controlling drug prices: what canada does joel lexchin md school of health policy & management...
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Controlling Drug Prices: What Canada Does
Joel Lexchin MD
School of Health Policy & Management
York University
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Outline
Price increases in Canada versus U.S.Canadian price controlsOther differences between Canada and the
U.S.What are the consequences for Canada
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Escalation in Spending U.S. and Canada, Adjusted for Inflation
-4
-2
0
2
4
6
8
10
12
14
16
Percent change from previous year
1975 1980 1985 1990 1995 2000 2005
Year
-5
-2.5
0
2.5
5
7.5
10
12.5
15
17.5
Percent change from previous year
1970 1975 1980 1985 1990 1995 2000 2005
Year
Canada U.S.
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What Price Differences Matter: Generics vs. Brand-name
Percent of unit volume United States
Originator
Single source 28%
Multisource 14
Generic
Brand-name 14
Unbranded 44
Percent of sales
Originator
Single source 70
Multisource 13
Generic
Brand-name 8
Unbranded 10
Most prescriptionsare filled with generics.
Most of the moneyis spent on brand-name single sourceproducts.
Health Affairs 2004;W3:521.
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U.S. Prices Compared With Other Countries
Patented Medicine Prices Review Board. Annual report 2004
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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?
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Canada
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Control Over Prices in Canada
Patented Medicine Prices Review Board (PMPRB)
Provincial controls
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Current Canadian PMPRB Rules - New Drugs
Breakthrough orSubstantial Improvement?
Category 2 Category 3 Category 3 Category 1
Comparable Dosage Form
New Medicines
Yes No No Yes
Median IPC
TCC
TCC TCC RR Test
Highest IPC Highest IPC TCC
Highest IPCRR = relative relationshipIPC = international price comparisonTCC = therapeutic class comparison
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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
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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
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Not Just Savings on Ingredient Costs
Administrative costs in private plans 8% versus 2% in large public plans
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Overall Effect of Canadian Regulations on Prices
Year-over-yearchanges in the PMPI(Patented MedicinePrice Index) =change in transactionprices of patented drug products
PMPRB Annual Report 2003 -3
-2
-1
0
1
2
3
4
5
1988 1991 1994 1997 2000 2003
Percent change
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Other Differences Between Canada and the United States
No DTCA in CanadaUS lacks monopsony buying powerFaster uptake of newer, more expensive
drugs in U.S.
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Effect of DTCA on Costs
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No Large Public Buyer
36.1
18.3
0
5
10
15
20
25
30
35
40
Canada United States
Per cent public, 2000
OECD, 2004
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Faster Uptake of Newer Drugs in the U.S.
Canadian per capitaconsumption of new medicines(drugs launched in 2 most recent years) relative to the U.S., 1999
Danzon et al. Health Affairs, 2003
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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 Drug prices (Canada = 100)
82.7 95.9 78.9 93.6 105.4 104.3
GDP per capita (Canada = 100)
127.0 136.5 89.2 140.7 196.3 95.4
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Are Canadians Dying in the Streets?
Country Infant mortality
(2001)
Life expectancy at birth (males)
(2001)
Life expectancy at birth (females)
(2001)
Canada 5.2 77.1 82.4
United States 6.8 74.4 79.8
OECD, 2004
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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
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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?
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Profits Don’t Suffer
Rate of Return on Shareholders’ Equity, Large Firms, 1996-2003 (Percent)
Year Pharmaceutical industry
(median)
All manufacturing industries
(median)
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
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Conclusions
Canadian prices are lowerPrice controlsNo DTCASlower uptake of newer, more expensive drugs
ConsequencesCanadians healthier than AmericansNo significant effect on new drug introductionCompany profits remain healthy