The Fraser Institute

The Fraser Institute

September 26, 2011 06:32 ET

The Fraser Institute: National Health Spending Crunch the Result of Public Insurance Programs, Not Drug Costs

TORONTO, ONTARIO--(Marketwire - Sept. 26, 2011) - Claims that prescription drug costs are at the root of Canada's health spending crisis are unfounded and not supported by any proof, concludes a new report released today by the Fraser Institute, Canada's leading public policy think-tank.

"There's no evidence linking the unsustainable growth of government health spending to 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 2011.

"In 2010, medical goods and services other than drugs consumed a staggering 91 per cent of total government health spending. To single out prescription drugs as the root of Canada's health spending problem is just plain wrong."

The report measures how all types of drug spending affect total government health care costs. 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.

"By 2017, six out of 10 provinces are on track to be spending half of all available revenue, including federal transfers, on health care," Rovere said.

"But the evidence shows that prescription drug costs can't be blamed for the health spending crunch plaguing all the provinces."

According to the report, prescription drugs consumed only 9.0 per cent of total government health spending in 2010, a percentage that has remained virtually unchanged since 2003. More specifically, patented prescription drugs accounted for only 5.2 per cent of total government health spending.

After spending on drugs is subtracted, all remaining areas of health care accounted for 91.0 per cent of total government health expenditures in 2010.

"This tells us that even if governments spent nothing on drugs, the cost of all other medical goods and services would still be unsustainable," Rovere said.

The study also found that, on average, government spending on health professionals grew by 6.8 per cent annually between 2001 and 2010. Annual spending on hospitals and institutions grew by 6.5 per cent on average, over the same period, while annual spending on public health, administration, research, and other areas combined grew by 7.6 per cent on average.

These annual growth rates are between 1.3 and 1.5 times higher than the average annual growth in Canada's gross domestic product (GDP) of 5.2 per cent (from 2001 to 2010), and between 3.1 and 3.6 times higher than the average 2.1 per cent annual growth in inflation over the same period.

Additionally, the study cites Canadian government data showing that average prices for existing patented prescription drugs in Canada have risen at a slower annual pace than the general rate of inflation for 21 of the last 23 years.

The report concludes that Canada's health spending crisis is due to the design of government health insurance programs, not the cost of medical treatment.

"The provinces simply can't afford to subsidize 100 per cent of the cost of medical goods and services through a tax-funded, single-payer, government-run insurance monopoly. Worse, Canadians suffer when governments attempt to control health care costs by restricting access to new medicines and technologies," Rovere said.

"Forcing people to pay a portion of their health care costs through a percentage-based co-payment and allowing individuals and families to purchase private health insurance for medically necessary services is the best way to maintain universal access to health care, provide Canadians with a wider range of benefits and more timely access to treatment, and return government health spending to sustainable levels."

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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 80 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

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