New study says Canada-Europe trade negotiation, other government policies misinformed about impact of drug spending on health care costs

TORONTO, Nov. 27, 2012 /CNW/ - Canada-Europe trade negotiations are being influenced by false assumptions about the impact of drugs on the cost of health care according to new research published today by the Canadian Health Policy Institute (CHPI). Canadian negotiators are reluctant to adopt European standards on intellectual property rights for new drugs because of allegations by special interest groups that those standards will lead to significantly higher health care costs in Canada. The CHPI study suggests that the federal government might be risking an opportunity to secure Canada's economic future over worries about drugs costs that are exaggerated, because the actual scale of government drug spending is small and its impact on health care costs over the last 38 years has probably been close to neutral.

Brett Skinner, the author of the study argues that the facts are important saying, "There is a lot at stake for Canadian jobs and economic growth if trade negotiations fail because of exaggerated claims about drug costs." According to Skinner, "Canada-Europe trade is already worth $92.1 billion. Europe is the world's wealthiest market. The trade agreement will reduce barriers for Canadians to do business with nearly 500 million people - almost 15 times the size of our domestic market."

Skinner notes that inflated assumptions about the scale of drug costs are also influencing government thinking on other important policy issues, including proposals for a national pharmaceutical program and a centralized government-run drug purchasing scheme.

The study titled, Drugs and the public cost of health care in Canada, 1974-1975 to 2011-2012 was published at Canadian Health Policy, the online journal of CHPI. It examined the actual impact of provincial/territorial government spending on drugs over the last 38 years.

The study found that in the fiscal year 2011-2012 drugs accounted for only 8.0% of total government health spending. The share for patented medicines was only 4.7% and it has been declining since 2004.

The study also discovered that drug spending in Canada has increased steadily as a percentage of government health budgets, growing from 1.2% to 8.0% over a 38-year period. Yet there was no correlation with the rate of growth in government health expenditures. Just as important, provinces that spent more of their health budgets on drugs did not experience higher rates of growth in health spending relative to provinces that spent less on drugs.

Further, the research showed that on average Canadian prices for patented medicines have grown 1.9 percentage points slower than the general rate of inflation since 1988, and prices for patented medicines in Canada have averaged below median international prices since 2001.

The study's findings indicate that government efforts to control health care costs by restricting drug spending are unlikely to produce significant overall savings due to the small percentage spent on drugs. Further, the data on prices suggests that there are few additional savings to be gained from leveraging the bulk buying power of governments. Finally the data imply that past expenditure on new drugs has likely been off-set by reductions in spending on other types of health care inputs. This suggests that the rising share of spending going to drugs simply reflects a shift to a more efficient mix of health care inputs over time.

Skinner explained the implications for patients and taxpayers saying, "Federal-provincial-territorial governments spend huge sums of public money on an expensive bureaucratic infrastructure to control patented drug costs amounting to less than 5% of public health spending. If instead they looked for savings from the other 95% of health care, they might get a bigger return on their efforts." He continued, "the evidence shows there probably isn't a lot of fat to cut on drug prices without harming incentives for the invention and development new medicines." Skinner added, "Arbitrary government restriction of drug spending could also interfere with the natural evolution toward a more efficient allocation of health care inputs."

Skinner concluded, "The federal government is ill-advised to risk the Canada-Europe trade agreement, or to allow other important national decisions to be influenced by false notions about the actual scale and impact of drugs on health care costs in Canada."

About CHPI
Established in 2012, Canadian Health Policy Institute (CHPI) is a federally incorporated non-profit, independent think-tank. CHPI is funded by independent research grants and unrestricted operating grants from public sector, private sector and non-profit sector sources. CHPI is dedicated to conducting, publishing and communicating evidence-based socio-economic research on health system performance and health policy issues that are important to Canadians. CHPI's work is published in the online journal Canadian Health Policy, www.canadianhealthpolicy.com.

SOURCE: Canadian Health Policy Institute

MEDIA CONTACT:
Dr. Brett J Skinner (Ph.D.), CEO, Canadian Health Policy Institute (CHPI)
Email: [email protected]
Telephone: [phone]