Canada pays too much for generic drugs

By Michael Law
Published in the Toronto Star, September 27, 2012
Would you pay $60 for a large coffee at Tim Hortons? How about $500,000 for a Toyota Corolla? You probably wouldn’t, but consider this: compared to other countries, this is how inflated Canadian prices are for some generic prescription drugs.

That our generic drug prices are high is no great secret, and recently nearly every provincial government has taken steps to lower prices. However, instead of leveraging competition to get lower pricing, thus far our governments have stuck to their old — and arbitrary — formula of paying a percentage of the equivalent brand name price. Ontario has gone the furthest and reduced prices to 25 per cent of the equivalent brand name drug.

Paying one-quarter of the brand price might sound like a great deal, but it isn’t.

This week the Centre for Health Services and Policy Research at the University of British Columbia published a paper where I demonstrate that Ontario pays nearly a quarter of a billion dollars more every year for the top 100 generic drugs compared to prices in other countries. Since Ontario has the lowest prices in Canada, this means every other province is overpaying too.

The amount we’re overpaying varies by drug. For some drugs, the difference is huge: while Ontario pays 62.5 cents for one 20mg tablet of simvastatin, New Zealand pays 2.4 cents. In fact, the price in New Zealand dropped to 1.8 cents after the research for the paper was completed, while Ontario’s stayed the same. That means Ontarians now pay 36 times more than New Zealanders for the same drug: just like the costly coffee, or the half-million dollar compact car.

The good news is that change should be coming soon.

In June, Canadian premiers agreed to flex their collective buying power to drive down generic prices using competitive purchasing strategies. This week, the ministers of health from across Canada are meeting in Halifax to discuss the details. This is sound policy, and is long overdue.

The savings possible from these changes would be positive and almost immediate — and would provide essential new health dollars that could be reinvested back into the system.

Here’s a sobering statistic: while Canadian medicare covers medically necessary hospital and physician services, we still pay around $5 billion out of our own pockets for prescription drugs every year. The result: one in 10 Canadians can’t afford their prescription drugs, and others are facing grim trade-offs between buying their needed prescription drugs, and food or rent.

Health policy advisers and academics have been proposing solutions to gaps in our drug coverage for decades. Many proposals to date have suggested massive changes to our complex and multi-billion dollar system of drug coverage. It’s like moving mountains from a political perspective — and not likely to happen any time soon.

This is where generic drugs come in. Better pricing for generic drugs offer us a real opportunity to improve drug coverage in an incremental and achievable way.

Let’s go back to simvastatin. Ontario’s public drug program spent $6.7 million on 20mg tablets of simvastatin in 2009. At the best international price, the province would have spent $0.3 million — a savings of $6.4 million.

Paying to cover all the simvastatin used in the province would only cost a small amount more: $0.5 million in total. Thus, there would still be $6.2 million in public sector savings. Universal coverage — coverage for every person in the province that needed the drug with no out-of-pocket charge — would still save money.

The findings don’t just apply to simvastatin. In fact, there are more than 30 generic drugs where the total savings per drug under universal coverage would be more than $1 million in Ontario alone. Universal public coverage of every one of the top 100 generics would still save $87 million in public funds if we got the best international prices. It would also benefit everyone by saving employers and individuals $158 million off their prescription drug bill.

Along with saving precious public funds, better drug coverage would result in fewer Canadians being unable to afford their prescription drugs, and improve their health as a result.

Working toward competitive generic drug pricing is essential, and this week the ministers of health should continue work on this important initiative. But let’s also seize this opportunity to make drug coverage more comprehensive for all Canadians. It makes both health sense and financial sense. Let’s not order any more $60 coffees.