Background
The Patented Medicine Prices Review Board (PMRPB) is the federal government agency that regulates the prices of patented medicines in Canada. The PMPRB was established under the Patent Act in 1987. Its regulatory function is to ensure that the prices for patented medicines sold in Canada are not excessive.
In 2014, the PMPRB published its 2015-2018 Strategic Plan, which set out the agency’s intention to self-evaluate the need to update its regulatory framework. In June 2016, the PMPRB published a discussion paper with detailed recommendations and a request that the government modernize the agency’s regulatory framework. The government subsequently proposed amendments to the regulations and guidelines governing the PMPRB. In May of 2017, Health Canada published a discussion paper outlining the proposed regulatory changes, prior to launching a public consultation from May 16, 2017 to June 28, 2017. The proposed amendments to the regulations are scheduled for pre-publication in the fall of 2017, to be followed by another public consultation prior to their implementation.
The primary purpose of this paper is to critically examine the regulatory changes being proposed by the PMPRB. However, the process of re-evaluation initiated by the PMPRB presents a rare opportunity for policy-makers to reassess the relevancy of the PMPRB itself. Therefore, this paper will offer an independent assessment of the PMPRB’s mandate and recommend alternative policy options.
Conclusion and Policy Options
Based on the evidence and discussion presented in this paper, there is a strong case for recommending that policy-makers reject the PMPRB’s proposed regulatory changes. There is no justification for expanding the scope or complexity of existing price regulations, which appear to be adequately achieving the PMPRB’s mandate to ensure that Canadian prices for patented drugs are not excessive. The PMPRB’s own empirical data confirm that Canadian prices have remained moderate relative to the PMPRB7 countries and relative to CPI over long periods of time. Moreover, there are significant practical and technical problems associated with the application of the PMPRB’s proposed new economic factors for testing whether prices are excessive.
The primary beneficiary of the PMPRB’s regulatory proposals would in effect be the for-profit private drug insurance industry and private-sector drug plan sponsors. This is especially true regarding the proposed requirement for manufacturers to disclose confidential discounts negotiated with public payers, which in practical terms, would leverage the monopsony bargaining power of public payers to negotiate prices on behalf of the private sector payers. This represents an aberrant policy approach both among Canadian domestic industries, as well as among international private sector drug markets, which could have unintended consequences on incentives for drug makers to launch new products in Canada. The presence of a robust private-payer market in Canada is the most probable explanation for the country’s higher launch rate for new drugs compared to markets with higher per capita GDP and larger populations, but without the same public-private market split. If the PMPRB’s proposals artificially depress private-market prices to the level paid by public-payers, this could cause Canada’s launch rate to decline with deleterious impacts on patients’ access to new drugs in both the public and private sectors.
There is also a reasonable basis for policy-makers to consider repealing or significantly paring down the mandate of the PMPRB. The PMPRB’s mandate is probably becoming obsolete given the multiple existing layers of government regulation of drug quality, as well as the substantial monopsony bargaining power exercised by public payers, and the substantial market-scale bargaining power of private payers. Even in the uninsured (out-of-pocket payer) part of the market, it makes little sense to use the regulatory process to artificially depress ex factory manufacturer prices for drugs when the final retail costs paid by consumers are influenced by non-regulated downstream components of prices including, wholesale and retail markups and pharmacy dispensing and other professional fees.
To be consistent with the logic applied by the PMPRB to patented generic drugs, there needs to be a similar astute recognition by policy-makers that for patented drugs generally, there is indeed significant therapeutic competition, and therefore little justification for increasing the severity and complexity of government intervention through price regulation.
The facts also show that there is no spending crisis regarding patented drugs in Canada, which raises serious questions about whether it is economical to allocate increasingly costly administrative resources to controlling the prices of patented drugs. It makes more practical sense to introduce reforms that will lead to a simpler, more predictable PMPRB that would decrease the regulatory burden and quicken access to new drugs for patients. Streamlining the PMPRB could free up human and financial resources that could reallocated to CADTH and the pCPA where they might make a bigger impact.
