An update on national pharmacare, and five steps to get us there faster

Should we be surprised by post-pandemic reports of hot messes in hospital and long-term care and access to physicians and nurses? Rigorous comparative health-system analyses done by the Commonwealth Fund in 2010, 2014, 2017 and 2021 consistently place Canada second to last (third to last in 2017) among peer nations. Political and ideological rhetoric aside, Canada’s health-care system has been a long way from the top for many years. The pandemic seems to have exploited long-run weaknesses in health-system management and governance.

What is surprising is that these performance shortfalls continue to elicit calls to implement a government-run, single-payer drug plan, and now also a dental plan for most Canadians.

Governments are struggling to manage what is already on their plate. Our publicly funded health system is complex and complicated, and governments should focus on those priorities.

That doesn’t mean nothing else is possible, including substantive progress on timely and universal access to a comprehensive list of prescription medicines. Along with vastly improved long-term care, universal drug insurance doesn’t have to wait for governments to act. Other stakeholders – health professions, patient advocates, insurers, employers, academics and, yes, the pharmaceutical industry – all say they’re willing and able to get to work. Governments don’t need to lead change, but they can facilitate it. Indeed a few initiatives are underway that may help create a path to quality universal drug insurance.

The federal Liberal-NDP Supply and Confidence Agreement promises a Canada Pharmacare Act by the end of 2023. Yet, the language in the agreement suggests very little is new or will improve access. The government intends only that a “National Drug Agency [will] develop a national formulary of essential medicines and bulk purchasing plan by the end of the Agreement,” set for June 2025.

In April 2021, the federal government announced only a transition office for a Canadian Drug Agency. While this Office has reportedly consulted widely since then, it did not begin work on a national formulary, so the Canadian Agency for Drugs and Technologies in Health (CADTH) took the lead. Its advisory panel recommended a comprehensive drug formulary and related products, not (thankfully) an essential medicines list with very limited benefits.

Calls for a national drug formulary date back to at least Emmett Hall’s 1964 Royal Commission. Drug prices and costs were already a concern back then, when average per capita costs were about $9, equivalent to about $87 in 2022. As Katie Boothe highlighted in Ideas and the Pace of Change, our governments have fixated on drug costs and prices ever since, rather than insurance protection. So far, those efforts have given us the fifth highest per capita drug cost among OECD members. There’s no prize for that performance.

Let’s turn to “bulk purchasing.” First, this is a misnomer since neither public nor private insurers buy drugs. In fact, the pan-Canadian Pharmaceutical Alliance (pCPA) already negotiates lower prices for new drugs for public drug plans, and lower generic and biosimilar prices for all Canadians. Some private payers also negotiate individual Product Listing Agreements for their own clients, which is inefficient.

Two other drug policy developments should be noted.

1. Health Canada is developing a national strategy for drugs for rare diseases (DRDs). Ottawa promised about $500 million annually in Budget 2019, beginning this fiscal year. But DRDs already cost more than $3 billion annually, increasing at a compounded annual rate of 32 per cent between 2013 and 2020. So far, the federal commitment is frozen and even less than the $650 million that private insurers reported they reimbursed for DRDs in 2020.
2. Five provinces have enacted biosimilar switching for patients, a practice now seen as safe for all but a small minority of patients. Ontario has yet to implement this policy which it announced in 2019, forgoing its own annual savings estimated to be at least $120 million in 2018 on just three biosimilars. Canada is realizing just 23 per cent of potential biosimilar savings, leaving more than $500 million on the table.

Governments don’t work in a vacuum. These policies have important effects on private drug plans, which pay more than $13 billion annually in prescription drug costs for more than 23 million Canadians. Patient care is impacted, including some whose cost-related unmanaged health needs will place an avoidable strain on a highly-stressed health system. National policy needs both payer communities on board, especially since both play massive roles.

Where does all this leave us? We can draw three conclusions.

First, given past avoidance by federal governments that dates to 1945, and the dire state of today’s federal deficits and debt, the new Pharmacare Act is almost certainly not going to be the ambitious program signalled by the Liberals between 2016 and 2019.

Second, provincial governments have shunned federally funded or controlled national pharmacare, except for Prince Edward Island in 2021 and, perhaps surprisingly, the provinces themselves in 2004. Instead, the Premiers have continued to demand more unrestricted federal spending through the Canada Health Transfer.

Third, the Liberal-NDP agreement suggests a major distraction in work to develop a new national dental plan for “low-income” Canadians. Generously, the agreement defines low annual income as less than $90,000 which would exclude only the top decile of households based on 2020 average after-tax income. The first step, a dental plan for about 5 million children under age 12, is due this year. A Safe Long-Term Care Act also promises guaranteed care across Canada and there are other significant fiscal and policy priorities, of course. Apart from the inevitable jurisdictional wrangling, it’s also reasonable to ask if Ottawa can do all this quickly and well.

Private drug insurance is here to stay. It’s time to deliberately look there for a viable, feasible and socially responsible alternative.

Putting aside long-held policy and ideological objections, these considerations indicate that a public single-payer drug program is a long, long shot. That means private drug insurance is here to stay. But more than that, it’s time to deliberately look there for a viable, feasible and socially responsible alternative.

The main goal behind pharmacare is universal drug insurance, using a comprehensive formulary as a minimum standard. It should also include a national limit to out-of-pocket costs. For the beneficiaries of both public and private drug plans, that means substantially similar formulary, eligibility and cost sharing. Private drug insurance can, and in fact should be part of the solution. Similar ideas have been previously proposed, but sometimes timing is important.

Let’s dispense with one impediment, in two parts. First, private insurance should not be the basis for public health care. However, private drug plans have been part of the Canadian health system for 50 years, so we can reasonably consider it institutionalized. It is popular, it is part of the way we pay for medicines, and that social objective helps justify why the federal Department of Finance allows health costs paid by benefit plans to be non-taxable income to employees. Second, insurance companies can be effectively regulated, as in Quebec and in Europe, to ensure their drug plans meet the public interest, as well as those of their shareholders or policyholders.

Private plans are not perfect, and neither are provincial plans. Both payer groups need to better protect Canadians from ruinous drug costs. They have complementary strengths, for example health technology assessment in public plans and consumer-oriented health support technology in private plans. It makes sense to build on this mixed-payer model and solve access needs sooner.

Social insurance is a robust, mixed-payer model, and means much more than simply “fill the gaps.” While this model is not well-known, it is well-established in Canada. The Canada and Quebec pension plans are based on social insurance, as are Workers’ Compensation Boards, as is Quebec’s universal drug insurance plan. Several high-performing European health systems use social insurance models, notably Germany, the Netherlands and France. The health systems of these countries are not perfect either but they each perform considerably better than ours.

Using a more deliberate and structured social insurance model could overcome political and fiscal inertia, satisfy the public and ethically build on our current institutions.

Admittedly, this approach needs further study and debate beyond a doctoral thesis, but other, more immediate tactics are possible. All involve more consultation, but not a fresh start, and can be facilitated by any interested party ideally working with others.

1.   To develop a solution for all Canadians, deepen the consultation with private payers which include health insurers, employers and their advisors. This group has a huge and unrecognized influence on coverage scope and quality for the majority of Canadians. Include regulation and quality standards on the agenda.
2.   For the DRD strategy, consult immediately with existing payers on finance and funding. The $500 million promised by Ottawa three years ago is barely enough to get a seat at the table, but not to keep the seat if the amount is frozen and costs continue to rapidly escalate.
3.   For the national formulary, support additional work by CADTH on key design elements such as governance, financing and “the interplay between public and private insurance plans.”
4.   Consult stakeholders on national standards for a limit on out-of-pocket spending on prescription drugs. Coverage quality should not depend on where you live or work.
5.   To improve equity, develop a plan to bring private payers into the pCPA within two years. Why should more than 23 million Canadians pay more for new drugs just because provinces have excluded them from public coverage? The uninsured pay even more.

All these actions can be a precursor to developing a national medicines strategy for $37 billion in annual spending. One advantage to this proposal is that it does not preclude a public single-payer plan, should there ever be enough political will and public funding, but neither does it rely on a model that has failed to launch for more than 75 years.

The current state of our health system means viable alternative approaches are needed. Not all solutions need to originate inside government, nor should they because complex problems require a much broader set of ideas and expertise. Those on the outside most concerned about improving drug insurance should step up now and work constructively and quickly to create workable ideas for the real world.