CHP blogazine

PMPRB misguided: Evidence warns severe price controls will reduce availability of new medicines.

Posted on May 1, 2020

PMPRB misguided: Evidence warns severe price controls will reduce availability of new medicines.

Brett Skinner, PhD

While the country is focused on the COVID-19 pandemic, Canada's federal government is quietly introducing new drug price controls that threaten to cause shortages of innovative medicines for Canadians.

Since 1987, the prices of newly developed drugs have been regulated by the Patented Medicine Prices Review Board (PMPRB). The Patent Act gives the Board power to control the prices of patented drugs according to its own guidelines. S. 83 (1) states that if a patented medicine is being sold at a price that, “in the Board’s opinion” is too high, the Board may order the price to be reduced “to such level as the Board considers not to be excessive.”

In July, the Board will launch an unprecedented experiment with price controls that are more complex and extreme than any other regulatory regime in the world. The draft guidelines published by the PMPRB include changes to the countries used for international price references. The Board is also introducing controversial pharmaco-economic factors to set drug prices. In addition, the Board will regulate not just manufacturers list prices, but also the net prices that are normally determined through rebate negotiations between manufacturers and public drug plans or private insurers.

The PMPRB estimated that the combined changes would reduce the prices of new medicines by more than half. Research conducted by Nigel Rawson and published by the Canadian Health Policy Institute (CHPI) has shown that the changes will reduce the maximum list prices for innovative medicines by as much as 84 percent from current levels.

Pharmaceutical manufacturers warn that such arbitrary and severe price cuts will discourage companies from launching new drugs in Canada and will thereby reduce the availability of important new therapies. The Board disagrees. In February, PMPRB Executive Director Doug Clark told Reuters there is no evidence that regulating drastically lower prices will reduce access to new drugs.

However, a 2019 study by Kanavos and colleagues at the London School of Economics and published in the European Journal of Health Economics showed that manufacturers delay launching products in countries with highly regulated prices. This led to reduced availability of medicines in those countries.

Earlier research by Danzon and colleagues at the University of Pennsylvania and published in the journal Health Economics in 2004, analyzed the effect of price on the launch of new drugs in 25 countries. The study found that manufacturers delay launching in countries where regulation reduces prices below levels expected from local market characteristics.

In 2018 CHPI published a study I conducted using data from the PMPRB and the OECD to see if the number of new drug launches was affected by the market price level, controlling for differences in per capita GDP and population across 31 countries. Market price level was the only variable that was a statistically significant predictor of the number of new drug launches.

The pending regulations may already be discouraging pharmaceutical companies from launching new therapies in Canada. In a 2020 study published by CHPI, Rawson examined changes in the availability of new drugs since the PMPRB first announced its intention to revise the guidelines in 2016. The percentage of new drugs available in Canada within a year after becoming available in the United States decreased from 55 percent in 2016 to less than 16 percent in 2019. The results suggest that the pharmaceutical industry has taken note of the impending changes and begun to delay launching new medicines in Canada.

The government reiterated its commitment to “making evidence-based decisions” in Health Canada’s 2019-20 departmental plan. Yet the PMPRB has ignored evidence that contradicts its price control agenda. By allowing this regulation to come into effect, the government is making a huge mistake that will have significant consequences. It will discourage pharmaceutical companies from launching drugs in Canada. Canadian patients will wait years to access the same new medicines that are immediately available to Americans.

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