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Canada’s prescription drug prices are low compared with the United States, but high compared with almost everywhere else. The reason why is simple: The U.S. doesn’t effectively regulate drug prices, whereas governments elsewhere use regulation and bulk buying power to keep a lid on prices. And Canada? Canada lives somewhere between those two options.

That’s why Americans are crossing the border to buy our cheaper insulin, and why U.S. President Donald Trump has even mused about encouraging the practice.

But it’s also why, though American per capita drug spending in 2016 was 51 per cent higher than Canada, Canadian per person spending is 45 per cent higher than the OECD average – including 63 per cent higher than the United Kingdom, 92 per cent higher than the Netherlands and 132 per cent higher than Denmark. Canadian drugs prices are a bargain next to our southern neighbour. Set against the rest of the world, they’re anything but.

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Last week, the federal government announced a plan to redesign the system for setting drug prices, aiming to move Canadian prices closer to the rest of the world. What’s promised is a major remodel of the health-care system’s plumbing; the bureaucratic and legal piping that the average person never sees, but which determines how much we pay for medicine.

Prescription drugs administered outside of hospitals cost $33.7-billion in 2018, according to the Canadian Institute for Health Information. That makes drugs the second-largest item in the country’s health-care envelope, ahead of physician billings. It means that, if Ottawa gets this reform right, it will have a big impact.

And the three reforms that Health Minister Ginette Petitpas Taylor announced on Friday look like the right moves.

Step 1: The Patent Medicine Prices Review Board (PMPRB) will get better tools to regulate the prices patent drug manufacturers can charge for new medications. The PMPRB currently reaches a fair price by considering prices in a basket of seven developed countries. Among them are Switzerland and the United States, which have the world’s highest drug costs. As of July 1, 2020, the basket will no longer include those countries.

Step 2: Drug manufacturers will have to provide Canadian regulators with the “real” price of their drug, net of hidden discounts or rebates. Drug pricing is an opaque business, featuring official prices that don’t always reflect deals done with insurers, whether public or private. That lack of transparency makes regulation more difficult, and tends to result in higher costs.

Step 3: The PMPRB will be able to consider a new drug’s value to patients, and whether its price reflects that.

All of this will be subject to nearly a year of consultation, but the basic ideas are sound. The Trudeau government is pitching this as “laying the foundation for national pharmacare,” but it makes sense no matter what shape pharmacare ultimately takes. And it’s necessary, even if pharmacare never comes into existence.

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Canada in 2019 has two distinct drug-affordability problems. Both deserve to be election issues.

The first problem is that too many Canadians – between one-in-20 and one-in-five, depending on who is counting – have insufficient or no drug insurance.

When a Canadian goes to hospital for an operation, the price is $0. But as for the drugs they’ll take once back home, the cost may be partly covered, entirely covered or not covered by a hodgepodge of public and private insurance, depending on age, income, province and employer.

That’s because, when Canada created medicare back in the 1960s, it made a choice unlike other countries with universal health care: It chose not to cover drugs. That oversight should be rectified. Whether that means universal drug coverage through a public plan, or a public-private hybrid, with private insurance still widespread, is something the parties should debate this fall.

What can’t be debated is the second problem, which is that Canadians – employers, employees and taxpayers – are paying too much for drugs. And that’s largely a function of how patent medicine prices are set, regulated and negotiated.

Canada is like a homeowner who has discovered that her house isn’t insulated, leading to higher heating bills than the neighbours. A dose of renovations are in order.

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