1. Controlling Drug Prices: What Canada Does Joel Lexchin MD School of Health Policy & Management York University

2. 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

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

4. What Price Differences Matter: Generics vs. Brand-name Percent of unit volumeUnited States Originator Single source28% Multisource14 Generic Brand-name14 Unbranded44 Percent of sales Originator Single source70 Multisource13 Generic Brand-name8 Unbranded10 Most prescriptions are filled with generics. Most of the money is spent on brand- name single source products. Health Affairs 2004;W3: 521.

5. U.S. Prices Compared With Other Countries Patented Medicine Prices Review Board. Annual report 2004

6. 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?

7. Control Over Prices in Canada  Patented Medicine Prices Review Board (PMPRB)  Provincial controls

8. Current Canadian PMPRB Rules - New Drugs Yes No Yes Median IPC TCC RR Test Highest IPC TCC Highest IPC RR = relative relationship IPC = international price comparison TCC = therapeutic class comparison

9. 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

10. Provincial Monopsony Buying Power, 2002 ProvinceTotal spending ($ 000,000) Public expenditure as a percent of total spending Newfoundland292.939.8 PEI77.334.7 Nova Scotia567.237.1 New Brunswick454.533.5 Quebec4575.649.5 Ontario7663.544.9 Manitoba597.050.1 Saskatchewan511.846.4 Alberta1625.845.7 British Columbia2001.950.6 Yukon Territory15.566.2 NWT19.575.0 Nunavit6.155.9

11. Not Just Savings on Ingredient Costs  Administrative costs in private plans 8% versus 2% in large public plans

12. 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

13. 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.

14. No Large Public Buyer OECD, 2004

15. 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

16. 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

17. 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?

18. Conclusions  Canadian prices are lower  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