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 controls Other differences between Canada and the U.S. What are the consequences for Canada

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

What Price Differences Matter: Generics vs. Brand-name Percent of unit volume United States Originator Single source 28% Multisource 14 Generic Brand-name Unbranded 44 Percent of sales 70 13 8 10 Most prescriptions are filled with generics. Most of the money is spent on brand- name single source products. 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 Yes No No Yes Median IPC TCC TCC RR Test TCC Highest IPC Highest IPC TCC RR = relative relationship IPC = international price comparison TCC = therapeutic class comparison Highest IPC

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-year changes in the PMPI (Patented Medicine Price Index) = change in transaction prices of patented drug products PMPRB Annual Report 2003

Other Differences Between Canada and the United States No DTCA in Canada US lacks monopsony buying power Faster uptake of newer, more expensive drugs in U.S.

Effect of DTCA on Costs

No Large Public Buyer OECD, 2004

Faster Uptake of Newer Drugs in the U.S. Canadian per capita consumption 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 82.7 95.9 78.9 93.6 105.4 104.3 127.0 136.5 89.2 140.7 196.3 95.4

Are Canadians Dying in the Streets? Country Infant mortality (2001) Life expectancy at birth (males) Life expectancy at birth (females) 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?

Pharmaceutical industry All manufacturing industries Profits Don’t Suffer Rate of Return on Shareholders’ Equity, Large Firms, 1996-2003 (Percent) Year Pharmaceutical industry (median) All manufacturing industries 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 lower Consequences Price controls No DTCA Slower uptake of newer, more expensive drugs Consequences Canadians healthier than Americans No significant effect on new drug introduction Company profits remain healthy