New drug price rule could save Canada billions, parliamentary budget officer reports

New drug price regulations set to come into effect next month could lower spending on patented drugs by about seven per cent over the long term and save billions of dollars, the parliamentary budget officer reported Tuesday.

Health Canada first announced in 2019 that the Patented Medicine Prices Review Board would change how it sets a price cap on medicines in Canada in an effort to lower excessively expensive drug costs by changing the countries Canada compares prices with.

The changes are expected to come into effect on July 1, after being pushed back four times during the pandemic.

The PMPRB has a mandate to make sure drug costs don’t become excessively expensive, and one of the ways it does that is by comparing drug prices with other countries.

When a breakthrough drug is introduced to the market, the price is set at the median sticker price of seven comparable countries.

Over the years, drug prices abroad have become less transparent and the cost of drugs in the United States in particular has shot up drastically compared to Canada.

To fix the problem, Health Canada proposed changing the countries Canada compares prices with, and put forward a list of 11 countries with similar GDP per capita that no longer includes the United States.

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If the changes had been in place in 2018, Canada would have spent 19 per cent less, representing about $2.8 billion, parliamentary budget officer Yves Giroux and his team found in their newly released report.

The magnitude of the impact was similar for 2021, though the pandemic made data from that year less reliable.

Future savings are hard to measure, especially when you’re talking about something as unpredictable as the development of new drugs, the report explained.

“The main objective of the exercise is not to attempt to provide an accurate measurement, but rather to gauge the importance of the change,” Giroux said in the report.

A 19 per cent savings would be significant, but whether those gains are realized depends on more specific rules the government has yet to settle on — like whether existing drugs will be grandfathered in at their current prices or be renegotiated under the new regime.

“We conclude that the proposed change may, over the long term, lower expenditures on patented drugs by seven per cent, reaching nineteen per cent if reassessment of prices occurs more frequently,” the report stated.

The government had initially planned several other regulatory changes to lower the cost of drugs but stood them down after they were successfully challenged in court by pharmaceutical companies and the Quebec government.

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The move to change the list of countries Canada compares prices with has engendered resistance from industry and patient groups who worry the changes will impact access to new drug therapies in Canada.

In a 2017 report, the PBO estimated pharmacare could reduce overall drug spending by 25 per cent.

If the PBO’s estimates hold true, the new PMPRB regulations could get Canada close to that goal.

But the change has been met with resistance from industry and patient groups who worry lower prices will impact access to new drug therapies in Canada.

Their fear is that lower prices will reduce the incentive for companies to bring innovative new drugs to the country.

That possibility wasn’t analyzed as part of the report, but the PBO says it’s important to remember that pharmaceutical companies spend a lot of money to develop new drugs, often without success.

The reason they make the effort is because of the potential rewards when they do find a therapy that works, particularly in the U.S. market where prices are high.

“At present, more of that (research and development) occurs in the U.S. than in the rest of the world,” Giroux said. “A strategy by Canada of free-riding on R&D expenditures in the U.S. and elsewhere is not tenable.”