failure.

In September 2010 all of the provinces except Quebec announced their intent to create an alliance for the bulk purchasing of the most expensive prescription drugs. Since then, only two products have been purchased this way.

Considering that more than 60 new patented drugs enter the Canadian market every year, not to mention numerous generic products, it is pretty clear that the bargaining power obtained through this first attempt at a bulk purchasing alliance was disastrous.

As the Council of the Federation’s own report now suggests, bulk-purchasing is not an option anymore, it is a necessity.

Until 2006-2007, the ‘official price’ of prescription drugs was the price that the purchaser would normally pay. Since then, many drug companies have developed a new global strategy: inflate the official price of their drugs and then secure agreements with individual purchasers by negotiating rebates.

Getting rebates on prices is now the norm, not the exception.

Why this new strategy? In 2006, the US Medicare program (providing healthcare coverage for seniors) agreed with pharmaceutical companies that they would not use their huge bargaining power to negotiate rebates on prescription drugs — Medicare would pay the official price, whatever it may be.

The indirect result: an incentive for pharmaceutical companies to inflate official prices, even if it means negotiating rebates afterwards for other purchasers.

The US Congressional Budget Office estimates that Medicare will spend an additional $112 billion in the next 10 years because of the inflated official pricing of pharmaceuticals.  This amounts to a kind of corporate welfare for pharmaceutical companies — hardly the neediest of businesses — borne by the American taxpayer.

Canada could find itself in the same position if it does not flex its collective muscle.  In other words, an effective drug bulk-purchasing strategy is now imperative.

That’s not what we’ve done so far.

Instead of developing a real national strategy, most provinces (except Quebec and Newfoundland and Labrador) decided to concentrate only on stand alone agreements for very expensive brand-name prescription drugs, through what are called “product listing agreements” (PLAs). The idea is simple: the province lists the official ex-factory price in its formulary but secures important confidential rebates for its public drug plan.

In addition to a lack of transparency, the problem with this way of doing business is that is it not good for everyone.  Patients who pay for drugs out-of-pocket, or those who pay a co-insurance or a deductible, are still paying the full price.  PLAs are also detrimental to private drug plans — the costs of which are typically borne by employees — since private plans will still have to pay the full price.

In other words, savings are secured only for some, and not for all, Canadians.

Some pharmaceutical companies also employ another tactic, commonly known as “whip-sawing.” Companies secure a PLA with one province, say Ontario, by offering the province the largest rebate possible.  They then pressure other provinces to list the product through a PLA offering at a much lower rebate. The other provinces have little choice than to pay the higher price because patient advocacy groups will accuse it of offering sub-standard treatment compared to Ontario.

By choosing to stand alone in the way that they have purchased prescription drugs in the past, provinces collected some crumbs in terms of savings, but they consolidated a system that remains inefficient and inequitable for Canadian workers and patients.  It also disproportionately disadvantages the smaller provinces which, alone, will never be able to obtain the same savings from PLAs as their larger cousins.

Every new drug in Canada should be purchased through a national bulk-purchasing agency to maximize savings for the benefit of all Canadians.

In fact, the smartest path would be to establish a national drug plan with no deductible or co-insurance payment, which will ensure equity of funding and access to essential medicines for all Canadians.

Nothing is restraining Canadian governments from exploring the possibility to stand together by implementing a bulk-purchasing agency at the national level — as their own report highlights.

The other possibility is for our governments to choose to do nothing, and act like deer in the headlights, while pharmaceutical companies reap ever larger profits — and patients pay.

This guest post is provided courtesy of the EvidenceNetwork.ca and is reproduced under a CreativeCommons Attribution No-Derivatives license.

The comments section is closed.

  • Chris Bonnett says:

    Absolutely – consumers will have to pay for whatever insurance is available. Insurance – whether public or private – is in itself a subsidy of costs. I don’t think the source is the critical factor.

    Providers typically charge more to the patient/consumer because they know about the third-party subsidy. Some providers charge more when there is no subsidy, because they also know that means no oversight or control on their charges. As the cost of drugs rise, and specialty drugs gain in market share, that will increasingly be an issue for those with no coverage. The number without coverage will either grow because some (likely smaller) employers will limit or eliminate their drug coverage, or the demand and costs will simply shift – but not immediately – to provincial plans because drugs constitute medically necessary treatment whether inside medicare, or not. Before provinces accommodate that shift, more patients will be left in the gap without adequate coverage. (Think of the unemployed, low-income households in some provinces, or early retirees.)

    The key is to have insurance available to all, especially but not exclusively to cover unforeseeable and unaffordable costs. As Ryan points out, the QC model is one viable approach, and the province and private insurers have successfully cooperated there since 1997 to offer universal coverage. “All models are wrong, but some are useful.” – George E. P. Box, 1987.

  • Ryan Herriot says:

    You might be interested in the following:


    I will, however, agree that the specifics of any plan don’t matter so much.

    • Chris Bonnett says:

      Thanks for passing on the article Ryan; I think we (and many others) likely agree on what is needed.

      Even now, I’d suggest discussions among the two major payer groups (provinces and employers) could start. Roles, funding, implementation, and regulation could be negotiated. You’re right these aren’t just ideological issues, but I think that sort of framing has helped stop progress. It has polarized positions and politicized an issue that is a far more practical concern. Decades have slipped by.

      I bet we could negotiate and regulate the funding, but the small-p politics and emotions are much trickier.

  • Chris Bonnett says:

    There is a bigger point, and it is inertia…a failure to act. Lots more could be done and needs to be in order to provide and protect access to necessary drugs for all Canadians.

    The time-worn arguments of public vs. private have never helped us find common ground and solutions that help address gaps in drug coverage. Far more heat than light. Waiting for a 1964 solution to drug access – ‘free’ coverage for everyone – just won’t happen. There is no feasible way to transfer over $10 billion of private drug plan cost to the provinces, nor do governments seem to want this obligation. It is not clear that patients will be better served either.

    Governments do need to think beyond their own drug plan obligations and consider the entire market in their policy and program decisions. Both private insurance and provincial governments pay roughly the same amount for prescription drugs. Like it or not, the practical reality is that both payer groups face similar issues related to affordability and sustainability.

    Rather than get caught in ideological battles that have no victors, the two payer groups could choose to consult and cooperate. Together it may be possible to achieve what neither has alone – equitable protection from ruinous drug costs for all Canadians.

    • Ryan Herriot says:

      That seems like a bit of a cop out. These aren’t just ideological issues, they are practical too. Do we want a fair system or not? But if you want a middle ground option, maybe Quebec’s would be the way to go, where the public plan picks up everyone who doesn’t get coverage through their employer.

    • Andrew Holt says:

      Ultimately the consumers pay one way or the other – higher taxes for government insurance coverage, direct paying for additional private coverage or higher prices for products and services when employers provide additional private insurance for their employees.

      In the end the real issue is how to most efficiently provide the necessary insurance coverage for catastrophic health events for the entire population – the rest is mechanics. What balance in insurance coverage do we want between catastrophic and preventive or chronic health services?

      In the end do we want a society that shares the risks through various insurance schemes or do we want a society where individuals bear the risks directly?

      In the U.S. I understand the number one reason for personal bankruptcy is due to the costs of health care. I also understand the additional cost burden to companies providing employee health insurance has long been an issue of considerable debate regarding the competitiveness in world markets. Yet the U.S. is by far the most expensive model of health insurance globally for a system that required the recent passing of ‘Obama care’ to address the large and growing portion of the uninsured population – works if your wealthy, no so well if you are middle or lower income.

      Chris I agree with your statement this is really an issue of ‘our failure to act’ … in a systematic way to establish a coherent health insurance framework for all Canadians. Maybe we need to more explicitly define the blended insurance model that has evolved over the decades in Canada. Are there opportunities for further pooling of risks and payments to reduce the total costs for all parties while focusing resources on proven health services and methods of health service delivery over a persons lifetime.

  • Stephen Duckett says:

    Gagnon has produced a very comprehensive report on the costs and benefits of his proposal see http://www.policyalternatives.ca/publications/reports/economic-case-universal-pharmacare. Whether national pharmacare should or should not include a deductible however is worthy of debate. In Australia we have a national scheme, with mandated deductibles (different for low income and not), together with a ‘safety net’ for those who consume large numbers of prescriptions (i.e. deductible drops to zero after given number)

  • Gerald I. Goldlist, MD says:

    A lot of good points but I don’t see how this statement follows:

    “In fact, the smartest path would be to establish a national drug plan with no deductible or co-insurance payment, which will ensure equity of funding and access to essential medicines for all Canadians.”

    This may be the “ideal plan” but it is not viable at this time because all levels of government are broke. Our health care system is already underfunding essential services like macular degeneration treatment in Ontario. As a society we cannot afford to expand what government pays for.

    With regard to “no deductible or co-payment”, that will increase waste dramatically.

    Tommy Douglas, the father of Canadian Medicare, said:

    “I want to say that I think there is a value in having every family and every individual make some individual contribution. I think it has psychological value. I think it keeps the public aware of the cost and gives the people a sense of personal responsibility.”


Marc-André Gagnon


Marc-André Gagnon is an assistant professor with the School of Public Policy and Administration at Carleton University.

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