Commission on the Reform of Ontario's Public Services

Drug costs are growing faster than other health spending
Pharmaceuticals have been the fastest-growing component of health care costs in recent
decades. Stabile and Greenblatt note that from 1975 to 2006, inflation-adjusted spending per
capita on hospitals rose 51 per cent, the cost of physician services rose 98 per cent and
pharmaceutical costs went up 338 per cent. 25 The same report documents that the cost of
prescription drugs exceeded overall growth for health care spending in every year from
1986 to 2007. 26 Busby and Robson found that the Ontario Drug Plan (ODP) now constitutes
10 per cent of Ontario’s health spending — $4.5 billion in 2010 — and has grown by
9.4 per cent per year over the past 20 years. 27 About three-quarters of the cost relates to
drugs for seniors, who make very low co-payments; singles with income over $16,018 and
couples with income over $24,175 pay an annual deductible of $100 and a $6.11 dispensing
fee per prescription, while lower-income seniors pay no deductible and $2.00 per prescription.
Both sets of researchers wrestled with the issue of how fast drug costs will grow in future.
On the positive side, many prescription drugs will soon be coming off patent protection so
some argue that cost increases will moderate. Indeed, at less than five per cent, drug costs
had one of the lowest rates of increase in 2010 in many decades. However, drug use is
heavily concentrated in the elderly, and new drug discoveries could push the cost curve back
up. Stabile and Greenblatt looked at scenarios with drug costs rising four, six and eight
per cent annually. At eight per cent growth, still less than in the recent past, drugs would go
from 0.62 to 8.6 per cent of GDP in 50 years. Busby and Robson project ODP costs to rise
8.4 per cent per annum over the next 20 years, just slightly less than the 9.4 per cent pace of
the past 20 years.
In its 2010 Survey of Canada, the OECD noted that Canadian generic drug prices are the
highest in the OECD, even higher than in the United States and twice as high as in Finland.
It is not surprising then that Ontario took decisive action in 2010 to lower generic drug prices
to 25 per cent of brand prices. Other provinces are taking similar steps.
25 Mark Stabile and Jacqueline Greenblatt, “Providing Pharmacare for an Aging Population: Is Prefunding the Solution?” IRPP Study,
February 2010, p. 9, downloaded from http://www.irpp.org/pubs/IRPPstudy/IRPP_Study_no2.pdf.
26 Ibid., p. 7.
27 Colin Busby and William B.P. Robson, “A Social Insurance Model for Pharmacare: Ontario’s Options for a More Sustainable,
Cost-Effective Drug Program,” C.D. Howe Institute, April 2011, downloaded from http://www.cdhowe.org/pdf/Commentary_326.pdf.
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