The Fraser Institute

The Fraser Institute

May 09, 2013 06:32 ET

Fraser Institute: Bulk Purchasing of Prescription Drugs May Save Governments Money but Poses a Risk for Some Patients

CALGARY, ALBERTA--(Marketwired - May 9, 2013) - Governments that opt for prescription drug bulk-purchasing agreements can save taxpayers money but at the risk of reducing patient health by limiting access to optimal medicines, concludes a new report from the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.

"In virtually all cases, bulk purchase agreements provide savings to drug plan sponsors, but choice and flexibility are often sacrificed. These savings come with the potential for negative consequences including risks to patient health and well-being, and reductions in pharmaceutical innovation," said Dr. Kristina Lybecker, Fraser Institute senior fellow and author of The Bulk Purchase of Pharmaceuticals.

Bulk purchasing agreements seek to reduce per-unit costs of prescription drugs by increasing the volume of product purchased. In pharmaceutical markets, this is done by combining multiple purchasing entities such as provinces, municipalities, or employers to secure lower prices for their medicines, usually directly from the manufacturer.

Earlier this year, Canadian provinces and territories agreed on the bulk purchase of six widely prescribed generic drugs for a purported savings of $100 million.

"Pharmaceutical costs, along with health care costs generally, are escalating at a rate that outpaces general inflation several times over, leaving government providers with the difficult task of balancing consumer needs against budgetary realities," Lybecker said.

The Bulk Purchase of Pharmaceuticals examines bulk pharmaceutical purchase agreements in New Zealand, the United States, and Europe, specifically considering how such agreements are used in each jurisdiction, quantifying the savings, and identifying related consequences.

The report gathers ample anecdotal evidence to establish that bulk purchasing agreements consistently generate cost savings, ranging from modest to quite impressive, attributable to:

  • Provider pharmacies accepting lower reimbursement and dispensing fees in exchange for a larger volume of prescriptions;

  • Reduced administrative expenses when spread over a larger number of units, essentially lowering the per-unit cost through economies of scale; and,

  • Enhanced opportunities to influence market share from increased volumes and concentrations in a given area, which results in better rebates negotiated with pharmaceutical companies.

However, the report warns that bulk purchasing of drugs may be detrimental to patients' health.

"These agreements can restrict access to medicines, forcing patients to pay out of pocket for the medicines they need as well as delay introduction of new innovative medicines," Lybecker said.

"This has the potential to harm patients and create additional expenditures on non-pharmaceutical forms of care. Indeed, the New Zealand experience clearly demonstrates poorer health outcomes, reduced innovation, and a possible lack of savings overall as costs are shifted to other areas of health care."

Lybecker concludes that while there is no question that bulk purchasing plans for prescription drugs can save money, governments must be cautious that potential savings are not offset by higher non-pharmaceutical health costs and poorer health outcomes.

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of 86 think-tanks. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

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