Nigel Rawson and Brett Skinner | The Hill Times | June 17, 2021
Nigel Rawson, PhD | National Newswatch | April 30, 2021
Brett Skinner | CHP | 1 May 2020
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.
Brett Skinner | Financial Post | March 9, 2021
Brett Skinner | Financial Post | Feb 17, 2021
Nigel Rawson and John Adams | Financial Post | Jan 18, 2021
Brett Skinner | CHP | 17 December 2020
Since 1987, the prices of patented medicines in Canada have been regulated by the federal government agency known as the Patented Medicine Prices Review Board (PMPRB). On January 1, 2021, new guidelines will go into effect, that will dramatically cut the maximum prices allowed for patented medicines by the regulations. In its Regulatory Impact Analysis, PMPRB estimated that the combined effect of the rules could reduce price levels for new drugs by up to 52 per cent. An independent study estimated that the new regulated price ceilings could be up to 84 per cent lower than previous maximums.
The Board stated that the price cuts will not affect the availability of new medicines. But it is difficult to believe that such extreme price regulation will not produce shortages in the supply of new medicines. Research warns that companies who make innovative pharmaceuticals will delay launching newly developed drug therapies in the Canadian market, to avoid jeopardizing price negotiations in more important markets.
A 2019 study published in the European Journal of Health Economics, showed that manufacturers adopt launch sequencing strategies to mitigate downward price spiral, delaying the launch of new products in low-price countries or in countries with highly regulated prices. Within the EU, this has led to reduced availability of medicines in countries with small markets and lower prices. Similar research out of the University of Pennsylvania analyzed the effect of price on the launch of new drugs in 25 countries finding that manufacturers delay or forego launching in markets where prices are visible to external referencing and regulation reduces prices below levels expected from local market characteristics.
Canada is a wealthy but small market, accounting for less than 2 per cent of global pharmaceutical sales. Canadian prices reflect the country’s high average GDP and consumer demand for early access to new drug products. After the new pricing guidelines go into effect, Canadian patients will be at the back of the line compared to their international counterparts in markets like Europe, the United Kingdom, and the United States.
The Government of Canada tacitly admitted the new price limits will delay access when, in mid-September, the Minister of Health signed an Interim Order to expedite the approval of COVID-19 drugs and vaccines. In response, the PMPRB suspended the normal application of its pricing rules, exempting new medicines for the treatment of the coronavirus.
More fundamentally, the government’s own data contradicts the policy rationale driving the new pricing guidelines. The official justification for expanding PMPRB regulatory powers, is that “excessive” prices for patented drugs are creating a health care sustainability crisis. But the Board has not provided any credible evidence that the prices of patented medicines are a major driver of national health expenditure.
A recent study by the Canadian Health Policy Institute examined national expenditure on patented medicines between 1990 to 2018, using data from the PMPRB and the Canadian Institute for Health Information. At $16.7 billion, gross national sales of patented drugs accounted for 6.6 per cent of the $254.5 billion reported for national health spending in Canada in 2018. Patented drugs accounted for a smaller percentage of national health spending in 2018 than in 2001 (7.1 per cent), an 18-year period of near zero average annual relative cost growth. Net of rebates, expenditure on patented medicines is even smaller. Ontario’s Auditor General reported that the province’s public drug plan received rebates of close to 36 per cent off list prices.
Adjusting for changes in population, inflation and the economy, expenditure on patented medicines has been stable or declining for more than a decade. Stated in constant 1990 dollars, the real gross expenditure per capita on patented drugs was $265 in 2018, the same as 2009. Patented medicines expenditure was the same percentage of GDP in 2018 (0.8 per cent) as in 2003 (0.8 per cent), a 16-year period of zero average annual growth relative to GDP.
The analysis suggests that PMPRB has presented a misleading narrative about the impact of patented medicine prices on national health expenditures, while advocating for the expansion of its regulatory powers. At the same time, the government is operating under the false assumption that innovative drug companies will continue to supply our market at any price decreed by PMPRB. But the new price limits are hostile to innovation and will discourage pharmaceutical firms from making new medicines available to Canadians.
The government should instead curtail the PMPRB. Prices should be determined by voluntary negotiation between sellers and buyers. The Pan-Canadian Pharmaceutical Alliance (PCPA) already conducts price negotiations with pharmaceutical manufacturers as a monopsony, on behalf of all Federal, Provincial and Territorial public drug plans and cancer care agencies. And government has no business regulating prices on behalf of private sector retailers, drug plan sponsors, or insurers. These for-profit businesses have plenty of market bargaining power, which is further augmented by the use of Group Purchasing Organizations.
The PMPRB is obsolete at best. At worst, the Board’s new guidelines will lead to shortages and delayed access to new medicines.
Brett Skinner, PhD, is the CEO of the Canadian Health Policy Institute www.chpi.ca.
Nigel Rawson, Olaf Koester and John Adams | Financial Post | November 30, 2020
Nigel Rawson | National Newswatch | October 29, 2020
Nigel Rawson and John Adams | CHP Opinions | 28 OCT 2020
According to the Throne Speech, Canada’s federal Liberal minority government is “committed to a national, universal pharmacare program.” Many Canadians support this initiative, although the kind of plan they envision varies widely. Most, especially those with unmet health needs, want national pharmacare to cover medicines when medically necessary, i.e. provide more, than the current provincial and federal programs.
However, the cost of a comprehensive system will be expensive because it may prove challenging to cover more drugs with the same amount or less money. In 2019, the government’s own Advisory Council on the Implementation of National Pharmacare put the cost at $40 billion and the Canadian Taxpayers Federation estimated $48.3 to $52.5 billion. In the present economic climate, this may be thought unaffordable.
But doing national pharmacare on the cheap most likely means some, even many, Canadians will end up with less coverage.
Indications exist that Ottawa plans, at least initially, an extremely limited national formulary covering mainly generic medicines used in primary care, such as antibiotics and drugs for common conditions like hypertension, diabetes and asthma. We can call this “pharmacare-lite.”
In fact, some Canadian academics, labour unions and the NDP have encouraged the federal government to introduce a program covering only so-called “essential medicines.” The risk of starting with a frugal scheme is that any later extension intended to cover specialized, costly and breakthrough medicines that treat or cure unmet needs will be long delayed or not occur at all. A suffering patient, who may be an academic, union member or social democrat, with a desperate need for a medicine excluded from the list may feel differently about what is “essential.”
The federal government may not actually intend to have national pharmacare cover higher cost drugs because its approach to dealing with them is to impose severe price reductions by regulation through its tribunal that sets ceiling prices for new medicines. Government pharmacare in New Zealand, elements of which have been praised by Canadian academics, provides an example of the outcome of tightly controlled price rules resulting in patients getting access to fewer new drugs.
Drug developers see New Zealand as a low priority market, which is in a large part due to issues with the government’s policies. This has resulted in marketing approval being sought for fewer drugs often later than in Canada and most other countries in the Organization for Economic Cooperation and Development (OECD). The policies impact public reimbursement.
New Zealand ranked second to last out of 20 comparable OECD countries for government coverage of newly registered drugs between 2012 and 2017 (Figure 1), with only 23.5 percent reimbursed (Canada ranked third to last with 38.1 percent funded). A later study found only six percent of 403 modern medicines publicly funded in 20 OECD countries between 2011-2018 were funded in New Zealand. This does not seem to place much value on the lives and wellbeing of New Zealanders.
Even when marketing approval is obtained in New Zealand for a medicine, manufacturers sometimes let it lapse or choose not to pursue selling it, especially when their drug is not covered by the country’s pharmacare program. The lack of public coverage leads to limited choices of medicines, which can have an adverse impact on health outcomes.
For example, New Zealand’s government pharmacare has significantly fewer anti-hypertensive and statin drugs to combat cardiovascular disease and fewer medicines to treat breast, colorectal, lung and prostate cancers than most Canadian provincial drug plans. It also has higher mortality rates from circulatory system diseases, such as ischemic heart disease and cerebrovascular disease, and malignancies, such as colorectal and prostate cancers (Figure 2). The true value of medicines can be seen when we examine patient health outcomes, instead of just the narrow focus of drug budgets. There is always a trade-off between patient care and government budgets.
Figure 1: Percentage of new drugs reimbursed of those registered in each country, 2012-2017.
Source: Medicines Australia
Figure 2: Mortality per 100,000 population (standardized rate), 2015.
Source: Rawson, 2020
What about expensive drugs for rare disorders? In a recent study, only 58.3 percent of 36 rare disorder drugs approved for sale in Canada were approved in New Zealand (Table 1), of which more than three-quarters were approved a year or longer after Canada. Just over half were listed in the public drug plans of six or more provinces, but only 22.2 percent were listed in New Zealand’s national formulary. In other words, neither country provides good coverage of these drugs, but Canada is not yet as bad as New Zealand.
Table 1: Drugs for rare disorders approved for marketing in Canada, 2014-2018.
Source: Rawson, 2020
The same Throne speech said that Ottawa will also “accelerate steps to achieve … a rare-disease strategy to help Canadian families save money on high-cost drugs.” Regulating drastic price cuts will certainly save money, but at what cost to patient health?
Ottawa’s approach to high-cost drugs is introducing new rules that come into effect in January 2021 that may require manufacturers to reduce prices to unsustainable levels, despite the fact that drugs for rare disorders only accounted for 2.5 percent of total pharmaceutical spending in Canada in 2019, which itself is a fraction of the overall health care expenditure of $264 billion. This will not achieve the kind of national pharmacare that provides appropriate treatment to all Canadians with a medical need.
It’s just the opposite. It undervalues innovative advances and discourages medicine developers from bringing better products to Canadians. Universality is one of the principles of Canada’s health system, meaning all residents are uniformly entitled to publicly-funded health services based on medical need. It does not mean universal denial to all Canadians as a result of initiating policies and practices that sacrifice the health of Canadians as a way to ration access to new drugs.
Canada already has a model for national pharmacare in the comprehensive private drug plans that cover all 600,000 federal employees and their families. These plans have unrestricted formularies for all 13,000 drugs approved by Health Canada, with generally only a 20 percent copayment for each prescription (average out-of-pocket spending made up 36.7 percent of private expenditures on prescription medications in 2019). Federal politicians and many of the academic and union advocates of pharmacare-lite also have access to such plans. These comprehensive plans should set the standard for national pharmacare, not a list of so-called essential medicines. If coverage of up to 13,000 medicines is acceptable for our federal politicians and civil servants, it should be appropriate for all Canadians.
If Ottawa is to introduce national pharmacare, it should implement policies which value innovative life-changing medicines and target quality drug coverage to benefit Canadians with unmet pharmaceutical needs. Examples of these needs exist in many therapy areas, like cystic fibrosis, neuromuscular diseases, eye diseases, and cancers. The modern era of cell and gene therapies has arrived and Canadians should not be denied access to them by bureaucrats.
Canada needs a program that includes all medicines determined to be medically necessary by patients and their health care providers, not just cheap knock-offs on a short list drawn up by anonymous and unaccountable government officials and their advisors working behind closed doors.
Nigel Rawson, PhD, Affiliated Scholar, CHPI; John Adams, CEO, CanPKU and Allied Disorders
Nigel Rawson and John Adams | National Newswatch | Oct 14 2020
Nigel Rawson and John Adams | Financial Post | July 24, 2020