New pricing regulations may restrict access to innovative drugs in Canada

We should all be concerned about Canadians who have difficulty paying for their prescription medications. Unfortunately, Ottawa’s response—to increasingly regulate the prices of all patented medicines—is misguided. Simply forcing manufacturers to accept lower prices is unlikely to solve the affordability concern at the heart of the problem. Worse, doing so may result in fewer drugs available to all patients.

In Canada, the prices of all patented medicines, whether reimbursed by public or private insurers or not reimbursed at all, are regulated by the Patented Medicine Prices Review Board (PMPRB). Historically, the PMPRB tried to strike a balance between ensuring patients are protected from excessive prices and incentivizing manufacturers to sell their products in Canada. However, Ottawa’s new amendments are aimed solely at the former, without any apparent consideration for the consequences on the latter.

Two changes in this regard are particularly concerning.

The first is a change in the countries the PMPRB uses for reference to compare drug prices. The existing set of seven reference countries is being changed, to the detriment of Canadian patients. The new amendments will remove the United States and Switzerland, and replace them with Australia, Belgium, Japan, Netherlands, Norway, South Korea and Spain. Unlike the two countries removed, the new countries generally have lower drug prices than Canada.

What is less appreciated, however, is that the new reference countries also have more limited access to new and innovative drugs. For example, of all new pharmaceuticals introduced between 2009 and 2014, 61 per cent were available in Canada, compared to less than 40 per cent in Japan, the Netherlands and South Korea.

A second amendment of great concern is the use of pharmaco-economic evaluation to determine whether a drug is “cost-effective.” While such evaluations are commonly used for reimbursement decisions made by insurers, their use at the federal level overrides any differences individuals and private insurers may have in their personal valuations. Importantly, if drug manufacturers disagree with the PMPRB’s evaluation, they may decide not to launch their drug in Canada. Thus, the drugs will be unavailable and individuals and private insurers will not be able to access those drugs, even if they are willing to pay more than the federally-determined value.

Finally, on the issue of affordability, there’s legitimate concern that some patients may have difficulty paying for their prescription medicines. However, the new amendments to the PMPRB may not do much to remove cost-barriers due to out-of-pocket expenses.

To understand why this may be the case, it’s important to recognize how the PMPRB regulates prices. The PMPRB only regulates the prices of on-patent drugs. The prices of off-patent drugs are not regulated, and the regulations do not grant jurisdiction to regulate the prices of patented medicines throughout the distribution chain (from wholesaler to pharmacy to patient).  

In addition, one must differentiate between the price of a drug and the amount a patient pays out-of-pocket. The former relates to how much the drug manufacturer charges for its product (in addition to things such as dispensing fees charged by the pharmacy). The latter can vary depending on the type of insurance and degree of reimbursement.

For example, the price of drug X may be $1,000. However, depending on an individual’s insurance plan, they may only be required to pay $10 out-of-pocket—or some other amount unrelated to the true cost—in the form of a copayment. Only patients without any insurance, or those whose insurance plans don’t cover a particular drug, are exposed directly to the full “price” of the medication.

So while the PMPRB may successfully mandate lower drug prices, reimbursement decisions—by public and private insurers—will still ultimately determine how much patients pay out-of-pocket. Of course, if manufacturers decide not to launch their products in Canada due to excessive pricing regulations, Canadians may have to travel abroad and buy their medication at full price elsewhere.

Ultimately, while the proposed changes to regulating the prices of patented medicines may seem well intentioned, they risk negatively affecting patient access to new and innovative medicines. Canadians and their governments should remember that the only thing worse than an expensive drug is one that’s entirely unavailable.