This document discusses the financial implications of proposed pharmacare models in Canada. It summarizes different views on what implementing universal pharmacare may cost and save. While some estimates suggest overall drug costs could be reduced by billions, others argue these savings may be overestimated once factors like drug price negotiations and impacts on private benefits are considered. The document also notes many unknowns remain around the potential economic and operational impacts of establishing a national pharmacare program in Canada.

1. Critique of financial
implications of proposed
models to health systems
09/02/16 1
Don Husereau BScPharm, MSc don.husereau@gmail.com
(1) Senior Associate, Institute of Health Economics, Edmonton, Alberta
(2) Adjunct Professor, Department of Epidemiology and Community Medicine, University of Ottawa
(3) Senior Scientist, Institute for Public Health, Medical Decision Making and Health Technology Assessment
UMIT - Private Universität für Gesundheitswissenschaften, Medizinische Informatik und Technik GmbH
@DonHusereau

2. Outline
• What is being said about the financial
implications of pharmacare
• What should we expect?
• What do we know?
• Where have we landed?
09/02/16 2

3. What is being said?
09/02/16 3
Prepared by PDCI Market Access Inc.
Commissioned by the Canadian Pharmacists Association
January 19, 2016
PHARMACARE COSTING IN CANADA
Preliminary Report: Assessment of a National
Pharmacare Model Cost Estimate Study

4. Equity - Access and fairness

5. Indirect
• time loss from work
(absenteeism)
• presenteeism
• time loss from usual activity
• early retirement or premature
death due to illness or injury
•travel, parking
•intangibles (suffering
caused by disease & tx
Medical
Public (Ministry
of Health)
Outpatient Resources
•physician assessments
•X-rays, tests, procedures
•home care visits
•ER visits Hospitalizations
•hospital bed stays by ward
•lab tests and assessments
•health care personnel time
•equipment, capital costs,
overheads
Compensation*
Private
Non-Medical
Formulary
•Medications
(+dispensing fees)
•Informal care costs
Caregivers
Societal
Direct
Patients•devices, meds* Not included in analysis from
societal perspective
Source: Levy AR 25

6. 09/02/16 6
Whose Costs?
Evans RW - Based on the Picard Lecture (panel), “Reform, Re-Form, or Reaction: Whose Objectives are Driving the
Health Care Debate?”Visions, National Health Law Conference, Banff, Alberta, November 8, 2007

7. What is being said?
• Would cost the public treasury
an additional $3,151 million
per year—but overall drug
costs to Canadians would be
10% or $650 million less than
what is now spent.
• Benefit 3 million Canadians,
(mainly poor and low
incomes)
09/02/16 7

8. What is being said?
• Universal pharmacare would
reduce public spending by
billions ($7-14)
• Private spending would also
go down ($7-10 B)
• Requires public sector
investment ($1)
• Savings from negotiation
• Improve access (co-payment)
• Improve financial prtotection
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9. What is being said? (cont.)
• Build incrementally
• Steps in that direction might include
universal coverage for drugs with known
value propositions in terms of reduced
public spending on hospitals
• Universal first-dollar coverage of generic
medicines acquired under tendering
processes could also save
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10. What is being said?
• Canada would also save
from 12% to 42% in total
prescription drug
expenditures.
• Could be: ($1.5-10B
drugs, $1.5B admin)
09/02/16 10

11. 09/02/16 11

12. What is being said?
09/02/16 12
Prepared by PDCI Market Access Inc.
Commissioned by the Canadian Pharmacists Association
January 19, 2016
PHARMACARE COSTING IN CANADA
Preliminary Report: Assessment of a National
Pharmacare Model Cost Estimate Study
considerations in their collective agreements. The limited benefits available on PharmaCare
resulted in extensive grievances, arbitration, reinstatements of some non‐PharmaCare drugs as
benefits to the employees and millions in payments to employees who had to pay out of pocket for
drugs.
11,12
The costs to the health care system associated with added physician visits necessary to
switch therapies (from non‐PharmaCare to PharmaCare eligible) are not known at this time but
would have to be factored into any national pharmacare model that seeks to impose public plan
coverage on those currently with private drug plans.
Taking into account adjustments to these two assumptions alone (UK prices as a proxy for
monopsony price setting and collective bargaining offset) we can restate the overall cost impact as
outlined below in Table 2.
Table 2 ‐ Morgan National Pharmacare – Distribution of Public/Private Spending on Prescription
Drugs – ADJUSTED
Spending Baseline Change in Spending
(base Scenario)
National
Pharmacare
$ millions
Public
Direct 9,725 +3,383 13,108
Indirect 2,425 ‐2,425 0
Subtotal 12,151* +958 13,108
Private
Private Sector 5,659 ‐5,659 0
Out of Pocket 4,534 ‐2,556 1,978
Subtotal 10,193 ‐8,215 1,978
Total 22,344 ‐7,257 15,087
Adjustments
UK Price Adjustment (to Dec 2015) +3,247 3,247
Collective Bargaining Offset +2,425 2,425
Adjusted Total Drug Expenditures ‐1,585 20,758
Change in Public Spending
(+958 +3,247 +2,425)
+6,630
*Note: Rounding in original study.
In summary, once adjusted, the overall potential reduction in expenditures is approximately $1.6
billion from implementation of the National Pharmacare program, but the increase in public
expenditures is $6.6 billion – much greater than originally estimated. The amount of the
• Possible overestimation
of savings

13. What is being said?
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Prepared by PDCI Market Access Inc.
Commissioned by the Canadian Pharmacists Association
January 19, 2016
PHARMACARE COSTING IN CANADA
Preliminary Report: Assessment of a National
Pharmacare Model Cost Estimate Study
• “Combined with the
recent phasing out of
professional allowances,
reduced revenues from
dispensing fees and
upcharges will negatively
impact the level of
service patients have
come to rely on from
their pharmacist.”

14. What is being said?
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Prepared by PDCI Market Access Inc.
Commissioned by the Canadian Pharmacists Association
January 19, 2016
PHARMACARE COSTING IN CANADA
Preliminary Report: Assessment of a National
Pharmacare Model Cost Estimate Study
• “This could make
Canada a lower priority
for innovative drug
product launches, further
delaying or even
precluding Canadians’
access to important, and
potentially life saving‐
medicines”

15. What is being said?
• There are too many Canadians
who have either no coverage for
prescription drugs or insufficient
coverage
• We could spend less on
prescription drugs in Canada and
get the same or better value
• Without substantial policy reform,
the current situation could get
worse
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16. What is being said?
• We do not want a poor pharmacare plan — for
example, one that provides “universal”
coverage but where patients still cannot afford
to take their medications, or one where costs
continue to increase at the rate they have over
the past 15 years
• Decisions about which drugs should be paid
for publicly should be based on evidence and
de-politicized to the extent possible
• A good pharmacare plan would focus not just
on providing coverage to the entire population
but also on improving the quality of prescribing
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17. What is being said?
• The development of a good
pharmacare program would
require ongoing evaluation and
refinement
• The goals of pharmacare should
be a program that produces
better health, at lower total cost
than we currently spend, and that
provides a good experience for
patients
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18. What is being said?
• Principles
– Access (Equal?)
– Fairness ($)
– Safety (Appropriate?)
– Value for money (Cost-effective?)
– Program budget (Spend growth)
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19. What is being said?
Legislative challenges
1.Federal government unilaterally establishes
national pharmacare
2.Federal and provincial governments agree to a
transfer of powers to the federal level
3.The federal government enacts Canada Health
Act style legislation requiring provinces to‐
implement universal pharmaceutical insurance
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20. What is being said?
Implementation challenges
•How, who?
•What are the change management costs?
•What about different political regimes?
•What about changing healthcare
dynamics?
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21. What should we expect?
• Public insurance programs have the
benefit of maintaining lower transaction
costs and using scale to effectively
negotiate lower prices.1
• Added benefits can include effectively
incorporating standardized information
infrastructure and a platform for the
equitable distribution of resources.
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1. Uwe Reinhardt, Keeping Health Care Afloat: The United States vs.
Canada, The Milken Institute Review (The Milken Institute, 2007).

22. What should we expect?
• A more recent move toward a single payer
system in the state of Vermont in 2011, for
example, has been projected to reduce
health spending by 25.3 percent after 10
years compared to what spending would
be without the reform.1
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1. William C. Hsiao et al., “What Other States Can Learn from Vermont’s Bold Experiment: Embracing a Single-Payer Health Care
Financing System,” Health Affairs (Project Hope) 30, no. 7 (July 2011): 1232–41, doi:10.1377/hlthaff.2011.0515.

23. What should we expect?
• Separating insurance has opposite effect
• UK Cancer drugs fund, which was
provided a budget of GBP 200B,
overspending the budget and introducing
low value drugs associated with a “net
loss of at least 14,400 quality adjusted life
years in 2013/14”.
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24. What should we expect?
• The creation of separate insurance
programs for rare diseases in some
provinces, while an expedient political
solution, will likely be associated with
significant future expenditure growth as
rare diseases are expected to represent
20% of insurance budgets
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25. What do we know?
• Not much.
• Few structures like Canada to make direct
case.
• Actual economic case for operationalizing
some for of pharmacare has not been
made
– Only case for principles.
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26. What do we know?
• Effect on costs of administration?
• Who will win and who will lose?
• Effective price reductions? (compared to
what?)
• Effect on private insurance???
09/02/16 26

27. Where have we landed?
• Right here, having a discussion?
• Universal coverage will not:
– Eliminate concerns about affordability and
access
– Eliminate the need for private insurance,
including drugs
– Guarantee sustainable spend
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28. Don Husereau
+16132994379
don.husereau@gmail.com
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