Fraser Forum

Reducing drug prices in Canada might prove costly

Printer-friendly version

Proposed changes to Canada’s Patent Medicine Prices Review Board (PMPRB) were put forward by Health Canada in December 2017 to address what Health Canada identified as a regulatory framework that falls short of its mandate to protect consumers from excessive prices for patented medicines.

One specific change would modify the list of countries the PMPRB uses for international price comparisons to determine a “fair” market price for patented drugs. The list of countries will be expanded from seven to 12, but the United States and Switzerland—two countries that typically have higher prices than Canada—will no longer be included. The anticipated result is that drug manufacturers will lower their prices in Canada to comply with lower maximum chargeable prices.

A second recommended change is that the PMPRB will assess the value of new drugs by reviewing cost-effectiveness analyses submitted to the Canadian Agency for Drugs and Technologies in Health (CADTH). The latter makes recommendations about reimbursement in public drug insurance plans for all provinces (except Quebec).

The new value assessment framework will have the PMPRB attach dollar thresholds to CADTH cost-effectiveness analyses. The thresholds will set a maximum cost above which drugs would no longer be insured. Furthermore, even if a drug passes the threshold test, a further analysis will determine the impact the drug will have on patient and insurer finances. A drug deemed to have a large impact could have its allowable price reduced.

In its executive summary of the proposed changes, Health Canada estimates a net benefit to Canadians of $12.6 billion over 10 years due to reduced drug costs. It also claims that lower prices would not be disruptive to industry investment in domestic research and development—a claim disputed by industry representatives. Other observers caution that effectively mandating lower drug prices in Canada carries a risk that new and effective therapies will not be made available to Canadians by drug manufacturers.

Yet another possible unintended consequence is heightened trade conflict with the U.S. where President Trump recently announced a number of actions to lower prescription drug prices. President Trump also said he would try to make foreign governments pay more to buy drugs created through U.S. innovation, adding that America would not be cheated any longer—especially by foreign countries. His plan calls on agencies such as the Commerce Department to take action on the issue.

The Trump administration will undoubtedly see Canadian initiatives to lower prescription drug prices as a further attempt by Canada to "freeload" on U.S. pharmaceutical innovation which, to date, has been disproportionately funded by U.S. consumers of patented drugs in the form of drug prices that are substantially higher in the U.S. than elsewhere in the world.

It’s quite likely that any trade restrictions imposed by the Trump administration against U.S. trade partners, including Canada, to retaliate against prescription drug freeloading would be illegal under WTO rules. However, as suggested by other recent trade initiatives (including U.S. tariffs on steel and aluminum imports), the administration seems quite willing to invite legal challenges to its trade actions and appears to believe that other countries would rather make concessions to placate U.S. demands rather than undertake prolonged and expensive dispute-resolution procedures.

Perhaps even more worrisome, the U.S. administration might be quite happy to ignite wider trade wars with its trading partners if it reduces U.S. international trade. After all, one way for the U.S. to eliminate its trade deficit is to cease international trade. If all that matters to the administration is the U.S. trade deficit, one should not underestimate what this U.S. government may do achieve its goal of reducing net U.S. imports.