US Drug Prices Are So High That Canada Wants Other Countries as Reference Points

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How high are drug prices in the US? So high that the Canadian government may remove the US from its long-standing list of countries that are used as a guide for determining whether prices are excessive.

In a proposal issued last week, Health Canada said it wants to overhaul the framework used by the Patented Medicine Prices Review Board, which assesses therapeutic benefits and sets ceiling prices. Right now, this is accomplished, in part, by benchmarking prices against what drug makers currently charge in seven other countries — the US, France, Germany, Italy, Sweden, Switzerland, and the UK.

Why those countries? When regulations were conceived 30 years ago, the government offered drug makers patent and price protections that were comparable to what existed in other countries with a “strong pharmaceutical industry presence,” the government regulator explained. The reason was that patent protection and pricing were believed to be “key drivers of pharmaceutical R&D investment.”

But this did not go as planned.

Spending on patented medicines is now 16 percent of total health expenditures, up from 10 percent nearly 50 years ago, and drugs are now the second-largest category of health care spending. Moreover, the percentage of R&D to sales by drug makers in Canada has been falling since the late 1990s and is at an “historic low,” Health Canada said.

Moreover, industry R&D relative to sales (in the seven reference countries) is, on average, 22.8 percent versus 4.4 percent in Canada. And among all 35 countries in the Organization for Economic Co-operation and Development, only the US and Mexico have higher patented drug prices than Canada. In 2015, median OECD prices were, on average, 22 percent below those in Canada, the regulator said.

To cope, Health Canada suggested expanding the list to 12 countries. Besides the US, Switzerland would also be dropped. The countries to be added would include Australia, Belgium, Japan, The Netherlands, Norway, South Korea, and Spain. The regulator also proposed developing a cost effectiveness analysis of medicines and gaining more information on rebates paid by drug makers.

“The current framework does not provide the board with the tools and information it needs to regulate prices in today’s environment, which is marked by an increasing number of high-cost specialty drugs and by list prices that bear little resemblance to the market prices paid after confidential discounts are applied,” the regulator explained.

One industry watcher agreed that an overhaul is overdue.

“The original thinking was Canada needs to pay for medicines an amount that is equal to those other countries in order to induce investment in R&D,” said Richard Gold, a law professor at McGill University who was the founding director of the Centre for Intellectual Property Policy. “That turns out to have been a total disaster.

“As far as anybody can tell, there’s no correlation between prices paid and research investments. The pharmaceutical industry promised it would invest at least 10 percent of revenue in R&D in Canada. And they did that for a few years, although mainly in clinical research. So Canada has seen no benefit from the policy, because pharma has been delinquent,” he continued.

“And since the policy failed, we’re locked into paying the second or third highest prices in the world.”

The industry trade group had little to say for itself.

“We are in the process of evaluating the proposed changes, however the innovative pharmaceutical industry looks forward to working with the federal Minister of Health, Jane Philpott, on how we can together provide affordable and earlier access to innovative medicines for all Canadians,” said Pamela Fralick, president of Innovative Medicines Canada, in a statement.

Another academic, Dr. Joel Lexchin, professor emeritus at the School of Health Policy and Management at York University in Toronto, said the Health Canada proposal is “a poor second choice for reducing Canadian prices.” He maintained that “the best way to lower prices is to have … a universal national pharmacare system so that one organization or agency bargains for the entire country.

“Canada does have the pan-Canadian Pharmaceutical Alliance that bargains for some drugs on behalf of public drug plans, but… the public system in Canada only pays for about 40 percent of all drug costs so the bargaining power is diluted. The ones who really currently get shafted and will continue to get shafted are those who are uninsured (people in low paid jobs without benefits) and who pay the full price out-of-pocket.”