Price-focused regulatory changes could limit access to new drugs and dampen R&D investment, writes Richard Owens.

By Richard C. Owens, September 17, 2019

The federal government recently announced new regulations that will have a significant impact on drug pricing in this country. The move was criticized by the Ontario government, patient groups, and the life sciences industry, but it has been welcomed by some commentators who share the federal government’s apparent view that price-fixing comes without other costs or unintended consequences. These new regulations are now being challenged constitutionally by a coalition of life sciences companies.

Harmful consequences of these regulations, unintended or not, are easily foreseen. They had been laid out in detail by this author and others during the government’s consultation process. That consultation, against all evidence, focused solely on price despite clear concerns about limits on Canadians’ access to new drugs and serious potential negative effects on an industry that is Canada’s third-largest source of private research and development investment.

Even so, the government announced in August that new regulations on the price of new drugs, set by the Patented Medicine Prices Review Board (PMPRB), will be largely unchanged from the original proposal.

The new regulations will see two jurisdictions with generally higher-priced medicines—the United States and Switzerland—dropped from the list of seven comparable countries used to determine what constitutes excessive prices for Canadian drugs. They will be replaced with Australia, Belgium, Japan, the Netherlands, Norway, and Spain. This will occur despite the fact that the comparator countries in the original list of seven, which also included France, Germany, Italy, Sweden, and the U.K., were chosen because they, like Canada, are highly developed countries with a significant pharmaceutical industry presence.

The federal government seems to want a first-rate innovative economy at second-rate prices. It has set as its target the median of prices among OECD countries, which is about 20 percent lower than current Canadian prices for patented drugs. This is a curious target. It is difficult to think of other areas where Canada aims to be in the middle of the global pack.

The PMPRB’s own analysis has shown that in OECD countries with lower drug prices than those in Canada, the number of new drugs launched is also lower. For example, from 2009 to 2014, 61 percent of new drugs launched in the seven current advanced comparator countries were available in Canada by the end of 2015. The median among OECD countries was 45 percent. New Zealand, known for intense price controls in its publicly financed pharmacare system—apparently held up as a model by our government—was ranked last in the OECD, at 13 percent.

These are life-saving and life-improving treatments that Canadians may no longer be getting. Consistently, countries with aggressive price reduction strategies received delayed access to new drugs, if they got them at all.

The new regulations also would implement a complex and uncertain “pharmacoeconomics” assessment to determine if a price is excessive. If implemented, Canada would be the first and only jurisdiction to attempt to fix prices this way. It would also duplicate existing economic assessments done to assist public drug reimbursement plans and help them negotiate coverage and rebates.

Finally, the government has stuck with a proposed change that threatens to actually increase costs to public drug plans rather than lower them. This proposal would require manufacturers to report information on the confidential rebates paid to governments under their product listing agreements. These rebates are a valuable tool that allows public payers and manufacturers to accommodate coverage of new therapies.

The Ontario auditor general has found that these rebates saved the province nearly 30 percent on its total spending on brand-name drugs in the 2016–17 fiscal year. But the PMPRB would use this information to set a lower maximum price for a new drug on the market. And that new lower price will apply not only to those markets that have been able to negotiate rebates, but to all markets. The incentives for a manufacturer to offer a purchase rebate as part of a listing agreement will thus all but disappear. This will also make comparison with other countries, the key basis for PMPRB price controls, impossible.

All this has been undertaken despite a lack of evidence that new drugs are overpriced or unfairly priced in Canada. Indeed, the PMPRB has generally been doing its job. For example, in 1987, when the PMPRB was established, Canadian drug prices were 23 percent higher than the median of comparator country prices. In 2016 they were 25 percent lower. In terms of annual price change, prices have not increased by more than the rate of inflation and have in fact declined in some years. And drug costs as a share of total health expenditures has been stable for 15 years, which no doubt would surprise most Canadians given the heated public debate.

Incredibly, there is no evidence that the government even attempted to assess the impact of the new regulations on the availability of new drugs, or their effect on a key innovating industry that would suddenly have its revenues reduced by billions of dollars. It just denies there are problems, without apparent basis. But the findings of our analysis are clear: Adopting more stringent price controls will have deleterious economic and health effects.

The new regulations are scheduled to go into effect on July 1, 2020. Whoever forms the government following the upcoming election should prevent this.

Richard C. Owens is a Munk Senior Fellow at the Macdonald-Laurier Institute, an adjunct professor at the University of Toronto Faculty of Law, and a Toronto lawyer.

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