Drug Prices in Canada: New Regulations Could Save Billions of Dollars

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OTTAWA-

New drug pricing regulations due to come into force next month could reduce spending on patented drugs by about 7% in the long term and save billions of dollars, the Parliamentary Budget Officer reported on Tuesday.

Health Canada first announced in 2019 that the Patented Medicine Prices Review Board would change the way it sets the price ceiling for drugs in Canada in an effort to reduce excessive drug costs by changing the countries with which Canada compares prices.

The changes are set to take effect July 1, having been pushed back four times during the pandemic.

The PMPRB has a mandate to ensure that drug costs do not become excessively high, and one of the ways it does this is to compare drug prices with those of other countries.

When a breakthrough drug is introduced to the market, the price is set at the median sticker price of seven comparable countries.

Over the years, drug prices abroad have become less transparent, and the cost of drugs in the United States in particular has increased significantly compared to Canada.

To address the issue, Health Canada proposed changing the countries with which Canada compares prices and proposed a list of 11 countries with a similar GDP per capita that no longer includes the United States.

Had the changes been in place in 2018, Canada would have spent 19% less, or about $2.8 billion, Parliamentary Budget Officer Yves Giroux and his team found in their recently released report.

The magnitude of the impact was similar for 2021, although the pandemic made this year’s data less reliable.

Future savings are difficult to measure, especially when it comes to something as unpredictable as the development of new drugs, the report explains.

“The main objective of the exercise is not to attempt to provide a precise measurement, but rather to assess the significance of the change,” Giroux said in the report.

A 19% saving would be significant, but realizing these gains depends on more precise rules that the government has yet to agree on, for example whether existing drugs will be grandfathered at their current prices or renegotiated in the under the new regime.

“We conclude that the proposed change can, over the long term, reduce spending on patented medicines by 7%, rising to 19% if repricing occurs more frequently,” the report states.

The government originally planned several other regulatory changes to reduce the cost of drugs, but reversed them after they were successfully challenged in court by pharmaceutical companies and the Quebec government.

The decision to change the list of countries with which Canada compares prices has drawn resistance from industry and patient groups who fear the changes will impact access to new drug therapies in Canada.

They fear that lower prices will reduce the incentive for companies to introduce new, innovative drugs into the country.

This possibility was not analyzed as part of the report, but the Parliamentary Budget Officer says it is important to remember that pharmaceutical companies spend a lot of money developing new drugs, often without success.

The reason they make this effort is because of the potential rewards when they find a therapy that works, especially in the high-priced US market.

“Right now, more of this (research and development) is happening in the United States than in the rest of the world,” Giroux said. “A free-riding Canadian strategy on R&D spending in the US and elsewhere is unsustainable.


This report from The Canadian Press was first published on June 14, 2022.

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