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

4. 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.

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. Canada

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

9. 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

10. 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

11. 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

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

13. 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

14. 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.

15. Effect of DTCA on Costs

16. No Large Public Buyer
OECD, 2004

17. 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

18. 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

19. 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

20. 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

21. 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?

22. Pharmaceutical industry All manufacturing industries
Profits Don’t Suffer
Rate of Return on Shareholders’ Equity, Large Firms, (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

23. 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