Prescription drugs provide important benefits to patients, and are an essential component of the health care system. They also have significant costs: Canadians spent roughly $35 billion on drugs in 2013, or about 16% of total health care spending.
Drug costs have put significant strain on provincial budgets. In response, most of Canada’s provinces and territories have joined together to form the Pan-Canadian Pharmaceutical Alliance (PCPA), with the goal of negotiating better prices on both brand name and generic prescription drugs.
Payments for prescription drugs in Canada
In Canada, the majority of prescription drugs consumed outside of hospitals are paid for either out-of-pocket by individuals or by private insurers, with 26% to 45% of prescription drug expenditures covered by public drug plans administered by the provinces and territories. Individuals covered by these public plans typically include seniors, people with disabilities, those on social assistance, people receiving home care, and those residing in long term care facilities. Many provinces also provide some form of catastrophic drug coverage.
Because public drug plan costs are a major component of provincial health care spending, governments have increasingly been negotiating product listing agreements with drug manufacturers, which typically provide discounts on the price of prescription drugs, often connected to the volume of drugs purchased.
Marc-André Gagnon, Assistant Professor at Carleton University says, “Drug companies arrive with artificial inflated prices and from there, negotiation takes place with the main purchasers in terms of their bargaining capacity.”
Recently, Canadian provinces and territories have negotiated drug prices in isolation, but because a province’s bargaining power is tied to its size, the result has been uneven deals across the country. Smaller provinces were often paying more than larger provinces for the same drug, says Steve Morgan, Director of Centre for Health Services and Policy Research & Professor at the University of British Columbia.
The Pan-Canadian Pharmaceutical Alliance
In 2010, the Pan-Canadian Pharmaceutical Alliance (PCPA) was formed under the Council of the Federation to join provinces and territories to negotiate prices for publicly covered drugs. The PCPA examines all drugs recommended for funding by the Common Drug Review and the Pan-Canadian Oncology Drug Review and then decides whether joint Pan-Canadian negotiations for the drug should occur.
If the PCPA decides to move forward on a specific drug, one province will assume the lead and begin negotiations with the drug manufacturer. The specific negotiation process varies by province. In Ontario, all negotiations are managed through the province’s Senior Pharmacist.
If an agreement is reached, the lead province will sign a Letter of Intent with the manufacturer, which is shared with the other provinces and territories in the PCPA. Once these negotiations have concluded, each participating province and territory makes their own final decision on whether to fund the drug and enter into their own product listing agreement (based on the Letter of Intent) with the manufacturer.
PCPA negotiations for brand name drugs are currently being led by Ontario, with Nova Scotia and Saskatchewan taking the lead on generics. David Jensen, spokesperson for the Ontario Ministry of Health and Long Term Care, says “Working together improves our buying power and allows for better utilization of resources within the Health Ministries.”
“It has been a major accomplishment to successfully collaborate with 10 jurisdictions on complex drug files,” Jensen says. As of September, there have been 48 negotiations, and nine are currently underway. The PCPA decided not to negotiate 16 drugs due to the lack of evidence around their effectiveness.
The PCPA has estimated that joint negotiations for 43 brand name and 10 generic drugs have already saved a combined $260 million in drug costs annually.
According to a 2013 study in BMC Health Services Research, policy makers have stated that the joint collaboration has the ability to enhance equity in access and drug prices across provinces. This is because small provinces have less bargaining power due to their small population size, but by combining forces with larger provinces like Ontario, they have been able to get much better prices than they could their own. As a result, it is hoped that these smaller provinces will be able to cover drugs they previously could not afford.
Challenges with joint negotiations
The PCPA has faced several challenges. The negotiating power of the initiative is less than it could be, because provinces are not required to be involved, and Quebec (Canada’s second most populous province) has declined to participate.
In addition, manufacturers have generally been unhappy with the process, according to a report on the PCPA prepared by IBM. Manufactures have reportedly pointed to a lack of consistency among provincial leads and a lack of transparency around timelines, PCPC process, and the specific criteria on which a product is evaluated. Manufacturers have also reported a sense that the provincial negotiation leads lack the authority to truly negotiate, because individual provinces retain the right to not cover their drugs, even after a price has been agreed upon through a Letter of Intent.
Cooperation has been another key challenge. Joel Lexchin, a professor at York University and emergency physician at the University Health Network, says “[The PCPA] is promising but it’s limiting because it requires a degree of cooperation amongst plans.” Cooperation has been a challenge at times due to a process that many stakeholders feel is too informal, according to the IBM report. A more “transparent process with some additional clarity around average timelines for each stage would be helpful to keep stakeholders, particularly manufacturers, informed about the status of negotiations,” the report reads.
“There is a need for a more formal and consistent process, increased transparency and dedicated resources,” agrees Jensen. He hopes that the new PCPA office announced by the health ministers will address some of these issues. However, details on the new office are scarce, and the PCPA website indicates only that “implementation plans and timelines are currently being finalized.”
Consequences for cost-effectiveness research
While joint negotiations can improve the prices provinces pay for brand-name medications, these negotiations may have unintended consequences.
When a province or country negotiates with a drug company, the details of the final agreement remain secret (though Germany is considering ending this practice). For example, while it is public knowledge that the Pan-Canadian Pharmaceutical Alliance has negotiated a discount on the Cystic Fibrosis drug Kalydeco (list price: $300,000 per year), the exact amount of this discount is a secret.
These secret discounts allow provinces to cover drugs they otherwise could not afford, but they also make it very difficult to accurately assess the cost effectiveness of other drugs.
Currently, new drugs approved for sale in Canada are evaluated by the Common Drug Review to determine whether they are cost-effective, and thus whether they should be covered by provincial drug plans.
But problems arise when the real cost of drugs are kept secret, because the cost effectiveness of a new drug is judged in comparison with other drugs that are already on the market. If the amount being paid for the comparator drugs is not known because it is secret, it is essentially impossible to do a valid cost-effectiveness analysis of a new drug. “It introduces a lot of uncertainty into the process,” says Ahmed Bayoumi, a scientist at the Li Ka Shing Knowledge Institute of St. Michael’s Hospital who sits on the Common Drug Review’s Canadian Drug Expert Committee.
Gail Attara, chair of the patient advocacy group Best Medicines Coalition, claims that the PCPA offers more value to governments than patients. She worries that “bureaucrats” will make decisions about which drugs to fund based exclusively on the cost, and overlook more expensive drugs that some patients need.
In particular, Attara is concerned that if the increased purchasing power of the PCPA results in deep discounts on certain drugs within a therapeutic class, provincial plans may stop paying for other drugs in the class and force patients onto the cheaper drugs. This practice is known alternately as reference drug pricing and therapeutic substitution. British Columbia and Quebec have both experimented with variations of this approach.
Another concern raised by patient groups in the IBM report is that while patient groups have the opportunity to provide input to the Common Drug Review, they do not currently have a “seat at the table” for PCPA negotiations.
Gaps in the system
Although provinces have joined in a bid to increase their purchasing power, these negotiations are not helping all Canadians. As Morgan notes, “provinces are getting a deal on their proportion of the spending, but people without public insurance [still] have to pay artificially inflated prices.” He adds that those who must pay for drugs out-of-pocket “are vulnerable folks who have no purchasing power.”
The numbers are not insignificant. Roughly a quarter of Canadians do not have any drug coverage at all, and over half are covered by private drug plans.
Gagnon argues that the savings achieved by the PCPA ought to be beneficial to everyone. “PCPA is a very important step in the right direction… we have to just make sure that it’s sufficient and benefits everybody,” he says. Gagnon believes that the PCPA should not be viewed as an end-state, but as a first step towards a sustainable approach to universal pharmacare.
While the PCPA will almost certainly result in better deals on new drugs for public drug plans, it remains to be seen whether it will open the door to a provincially led minimum standard of public coverage for pharmaceuticals in Canada.