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Reducing the Health Care and Societal Costs of Disease: The Role of Pharmaceuticals



  • Health care costs are consuming more than 40 per cent of all provincial government spending
  • Public and private spending on prescription and non-prescription drug accounted for just under 16 per cent of overall health costs in 2012, up from 9.5 per cent in 1985.
  • Spending on pharmaceuticals has been one of the fastest growing components of overall health care spending over the last 20 years, although the spending growth has slowed in recent years 
  • Pharmaceutical innovation has produced many effective treatments that help patients combat diabetes, high blood pressure, and high cholesterol.

Research Objectives

  • Provide an evidence-based assessment of pharmaceutical treatments on health care costs and other costs borne by society, including productivity losses associated with disease and illness
  • Consider various classes of drugs currently used to treat high blood pressure, high cholesterol, diabetes, asthma, rheumatoid arthritis and smoking cessation in Ontario
  • Cover both a historical and future time perspective 

Research Methodology

  • Research for this report was conducted in five stages: 
  1. literature review and data gathering on pharmaceutical innovation, treatment, and chronic disease prevalence in Ontario
  2. Pharmaceutical selection criteria developed 
  3. Examine the role of pharmaceutical innovation from a macroeconomic perspective 
  4. Develop a modelling platform to examine the costs and benefits associated with specific pharmaceutical treatments in Ontario. 
  5. Simulate the model to reflect base-case and alternative scenario projections for the future
  • Obtain data on treatment costs from IMS Brogan
  • Historical data purchased from 2007-2012 (first 8 months of 2012) 
  • Data included units dispensed, cost of purchases, average dosage (i.e. take 1 per day) and therapeutic use (i.e. 34% was for RA)
  • Estimate the number of patients using treatments based on the volume of units dispensed and by considering the rate of non-compliance with treatment

Calculation of Benefits – Three approaches

  • For high blood pressure, high cholesterol and diabetes treatments – benefits arise from prevention of events, including stroke, heart attack, heart failure, angina and diabetes complications
  • For smoking cessation treatment – benefits arise from reducing diseases associated with smoking
  • For asthma and rheumatoid arthritis – benefits arise from reducing the severity of disease

Research Findings and Conclusions

  • Pharmaceutical innovation leads to reductions in health care costs and productivity losses associated with illness 
  • While the cost of treatment during the patent protection period tends to receive a lot of attention, the economic benefits associated with reducing the incidence and severity of disease is often overlooked or not well understood 
  • Ontario benefits from pharmaceutical innovation by reductions in other health care costs and productivity losses associated with disease 
  • In particular, the $1.22 billion spent on pharmaceutical treatments (under analysis) in 2012 generated offsetting health and societal benefits of nearly $2.44 billion
  • Under a baseline projection of pharmaceutical demand over 2013–2030, all six classes of drugs will provide health and societal benefits in excess of the estimated costs of treatment
  • The scenario analysis also shows that efforts to increase patient compliance can further reduce the incidence and severity of many common diseases in Ontario
  • Achieving a proper balance in terms of patent protection and generic competition is critical in facilitating use of effective treatments
  • To assess the benefits and costs associated with pharmaceutical innovation, it is imperative to consider the long-term perspective

Assumptions for future demand (under base-case projection)

  • Patient demand for hypertension treatments to increase at 1.7%/year
  • Patient demand for high cholesterol treatments to increase at 2%/year
  • Patient demand for diabetes treatments to increase at 1.8%/year
  • Patient demand for asthma treatments to increase at 0.9%/year
  • Patient demand for RA treatments to increase at 1.8%/year
  • Patient demand for prescription smoking cessation aids to decrease at 0.1%/year

Scenario results

Base case

  • all six classes of drugs will provide health and societal benefits in excess of the estimated costs of treatment
  • For all drug classes, the ratio of health and societal benefits relative to the cost of treatment will be higher in 2030 than in 2012.

Scenario – Increased Patient Compliance With Prescribed Drug Therapy

  • Incremental health and societal benefits associated with greater patient compliance with CVD and diabetes treatments amount to $2.8 billion over 2013–2030—far exceeding additional treatment costs of $627.4 million.
  • Incremental health and societal benefits associated with greater patient compliance with inhaled steroids and biologic treatment over 2013–2030 amount to $903.3 million— far exceeding additional treatment costs of $335.5 million.
  • For prescription smoking cessation pharmaceutical treatment, greater patient compliance over 2013–2030 would result in incremental health and societal benefits of $41 million— exceeding additional treatment costs of $36.4 million.

Scenario – New Pharmaceutical Innovation

  • Assumptions:
  • Pharmaceutical innovation results in new treatments for each of the six conditions/diseases under analysis 
  • New treatments are under patent from 2013-2021 (8 years)
  • During this time 75 per cent of market uses new treatment
  • After 2021 – 100 per cent of market uses new treatment will a 10 per cent cost premium relative to base case (or current treatment) 
  • Results: Over the long term (covering both patent exclusivity period and generic competition), all six innovative new pharmaceutical treatments would provide combined health and societal benefits that would outweigh the cost of treatment.


  • The approach used is specifically focused on illustrating the economic implications of pharmaceutical treatments 
  • The findings may not necessarily align with those obtained using other approaches.
  • Therefore, the results are intended to add another perspective to the evaluation of pharmaceutical treatments rather than replace existing perspectives.
  • Economic evaluations of particular pharmaceutical treatments depend critically not only on the approach used but also on the data sources for pharmaceutical efficacy rates, compliance rates, typical event rates of complications, and costs associated with complications (during the event year and subsequent years).
  • The calculation of broader societal impacts of pharmaceutical treatment depends on the scope of analysis chosen. 
  • This analysis is based on classes of drugs rather than specific drugs within each class
  • The analysis in this report does not allow for an interpretation of the cost offset associated with any specific payer; additional analysis would be required to adequately address these questions.

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