Canadians take pride in the Medicare system that enhances their access to healthcare. There are numerous mechanisms put in place to work hand in hand with this scheme to ensure that drug prices are well regulated and drugs are affordable. Despite these measures, the overall expenditure on drugs has risen drastically over the last three decades (Gagnon, 2014). Prices, on the other hand, have fluctuated with increases and decreases experienced at different periods and provinces. These fluctuations have been causes of major inconveniences for healthcare providers and patients. The lack of a uniform drug control approach across provinces and conflicts between federal and provincial level policies is the primary cause of inefficiencies in drug price regulation in Canada.
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The policy challenge
It is rational to admit that there is drug price control problem in Canada. According to Gagnon (2014), prices for both inpatient and outpatient prescription drugs have been on the rise over the last three decades. Inpatient prescription drugs are covered for by the public healthcare system, but outpatient prescription drugs are not. Though there exist numerous public health plans that make outpatient prescription drugs more affordable, a considerable portion of the population is not covered by any of these schemes. Morgan and Boothe (2016) confirm that fluctuations in drug prices have a grave effect on healthcare provision. The major cause of this challenge has been an ineffective pharmaceutical policy concerning drug prices at both the federal and provincial level. There exists a complex system of pharmaceutical regulatory systems at both levels that complicate price regulation.
Despite the various actions taken at both the federal and financial level, drug prices in Canada have continued to rise with a corresponding increase in per capita expenditure. Compared to other developed countries, Canada ranks among the top three nations with the highest drug prices – only performs better than the US and Italy (Lexchin, 2014). Regarding overall expenditure on drugs, Canada has the second largest expenditure after the US (Babar, 2015). High drug prices compromise the quality of healthcare in Canada.
Current Canadian Policy Approaches Meant to Control Prices
Federal Government’s Role in Drug Price Control
The federal government has a significant role to play in the regulation of drug prices. The Patented Medicine Prices Review Board (PMPRB) is the national body that charged with the responsibility of controlling drug costs (Anis, 2000). It is quasi-judicial in nature and responsible for ensuring that manufacturers do not charge excessive prices for their drugs. The PMPRB does not set drug prices but instead reviews the prices of various products to determine whether they are excessive. It has the power to conduct investigations and enforce decisions that it deems appropriate to control prices.
The first step by PMPRB towards the regulation of drug prices is drug classification. In order to classify drugs, PMPRB relies on data submitted by manufacturers for classification of drugs (Anis, 2000). Currently, the board classifies drugs into three categories. Category 1 drugs include any drug that is an extension or improvement of existing drugs also referred to as line extensions. Category 2 includes all first drugs to treat a given illness effectively. Category 3 drugs consist of any new dosage form that results in moderate or little improvement of the existing drugs (Anis, 2000).
After this classification, drug’s price is then reviewed against prices of other drugs to determine if it is excessive. In order to determine if the cost of a drug is excessive, it is compared with the Consumer Price Index (CPI). As Bonner and Daley (2010) note, an exorbitant drug price is any price increase for a patented drug that is more than the CPI. It uses a metric referred to as the Patented Medicine Price Index (PMPI). Prices for new drugs are supposed to be in the range of other existing drugs in the same therapeutic classes. Drug prices are reviewed on a yearly basis, but at times, a drug price review can be initiated due to a complaint from a stakeholder. Each year, manufacturers are supposed to submit price and sales information with the PMPRB for review (Anis, 2000). The board has the power to order a manufacturer to lower prices so that they are no longer considered to be excessive.
The Provincial Government’s Role in Drug Price Regulation
Many approaches are available for use by the provincial government in drug price control. The most common method is the use of formularies. A formulary is a form of arrangement in which a given drug is included in given provincial drug plan (Grootendorst & Matteo, 2007). After a drug is approved and reviewed by the PMPRB, the manufacturer is supposed to make a filing with the provincial government for its inclusion in a given drug plan. After the submission, the provincial government reviews the effectiveness of the drug by comparing its costs to its therapeutic advantage (Grootendorst & Matteo, 2007). A new drug that has a therapeutic value will be added to a plan only when it does not increase program costs. Also, a drug can be added to a plan under specific conditions.
The other strategy that provincial governments use to regulate the prices of drugs in the markets is the use of generics. Generics are a major part of the pharmaceutical patent policy. A generic drug is an exact copy of an original brand drug (Anis, 2000). The major advantage of generics is that they have lower prices than the original drugs due to lower research and development costs. Provincial drug programs at times opt for generic substitution drugs to lower and control expenditure on drugs. Since generic drugs function in a similar way to the original, innovative products, provincial drug programs can substitute a drug with its cheapest generic form.
Reference-based pricing is also used by provincial administrators to control and regulate drug prices. Reference-based pricing is an extension of the generic substitution concept (Anis, 2000). In this case, a panel of pharmacists establishes a reference product in every category of drugs and its price. It is then what the provincial government will use as reimbursement price for all products in this category.
Data Collection Techniques
Data was gathered primarily through traditional means. Academic journals and gray sources were used as the principal sources of data. Academic journals and peer reviewed gray sources are credible sources of information due to their peer review nature. The sources used were Canadian and international. The international sources used were aimed at comparing the approaches employed in Canada with those used in other countries.
Analysis of Findings
With the entire above-stated drug price control mechanisms in use, it may seem obvious that drug prices in Canada would be low. However, this is not the case because drugs in Canada are not cheap (Thakkar, 2016). Canada has made bold steps in controlling pharmaceutical drug prices, but still, its price regulation measures need to be enhanced. Canada has high per capita spending on drugs, and this is an indicator of inefficient drug price control mechanisms. Canada’s prescription drug prices are among the highest in OECD countries. As of 2015, Canada had the second-highest per capita spending on drugs after the US (Lexchin, 2014). Similarly, between 2000 and 2009, Canada’s average annual growth in per capita spending was 4.3 % which is almost 1% higher than the OECD average for that period, which was 3.5% (Lexchin, 2014). Prices of generic drugs in Canada are also higher than those in most other developed countries despite the recent moves in some provinces that were seen as a solution to price increases.
The various provincial drug plans that are supposed to subsidize on drug costs do not cover everyone, and a significant portion of the public is left out in coverage. In most provinces, drug benefits programs help the needy, the elderly, and other minority groups that require social assistance (Babar, 2015). The general population is therefore covered only to some extent. Private insurance companies also complicate the issue for they seem to support increment in drug costs. Since they are paid as a percentage of the total plan expenditure, they would make more profits with higher drug price (Babar, 2015). The primary reason for the ineffectiveness of drug price control mechanisms in Canada is complexities that arise from federal and provincial governments’ price regulation measures going in opposite direction.
The federal government makes policies, yet it does not suffer their consequences. It is the provincial governments who suffer these consequences for it is them who bear the larger health care cost burden. The manner in which price regulation policies at the federal and provincial level mesh with each other has changed substantially since the enactment of Bills C-22 and C-91 (Grootendorst & Matteo, 2007). Before the passing of these two bills, federal and provincial drug policies were unidirectional. The federal compulsory licensing policy made generic drugs cheaper while policies such substitution laws at the provincial level encouraged the use of generic medicines (Grootendorst & Matteo, 2007). It had the favorable effect of lowering drug prices as well as government expenditure on drugs. Grootendorst and Matteo (2007) add that in the period between 1969 and 1987, federal spending on drugs was, for example, more than $400 million lower than it would have been without these policies.
The introduction of bills C-22 and C-91 had a major effect on Canadian drug prices. These two bills worked together to eliminate compulsory licensing and thus led to federal and provincial policies moving in the opposite directions. Anis (2000) mentions that federal regulations seem to be allowing for longer patent terms, less generic competition, and higher prices while provincial policies such as requiring cost-effectiveness, reference pricing, and formulary listings are aimed at lowering and containing drug acquisition costs.
The provincial government’s efforts to lower drug prices have been significantly compromised by these two bills (Anis, 2000). The increasing expenditure on drugs is enough proof of this. In the period between 1988 and 2002, after the Bills C-22 and C-91 (1987 & 1993 respectively) were effected, drug spending increased by more than $3.9 billion (Grootendorst & Matteo, 2007).
There also seems to be a lack of uniformity by provinces regarding drug price regulation. Different provinces use those approaches that they deem to be the most efficient for them. With minimal federal interference, each province has its own approach towards planning for meeting drug costs. According to Lexchin (2014), rules regarding who is covered in what plan, the type of drugs that are listed in formularies, and how much people are supposed to pay out of pocket for drugs varies significantly across provinces.
Evidently, Canada’s rising drug prices per capital expenditure on drugs are an indicator of inefficiencies in price control at both the federal and provincial level. Many strategies have been put in place at both levels to regulate drug prices, but they seem to be ineffective as the rising costs of drugs indicate. The primary cause of this inefficiency is the current conflict between federal and provincial price control policies as well as the lack of a common price regulation to be used across provinces. There is a need for the federal government to work together with the provincial governments to put up new measures to curb drug prices.
Anis, A. H. (2000). Pharmaceutical policies in Canada: Another example of federal-provincial discord. Canadian Medical Association Journal, 162(4), 52-526.
Babar, Z. (2015). Pharmaceutical prices in the 21st century. New York, NY: Springer.
Gagnon, M. (2014). A roadmap to a rational pharmacare policy in Canada. Ottawa, ON: Canadian Federation of Nurses Unions.
Grootendorst, P., & Matteo, L. (2007). The effect of pharmaceutical patent term length on research and development and drug expenditures in Canada. Healthcare Policy, 2(3), 63-84. http://dx.doi.org/10.12927/hcpol.2007.18677
Lexchin, J. (2014). Drug pricing in Canada. In Z. Babar (Ed.), Pharmaceutical prices in the 21st century (pp. 24-41). Springer: New York, NY.