Canada

Price Controls

National
The Patented Medicine Prices Review Board (PMPRB) is in the process of revising its overall approach to setting price ceilings, including consideration of the use of U.S. Department of Veterans Affairs (DVA) prices as part of the basis on which those ceilings are established.

The use of international price comparisons and the establishment of price ceilings on patented medicines are counterproductive to initiatives to provide high quality health care, and thus improve the health of patients, or to help contain health care spending. The following are among the principal concerns regarding such practices.

• Using international comparisons ignores valid reasons for price differentials across countries. The prices of pharmaceutical products, as well as all other types of goods and services, differ widely across countries, for many legitimate reasons. These include living standards, income levels, consumer preferences, disease and drug consumption patterns, product volume, exchange rates, regulatory requirements, as well as the degree of competition in the health services and pharmaceutical markets. Superimposed on these factors are government-mandated reimbursement and price controls, which affect prices throughout the distribution chain. As a result, establishing price ceilings by using prices from other countries ignores prevailing market conditions and impedes biomedical innovation by prohibiting each innovator from establishing prices for its medicines based on market factors.
• There is little evidence that international price benchmarking leading to price controls actually curbs overall pharmaceutical spending. Government-set prices preclude the benefits of price competition. In these circumstances, such government interventions in the market have little, if any, positive impact on the rate of growth in pharmaceutical expenditures over the long term. Under market conditions, however, price competition has proven to be an effective way to hold overall spending down and to provide high quality health care.
• International price benchmarking threatens patients' health by dampening incentives to improve on today's treatments, thus lowering health care quality. In order to fund critical long-term activities to discover and develop potentially life-saving drugs, pharmaceutical companies must be able to fairly and adequately recoup investment in research and development. Price control practices that prevent innovators from covering their costs will thus impede biomedical innovation and can jeopardize high quality health care for future patients.

Within the broader context of concerns with the practice of comparing prices for patented products across countries, the prices associated with the DVA formulary are an inappropriate benchmark for PMPRB purposes, for the following reasons:

• The DVA is not equivalent to any of the regulatory authorities in the other six countries whose prices are considered by PMPRB.
• DVA prices are not an accurate reflection of the free market.
• The DVA formulary is extremely restrictive.
• DVA prices reflect only a small component of the market.

In deciding how best to allocate health care resources and resolve the tension between controlling health care spending, improving the health of the population, and ensuring that the research-based pharmaceutical industry can continue to deliver cost-effective innovations for patients, the PMPRB's proposed approach has the potential to negatively impact the latter.

Provincial
Additional concerns have been raised regarding ongoing efforts at the provincial level, particularly in Ontario and British Columbia, to impose ceilings on pharmaceutical expenditures without a full evaluation of the positive contribution of the research-based pharmaceutical industry to an overall reduction in health care costs. These cost containment measures threaten the economic viability of introducing innovative products in provincial markets, a situation further aggravated by restrictive formulary listing practices.

Potential Exports/Foreign Sales

It is not possible at this time to determine the impact on sales for PhRMA member company affiliates in Canada if the aforementioned issues were to be resolved.