The concept of “Just Price” goes back to medieval scholastic economic thinking, which was dominant for 500 years. To ensure that the price is just, authorities had to determine that the merchant was not exploiting other people’s misery by charging excessive price and inducing dearth (caristia inducatur). People should make profit by serving others, not by abusing them.
In 1987, Canada extended intellectual property protection for pharmaceuticals. In order to make sure that drug companies do not abuse these new privileges, the reform of the Patent Act also established the Patented Medicines Price Review Board (PMPRB), an independent quasi-judicial body whose role is to ensure that the price of patented drugs is not excessive.
However, the PMPRB regulation is very generous for drug companies in order to better attract investment. Patented drug prices in Canada must not be higher than the median of a basket of seven countries, which include the world’s four most expensive countries.
Among all OECD countries, Canada ends up with the highest prices for patented drugs, behind the United States and Switzerland. We pay on average 25 per cent more on the price of patented drugs as compared to the median of OECD countries in the hope to attract investment in research and development (R&D). It means that Canadians willfully accept to pay an additional $3.6-billion every year for patented drugs. The total economic impact of the patented drug industry in Canada (payroll and investment) is $3-billion. Let’s let this sink in: in addition to the just price for our drugs, Canada gives away $3.6-billion to support an industry, which total economic contribution is $3-billion.
There is no reason to allow such inflated prices, especially considering that Canada is one of the OECD countries with the highest rate of cost-related non-adherence (rate of people not filling a prescription for financial reasons).
The PMPRB is also regulating only the official price of drugs. That was not an issue 20 years ago when the price of drugs was transparent (like the price of gas at the gas station). However, the game has changed and the market for pharmaceuticals is now submerged with confidential agreements. Official drug prices are now like the price of a car at a car dealer, and the final price simply depends on your bargaining capacity. PMPRB does not have access to these opaque confidential rebates. Let’s this sink in: our watchdog for drug prices does not know the real price of drugs.
It has been almost four years since the Prime Minister Justin Trudeau issued a mandate letter to the health minister directing her to lower prescription drug prices for Canadians. Since 2016, PMPRB entered into a long awaited reform process to modernize its regulations. All the reforms on the table made a lot of sense: provide PMPRB access to real drug prices; change the basket of comparator countries to better reflect the Canadian reality; include new criteria for excessive pricing like budget impact and value for money.
However, the process has stalled, and it is now the eleventh hour before the reform dies on the order paper. Drug companies and patient groups financed by drug companies are opposing the reform. Their argument is simple: if drug companies make less profit, patients will have access to less new drugs. However, the argument is flawed. Predatory pricing provides incentives for drug companies to shift their business models towards therapeutically insignificant drugs at astronomical prices. Currently 83 per cent of new (and expensive) patented drugs marketed in Canada do not provide additional therapeutic value as compared to what already exists. PMPRB reforms would focus on value for money and budget impact, which would shift the incentives towards the production of therapeutic breakthroughs at affordable prices.
But more profits means more R&D? Right? Well, massive profits in the pharmaceutical sector have been used instead for industrial concentration through mergers and acquisitions, barring the way to new innovative companies. Share buy-backs are also at all-time high. For example, the company Alexion ranks among the largest global 500 companies in terms of market value while it only has a handful of products for ultra-rare diseases. Its success is based on making colossal profits by demanding astronomical prices or otherwise patients die. Its CEO, Leonard Bell, was the most well paid pharmaceutical executive in 2014 with total compensation of $227-million.
For scholastic thinkers, Alexion would be a clear case of caristia inducatur: exploiting other people’s misery by inducing dearth. For Canadians, it should be a reminder that we need to modernize our PMPRB watchdog to achieve “just prices” and get rid of our irrational policies that serves corporate welfare to the detriment of patients.
Marc-André Gagnon, PhD, is an associate professor in the school of public policy and administration at Carleton University.
The Hill Times
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