National Newswatch
National Opinion Centre

Yet another academic report claims pharmaceutical costs are soaring in Canada due to new innovative costly medicines. The Canadian Institute for Health Information (CIHI) also recently released its annual trends in national health expenditure reporting that drugs constitute the second largest class of spending (14 percent) well behind hospitals (25 percent) but just ahead of physicians (13 percent).

These reports are designed to alarm politicians, government officials and the public into believing that the increasing cost of drugs is due to new expensive innovative medicines and that action should be taken to reduce drug prices. However, they are based on incomplete analyses and deceptive reporting and hide biases.

First, drug cost analyses are based on manufacturers’ list prices and include wholesale and retail price markups and dispensing fees. This means that they exclude the substantial discounts of 20 to 30 percent that manufacturers negotiate with large purchasers like the provincial governments and private insurers.

Second, not only are the analyses based on theoretical prices, but they report the costs of medicines, irrespective of whether they are over-the-counter or prescribed medicines, or whether the prescribed medicines are patented or generic (non-patented) products. This conceals any differences between trends in spending on these dissimilar types of medicines. For instance, CIHI’s “drugs” category, which combines all prescribed and non-prescribed medicines, hides a gradual decrease over the past 15 years in spending on patented medicines, as a percentage of total health expenditure, and an increase in spending on prescribed generic drugs between 2000 and 2010.

Third and critically important, analyses examining only costs don’t assess whether the medicines do the job for which they are intended and improve patient health outcomes. They also fail to evaluate whether therapeutic benefits reduce expenditure in health care areas such as hospitalizations, health professional services and other expensive interventions. Assessing drug costs in isolation is like looking at a painting through a thin slit and trying to estimate its value based on the narrow strip visible. Such analyses are of little practical value for good policy-making. Stating that “action must be taken to curb sustained growth in pharmaceutical spending in Canada” cannot be concluded from an analysis of medicine costs alone. It’s simply ideological rhetoric from academics with a negative bias towards the biopharmaceutical industry.

Medicines being brought to patients in the 2000s include several innovative drugs for disorders for which either no treatments exist or current therapies are little more than palliative. Many of these new therapies are costly because they require millions, perhaps billions, of dollars and years to develop, test in animals and then in humans, and satisfy regulatory processes and standards as being safe and efficacious before making them available to patients. While preferable that patients and insurers should only pay for medicines whose value in treating the disorders for which they are indicated has been demonstrated, Canada’s rigid and often hostile health technology assessments and non-transparent price negotiation processes are inadequate for properly assessing the holistic health value of drugs for precision medicine and for fair price negotiations.

Assessments of the value of medicines should be based on more than evaluations of pre-marketing clinical trials and one-and-done recommendations based on limited health technology assessments focused on price. A comprehensive appraisal should include assessing cost against real-world evidence of the strengths and weaknesses of a medicine’s ability to provide individual and societal benefit. This would, of course, require time, financial resources and dedication that are frequently absent from much scientific research in universities today. Like much of Canadian society, academics want a quick return for their efforts – in their case, another publication to bolster the resume for success in achieving tenure or promotion – rather than gathering their own data as academia has done for centuries.

Instead of dire claims about unsustainable drug costs, decision-makers in governments and private insurers need more comprehensive analyses with minimal bias and transparent reporting. Only then will they have appropriate information to be able (hopefully) to appreciate and pay for the personal and social value of innovative medicines. Decisions based on misleading reporting and inadequate information about costs will negatively impact patients by deterring developers from making new ground-breaking drugs available in Canada.

Nigel Rawson is an independent researcher and an affiliate scholar with the Canadian Health Policy Institute. John Adams is cofounder and CEO of Canadian PKU and Allied Disorders Inc. and volunteer board chair of Best Medicines Coalition. The views expressed are the authors’ own and do not necessarily represent those of organizations with which they collaborate. 

The views, opinions and analyses expressed in the articles on National Newswatch are those of the contributor(s) and do not necessarily reflect the views or opinions of the publishers.
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