(Source: Financial Post 2014-4-09)
The Canadian Life and Health Insurance Association (CLHIA), which represents the private health insurance industry, says that the cost of new medicines threatens the sustainability of private drug plans – and they want government to do something about it.
Last fall, CLHIA’s president commented in the National Post that, “high drug costs are eating away at our health system” and that “the increasing number of very expensive drugs that treat relatively rare diseases threatens the financial sustainability of the entire system.” Since then, the industry has actively called for increased government intervention and regulation of the Canadian pharmaceutical industry.
Rx&D shares CLHIA’s concern about sustainable access to new medicines. However, an objective look at the evidence shows that there is no factual justification for government to manage the costs of private drug plans. Spending on new (patented) medicines is more sustainable than other privately insured healthcare costs.
In a study published by the Canadian Health Policy Institute (CHPI), I analyzed the most recent data from the Canadian Institute for Health Information and the Patented Medicine Prices Review Board to estimate the cost of new medicines and other privately insured healthcare costs. The data showed that over the five-year period from 2006 to 2011, private insurance spending on new medicines grew by only 11.7% compared to 22.7% for dental services, 32.2% for vision care services, 53.0% for other professionals, 30.8% for hospitals and 35.0% for administration.
Private insurance expenditures on dental, vision, professionals, hospitals and administration are growing two to five times faster than spending on new medicines.
Not only are trends for new medicines sustainable but overall drug costs in private drug plans are expected to grow at low, single-digit percentages for the foreseeable future.
Canada’s Research-Based Pharmaceutical Companies (Rx&D) commissioned from IMS Brogan an independent forecast of all (patented and non-patented) prescription drug costs affecting the private drug insurance market. The analysis isolated the impact of drug costs separately from other drug plan costs like administration, dispensing fees, etc. It also accounted for cost drivers affecting future growth, including the incremental impact of three events that will occur during the forecast period: new medicine entry, loss of exclusivity (patent expiry), and aging of the population.
According to the forecast, over the period 2013 to 2017, the costs attributable directly to drugs are expected to grow at a compounded annual rate of only between 1.6% and 2.8%.
The insurance industry is especially concerned that private drug plans are having trouble covering high-cost claims for medicines treating rare diseases. While prices for new medicines for rare diseases can be high because of expensive research and development costs, there are very few patients needing these types of medicines. High prices multiplied by small volumes mean the overall impact on costs is very minor.
According to the Canadian Organization for Rare Disorders, less than 1% of public drug budgets are spent on treatments for rare diseases. The impact is likely even less for private insurers because many high-cost drugs are administered in hospitals and are therefore publicly funded. Any affordability challenges within some drug plans must be a result of inadequate insurance designs and insufficient risk pooling, or insurance costs are being driven by something other than spending on new medicines.
Missing from the discussion is an appreciation for the value of innovative pharmaceuticals. The costs of new medicines cannot be considered without also counting the benefits. Innovative medicines are an efficient way to treat illness and a healthy population is the basis for a more productive workforce.
The Conference Board of Canada published a study of the health and economic benefits associated with pharmaceutical spending in Ontario. The research found that as of 2012, the $1.22-billion spent on the six classes of medicines studied generated off-setting healthcare savings and productivity gains of nearly $2.44-billion – a 2:1 benefit-to-cost ratio.
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