New patented medicines price regulation is dangerous and unjustified

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

National pharmacare: quality coverage or just cheap drugs?

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 academicslabour 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 fibrosisneuromuscular diseaseseye 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 

Government refuses to address real cause of missing cystic fibrosis treatment in Canada

Nigel Rawson | CHP Opinions | 3 JUN 2020

The federal government has pursued an aggressive agenda over the past two years to use untried methods to force drastic reductions in the prices of new medicines in Canada. The response has been many loud warnings from patients and others that the policies would inevitably stop vital new medicines from being introduced here.

The warnings were correct.

A drug known as Trikafta, approved in the United States in October 2019, has the potential to transform the lives of 90 percent of the more than 4,000 Canadians with the fatal lung disease cystic fibrosis (CF). But not only is the drug not yet approved here, its developer has not even applied for marketing authorization in Canada, citing the uncertainties of the new pricing process.

Patients have been calling on the federal government to work with the manufacturer to bring Trikafta to Canada. The need for access to the drug is especially critical right now when COVID-19 presents a high risk of death to CF sufferers.

The response has been astonishing. In Parliament and again in a Maclean’s interview, Minister of Health Patty Hajdu says Health Canada’s Special Access Program (SAP) “makes drugs like Trikafta available” and she encourages “all patients with cystic fibrosis to speak to their doctor to ensure that they too can apply through the SAP.”

Why is the Minister of Health urging Canadians to make use of a program that Health Canada’s own documentation emphasizes “is not intended to be a mechanism to promote or encourage the early use of drugs”? Why is she promoting this or any medicine through the SAP, when a manufacturer is strictly prohibited from even talking about the existence of a treatment being available through the program?

The SAP is intended to be a way for health care providers to temporarily bridge end-of-life patients or patients in other special circumstances who could benefit from an unapproved treatment immediately. A medicine is provided through the SAP for renewable three-month periods until its benefits and risks have been reviewed and approved by Health Canada and it becomes commercially available. But patients often have to pay the full cost.

Recommending the SAP as the solution to Canadian CF patients seeking Trikafta does nothing to address the root cause of why the medicine isn’t already available through normal processes and paid for by public and private insurance plans.

The company and patients have made it clear that the drastic new pricing rules are the reason why Trikafta is not yet available. However, the government won’t even acknowledge this as the issue, let alone work constructively to resolve it. 

Plenty of warning signs have indicated that this would be the result of the government’s new drug pricing policies. Pharmaceutical executives responding to a survey were unanimous in saying the pricing changes would negatively effect their business plans in Canada and almost all thought they would adversely impact both research and new product launches.

These impacts are already being seen in significant reductions in the number of new clinical trials and new medicines authorized in Canada. Trikafta is just one of 24 new therapeutic medicines, including some for rare cancers and rare disorders like sickle cell disease, Duchenne muscular dystrophy and porphyria, out of 43 approved by the US Food and Drug Administration in 2019 for which the manufacturer has yet to apply for marketing authorization in Canada.

Rather than face up to the clear and drastic consequences of the government’s policy decisions, the answer from the Minister of Health is for Canadians to access such unavailable treatments through the SAP, bypassing her own department’s necessary evaluation of their efficacy, safety and production quality and making access to public or private drug insurance impossible.

As a result, by early May, fewer than 100 CF patients in Canada had benefited from Trikafta, rather than some several thousand. The others are left to watch their disease progress to its ultimate conclusion and use even more costly health care resources, all in the cause of the federal government forcing drug prices down to unsustainable levels for the companies that discover and make them.

All Canadians want fair drug prices. But fair also means being at a level that makes Canada an attractive market for drug developers to get a fair return on their research investments and make them available promptly to patients who need them. Having cheap drugs that aren’t available provides zero benefit to Canadians.

Nothing fair exists in denying Canadian CF patients approved and funded access to treatments that they have been waiting for throughout their greatly endangered lives – treatments that hold the promise of long-term management of the disease.

That won’t happen until the Minister of Health acknowledges that the real problem is her government’s new drug pricing rules. SAP will not fix that.

This article was first published on the online news service, National Newswatch (