February 27, 2018
February’s meeting covered the topic of impending changes to the price review process guideline by the Patented Medicine Prices Review Board (PMPRB), a critical issue and political hot topic that deeply impacts the pharmaceutical industry in Canada and internationally. The meeting featured a live expert panelist exchange. We reviewed how medication pricing has historically happened in Canada, the PMPRB’s newly-proposed processes to determine excessive pricing, and the implications these changes will have on the industry.
A few points of business Shannon Quinn
The President of the PMCQ, Shannon Quinn, opened the meeting by covering a few points of business:
Introduction to the meeting’s topic Sylvie Pilon
Sylvie Pilon, the Vice President General Manager at Lundbeck, set the stage for the meeting’s topic. She stated that the Canadian pharmaceutical industry contributes over 20 billion dollars per year in economic activity, supports over 30,000 high-value jobs, has close to 5,000 ongoing clinical trials in any given year, and invests 1.2 billion dollars in research and development. Yet, some of these statistics are at risk of becoming irrelevant as the industry faces its greatest challenge: proposed changes to the PMPRB price review process guideline.
The PMPRB’s intentions are noble; their vision is to create a sustainable system where payers have the information they need to make smart reimbursement choices and Canadians have access to patented medications at a reasonable price; however, the proposed reforms are drastic, unprecedented, and disproportionately represented.
She then introduced the panelists:
The history of medication pricing in Canada Joan McCormick
The PMPRB was created in 1987. In the past, you generally only heard about the PMPRB when a company was charged with excessive drug pricing. During the 2015 federal election, the Liberals started talking about the pricing of drugs, raising the PMPRB’s profile; Minister Philpott went on the CBC’s The Fifth Estate and affirmed that she would bring drug prices down, and the federal budget in 2017 included money for the PMPRB. This has lead to a demand for modernization of the PMPRB’s framework, which is over 30 years old.
The PMPRB is required to enforce laws written in the Patent Act, which states the following: “In determining…whether a medicine is being or has been sold at an excessive price in any market in Canada, the Board shall take into consideration the following factors…:
One of the major issues is that the “factors” mentioned in the Patent Act are not clearly defined, so they are broad and vague. Furthermore, the last bullet refers to regulations that are currently being revised, allowing for further factors to be added to the list. The PMPRB itself is not responsible for updating any regulations (these are constitutional and revisions happen at a higher level of government), but there are guidelines that are supposed to reflect the regulations, and these guidelines are under revision by the PMPRB. In order to adhere to their own principles of fairness, transparency, openness and predictability, the PMPRB Board is required to hold consultations when changes to the guidelines occur.
The PMPRB’s current price review process guideline is designed to look to the international median price for guidance on setting Canadian prices for drugs. To determine the international median price, the PMPRB has a list of OECD comparator countries and their drug prices. In some cases, the highest-priced drugs in Canada are higher than the international median price; however, there is a universal cap, which is set by the highest international price. One of the proposed changes to the guidelines is to remove the U.S.A. and Switzerland from the comparator list, two countries with the highest-priced drugs. If the highest-pricing countries are removed from the list, then this lowers the ceiling for pricing in Canada.
Upcoming changes proposed by PMPRB Tanya Potashnik
According to Ms. Potashnik, back in 1987, the pharmaceutical industry promised to increase R&D spending levels to a 10% R&D to sales ratio, which is why the PMPRB granted the industry certain incentives, such as extended patents. There was a period during which that objective was met. Over time, in the last 10 years, R&D spending has been declining, so that the R&D to sales ratio is now almost at the same level as it was originally in 1987. Today, what seems to be a source of a lot of discussion is whether the PMPRB is fairly capturing all of the sources of investment by the industry.
As for drug prices, recent list-to-list pricing comparisons across countries shows that Canada is the third-highest ranking country for prices, following the U.S.A. and Switzerland. The OECD average is about 20% lower than Canadian levels. The guidelines have an important impact on where price ceilings are set. There has been a lot of change in how prices are realized domestically and internationally, causing a shift in the validity of list prices. Canada was one of the first countries to use external list prices, and, at the time, it was a decent indicator, but in today’s world, a lot of those prices are just the beginning of negotiations/conversations with individual payers. The PMPRB is now de-emphasizing international prices as a factor.
The new factors being proposed and being consulted on by Health Canada are:
This lens allows the PMPRB to focus on the value of the product, as well as to consider its affordability. The comparator list of countries is also being updated. On this point, Ms. Potashnik stated that it is important to understand how this list of countries will be used: Canada is not trying to emulate any particular regime, but to look at how prices work in other countries.
The current guideline attempts to offer a price premium for breakthrough products that offer a therapeutic benefit. In theory, the median international price of a new drug is intended to be used in order to have Canada contribute its fair share of the investment that brings that product to the Canadian market; in practice, it’s not unusual for the top price in a therapeutic class comparison, which is the current ceiling used by the PMPRB, to in fact result in a higher price ceiling than the median international price. Over the years, the PMPRB have gained clarity through the Supreme Court and other jurisprudence in their purpose, and they determined that their primary objective is not to reward innovation, but to protect consumers. They argue other policy initiatives/instruments are actually the more appropriate vehicle for contribution, like direct investment.
If there is any area of common ground for the two opposing sides of these arguments, it is that the current review process does not do a good job of assessing the greatest areas of risk of abuse of power. The current approach treats all drugs equally. A risk-based approach would prioritize drugs. The regulations being proposed for amendment include a regulatory burden reduction component, so drugs that are seen as low-risk drugs (such as generics, OTC and veterinary drugs) have reduced regulatory reporting requirements. In those cases, the PMPRB would only ask for information if there is a complaint.
Essentially, after conducting an external price reference test, the next step is for the drug to be screened to determine whether it should be high, medium or low priority depending on market conditions. A high-priority drug is a drug that is first in class, indicated for a condition with no therapeutic alternatives, provides a significant therapeutic improvement, or has a high prevalence (and thus has affordability considerations, such as drugs that are cost-effective but because of the number of people affected, the government has to ration care to the sickest). The proceeding steps will depend on the level of priority assigned. High-priority drugs will be affected the most, so that the pharmacoeconomic and market size assessments will be applied in a targeted way. If the drug is high-priority, the PMPRB envisions being able to wait for CADTH or INESSS evaluations (so that they are not duplicating work or second-guessing expertise that already exists) and use that information to have a closer link between the value of the product and the price. Overall, the PMPRB anticipates the risk-based approach will result in a 10% reduction in net revenue over time.
Lastly, there is a filing requirement to include not only the first-party discounts that are provided by patentees to pharmacy wholesalers, hospitals, and clinics, but also those significant discounts provided to third-party payers, like public and private payers. Right now, these third-party discounts actually reduce the average transaction prices seen by the PMPRB, and so this new filing requirement would be a benefit for everyone in the sense that it gives a true reflection of what is the net revenue to the manufacturer.
A cost-benefit analysis and a regulatory impact analysis attempted to estimate what is the potential impact of these proposed changes. The results showed a fairly wide range, because everything depends on how these changes are operationalized. There is scope for interpretation, allowing for the PMPRB to adjust to the ecosystem and be able to respond without having to go to regulatory changes to be effective.
The first draft of the guideline will be released in the spring of 2018. The next steps include having more consultations on the changes.
The impact on the industry Mark Legault
According to Mr. Legault, a risk-based approach makes sense. Where the industry disagrees is how the broader conversation about pricing at the political level has made it quite challenging to operate compliant businesses. For 30 years, the framework has been predictable, but for the first time, members of the industry are perplexed in how to interpret the rules, because this information becomes available to us at the same time as it does for the general public. Accidental non-compliance could be very damaging for a company’s reputation. As a whole industry, we have been highly compliant over the past 30 years – above the threshold of 95%.
There has been compression on prices over the last 5-6 years. Provinces are working with the federal government to bring down the cost of reimbursement for the vulnerable populations in this country to the tune of 1.28 billion dollars, a number that speaks to the evolution in the marketplace. This is a divergent point of view in terms of what the industry is saying versus what Health Canada and the PMPRB are saying around disclosure of third-party rebates. Payer value transfers are meant to accelerate not only a medication’s time to listing, but also make it affordable for every population in this country in a way that is equitable. To make third-party rebates a mandatory filing requirement is beyond the scope of the PMPRB’s mandate.
Because no one in the industry is at the table to understand where these changes are coming from, we do not understand the numbers declared in the impact assessments that come to us. For example, the PMPRB states that it will cost $9,000 annually for the industry to be compliant. This is inaccurate, as it will probably cost that much money just to get the lawyers up to speed on a file.
Furthermore, this is a challenging industry to forecast, and our expertise is not being consulted. These changes are expected to go live in January 2019. It is surprising that such drastic changes can happen for an industry in a timeframe that is so limited for consultation. We want to come to the table with our expertise and find solutions that provide balance.
Cocktails: 5:30 p.m.
Dinner: 6:30 p.m.
Panel Discussion: 7:00 p.m.