Drugmakers aren't responsible for rising health care costs
25 04 08 - 13:32
By Brett J. Skinner
Rising health care costs are all too often attributed to spending on prescription drugs. However, the argument becomes a difficult pill to swallow once a few facts are known.
The most recent Statistics Canada data show that over the past 10 years, total provincial government health spending across Canada grew at an average annual rate of 7.3%, compared with 5.9% for total available provincial revenue from all sources and 5.6% for gross domestic product (GDP). Clearly, this indicates the growth in public health spending is not sustainable.
But spending on drugs is not the primary cause of cost pressures on public health insurance. The most recent update to an annual study by the Fraser Institute confirms again that even if governments spent nothing on drugs, spending on all other medical goods and services would still be rising at an unsustainable rate.
Data from the Canadian Institute for Health Information (CIHI) and the Patented Medicine Prices Review Board (PMPRB) show that all types of prescription drugs accounted for only 9.3% of total federal-provincial-territorial government spending on health in 2006, down from 9.6% in 2005.
More specifically, patented prescription drugs accounted for only 6.3% of total government health spending in 2006, down from 6.8% in 2005.
In fact, the past 31 years of available data show that these percentages were much lower in the past. Therefore, spending on drugs was not a major effect on the overall growth rate for public health spending over the entire history of medicare in Canada.
By comparison, between 2002 and 2006 annual public spending on health professionals, hospitals and institutions, and other categories grew on average at 6.5%, 6.9% and 7.2% respectively. All together, non-pharmaceutical spending accounted for 90.7% to 91.4% of total public spending on health during this period. This strongly suggests that efforts to contain health care costs by targeting prescription drugs are misguided.
PMPRB data also show that average prices for existing patented prescription drugs in Canada have grown at a slower annual pace than the general rate of inflation for 17 of the past 19 years. Prices for existing patented drugs are increasing at an even slower rate than they are allowed to grow under federal price controls that permit annual price increases matching the general rate of inflation. This means that after adjusting for inflation, prices for existing patented medicines have been declining in real terms.
Introductory prices for new patented medicines in Canada are also lower than those in most of the countries that the PMPRB uses for international comparisons. Other Fraser Institute research has found that Canadian prices for patented drugs were on average 51% below American prices for identical drugs.
There are two reasons that drugs are accounting for a rising share of total health spending. One is the introduction of new drugs as treatments that did not previously exist. Second is the increasing use of drugs to replace or complement other forms of medical treatment. The available evidence suggests that on average new drug treatments produce net cost savings when all health spending is accounted for.
It is a mistake for policymakers to engage in centrally planned cost-containment strategies targeting the individual components of health care spending. Unsustainable growth in public health spending is a result of the flawed design of public health and drug insurance programs, not of the price of medical treatment or the invention of new medical technologies like patented drugs.
Government should not be in the business of providing health insurance in the first place. Health insurance is a free-market invention to help people collectively afford the cost of infrequent, unpredictable medical expenses that would be otherwise unaffordable or catastrophically expensive for individuals. Government interference in health care markets through public insurance programs actually distorts the efficient allocation of medical resources, including prescription drugs.
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ubsidized coverage of 100% of the cost of consuming medical care is not a financially sustainable insurance design. The reflex response of governments is to shift the blame for their policy failure on to physicians, hospitals or drugs to justify rationing access to publicly insured goods and services or reducing the scope of coverage.
It would be more efficient for government to directly support financially needy people with a means-tested income subsidy dedicated to the purchase of private insurance coverage, than to maintain huge government-run health programs through taxation and centrally planned rationing. A regulated competitive private-sector insurance market would be more sustainable, while providing better access and respecting consumer choice.
Financial Post
Brett J. Skinner is director of health, pharmaceutical and insurance policy research at the Fraser Institute in Toronto. He is the author of two annual studies on this topic called The Misguided War against Medicines and Paying More, Getting Less.