The Canadian government is planning to change the way prices are set for new patented drugs and cut the maximum prices at which these drugs can be sold by up to 70 per cent. But this reform could prove very costly for patients. If it goes forward and fails to take into account the adverse effects of reference pricing systems, which have been well documented by various international bodies, Canadians could see their access to new drugs slowed down or even compromised.
In Canada, price ceilings for drugs are set by the Patented Medicine Prices Review Board (PMPRB), a federal agency. The PMPRB takes into account prices in Germany, the United States, France, Italy, Sweden, Switzerland, and the United Kingdom — countries with similar economies and comparable numbers of available drugs.
The reform aims to change this list. The United States and Switzerland, where drug prices are high, will be removed from the current list and will be replaced by Australia, Belgium, South Korea, Spain, Japan, Norway and the Netherlands — countries where prices are generally lower due to government price controls. Health Canada did not hide its intentions, either: It chose only countries where drug prices are regulated.
Although the intention is to lower prices, the net result is likely to be longer wait times before new drugs are introduced.
It all boils down to incentives: Manufacturers will obviously be inclined to introduce drugs first where prices are higher in order to finance the high costs of research and to recover their investments. Meanwhile, they will delay launches where prices are lower.
This is all the more so given that, in many cases, these prices would later be used as benchmarks in other countries. This phenomenon has been documented in Belgium, for example, where drugs are often introduced later since prices there are lower. Indeed, these delays are longer than in Canada in four of the seven countries added to the reference basket by Health Canada.
Canadians are currently spoiled when it comes to new molecules. Between January 2011 and August 2018, 21 per cent of new drugs sold in Canada, 77 new molecules in all, were either launched only in Canada and the United States, or were made available earlier than in the other major markets, namely France, Germany, Spain, Italy, and the United Kingdom.
Declines of up to 70 per cent in the maximum price could very well find us bringing up the rear in terms of timely access. The connection between price regulation and sequence of access is indeed well established.
For cancer drugs, the median delay for approval in Canada is 11 months, which puts Canada at eighth place in a study involving 69 countries measured between January 2011 and August 2018. The delay for central-nervous-system drugs is 16 months, and for diabetes drugs, it’s 26 months. This is due partly to the fact that new drugs are already submitted for approval by Health Canada six months after being submitted initially in the United States or Europe. A forced lowering of prices could lead to additional delays, since Canada would become less attractive for manufacturers.
The reform proposed by Health Canada also opens the door to ongoing price revisions (i.e.,: re-benchmarking). This danger does not only concern the launch of new drugs, but also drugs that are already being sold. In Bulgaria, this kind of revision caused 200 drugs to be taken off the market in 2012.
One of the most basic teachings of economics is that price ceilings cause shortages. The use of a bureaucratic reference pricing process does nothing to alter this very simple truth. The PMPRB should not be able to delay Canadians’ access to pharmaceutical innovations, let alone deprive them of access altogether. Breaking the fragile link between price signals and innovation could have negative consequences for patients’ access to drugs.
Mathieu Bédard is Economist at the Montreal Economic Institute. He is the author of “Reducing Drug Prices Too Much Will Make Them Inaccessible” and the views reflected in this op-ed are his own.