The high price of cheaper drugs

Earlier this year, Health Canada launched a consultation essentially aiming to reduce the maximum prices of new drugs introduced in the country. When we look at what has happened in places where this kind of policy has been implemented, it’s clear that it is patients who have paid the price.

Pharmaceutical innovation plays an essential role in our modern, aging societies, allowing many people to live longer, healthier lives. It has among other things led to a reduction in the number of premature deaths due to cancer, and made a significant contribution to increasing life expectancy: nearly three-quarters of the 15-month increase recorded in the first decade of the 21st century was due to the consumption of drugs launched after 1990.

This innovation nonetheless depends on a fragile economic equilibrium, as the research needed to make these discoveries requires colossal investments and numerous years of work. To maintain this balance, pharmaceutical companies introduce new drugs first in markets where the prices of drugs are determined in such a way as to take into account, among other things, this research, as well as a certain return on investment.

Canada is one of those markets, and it is often one of the first countries where new drugs are introduced. In 2015, the country was ranked 4th among comparable countries, with 61% of new drugs marketed. This enviable position could change with Health Canada’s reform, which aims to set prices at artificially low levels.

The federal agency wants, among other things, to modify the list of countries considered when establishing maximum prices for drugs, which would have the effect of lowering this ceiling. However, comparing Canada to countries that have more limited access to innovative drugs could create the same problem here.

This is what Health Canada is proposing to do by excluding from the calculation the United States, which ranks first in terms of bringing new drugs to market with 84% of drugs launched. In contrast, five of the seven countries Health Canada wants to add to the list of comparable countries are below the OECD median in terms of access. These are not models to emulate.

Take New Zealand, an extreme case among industrialized countries. It is not one of the countries under Health Canada’s microscope, but it is often cited as an example for the prices of its drugs. Yet the public system’s access to treatments for diseases that are exploding like diabetes, cancer, and high cholesterol can be delayed there by more than ten years compared to Canada.

And contrary to Canada’s good performance, only 13% of new drugs had been launched in New Zealand in 2015. In Portugal, which recently adopted rules similar to those proposed by Health Canada, only 49% of drugs were marketed for the same year. Do we want to move in this same direction?

Delays in launching new drugs are also important. Canada is the second fastest in this regard after Japan, with an average time to launch of just 90 days after approval, versus over 400 days for New Zealand, and nearly 300 in Portugal.

The Canadian regulatory environment for new drugs is increasingly controlled by organizations that do not buy drugs but that have a substantial influence on prices and on levels of reimbursement. A reform giving these organizations a greater role and detaching drug prices from market principles could significantly reduce Canadians’ access to drugs.

Canada could thus wind up at the bottom of the pack in terms of access to new drugs. Since Canada is a country with a relatively small population, it could become more attractive for pharmaceutical companies to consider markets where the number of patients is higher.

Before regulating prices even more, public decision-makers should appreciate the privileged access to new drugs that Canadians enjoy, as well as the fragility of the balance that underpins this access.

Health Canada called its consultation “Protecting Canadians from Excessive Drug Prices.” If the federal agency achieves its objectives, it could find itself, quite unintentionally, protecting Canadians from access to drugs.
 

Mathieu Bédard is Economist at the Montreal Economic Institute and the author of “Access to Medication: Preserving a Fragile Balance.” The views reflected in this op-ed are his own.

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