CHP blogazine

Federal government’s changes to drug price regulations will reduce access to new medicines.

Posted on December 1, 2017

Federal government’s changes to drug price regulations will reduce access to new medicines.

By Brett Skinner, Ph.D., founder and CEO of the Canadian Health Policy Institute

Regulators are chronically prone to believe that they can arbitrarily set prices in a market and there will be no unintended consequences. In a classic example of such hubris, the Government of Canada has announced upcoming changes to drug price regulations, which are not justified by their own data, and worse, will have a negative impact on the availability of new drug treatments in Canada.

The Patented Medicine Prices Review Board (PMPRB) is the federal government agency that regulates the prices of patented medicines in Canada. Its mandate is to ensure that the prices for patented medicines are not excessive. In June 2016, the PMPRB published a self-initiated discussion paper calling on the government to change the rules it uses to set the ceiling price for patented drugs. The feds are granting the regulator's request.

There are lots of serious practical and technical problems associated with the PMPRB’s proposed new rules for testing whether drug prices are excessive.  But more fundamentally, the rationale offered by the PMPRB for these changes, that it needs to protect Canadians from excessive drug prices, is totally divorced from reality. The PMPRB’s most recent annual report shows that prices for patented medicines in Canada are moderate relative to other countries. Despite this, the agency thinks patented medicines still cost too much, and it wants to change the rules, so it can further drive down the ceiling price for these medicines.

In a recent paper published by the Canadian Health Policy Institute, I reviewed the evidence, and concluded that the proposed changes are unnecessary, and potentially negative for patients.

By the PMPRB’s own definitions, Canadian prices for patented drugs are not excessive. The PMPRB uses the median international price as the threshold to determine whether Canadian prices are excessive. There are seven countries used for comparison to Canada, including France, Germany, Italy, Sweden, Switzerland, the United Kingdom, and the United States. Data published in the PMPRB’s most recent annual report confirm that, adjusted for the market exchange rates of currencies, median international prices have been higher than Canadian prices for the last 16 years, as much as 25 per cent higher in 2016. When the PMPRB used the mean (or average) prices, and adjusted currencies at purchasing power parities, international prices for patented drugs were 51 per cent higher than Canadian prices in 2016.

The PMPRB has proposed expanding the current group of countries used for price comparisons from 7 to 12 by excluding the United States and Switzerland and adding Australia, Belgium, Japan, Netherlands, Norway, South Korea, and Spain. This is a blatant attempt to bias the price ceiling downward by excluding higher priced markets and adding lower priced markets.

The unintended consequence of this change to the regulations will be that Canadian patients will have reduced access to new medicines. Arbitrarily depressing prices through regulation can reduce the availability of new drugs in a market. More regulated, lower-price markets experience the longest delays in launching new medications.

Using data from the PMPRB and the Organisation for Economic Cooperation and Development (OECD), I conducted a regression analysis to test the statistical relationship between the number of new drug launches across 31 OECD countries and three independent variables: the price level for patented drugs, the per capita GDP and the total market size (population) in each country.

The results of the analysis show that the market price level was the only one of the three independent variables (price, GDP and population) that was a statistically significant predictor of the number of new drug launches. The analysis confirms that lower priced markets experienced fewer new drug launches, and vice versa, that higher priced markets tended to experience more new drug launches.

There is no justification for expanding the scope or complexity of existing price regulations for patented drugs. Policy-makers should reject the PMPRB’s proposed regulatory changes because they are unnecessary and will reduce access to new medicines for Canadian patients.

To learn more, read the paper: Does Canada need a Patented Medicine Prices Review Board? It contains a detailed point-for-point critique of each of the PMPRB's misguided proposals. It is a must-read for policy-makers, patient groups, health professionals, industry and media looking for an evidence-based analysis that properly dissects the PMPRB proposals.

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