Canada pays some of the highest prices for brand-name drugs in the world, and overall costs for patented pharmaceuticals are on the rise. That’s why there’s considerable interest in proposed changes to how the Patented Medicine Prices Review Board (PMPRB) values drugs. The organization sets maximum prices—known as list prices—for brand-name medications across Canada. People who pay out of pocket for medications and private drug plans pay these prices, but the public drug plans run by the provinces don’t, since they often negotiate significant discounts from list prices.
The changes, which would come into place on Jan 1, 2019, should lower the maximum prices for brand-name medicine in Canada. The details aren’t finalized yet, as the government just completed its request for feedback in mid-February. But the proposed changes include three key components: modifying the list of comparator countries Canada looks at, including a cost-effectiveness component for the first time, and requiring companies to confidentially reveal the discounts and price adjustments they give out within Canada to the PMPRB.
This is a welcome move because the current PMPRB regulations are generally seen as not working well enough to contain costs, says Steve Morgan, a health economist and professor of health policy at the University of British Columbia. “It’s a bold, potentially innovative change,” he says.
Of course, not everyone is impressed. “The proposed changes would negatively affect patients by slowing and limiting access to new, life-saving medicines and vaccines, and will have consequences for investment and employment in Canada’s life science sector,” said Pamela Fralick, president of Innovative Medicines Canada, an organization that represents the pharmaceutical industry and has released a detailed statement outlining its concerns.
Here’s a closer look into each of those changes, and their potential impacts:
Adding a cost-effectiveness component
The main shift in the proposal is that for the first time, the PMPRB would consider whether drugs are a good value in its decisions.
“Under the current system… drugs that have multiple therapeutic alternatives and cost less than $30 per month receive the same level of regulatory scrutiny as drugs that offer the only effective treatment for a severe condition and cost more than $1,000 per month,” the PMPRB said in an email to Healthy Debate. “The proposed amendments would allow the PMPRB to move to a risk-based framework for setting ceiling prices that scrutinizes drugs with the greatest potential for excessive pricing and takes into account both their value to, and financial impact on, consumers in the health system.”
That judgment includes three factors:
- what the price is compared to its clinical value to patients, including a Quality-Adjusted Life Year calculation;
- how many people are expected to use the drug—for example, a high-cost drug that serves a niche market might be more affordable overall than a medium-cost one that will be used by many people;
- and how the price compares with Canada’s GDP.
Notably missing, says Joel Lexchin, professor emeritus at the faculty of health at York University in Toronto, is a requirement for companies to justify prices by showing how much the drugs cost to develop and produce. “Instead of looking at it from the perspective of what happens to the patient if they don’t get these drugs, we should be looking at how much does it actually costs to do the research, make these products, and give the companies a reasonable profit,” he says.
But adding a cost-effectiveness component at all is a valuable change, says Morgan. “Saying we’re going to have a regulatory framework that sets a limit on the economic value for money is really interesting. It’s bold.”
It’s also the shift that the pharmaceutical industry is most worried about. PDCI, a pharmaceutical consulting firm, has released a detailed, critical look of the proposed cost-benefit analysis component of these changes. John-Paul Dowson, director of reimbursement strategy at PDCI, says he’s concerned that the uncertainty this brings into the market might make us reach “the tipping point to medicines not being made available in the country.”
He also argues that this would push the PMPRB beyond its prescribed role in our system. “There is no other market globally that has the mandate to establish a price ceiling based on health economics,” he says. “With this proposal you’ve injected a very arbitrary affordability measure into a process that is not equipped nor has the mandate to negotiate prices with pharmaceutical companies.”
PRICE CHECK: HOW OTHER COUNTRIES CONTROL DRUG SPENDING
Not all countries have a group like the PMPRB that sets caps on prices. Here’s how two other countries do it:
THE UNITED KINGDOM
In the U.K., the NHS negotiates on behalf of the whole system—so they have the negotiating clout of a single payer system. The National Institute for Health and Care Excellence (NICE) looks at the cost-effectiveness of drugs, using quality adjusted life-years as a judge. Most companies that make brand-name medicines are also bound to the Pharmaceutical Price Regulation Scheme, which sets prices according to a formula that includes costs like R&D, manufacturing and administrative costs, and then adds an acceptable percentage of profit—it’s currently set at 21 percent.
An arm’s length government agency called Pharmac negotiates prices on behalf of the country. It adheres to an overall budget for drugs, and uses nine criteria to judge new pharmaceuticals. One of its criteria is cost-effectiveness, which is also based on quality adjusted life years. But that data isn’t enough; in addition, the country compares drugs against each other, creating a master list of drugs in order of importance, with cost as one of the factors. It also compares similar medications against others in their class, which further pushes down costs. Critics argue that as a result of this, New Zealanders don’t have access to many innovative medicines that are available in other countries.
Changes ahead to comparator countries
The PMPRB currently sets the maximum price that can be charged in Canada at the median price from a list of seven countries. It’s not serving us well: Canada pays the third highest prices for patented medication in the world.
The new regulations would change that list to 12: Australia, Belgium, France, Germany, Italy, Japan, the Netherlands, Norway, South Korea, Spain, Sweden, and the United Kingdom. Notably missing are the U.S. and Switzerland, both of which are currently included in the seven, and both of which pay the highest prices for their drugs. Those two were dropped, Health Canada says, because the U.S. does not have a consumer protection mandate, and Switzerland has a higher national per capita income than Canada.
That change is expected to lower prices across the board. “The seven comparators we were using are the most expensive countries in the world [for drugs], so if you target the median of those, you’re always going to be in the top three or four,” explains Stephen Frank, senior vice-president of policy at the Canadian Life and Health Insurance Association. “Whereas if you target the median of the new bundle, you’re going to be closer to the median internationally.”
That has the potential for large savings, as the OECD median price for patented medicine is 22 percent below Canada’s. In an email to Healthy Debate, Health Canada said that it expected changing the comparator countries would lower expenditures on patented drugs by five percent, which would equal $4.3 billion over 10 years.
One of the reasons the PMPRB was paying higher-than-average prices in the first place was the thought that it might lead to more investment in research and development in Canadian markets. But while the other seven countries we’re comparing prices to have companies that invest about 20 percent of revenues in R&D, investment has remained low in Canada, at about five percent.
Most major payers—for example, the Ontario Drug Benefit Plan—don’t pay the prices set by the PMPRB, and instead negotiate discounts and rebates. That applies to the international comparisons as well. Those countries negotiate confidential discounts and rebates for each drug, which means that what is paid for drugs is usually considerably less than the list price. “The international list prices of medicines are virtually fictitious,” says Morgan. “It’s just like the sticker price on a new car: That’s not what anyone should pay, it’s just the beginning point for negotiations.”
In a 2017 study, he asked payers from 11 health systems worldwide to confidentially share the discounts they were receiving from pharma companies. The most common discount was between 20 and 29 percent, but almost half said they had at least one discount as high as 60 percent.
It also means that when the PMPRB compares new drugs against others with similar therapeutic value, they’re using those inflated prices. The proposed PMPRB regulations would require companies to reveal the discounts and rebates they provide to various provinces and organizations within Canada, though that information would remain confidential.
That information would help the PMPRB better see the true value of existing drugs on the market. “It is important for patentees to report on all rebates and discounts that they provide so that the PMPRB can set domestic price ceilings for patented drugs based on the actual prices being paid in the Canadian market,” Health Canada said to Healthy Debate.
In the new system, provinces and other payees would continue to negotiate down from the PMPRB’s prices as usual. “In itself, this framework is not sufficient. You will absolutely still need tough but fair negotiations between suppliers and managers of the system,” says Morgan.
Ahmed Bayoumi, a researcher at St. Michael’s Hospital and a member of the CADTH’s Canadian Drug Expert Committee, worries the new rules might make that harder. “If the PMPRB introduces a cost effectiveness process, my concern is that the manufacturers will come back and say they already have a price that reflects value for money, there’s no reason for doing further negotiations, and that we should just accept that price,” he says.
But the PMPRB argues that the new regulations would in fact help these organizations. “This [new] approach complements the existing efforts of organizations like the pan-Canadian Pharmaceutical Alliance by targeting regulatory oversight on drugs where market dynamics are likely to create an imbalance in bargaining power between the consumer and the patentee,” it said.
Not everyone negotiates: Most private insurance plans, and everyone who doesn’t have insurance, pay the full list price, so they would see significant savings from these changes. “We believe this will bring prices down, [which is welcome because] employers, like provincial governments, are really struggling to maintain their benefits in the face of rising prices,” says Frank.
And Morgan is optimistic it will benefit everyone. “The kind of thinking in these new regulations, especially the value-for-money component, is helpful in protecting not just individual consumers, but the system as a whole from being abused,” he says.