In the face of comparable drug expenditure inflation, Canadian policymakers may dismantle seniors' drug plans that appear similar to the ones that US policymakers are being asked to construct. Without management systems, the Canadian experience suggests that US seniors' drug programs will face escalating expenditures, diminishing benefits and the abandonment of a good idea.

Background: Canadian Medicare has covered medically necessary physician and hospital services, including prescription drugs consumed in hospital. Despite a lack of federal cost sharing, most provincial governments have independently developed a variety of public drug benefit plans. Until recently, a common attribute of all these plans has been generous coverage for almost all seniors. However, a lack of utilization management tools has resulted in spending increases which threaten the sustainability of these programs for seniors. Drug coverage has gradually eroded through new/increased eligibility requirements or user charges. Ten to twenty percent of the non-senior population is either uninsured or underinsured for drug costs. The Commission on the Future of Health Care in Canada recommended that the federal government cost share a universal program for families with catastrophic drug costs. However, means testing of seniors is likely to be one viable way to extend coverage to families with high drug costs.

Method: The paper provides an overview of provincial drug benefit programs for seniors, focusing on 3 policy dimensions (coverage, price control and utilization management).

Findings: By 1986 all provincial governments had implemented drug benefit plans, usually for specific populations, seniors being the most common subgroup. Pharmacare in Canada has failed to cover the remainder of the population - 10 to 20% of Canadians are either uninsured or underinsured against the cost of prescription drugs. Extending coverage will undoubtedly lead to an erosion of seniors' benefits. Given the size of the provincial drug plans, provinces surprisingly do not negotiate prices with suppliers, while US institutional purchasers are able to negotiate discounts. Part of the reason is that tough price negotiations can be too costly, both politically and economically. For example, Quebec has 42% of the national pharmaceutical research investment and is headquarters to most multinationals. Rather than negotiating prices directly, Quebec requires that manufacturers charge no more than the best available price in Canada, creating a "price floor" for smaller provinces. Ontario has used its purchasing power to freeze retail prices it will pay for drugs on its formulary, and since 1999 has sought case-by-case cost agreements for new brand name products.

The Patented Medicine Prices Review Board (PMPRB) (a federal body) monitors prices to ensure they are not excessive compared with other countries. While prices for patented drugs in Canada are in line with the median price in the PMPRB comparator countries (although there is no justification for these prices), prices for non-patented drugs exceed standards. At both the federal and provincial levels, rigorous and systematic economic evaluations do not underpin regulation or negotiation of drug prices. All provincial plans use a formulary which is effective in blocking the use of unlisted products, but not the frequency or breadth of use of listed drugs. Co-payments and deductibles reduce public drug expenditures, but also reduce the use of essential and non-essential drugs. Generic substitution has been shown to reduce cost without impinging access. However, patented drugs account for an increasing share of the market: 65% of manufacturer sales in 2001. Substitution of newer drugs for older ones--"me-too" drugs--are also a source for cost escalation. Therapeutic reference pricing (i.e. use of cost-effective products among closely related but chemically distinct drugs) has been effectively used in BC. However, industry backlash has hindered other provinces from implementing such policies.

Conclusions: Equity of access to drugs requires serious public financial commitment, and sustainability requires effective expenditure management. Prices need to reflect relative therapeutic value, and patients and prescribers need information and incentives to balance benefits and costs. The current tension between health and industrial policies limits prescription drug expenditure management. Ultimately, effective spending management policies require political leadership.

Reference: Morgan S, M Barer, J Agnew. Whither Seniors' Pharmacare: Lessons from (and for) Canada. Health Affairs, 2003; 22(3): 49-59.

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