To save workplace drug plans, Canada needs to change its drug pricing strategy
Canada’s regulatory approach to capping prescription drug prices has been in place since the late 1980s. To this day, the mandate of the Patented Medicine Prices Review Board (PMPRB)—the government body that regulates prices for patented drugs—is to ensure that prices are not “excessive” compared to prices in a handful of other relatively high-cost countries, such as France, Germany and the U.S. Yet Canadians now pay some of the highest prices for drugs in the developed world. According to the Organisation for Economic Co-operation and Development (OECD), Canada has the second highest per capita spending on prescription drugs in the OECD.
It’s time for a change. Even getting to the OECD average ($483 per capita) would save over $8 billion a year for Canada, which spends $701 per capita.
Why does it matter? Because the high prices are disproportionately borne by employers and Canadians paying for prescription drugs out of their own pockets, threatening the sustainability of private plans. All of the provinces and territories have concluded that prices are too high, essentially removing themselves from the issue by negotiating confidential pricing agreements with pharmaceutical companies that want their drugs covered by provincial drug plans. But this is not a long-term solution, as it exacerbates the financial pressures on employer plans and prevents certain people from accessing higher-cost drugs.
The insurance industry hasn’t been standing still in this environment—it has come up with new solutions for drug plan sponsors. Examples include preferred provider networks, mandatory generic substitution, agreements between pharmacies and insurers (which stipulate that a pharmacy will lower its costs for the clients of a certain insurer if that insurer directs its clients to the pharmacy in question), and step therapy (which requires plan members to try certain drugs first before switching to more costly medications). Add to that the new high-cost drug pooling agreement for fully insured plans—which shelters firms from the full expense of any high-cost and recurring drug claims—and it’s clear that the pace of change in the insurance market has been unprecedented.
Despite these advances, Canada’s prescription drug coverage system needs fundamental reform. Specifically, the reform should focus on how prices for patented drugs are regulated here. The overall mission of the PMPRB needs to change so that it strives for the lowest possible prescription drug prices for all Canadians.
In executing this new mandate, the PMPRB should leverage a market-based approach to capping prices—one that recognizes and rewards truly breakthrough drugs while differentiating them from those with limited or no additional clinical value. As well, the PMPRB needs to introduce a regular pricing review mechanism so that prices adjust over time, replacing the current regime of one-time price approval that cannot be changed. Simply put, if the market for a particular drug changes materially, the pricing should be adjusted to reflect those changes.
Twenty-five years after Canada’s drug pricing approach was introduced, it’s time to rethink it. If costs go unaddressed, there’s a real risk to the sustainability of employer-provided plans. A pullback on drug coverage by employers would have dramatic implications—not only for individuals but also for governments, which are also struggling with rising healthcare costs. A good place to start is to clearly establish the PMPRB as a consumer-focused organization that seeks to lower prices as much as possible for all Canadians.
Stephen Frank is vice-president, policy development and health, with the Canadian Life and Health Insurance Association. sfrank@clhia.ca
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