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Lower drug prices, lower costs, better care?

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Bulk purchasing of pharmaceuticals has attracted significant attention as Canada’s provinces work to balance access to medicines and their benefits with budgetary realities. Unfortunately, while much has been made of the potential savings, insufficient consideration is being given to the tradeoffs and risks associated with bulk purchasing agreements.

The US, Europe, and New Zealand have extensive experience with bulk purchasing — experience that can help Canadians develop a deeper understanding of the benefits and risks with this new-to-Canada approach to purchasing medicines.

Bulk purchasing agreements seek to reduce per-unit costs of medicines by increasing the volume purchased by a conglomerate of purchasers. In Canada, this means provincial governments join forces to buy medicines in higher volumes in an effort to gain price reductions from manufacturers.

The experiences of nations using bulk purchasing show these agreements consistently generate cost savings, ranging from modest to quite impressive depending on the specifics of the strategies in use, sophistication of the plan, size of the program, and historic purchasing patterns. If the savings translate into lower consumer prices, bulk purchasing may also reduce patient noncompliance thus improving health outcomes and reducing the use of other health-care resources.

Put simply, bulk purchasing may help Canada’s provincial governments constrain escalating pharmaceutical costs with ancillary benefits.

There’s no free lunch, however. Implementation of bulk purchasing agreements and their interaction with other cost containment initiatives (such as reference pricing, therapeutic substitution, preferred drug lists, etc.) may negatively impact patients, and ultimately prevent the initiative from reducing overall expenditures.

For example, bulk purchasing may limit the choice of medicines for physicians and patients if their preferred therapy (or most effective therapy) is not covered under the new arrangement.

Bulk purchasing agreements may also accept higher prices for some medicines in exchange for deeper discounts on others. Thus patients might be able to access optimal medicines in some areas of care but be forced to choose less optimal medicines in others.

Patients react differently to different medicines in terms of both benefits and side effects. Accordingly, different therapies may have negative health impacts for patients or increase the disability burden of disease. Private costs might also increase if patients choose to remain on their preferred medicine and are forced to fully cover the cost or pay the price differential between their preferred medicine and the one covered under the agreement.

Further, through delayed introduction of new innovative medicines and delayed introduction of low-cost generics, bulk purchase agreements can lead to poorer health outcomes, additional expenditures on non-pharmaceutical forms of care, and avoidable prescription costs.

Indeed, the New Zealand experience shows that bulk purchasing in combination with approaches such as therapeutic substitution and preferred drug lists, resulted in poorer care for some patients including increased prevalence of uncontrolled blood pressure, deteriorated lipid control, and worsened cardiovascular health. Overall, studies find that New Zealand’s approach negatively impacted both the disability burden and health outcomes, generated higher patient costs, and shifted utilization to other more invasive, costlier treatments.

Bulk purchasing agreements may also result in monopolies or a limited numbers of drug suppliers. Beyond the departure of smaller manufacturers and the concentration of the domestic industry, this restricts opportunities for therapeutic substitutions and may lead to drug shortages and harm to patients.

Finally, a focus on lower prices and exerting price pressure on the pharmaceutical industry can reduce the incentives for research and development. This stifles innovation, reduces the number of breakthrough therapies in the pipeline, and diminishes incentives for incremental improvements.

While not all these outcomes are inevitable, some are and experience suggests others are highly likely. As with so many public policies, the devil is in the details. It may make some sense for provinces to join forces and negotiate better pricing for new drugs in return for greater market access. To the extent this approach reduces patient choice, however, it might lead to worse health-care experiences and worse outcomes, without any overall savings.

The key question for Canadians is how much are we willing to give up in the name of cost management?


Nadeem Esmail is the director of health policy research at the Fraser Institute. Kristina Lybecker is a senior fellow at the Fraser Institute.

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