Controlling Drug Prices: What Canada Does

Joel Lexchin MD

School of Health Policy & Management

York University

Outline

Price increases in Canada versus U.S.Canadian price controlsOther differences between Canada and the

U.S.What are the consequences for Canada

Escalation in Spending U.S. and Canada, Adjusted for Inflation

-4

-2

0

2

4

6

8

10

12

14

16

Percent change from previous year

1975 1980 1985 1990 1995 2000 2005

Year

-5

-2.5

0

2.5

5

7.5

10

12.5

15

17.5

Percent change from previous year

1970 1975 1980 1985 1990 1995 2000 2005

Year

Canada U.S.

What Price Differences Matter: Generics vs. Brand-name

Percent of unit volume United States

Originator

Single source 28%

Multisource 14

Generic

Brand-name 14

Unbranded 44

Percent of sales

Originator

Single source 70

Multisource 13

Generic

Brand-name 8

Unbranded 10

Most prescriptionsare filled with generics.

Most of the moneyis spent on brand-name single sourceproducts.

Health Affairs 2004;W3:521.

U.S. Prices Compared With Other Countries

Patented Medicine Prices Review Board. Annual report 2004

What’s Going On?

Why has the rate of increase in spending in Canada levelled off?

Why has the rate of increase in spending in the U.S. continued to escalate?

What are the differences between the two countries?

Canada

Control Over Prices in Canada

Patented Medicine Prices Review Board (PMPRB)

Provincial controls

Current Canadian PMPRB Rules - New Drugs

Breakthrough orSubstantial Improvement?

Category 2 Category 3 Category 3 Category 1

Comparable Dosage Form

New Medicines

Yes No No Yes

Median IPC

TCC

TCC TCC RR Test

Highest IPC Highest IPC TCC

Highest IPCRR = relative relationshipIPC = international price comparisonTCC = therapeutic class comparison

PMPRB Regulations on Rate of Rise in Prices

Compares average transaction price of drug product with CPI adjusted price of drug product

Based on 3 year cumulative change in CPI with one year increases capped to 1.5 times annual inflation

Provincial Monopsony Buying Power, 2002

Province Total spending

($ 000,000)

Public expenditure as a percent of total spending

Newfoundland 292.9 39.8

PEI 77.3 34.7

Nova Scotia 567.2 37.1

New Brunswick 454.5 33.5

Quebec 4575.6 49.5

Ontario 7663.5 44.9

Manitoba 597.0 50.1

Saskatchewan 511.8 46.4

Alberta 1625.8 45.7

British Columbia 2001.9 50.6

Yukon Territory 15.5 66.2

NWT 19.5 75.0

Nunavit 6.1 55.9

Not Just Savings on Ingredient Costs

Administrative costs in private plans 8% versus 2% in large public plans

Overall Effect of Canadian Regulations on Prices

Year-over-yearchanges in the PMPI(Patented MedicinePrice Index) =change in transactionprices of patented drug products

PMPRB Annual Report 2003 -3

-2

-1

0

1

2

3

4

5

1988 1991 1994 1997 2000 2003

Percent change

Other Differences Between Canada and the United States

No DTCA in CanadaUS lacks monopsony buying powerFaster uptake of newer, more expensive

drugs in U.S.

Effect of DTCA on Costs

No Large Public Buyer

36.1

18.3

0

5

10

15

20

25

30

35

40

Canada United States

Per cent public, 2000

OECD, 2004

Faster Uptake of Newer Drugs in the U.S.

Canadian per capitaconsumption of new medicines(drugs launched in 2 most recent years) relative to the U.S., 1999

Danzon et al. Health Affairs, 2003

It’s Not Price Controls, It’s …Year Ratio Country

France Ger-many

Italy Sweden Switz-erland

U.K.

1997 Drug prices (Canada = 100)

89.4 111.2 79.5 106.4 123.4 100.8

GDP per capita (Canada = 100)

130.6 146.4 94.3 139.2 209.6 99.0

2002 Drug prices (Canada = 100)

82.7 95.9 78.9 93.6 105.4 104.3

GDP per capita (Canada = 100)

127.0 136.5 89.2 140.7 196.3 95.4

Are Canadians Dying in the Streets?

Country Infant mortality

(2001)

Life expectancy at birth (males)

(2001)

Life expectancy at birth (females)

(2001)

Canada 5.2 77.1 82.4

United States 6.8 74.4 79.8

OECD, 2004

Do Companies Keep Drugs Off the Market?

New drugs evaluated by Medical Letter May 2003-June 2004:40

Available in U.S. but not in Canada:32 (8 now in Canada as of 24 Oct. 2004)

Number of unavailable drugs with major therapeutic advantages:1 to 3

Why Are Some Drugs Unavailable?

Low Canadian prices?Longer Canadian approval times?Smaller Canadian market?Internal company priorities about when to

market drugs in different countries?

Profits Don’t Suffer

Rate of Return on Shareholders’ Equity, Large Firms, 1996-2003 (Percent)

Year Pharmaceutical industry

(median)

All manufacturing industries

(median)

2003 20.1 10.8

2002 20.8 11.3

2001 16.7 10.0

2000 11.4 13.1

1999 5.4 14.6

1998 4.1 13.3

1997 18.5 14.0

1996 23.5 12.2

Conclusions

Canadian prices are lowerPrice controlsNo DTCASlower uptake of newer, more expensive drugs

ConsequencesCanadians healthier than AmericansNo significant effect on new drug introductionCompany profits remain healthy