'We're talking hundreds of millions of dollars nationwide that will need to be renegotiated on an annual basis'
On Oct. 10, 2024, the government of Canada marked a significant milestone in healthcare by passing the Pharmacare Act, officially launching the first phase of a national universal pharmacare program.
This new legislation promises to extend prescription drug coverage to millions of Canadians, for free, focusing initially on two critical areas: diabetes medications and contraception.
“Everyone in Canada deserves access to the care they need, including to prescription medications,” said Health Minister Mark Holland. “Our plan for universal access to contraception means reproductive freedom and choice, and access to diabetes medication is a transformational step towards improving health outcomes and health equity in Canada.”
While the program is widely supported by healthcare advocates, questions remain about its implementation and impact on existing employer-sponsored health plans.
Optimism mixed with caution about Bill C64
Danyaal Raza, a family physician at St. Michael’s hospital in Toronto, expresses optimism about the legislation.
“I’m optimistic because… we already have existing public drug plans, albeit public drug plans that are not universal,” he says.
“We’re not reinventing the wheel here, and we’re building upon a framework we already use for doctors and hospitals.”
This move towards a universal, single-payer public pharmacare system is a “good step forward,” says Steve Morgan, professor at the School of Population and Public Health at the University of British Columbia in Vancouver, adding that every comparable country with a universal public health care system includes prescription drugs.
But the introduction of pharmacare is more of an incremental change rather than a comprehensive overhaul, he says.
"This is not the equivalent of building a comprehensive national pharmacare program overnight... This is a situation where we're talking hundreds of millions of dollars nationwide that will need to be renegotiated on an annual basis."
While the initiative is being hailed as a significant step toward universal drug coverage, Marc-André Gagnon believes a lack of clarity in the bill’s language is an issue.
"This bill for me, well, is a little bit problematic — it's still very vague," says the associate professor at the School of Public Policy & Administration at Carleton University in Ottawa, suggesting that this ambiguity may allow for too much flexibility in provincial negotiations.
Contraception and diabetes medications – good start?
Although diabetes and contraception are the focus, the legislation outlines the development of a national formulary — a list of essential drugs that will guide the broader pharmacare plan.
While there were definite recommendations for a more comprehensive suite of medicines, this isn’t a bad start, says Morgan.
"Diabetes and contraception are two of several classes of medicines where there is unequivocal evidence to support the clinical, economic and ethical case for public coverage. So, these are good classes of medicines to start."
And this list could expand to include other vital treatments in the future.
"An essential medicines list would be a few drugs from a very wide range of therapeutic categories, not just two categories of treatments,” he says.
"This list will be something that will emerge in the next 12 months because it’s required by the legislation... The question will then be: Should the government expand national pharmacare to cover those medicines in a way similar to how it's covering diabetes and contraception?"
The 2019 Hoskins report, which served as a key influence on the development of the pharmacare framework, suggested starting with a comprehensive list of essential medicines, covering a wide range of medical needs. Gagnon expressed disappointment that the government did not adopt this recommendation.
“Instead of starting with the small basket of essential medicines recommended by Hoskins, we have even a smaller basket," he says, adding that this limited approach is a way to test the program’s formula before expanding it.
“Best case scenario, we have this first step and there's then an expansion to a basket of essential medicines.”
Best practice: single-payer framework
Canada needs to stop being the only high-income country in the world with universal health care system that doesn't have a universal drug plan, says Raza.
“Bill C64 is not a universal drug plan. And for reasons that I don't totally understand, the government has chosen to start with diabetes medications and contraceptives. I would have started with a more inclusive list of essential medications, but at least it's a start, and at least it's using a single-payer framework, which is in an international best practice to get the ball rolling.”
He pointed to the World Health Organization’s essential medicines list as a model for what Canada’s national pharmacare program could eventually include.
"We actually have good lists of medications that have been deemed essential that really smart and thoughtful people have taken a lot of time and effort and resources to come up with. And so, in my view, that’s where we should have started.”
Price negotiation and coverage with pharmcare
A key feature of the Pharmacare Act is its commitment to establishing a national bulk purchasing strategy. This centralized system allows the Canadian government to negotiate drug prices on behalf of all provinces and territories, significantly reducing costs.
"Having a national level system of managing which drugs are covered and which are not based on best available evidence, and negotiating the prices and the security of the supply of the medicines for a country, those are huge advantages for a country, and frankly, huge advantages for employers, because employers are not well-equipped to engage in those tasks,” says Morgan.
Raza highlighted several studies that support this claim, including reports from the Parliamentary Budget Officer, the House of Commons Standing Committee on Health, and the Hoskins report.
"They’ve all come to the same conclusion, and that’s if we move to a universal public plan for prescription drugs, we’re going to save money overall on how much we spend on drugs in Canada — both because we'll be able to take advantage of bulk purchasing powers as well as administrative efficiency to reduce costs, and also because that's been the experience of other countries.”
No incentives for insurance companies
As expected, the private insurance industry has expressed opposition to the public pharmacare program. But one of the structural issues with private insurance plans, according to Gagnon, is the lack of incentives to reduce drug costs.
"The insurance company is paid as a percentage of spending, so you don't have any structural incentives to reduce expenditures, and this is something [that’s] very problematic," he says.
The administrative fees for private drug plans are also significantly higher than for public plans, contributing to Canada’s relatively high per capita drug spending compared to other OECD countries, says Gagnon.
"After the United States, among OECD countries, we’re the second most expensive country per capita when it comes to drug benefits," he says, adding that 10 percent of Canadians still struggle to fill prescriptions due to financial barriers.
The challenge is the insurers are making a lot of money on the administration costs and profits for the plans that employers pay for, says Morgan, “and the drug companies are making more money from the fragmentation of our system, which does not get us the best prices in the world. In fact, it gets us second or third worst prices in the world for pharmaceuticals.”
Cost savings for employer-sponsored health plans
One question that arises from the implementation of a national pharmacare plan is how it will affect existing employer-sponsored health benefits, particularly for prescription drugs.
But there is no reason for the private plans to worry, according to Morgan, saying it's analogous to coordinated benefits.
“The public plan will pay for these medicines as the payer of first resort — the private plan will never have to pay for them under this system,” he says.
“This is not unlike having a coordinated benefit, where one spouse has coverage and the other also has coverage, and one of the plans covers the drug first and the other kicks in afterwards. Employers and unions have been able to navigate that with private insurers for decades.”
The initial phase, covering the two types of drugs, represents about three to five percent of the total drug spend, so “we're not talking about huge amounts," says Gagnon, but what happens with the savings is up to employers.
"What they can do is expand or improve other dimensions of the private plan," such as enhancing coverage for other medications or increasing wages.
And employers should have no concerns about the quality of the medications covered by pharmacare, says Raza.
“Generic medications and the brand name ones are equally effective; in fact, they have to be in order to be offered as equivalent options.”
He emphasized the importance of employer support for the pharmacare program, particularly for small businesses. He cited the Surrey Board of Trade as an example of an employer group that has long advocated for a universal public plan.
"Small businesses struggle… much more with the cost of benefit plans, in particular the rising cost of prescription drugs," Raza said.
Provincial challenges with pharmacare
The Act of course mandates that the federal government work closely with provinces and territories to ensure a smooth rollout of the program. While there is optimism that most provinces will come on board, challenges remain.
Raza likened the situation to the development of Medicare in the 1960s and 1970s, when one province — Saskatchewan — led the way, inspiring others to follow, along with $10-a-day child care, more recently.
He pointed out that British Columbia and Manitoba have already taken steps toward universal coverage for contraceptives, signaling their readiness to participate in the national pharmacare program.
"I’m confident that all provinces will eventually come onboard, some sooner than others, but I’m confident that we’ll get there," he said.
One of the main issues is the potential for inconsistent implementation across the country. For example, Quebec’s mandatory model for private or public insurance could technically meet the bill’s criteria for universal pharmacare, says Gagnon.
He also cautioned that if different provinces and territories adopt varying models, it could undermine the goal of a cohesive national program.
"If we end up with other provinces... [trying] to preserve some type of private coverage, or [thinking] ‘Let's have a mandatory private coverage,’ then you're not testing anything, you’re still stuck in the patchwork of programs we have right now," he says.
Concerns about ‘political arbitrariness’
Gagnon also expressed concern that future decisions about which drugs to cover may be influenced by political considerations rather than medical necessity.
"We might end up having political arbitrariness, based on electoral concerns in terms of what we add in the basket, instead of following evidence-based policy," he says.
Morgan also voiced concerns about the politicization of the program.
"I worry that provinces will turn this kind of coverage into a political tool and, unfortunately, we live in a world where politics have become very divisive.”
He emphasized that the federal government will need to act decisively, ensuring that sufficient funds are allocated to make the program attractive to all provinces.
"That's really important at this stage, they've got to put enough money on the table to persuade provinces that, in fact, this is a win-win for them.”
