OPINION: Lower drug prices ahead, but at what cost?

By Jason Grier, Principal at Santis Health

Will the current drive for lower patented drug prices be the next thing to prove the old adage “if something is too good to be true, it probably is”?  The answer is, we won’t really know until we consider the possible trade-offs associated with current policy initiatives to try to further use regulatory instruments to push prices lower.

Last month, Health Canada opened a brief consultation window on the Patented Medicines Regulations, which play an important role in drug price regulations in Canada.  These regulations govern the requirements which manufacturers of patented medicines must follow when it comes to supplying pricing information to the Patented Medicine Prices Review Board (PMRPB)

The PMPRB was established thirty years ago as an independent, quasi-judicial agency with a mandate to protect consumers from excessive pricing by setting the maximum price at which a patented drug can be sold in Canada.   In doing so, the PMPRB has relied on comparative pricing data of other drugs in the same therapeutic class within Canada, as well as pricing data in seven other countries (the “PMPRB7”).

The proposed amendments come on the heels of an earlier consultation process led by the PMPRB itself and are clearly designed to further lower drug prices in Canada.  In support of Health Canada’s decision to seek input on the proposed changes, it noted that the regulations had not been changed in twenty years.

But what is the evidence that a change is necessary – or is this simply change for the sake of change?  Interestingly, the PMPRB’s own data shows that Canada sits in the bottom third of the PRMPRB7 when it comes to the prices of new medicines and that our prices in 2015 had already dropped to 18% below the median average of comparator countries.  This begs a natural follow-up question:  if the Board is successfully over-delivering on its mandate, than what exactly is driving this urgency for change?

Notwithstanding Canada’s success at achieving lower prices than comparable jurisdictions for patented medicines, government has signalled that it wants to go much, much further.  These proposed changes are expected to do just that, perhaps driving maximum prices down by a further 20% or more, according to industry estimates.

From the perspective of both public and private payors, as well as patients, lower drug prices must certainly appear very attractive.  What could possibly be wrong with wanting lower drug costs for Canadians? As is so often the case in health care, however, policy makers must be wary of any unintended consequences of each policy decision they consider.   While lower drug prices on their own may certainly appear attractive, it is important to weigh the negative impacts that lower drug prices may also bring.

In this case, the principal impact may be a reduction in Canadians’ access to future drug innovations.  By reducing drug prices further, the market viability of certain new drugs may be compromised, reducing the likelihood that new therapies will come to Canada in a timely fashion – or at all.

Simply put, Canadians may increasingly find that drugs available in US or European markets simply aren’t for sale here because the economics of seeking Health Canada approval and marketing a new drug are no longer sufficient to justify the cost.  We can see evidence of this type of decision making already when we look at head-to-head comparisons with some of the countries newly proposed as PMPRB comparators (e.g. Korea, Japan, Australia).  In each case, far fewer than half of new drugs are made available to patients in those countries (source: PMPRB), whereas 61% of those products were available in Canada.

In addition to the possibility of fewer new drugs, there may be other impacts as well. Canada’s public drug plans claim to have achieved significant savings over pharmaceutical list prices by working through the pan-Canadian Pharmaceutical Alliance (PCPA) to secure confidential listing agreements with manufacturers. The ability to secure favourable arrangements specific to public payors may be compromised by lowering the maximum price paid by all classes of payors and by eroding the expectation of confidentiality around these listing agreements.  These moves will also send a message to pharmaceutical companies around the world that Canada now places a lower value on their innovative products.  In the very month that Canadian ministers representing four provinces paid visits to the BIO2017 conference in San Diego to attract investments from the global pharmaceutical community, this seems a contradictory message to send.

Should we care?  On balance, the benefits of these changes could outweigh the risks.  But before we can know that, government must take the steps to properly review not only the benefits of lower drug costs, but also all of the potential consequences of pursuing such a policy. These decisions need to be made within the context of a clear vision of how all Canadians view the importance of access to new and innovative medicines as a component of a high performing health care system.