Gathered in Halifax for the Council of the Federation, premiers and territorial leaders announced last week their plan to introduce a bulk purchasing strategy in the hope of "saving millions of dollars on prescription drugs."

If they go ahead with their plan, this will be the latest in a series of strategies adopted by governments in recent years aimed at controlling rapidly growing health-care costs. Although such plans may be motivated by laudable intentions, it is far from certain that a Canada-wide bulk purchasing strategy will lead to good results.

First and foremost, the provinces make the unwarranted assumption that such an initiative won't disrupt the drug supply chain in the country. This is very unlikely.

Since the beginning of the year, more than 240 drugs have been reported as being out of stock throughout the country, according to the Canadian drug shortages database. As a result, many surgeries had to be postponed and clinical treatments had to be suspended. A recent report from the Commons health committee identified the bulk purchasing strategy of hospitals as one of the primary reasons behind this growing problem.

As the report noted, this procurement strategy may produce savings in the short run, but at the risk of leading to shortages. Indeed, in a system that rewards the producer who comes up with the lowest bid, some manufacturers who are left aside will inevitably withdraw from the market.

At the international level, many countries have acknowledged the risks of purchasing drugs in bulk and sole-supply contracts. The practice has come under fire in New Zealand, which has seen more drug shortages since implementing the procurement strategy.

Australia opted for a more prudent strategy and now divides its procurement contracts for drugs and vaccines among several suppliers. In Belgium, the move to introduce a tendering system was quickly abandoned after the generic drug manufacturers all decided to stop participating in the competitive bidding process.

The premiers' declaration about bulk purchasing of generic drugs missed another crucial point. While they were quick to emphasize the cost aspect of drugs, they overlooked the fact that these drugs also provide tremendous benefits. According to a study released last week by the National Bureau of Economic Research - 16 of the past 31 American Nobel laureates in economics were associated with this organization - pharmaceutical innovations are responsible for as much as 75% of the increase in life expectancy at birth observed in 30 developed countries in the last decade.

Not only are new medicines beneficial in terms of providing better health outcomes, but they also tend to lower overall health spending, by reducing expenditures on other categories of medical care. Indeed, innovative pharmaceutical therapies have been, over the years, increasingly substituted for other more costly types of medical treatments and surgeries that require hospitalization.

Several major studies conducted in the U.S. during the past decade have shown that for every dollar spent on drugs, expenditures in the entire health system are reduced by between $2 and $2.65.

In short, a sound debate on this issue won't take place unless a careful assessment of both the costs and the benefits of pharmaceutical expenditures is done.

Michel Kelly-Gagnon is president of the Montreal Economic Institute (www.iedm.org). The views in this column are his own.