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Public insurance schemes responsible for runaway government health spending, not prescription drug costs

Media Contacts:
Release Date: October 4, 2010
TORONTO, ON—Prescription drugs are not to blame for the unsustainable growth of government health spending in Canada, concludes a new study released today by the Fraser Institute, Canada’s leading public policy think-tank.

“The flawed design of government health and drug insurance programs is what’s bankrupting the Canadian health care system, not the price of prescription drugs or new patented medicines,” said Mark Rovere, Fraser Institute associate director of health policy research and co-author of The Misguided War Against Medicines 2010.

“Government spending on all areas of health care other than prescription drugs consumes more than 90 per cent of total government spending on health care. Clearly, it’s wrong to single out drug expenditures as the cause of rising health care costs.”

The Misguided War Against Medicines 2010 examines all of the ways in which spending on drugs may contribute to the overall growth in total government health spending. The evidence suggests that neither patented medicines in particular, nor prescription drugs in general, can be blamed for the unsustainable growth rates of government health spending.

“Throughout the history of Medicare, rising costs have been blamed on the components of health care, including the costs of physicians, hospitals and drugs. This has resulted in governments relying on a central planning model of health care where physician wages have been capped and access to hospitals and new drugs rationed,” Rovere said.

The Misguided War Against Medicines shows that prescription drugs accounted for only 8.8 per cent of total government health spending in 2009, down from 9.3 per cent in 2006. Patented prescription drugs accounted for only 5.5 per cent of total government health spending in 2009, down from 6.3 per cent in 2006.

After spending on drugs is subtracted, all remaining areas of health care accounted for 90.8 per cent to 91.2 per cent of total government health spending between 2006 and 2009.

The study also found that annual government spending on health professionals grew at an average rate of 8.0 per cent between 2005 and 2009, while annual spending on hospitals and institutions grew by 5.9 per cent on average, and annual spending on government health, administration, research, and other areas together grew by 8.4 per cent on average.

“These average annual growth rates are between 1.6 and 2.4 times higher than the average annual growth in GDP of 3.5 per cent, and between 3.1 and 4.6 times higher than the average annual growth in general inflation of 1.8 per cent observed over the same period,” Rovere said.

“Even if governments spent nothing on drugs, spending on all other medical goods and services would still be growing at an unsustainable rate.”

Additionally, the study cites Canadian government data showing that average prices for existing patented prescription drugs in Canada have grown at a slower annual pace than the general rate of inflation for 19 of the last 22 years, and have declined in nine of those years

“This means that prices for existing patented drugs are increasing at a slower rate than they could increase under federal rules that permit annual price increases matching the general rate of inflation. It also means that after adjusting for inflation, prices for existing patented medicines have decreased in real terms in 19 of the last 22 years,” Rovere said.

The report concludes that the actual cause of unsustainable growth in government health spending is the flawed design of government health and drug insurance programs, not the price of medical treatment or the introduction of new medical technologies.

“When government health insurance attempts to provide equal access and 100 per cent insurance coverage for any medical need on a universal basis, the system becomes financially unsustainable. Public insurance programs are notorious for restricting access to new medicines in a misguided attempt to control costs,” Rovere said.

“The solution is clear: A compulsory private insurance system combined with low-income subsidies to foster universal coverage would offer a significantly wider range of benefits and more efficient coverage, leaving all Canadians much better off.”


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