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Informing Policy

What are the unexpected impacts of upcoming Canadian medicine pricing regulations?

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A CIHR-funded study co-led by CHÉOS Director Dr. Aslam Anis (nominated principal applicant) and Health Economics Program Head Dr. Wei Zhang, will investigate whether new Canadian drug pricing regulations will actually reduce costs to taxpayers and whether the regulations could cause pharmaceutical companies to take their new drugs and research elsewhere.

Dr. Wei Zhang

Canada has the fourth most expensive patented drugs in the Organization for Economic Cooperation and Development (OECD), behind only the US, Germany, and Switzerland. In response, the Patented Medicine Prices Review Board (PMPRB), Canada’s patented drug price regulatory agency, recently released new guidelines to curb excessive medicine prices.

The changes, to take effect on January 1, 2022, include updating the list of reference countries that Canadian prices are measured against — two high price countries (the US and Switzerland) will be removed and six new countries with relatively low prices (Australia, Belgium, Japan, Netherlands, Norway and Spain) will be added. The regulations will also use new criteria for determining if an expensive and top-selling drug is overpriced, including improvements in health-related quality of life conferred by the medicine.

“Drugs are the second-largest type of health spending in Canada and excessive costs put a financial burden on Canadians and our health care system,” said Dr. Anis, Director of the School of Population and Public Health at UBC. “Our project aims to understand the real-world impact of these rule changes, both to the public system and private industry.”

Although the modernized guidelines brought forward by the PMPRB are well intentioned, the complexities of pharmaceutical price regulation in Canada make the potential impact of the rule changes unclear. There are multiple overlapping federal agencies that assess and negotiate drug prices and each province has its own public drug plan that reviews federal recommendations and further negotiates prices.

To assess the effect of the regulatory changes, the study team will analyze prices of the 395 unique patented medicines submitted to PMPRB from 2010 to 2017. The team will model the theoretical prices of the drugs as if the new regulations came in to effect in 2010. They will then compare the theoretical price for each drug to the actual price, thereby measuring the potential effect of the new policy.

“By taking this approach, we will be able to compare how changing the benchmark countries affects prices, and how updating the way we valuate expensive drugs will cap costs,” explained Dr. Anis.

The second part of the four-year project will look at how drug companies will respond to the new regulations in terms of their decisions to launch new drugs in Canada and their investments into research and development.

Dr. Aslam Anis

“Research has shown that tightening price regulation can hinder access to new medicines. We have already seen some early evidence of reduced launches and reticence among pharmaceutical companies on releasing new drugs in Canada even before the new policy implementation,” said Dr. Anis.

To estimate the impact of the policy changes, the researchers will use the number of new medicines launches in the 10 years before the policy change to estimate the number of drug launches that would be expected after the regulatory changes. Then, after collecting the actual number of launches over the next three years after the policy change, they will be able to measure its impact and whether it influenced the type of new medicines released.

The team will also construct a simulation model to understand how the regulations could affect prices into the future by changing how drug companies choose which types of medicines to develop and when to release them.

“Canada’s drug costs are clearly excessive and potentially unsustainable, but it is important for decision makers to understand the impact of policy changes on the real-world costs of drugs, and to be aware of potential repercussions on industry spending and access to new drugs,” said Dr. Anis. “Our study will produce evidence-informed recommendations on the PMPRB price regulations that will have broad implications for Canada’s drug expenditures and access to essential medicines.”

The study will also be conducted by Drs. Paul Grootensdort (University of Toronto) and Aidan Hollis (University of Calgary), postdoctoral fellow Dr. Javad Maradpour, two CHÉOS senior statisticians, Daphne Guh and Huiying Sun, and one research assistant, Brittany Buffone. The project is supported by a Project Grant from CIHR for a total amount of $581,400.

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