Why do meds cost so much?

By Dr. Mitch Shulman on March 17, 2013

Drug companies can’t charge whatever they want. The highest price they can charge is actually set by a federal institution.  Before we begin though, there’s something you should know about me. For 16 years I held medical positions of increasing responsibility in 2 international research- based pharmaceutical companies. I bring you an insider’s perspective very few people have.

After research in animals and trials in people (which can 10-15 years to complete),the drug company submits all its work to Health Canada which then takes about a year to decide if the drug does what the pharmaceutical company claims it does and if the benefits of using it outweigh the dangers. If it agrees, Health Canada gives the company permission to market the drug in Canada. 

The Patented Medicine Prices Review Board (PMPRB), an independent quasi-judicial body established by Parliament in 1987 under the Patent Act “to protect Canadian consumers by ensuring that the prices of patented medicines sold in Canada are not excessive,”sets a patented drug’s maximum price. The PMPRB doesn’t regulate the price of generic medications nor does it have jurisdiction over the prices that are charged by drug wholesalers or retailers or pharmacists' professional fees. Let’s use hypertension (high blood pressure) as an example. A new drug might add to an already existing class of hypertension treatments. Health Canada allows it on the market because it works and the benefits of the drug outweigh its risks. PMPRB would set that drug’s maximum allowable price based on a comparison of other drugs (including generics) for treating hypertension. The pharmaceutical company can’t charge any more than PMPRB has allowed for that medication and would be subject to fines if it tried to. As part of its mandate, PMPRB checks drug prices on a regular basis.  On the other hand, you might have a breakthrough medication which treats hypertension in a completely new way. Here the PMPRB could allow a higher price based on the information it has and precedents set in other countries. 

The Canadian Agency for Drugs and Technologies in Health (CADTH), created by the federal, provincial and territorial health ministers in 1989, reviews all the scientific studies and provides a recommendation based on cost-effectiveness: do savings in health resource use (hospitalizations, surgery, complications, etc.) outweigh the cost of the drug. This “Common Drug Review” is only “common” for 9 provinces. Quebec has its own cost-effectiveness review board.Unfortunately how any of these reports areused may depend more on the actual intention of the province’s Health Ministry. Even a favourable review may not guarantee that the province will cover the cost of the drug.

So, a federal body is responsible for setting the maximum allowable price of patented drugs. Furthermore, before you get access to that medication there is a lengthy bureaucratic process that doesn’t guarantee equal access across the country. And in Quebec we repeat a review that’s already been done.It’s a simple truth, where you live determines what drugs you have reimbursed access to, not whether they are the best available treatment for your illness.

Now let’s look at some of the implications.   If the product is not an innovative breakthrough, the medications previously approved for that disease in Canada establish theupper limit for the price. In the company’s evaluation that might not represent enough of a return on its investment. Furthermore,if PMPRB sets the price significantly lower than the world price,other countries will demand that the company lower the price there to match the price allowed in Canada. Thus marketing the drug in Canada could dramatically decrease the profitability of the investment throughout the world. This can be a key reason why a drug that is available in other countries is not availablehere. 

If the decision is made to release the drug in Canada, each province tries, often through secret negotiations, to get a “deal” on the price in return for allowing it on the provincial “formulary” (that’s each province’s own list of the drugs that the provincial health plan will reimburse). Reimbursement can be pivotal to the financial success of that product. The company tries to get the best possible deal. The province, on the other hand, tries to limit the cost to their health care budget. This process can lead to a situation where a drug is reimbursed in one province but not next door. Your doctor can still prescribe the medication but instead of its cost being covered by the province you’re forced to pay for it. You may recall the hue and cry created a few years ago when Trastuzumab, better known by its trade name Herceptin (a potentially life-saving medication for breast cancer), was reimbursed in British Columbia but not in other provinces. At the time it was estimated that Herceptin therapy could cost $40,000 a year per patient. Breast cancer patients could not understand why geography limited their ability to get this treatment paid for. Provinces not willing to reimburse the cost were left with a politically embarrassing situation but there are many other medicines for which there has been no public pressure. 

In the end our present system means we don’t have access to medications not because they don’t work or are too risky. Even those drugs that are available may not be reimbursed equally across the country. No one benefits. Not the drug companies, not the provincial health plans and certainly not the patients. What we need is a fair system that guarantees a reasonable return on their investment for the research based pharmaceutical companies but which won’t bankrupt our health care system. It can be done but the key is an open, transparent and fair process.There are interesting models in the United Kingdom and Germany, amongst others. What`s missing is the political will to change.



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