While a national pharmacare program in Canada could mean reduced expenditures and drug prices, there could also be unintended consequences, according to a new report by the Fraser Institute.
Shining a light on the national programs in Australia, New Zealand and U.K., the report looked at the cost-saving mechanisms they use, as well as the side-effects. Specifically, it noted the programs have limited patient and physician choices in prescriptions and restricted access to some drugs, potentially reducing the effectiveness of treatment overall.
For example, the U.K.’s National Health Service includes coverage for pharmaceuticals. But when the NHS is considering adding a new drug to its coverage, it has to find the money from limited coffers, according to the report, noting this could mean the “opportunity cost” of adding a new option for drug coverage detracts from another element of care.
Read: Future trends in drug plan costs and the national pharmacare debate
In New Zealand, about 80 per cent of pharmaceutical costs are funded by the government through subsidies provided by geographically specific district health boards according to a national pharmaceutical schedule. The country’s Pharmaceutical Management Agency, known as Pharmac, is responsible for determining which drugs the government will subsidize. With a fixed budget, the organization essentially considers new expenses in a closed circuit, determining any pricing concessions required for drugs that are currently covered so new ones can be added to the roster.
“New Zealand has had great success in managing pharmaceutical expenditures while maintaining universal access,” the report noted. “The New Zealand experience demonstrates that strong negotiations, under particular circumstances, can reduce pharmaceutical expenditures — by up to 90 percent on some drugs.”
One potentially problematic strategy in New Zealand is sole tendering. This is where the purchasing agent negotiates the lowest price with a supplier, but allows the lowest bidder an exclusive piece of market share. Often, the lowest bidder’s drug becomes the only option available within a specific therapeutic class. The paper found this is an effective means of keeping costs down, but noted there are risks involved, namely access to fewer options.
Read: Are Canadians changing their views on a national pharmacare program?
Australia handles pharmaceuticals through its Pharmaceutical Benefits Scheme, which determines the cost of drugs based on income. Once Australians reach a certain cap, many drugs are free. The government directly negotiates drug prices with manufacturers and employs an advisory committee to evaluate which new medicines to subsidize. There’s no cap to potential governmental spending on drugs and, as coverage grows, so does the spending. The current coverage accounts for about 90 per cent of prescriptions in the country, according to the report.
When it comes to national pharmacare, another problematic cost-saving measure is restrictive formularies, which are essentially lists of preferred drugs. Australia provides a positive formulary, indicating the specific drugs it covers, while the U.K. uses a negative formulary, indicating only the excluded drugs. In the case of the U.K.’s NHS, certain potentially helpful drugs are excluded from the formulary because the cost-benefit analysis was unfavourable, stated the report. And in Australia, drugs are submitted to Pharmac, which decides whether to include them in the formulary, a system the report noted has the potential to exclude many drugs.
“Government-run pharmacare programs in countries such as the U.K., Australia and New Zealand have produced unintended consequences for patients, so Canadians should be aware of the risks as policymakers here pursue potential reforms,” said Kristina Acri, a Fraser Institute senior fellow and author of the report.
Read: Lessons for Canada from pharmacare systems around the world