January 11, 2002
A Stab at Reform
By THOMAS WALKOM, NATIONAL AFFAIRS WRITER
So far, public reaction to Roy Romanow's medicare report has focused on money.
"Romanow's $15 billion remedy," headlined the Star when the federal health commissioner released
his 47 recommendations for fixing medicare in November.
"Romanow's $15 billion cure," echoed The Globe and Mail.
Since then, reporters have parsed every statement of Prime Minister Jean Chrétien and Finance
Minister John Manley for spending clues.
Will Ottawa cough up the $15 billion over three years called for by Romanow? The $24.7 billion
over four years that the provinces want? Or a much smaller figure?
Yet money itself, while a crucial element of the Romanow recommendations, is not the key. Far more
central are those elements that would lay the groundwork for a different kind of public health-
insurance system. And of these, few are more important — or more politically contentious — than
the commission's suggestion that Canada move systematically over the next 18 years to forge an
affordable, universal, national pharmacare program.
Already, the powerful multinational brand-name drug lobby has weighed in against Romanow's
recommendation that Ottawa begin by reviewing its drug patent regulations.
"Government wins, patients lose," warned Canada's Research-based Pharmaceutical Companies, the
trade association for the powerful brand-name drug firms.
The association's chief lobbyist, former Ontario Liberal cabinet minister Murray Elston, said if the
health commissioner's recommendations were followed, drug research would be hamstrung,
bureaucracy would run rampant and patients would suffer.
"Weakening patent protection (for drug firms) would be a giant leap backward for Canada," Elston
said the day Romanow's report hit the streets.
Not so, shot back the generic industry, made up of companies that produce copycat versions of pricey
"Unless the federal government takes action to rein in soaring prescription drug costs, the dream of a
national pharmacare program will remain just that: a dream," said Jim Keon, chief lobbyist for the
generic firms and head of the Canadian Generic Pharmaceutical Association.
It's an old battle between the congenitally litigious brand-name drug firms and their equally militant
But then, the pharmacare debate itself is hardly new.
Justice Emmett Hall's path-breaking 1964 royal commission report that led to national medicare
called for a public health-insurance system that explicitly covered all prescription drugs.
Initially, the federal government agreed. When then-prime minister Lester Pearson took his medicare
proposals to the provinces in 1965, pharmacare was on his list.
But during the horse-trading that followed, pharmacare was dropped. The medicare scheme that
emerged in 1968 covered drugs used in hospital, but not those taken at home.
This was seen as an interim step. Medicare's backers assumed Canada would move eventually to
universal pharmacare. To that end, the provinces were encouraged to experiment with limited
pharmacare plans for welfare recipients and seniors. The federal government would help by using its
authority over patent law to reduce drug costs.
In 1969, a year after medicare kicked in, Ottawa fulfilled its part of this implicit pharmacare bargain
by dramatically changing the federal patent act.
Under what was called compulsory licensing, any qualified drug manufacturer could, upon payment
of a modest royalty, produce generic versions of a patented drug — and then sell that generic version
at whatever price it chose.
For consumers and provincial drug plans, compulsory licensing was a windfall. Drug prices
collapsed. A brand-name drug that sold for, say, $2 a pill could find itself competing against a generic
version of exactly the same drug costing 20 cents.
For brand-name firms, however, compulsory licensing was a nightmare that struck right to the heart
of their profitability — the patent.
A patent is a legal monopoly granted to inventors. Its purpose is to encourage innovation by ensuring
that someone who goes to the expense of creating a useful product will be able to recover his costs
before rivals are allowed to copy it.
All inventors can win patents. But for the pharmaceutical industry, they are life and death.
The reason, as a recent study points out, is that most new drugs are busts. Although, research and
development costs are high for any potential pharmaceutical product, in the end many just don't work.
Of those that do make it to market, 70 per cent are financial failures that do not repay their initial
That means the remaining 30 per cent must be milked heavily, not only to cover costs but also to
produce the sky-high rates of return expected by investors.
As a result, the brand-name drug industry has become highly concentrated, politically active and —
thanks to these two characteristics — very rich, with a profit rate about three times the industrial
To the worldwide brand-name industry, Canada's 1969 compulsory licensing law was anathema.
The problem was not the effect on the multinationals' Canadian drug sales. Canada accounts for a
minute percentage of drug sales worldwide. Rather, the issue was precedent.
If Canada could interfere with drug patents, the multinationals feared, other countries might follow
The resulting battles over patent law were bitter and hard-fought. But the multinationals held two
aces: strong support in Quebec and Ontario (where most brand-name manufacturing is concentrated)
and excellent political connections in Washington. Eventually, those connections paid off. In 1987,
Brian Mulroney's federal Conservative government weakened the compulsory licensing regime as
part of its efforts to curry favour in Washington and win a free trade agreement.
In 1992, the Tories finished off compulsory licensing completely in order to pave the way for the
North American Free Trade Agreement. The opposition Liberals promised to reverse this. The
promise was promptly broken as soon as Jean Chrétien became Prime Minister.
For Canada's provincial drug plans, the end of compulsory licensing was a body blow. Ontario
estimated in 1992 that the patent law changes would cost it at least $1 billion over the decade.
But Saskatchewan suffered most. That province's New Democratic government had introduced the
country's first universal provincial drug plan, one that covered all citizens.
In 1992, faced with a budget deficit and the spectre of rising drug costs, then-Saskatchewan premier
Roy Romanow decided to end the universal pharmacare experiment.
As he told the Star last year, he felt he had no choice. Without access to sufficient, affordable generic
drugs, universal pharmacare had become too expensive.
When Romanow's one-person royal commission began its hearings into medicare, it was inevitable
that pharmacare would come up.
Drugs account for the fastest-growing element of health-care spending. Canadians spend about $12
billion a year on drugs, more than they do on physicians.
Insofar as it helps patients stay out of hospital, an appropriate drug regime can save the health system
Yet ironically, those patients who save the system money by staying home are penalized. Their drug
costs are no longer covered by medicare.
The result was a massive shift of health-care costs — from a national medicare system funded by
taxes to a hodge-podge of public and private drug plans and out-of-pocket payments.
Overall, said Romanow, Canadians pay about $2.3 billion a year out of pocket toward drugs. This
figure does not include the amount employees covered by workplace drug plans pay indirectly
through the wages they forgo in lieu of pharmaceutical benefit programs.
Throughout his public hearings, Romanow was urged to recommend that Ottawa bring some order to
this chaos through a national pharmacare plan and pay for it by bringing back compulsory licensing.
In the end, he went part way. His drug recommendations, like most of the recommendations in his
report, begin modestly but carry a hidden bite.
Knowing Chrétien's aversion to dramatic change, Romanow did not call for an immediate pharmacare
program. Instead, he suggested Ottawa chip in about $1 billion a year to help the provinces cover
catastrophic costs faced by those who pay more than $1,500 a year for drugs.
By 2020, Romanow said, that should be expanded into a full-scale universal pharmacare program
covered under the Canada Health Act.
But to make full-scale pharmacare possible, Romanow went on, Ottawa and the provinces would
have to immediately tackle the high cost of drugs.
First, he said, the federal government should set up a powerful new drug agency that would not only
approve new drugs, but also issue guidelines on how best to use them.
As well, this agency could work with the provinces to create a national formulary — a list of drugs
that provincial drug plans would cover.
Eventually, the new agency would act as purchasing agent for provincial drug plans, in order to
maximize their bargaining clout with the multinationals.
All of this alarmed the brand-name firms.
Right now, those firms take the lead in educating physicians about new drugs, often with the help of
This system encourages physicians to use the newest and most expensive drugs. Critics say it does
not necessarily encourage them to use the best.
A study on blood pressure medication published last month pointed to this problem. It concluded that
a pill that was available since the 1960s and costs only pennies produces better results than far more
expensive and newer medication.
Presumably, a Romanow-style national drug agency would be able to make similar calls for other
But the brand-name firms are wary. While happy to have the government certify the safety of new
products, they are reluctant to let it pronounce on the relative usefulness of these pricey drugs.
Similarly, the brand-name firms are pleased when provincial drug plans buy their products. But they
are not pleased when these provincial plans, for reasons of cost and efficacy, decide against including
new, expensive drugs in the list of medications they pay for.
As long as each province has its own list, the brand-name firms can divide and conquer — lobby the
most amenable province and then fund patients' rights groups that will demand other provincial plans
A single national formulary, however, would limit what Romanow has called this whipsaw effect.
And a single agency acting as buyer for all the provincial and territorial drug plans could bargain
down the prices charged by all drug firms, generic and brand name.
Or, as brand-name lobbyist Elston puts it, Romanow's drug recommendations would "increase
On the patent front, Romanow chose not to directly challenge NAFTA. He did not recommend that
Canada reintroduce compulsory licensing.
Instead, he called for a change to so-called notice of compliance regulations that he said would limit
the ability of the brand-name firms to extend their effective monopolies.
Currently, any brand-name drug firm that believes its patent is about to be infringed can demand and
receive what is called an automatic two-year stay.
During this two-year period, or until the issue is settled in court, a generic competitor can't produce a
cheap copy of the disputed drug.
Jacques Lefebvre, a spokesperson for the multinational lobby, says these rules prevent unscrupulous
generic competitors from bringing copycat drugs to market while a brand-name firm's legitimate
patents are still in force. He points out that the automatic two-year stay does not extend a patent past
its 20-year maximum life.
Jeff Connell, a spokesperson for the generic lobby, says that, technically, Lefebvre is correct. But in
practice, he says, the brand-name firms use the automatic two-year stay to harass their generic
They do so, he says, by filing for additional and usually bogus patents on the disputed drug just
before its two-year stay is up. The new patent allows the brand-name firm to receive another
automatic two-year stay while the issue is hashed out in court.
When that process is close to completion, another new patent is filed and another automatic two-year
In one case, says Connell, the combination of new patent applications and automatic two-year stays
has allowed a brand-name firm to extend by at least three years its monopoly over a lucrative
heartburn medication whose original patent expired in 1999.
Romanow seems to have been convinced by the generic industry's argument. He wants Ottawa to
immediately review the notice of compliance regulations. He also wants it to reconsider what he calls
This is the practice of applying for a new patent each time a minor, non-therapeutic change (such as
going from a thrice-daily to a once-daily pill) is made.
Lefebvre says evergreening, or what the brand-name firms call "ongoing innovation," can produce
better health results.
He points to a study done for his lobby that he says proves this.
(That 1997 study concludes that people who don't take their medicine end up costing the health
system more and that anything that can help in this regard, including changes to method of delivery,
should be looked at.)
Still, Romanow has allies in his quiet campaign to change patent regulations. The only other country
to grant automatic two-year stays to drug firms has been the United States. But in October, under
pressure from Congress, U.S. President George W. Bush ordered a regulatory change to drastically
limit the privilege.
Last month, the House of Commons industry committee quietly agreed to look at Canada's notice of
compliance regulations. It is expected to hold hearings in March.
In a curious and roundabout way, this could represent Ottawa's first concrete attempt to implement
some of the less-noticed but more fundamental elements of Roy Romanow's report.