Is drug price policy evidence-based or evidence-deficient?

The Liberal Party’s 2015 federal election platform promised that its health policy decisions would be evidence based. But recent amendments to Canada’s patented medicines regulations show that the government's price control policies are based on faulty evidence and unproven assumptions, which can lead to unnecessary, expensive, and harmful policy choices. On July 1, the federal government changed the group of reference countries used by the Patented Medicine Prices Review Board (PMPRB) to set price ceilings for innovative drugs. This is just one of several changes the government intended to make to the regulations—all designed to reduce maximum allowable prices by half. In April, the federal minister of health announced that the government would not proceed with the most controversial parts of the amendments, which would have introduced complex pharmacoeconomic calculations and required pharmaceutical companies to disclose confidentially negotiated rebates. Originally set to start in 2020, the government delayed implementation four times. Meanwhile, in separate court challenges the federal and Quebec courts struck down the provisions related to pharmacoeconomics and confidential rebates, forcing the government to abandon those parts of the regulations. The court challenges should not have been necessary. The changes were bad policy from the beginning. The government and its regulator should have been aware of the large body of evidence showing that excessive price controls are a disincentive to launch new drugs and to invest in research and development, reducing or delaying the availability of innovative medicines for Canadian patients. The failed amendments are symptomatic of a larger problem. Canada’s pharmaceutical policies are generally evidence deficient, especially regarding the cost of patented medicines. Policymakers tend to see the prices of innovative medicines, but not the value, and this has resulted in a huge bureaucracy built to control the cost of patented drugs. Currently, several agencies are involved in price regulation, health technology assessment (HTA), monopsony bargaining, formulary gatekeeping, and centralized procurement, plus there are proposals for a new national drug agency, a single national formulary, and national public drug insurance (pharmacare). The price control regime consumes significant public resources that could be spent to improve access to underfunded therapies. Financial statements from the PMPRB, the Canadian Agency for Drugs and Technologies in Health, and its Quebec counterpart INESSS, show the direct cost of price regulation—HTA alone was more than $82-million in 2020. The rationale for the price control bureaucracy is the baseless assumption that excessive prices for patented medicines are a major cause of the growth in national health expenditures. The notion persists partly due to data confusion. Policymakers routinely misinterpret drugs expenditures reported by the Canadian Institute for Health information (CIHI), to be mostly attributable to patented medicines. In truth, the CIHI numbers include non-patented drugs and ancillary costs like pharmacy dispensing fees, public drug plan administration, and even research and development spending by pharmaceutical companies. Brett Skinner is CEO of the Canadian Health Policy Institute. Photograph courtesy of Brett Skinner The PMPRB is the only public data source that isolates the direct cost of patented medicines at manufacturer list prices, which is the component of drugs expenditures affected by price regulation. Neither agency accounts for the rebates negotiated between manufacturers and public drug plans, which Ontario's auditor general reported were 36 per cent off the list prices of patented medicines on average. In a recent study, I examined national sales of patented medicines as a share of public sector and national health spending and of GDP, adjusting for changes in population and inflation, and after accounting for public sector rebates and excluding temporary expenditures on COVID-19. According to PMPRB, gross national sales of patented drugs were $17.5-billion in 2020. After accounting for rebates, national expenditure on patented medicines totalled $14.9-billion, representing only 33.8 per cent of the $44-billion in retail and hospital drugs expenditures reported by CIHI. Net of rebates, patented drugs represented only 5.5 per cent of $271-billion national health expenditures in 2020. From 1990 to 2020, gross expenditure on patented medicines never exceeded eight per cent of national health expenditure. Over the same period, gross sales of patented drugs accounted for less than one per cent of GDP and were approximately the same percentage of GDP in 2020 (0.8 per cent) as in 2003 (0.8 per cent). When the correct data are examined in a proper economic context, national expenditures on patented medicines are objectively affordable and sustainable. Moreover, cost must be weighed against benefits. Policy should reflect an economic perspective that accounts for the fact that pharmaceutical innovation improves patient health outcomes, reduces potential health system costs, and reduces indirect societal costs like economic productivity losses from untreated or under-treated illness. Instead of controlling prices, policymakers should capture the value of therapeutic innovation by replacing silo-budgeting with mechanisms that allow health-care funding to flow to its most efficient uses. Germany offers an interesting alternative to Canada’s price control regime, which allows free market pricing and manages the impact on public drug budgets using structured negotiation instead of regulation. Brett Skinner is CEO of the Canadian Health Policy Institute. The Hill Times