Operating context and key risks

Operating context

The PMPRB was created in 1987 as part of significant reforms to Canada’s drug patent regime which sought to balance potentially competing policy objectives. On the one hand, the government strengthened patent protection for drugs in an effort to encourage more pharmaceutical industry research and development (R&D) investment in Canada. On the other, it sought to mitigate the financial impact of that change on Canadians by creating the PMPRB to ensure pharmaceutical patentees did not abuse their newly strengthened patent rights by charging consumers excessive prices.

Drug spending in Canada has increased from less than 6% of total health expenditures, when Medicare was first established, to about 16% today. Drugs are now the second-largest category of spending in health care in Canada, ahead of physician services, with per capita spending on drugs second only to the United States. Canada is paying higher prices for prescription drugs than most other developed countries which can result in limited access to innovative medicines, place a financial burden on patients, and mean fewer resources for other critical areas of the health care system.

Patented drug prices in Canada are 25% higher than the OECD average. This is partly due to the limitations of Canada’s outmoded patented drug price regulation framework, which assesses Canadian prices against a list of countries with some of the highest drug prices in the world (i.e., the US, the UK, France, Germany, Switzerland, Italy and Sweden – known as the “PMPRB7”).

Canada’s current drug price regulation framework, which has not been substantially changed in more than two decades, is not equipped to address the current and anticipated future pricing challenges, in particular those associated with high-cost specialty drugs. In particular, the current framework does not consider whether the price of a drug reflects its value to patients or the size of its potential market. Furthermore, patentees are not required to report the significant discounts and rebates they provide to third parties, such that the PMPRB does not have complete information about the actual prices being paid in the Canadian market. The current tools are insufficient for determining whether a price is excessive, particularly for the increasing number of drugs for which international prices are also excessive and/or not indicative of what other countries are truly paying.

Rising drug prices and the growing number of high cost drugs on the market have led other countries to experiment with new forms of cost containment that rely more on assessing the economic value of a new drug to their respective health systems and less on international price comparisons. Canada needs to reform its approach to be able to effectively regulate prices in today’s environment.

In January 2016, federal, provincial and territorial Ministers agreed to work together to improve the affordability, accessibility and appropriate use of prescription drugs to better meet health care system needs. The federal government is firmly committed to this work and is taking action to significantly lower the cost of prescription drugs; provide faster access to new drugs that are safe and effective and better meet the needs of the health care system; and support the development of tools for more appropriate prescribing. To support these actions, Budget 2017 outlined an investment of $140.3 million over 5 years, starting in 2017, and $18.2 million ongoing. These funds are earmarked for Health Canada, the PMPRB, and CADTH to modernize their therapeutic products review processes to improve access to prescription medications, lower drug prices and support appropriate prescribing.

On December 2, 2017, Health Canada’s proposed amendments to the Patented Medicines Regulations were published in Part I of the Canada Gazette. If passed, the amendments would provide the PMPRB with new and better regulatory tools and information to protect Canadian consumers and payers. On December 11, 2017, the PMPRB published a Guidelines scoping paper to provide stakeholders and interested members of the public with an outline of how it intends to operationalize, through non-binding Guidelines, the proposed amendments. The PMPRB will officially consult on a revised set of Guidelines in the spring of 2018, with a view to having its new regulatory framework in place by January 2019.

Key risks

The Minister of Health is responsible for the Patented Medicines Regulations and thus Health Canada is the lead in advancing the currently proposed amendments. Any disruption in the regulatory amendment process will complicate the PMPRB’s ability to move forward with changes to its Guidelines, with the result that Canadians’ access to more affordably priced patented drugs could be significantly delayed. The PMPRB will work closely with Health Canada to provide whatever technical and analytical support is required to ensure the regulatory amendments are finalized on schedule. At the same time, the PMPRB will need to develop contingency plans for moving forward with a scaled-down set of much needed reforms to the Guidelines, in the event that the Regulations do not pass in their currently proposed form, or are delayed for an indefinite period of time.

In either event, the PMPRB will require additional resources if it is to be a more relevant and effective price regulator, including more legal capacity to manage a greater number of hearings, more expertise in health economics, epidemiology and financial accounting and more modern and user-friendly IT infrastructure. Given some of the skills sets the PMPRB will be seeking are in relatively short supply, there may be delays in completing the staffing processes necessary to bring the requisite new employees onboard. To ensure it has access to the skills needed in the timeframe envisaged, the PMPRB will make use of whatever temporary contracting arrangements are possible with outside experts. Conversely, if the PMPRB is successful in attracting and hiring new staff as per the currently envisaged schedule, it may not have sufficient office space to accommodate them. The PMPRB has developed a detailed plan to address a space shortage which includes the use of flexible work arrangement and the use of temporarily vacant or unused office space.