Putting a price on drugs
Online posting: July 25, 1997
Published in print: Oct. 1, 1997 (CMAJ 1997;157:869)
Re: Regulating the price of patented drugs, by Lynda
Buske, CMAJ 1997;156:1512 [full text / texte complet]
This Pulse article included an exerpt from a recently released
report from the Patented Medicine Prices Review Board (PMPRB)
showing a marked decline in average prices for patented drugs
since the inception of the board in 1988. The PMPRB report goes
on to claim that, from 1988 to 1995, federal regulation of
patented drug prices has saved the Canadian health care system
between $2.9 billion and $4.2 billion.[1]
However, since the PMPRB has been operating, provincial
governments have also taken independent initiatives to limit drug
prices. For instance, in the fiscal year 1992–93 the Ontario
Ministry of Health established a guideline of 2% for drug price
increases, and the next year it imposed a price freeze on
formulary drugs.
One way of separating the effects of the PMPRB from the
measures taken by the provincial governments is to look at what
happened to the prices for nonpatented drugs. The PMPRB regulates
only the prices for patented drugs, whereas provincial controls
should have affected patented and nonpatented products alike. The
PMPRB study makes this comparison by constructing a nonpatented
medicine price index (NPMPI) and comparing the annual change in
this index to the index for patented medications (PMPI).
According to the PMPRB, the NPMPI went up at a rate of 4.25%
annually between 1988 and 1995 whereas the PMPI went up only
1.63% annually over the same period. The difference, 2.62% per
year, is attributed to the effects of the PMPRB regulations. This
difference translates into total savings of $3.68 billion.
However, on the basis of a different approach to calculating a
NPMPI, taken from a study done for the
Federal/Provincial/Territorial Pharmaceutical Policy Committee,
prices of nonpatented drugs had an annual growth of only 0.7%
between 1989 and 1994, a lower rate of growth than for patented
drugs.[2]
Even if we accept the PMPRB study at face value, we still need
to ask whether the PMPRB could be doing more to keep prices down.
The key here is the control over introductory prices. Even if
price increases are indexed to inflation, a high introductory
price guarantees continuing high prices. The PMPRB does not have
the capability to determine whether introductory prices truly
reflect research and development costs. Instead, one of the main
measures that it uses to determine this is the relation between
Canadian and "international" prices. But under the PMPRB
regulations "international" has a specific meaning: the price in
7 other Organization for Economic Cooperation and Development
(OECD) countries — France, Germany, Italy, Sweden, Switzerland,
the UK and the US. Are these countries representative of the OECD
as a whole? To answer this question we need to turn to an
economic measure called purchasing power parities (PPPs), rates
of currency conversion that equalize the purchasing power of
different currencies. When they are used to compare drug prices
in the 7 reference countries that the PMPRB uses with those in
all 24 OECD countries, it turns out that prices are more than 6%
higher in the PMPRB's reference group of countries.[3]
Provincial government actions may have done as much or more
than the PMPRB to reduce drug costs. Even if the board has had an
effect, introductory prices are kept artificially high because of
the PMPRB's definition of an international price.
Joel Lexchin, MD
Toronto, Ont.
joel.lexchin@utoronto.ca
References
- Patented Medicine Prices Review Board. The impact of
federal regulation of patented drug prices. Ottawa: The
Board; 1997. PMPRB Study Series S-9708.
- Brogan Consulting Inc., WN Palmer & Associates. Review
of prescription non-patented drug prices in Canada using public
and private drug plan data 1989–1994. Ottawa:
Federal/Provincial/Territorial Pharmaceutical Policy Committee;
1995.
- Organization for Economic Co-operation and Development.
Purchasing power parities and real expenditures: GK results.
vol. 2, 1993. Paris: The Organization; 1996: Table 2.9
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