Health Committee on March 19th, 2013

[Hedy Fry, Liberal, Vancouver Centre, BC]

You have just made me think of not asking the question I was going to ask. I wanted you to follow through, Dr. Gagnon, on the value-based pricing that is now beginning to be looked at in the U.K. How does it work based on outcomes of the drug? There could be all kinds of other reasons why that particular drug will not work on that particular patient, which may give you a skewed outcome. What if the patient has pre-existing illnesses that are conflicting with the drug? I'd like to see how that works. I'd like to hear more about it because I think it's interesting. I think the reference-based pricing idea is a good idea. I think it should be used. But I think it's something we need to delve into a little more.

How do we harmonize coverage? Many provinces pay for certain drugs on their formulary. Let's imagine they are doing the right things. But they are paying for certain drugs on their formulary because it's all that province can afford based on its GDP, its size, and a whole lot of other things. So how do you harmonize something when you have such unequal players in the game? Who will harmonize it, and how should it be harmonized? What would we do with drugs that are not on formularies, the 20% of new drugs dealing with new and specific diseases that aren't yet generic because they haven't reached the end of the patent? How would you deal with those drugs? I think the most important thing is to ensure that all Canadians, regardless of where they live, will get the therapy they need, when they need it, in the most cost-effective way. In other words, what are the outcomes? Do they work or not?

I wouldn't mind listening to you expand a bit on some of those things. Maybe Dr. Gagnon can start, because I picked up on your value-based pricing first.

[Dr. Marc-André Gagnon]

Perfect, and I'm sure Steve will be able to add something as well.

Value-based pricing is very interesting. You pay for the health outcomes and not for the products. What we negotiate with the drug companies is how much they will contribute to improving the health of the population. We will pay for this incremental improvement. There are ways to do that. There are standards in health economy, life years. It's complicated. It's not an easy science for sure. Some things are debatable.

But the proof is in the pudding, and I think in the U.K. it will be interesting to see what goes on there. One thing about value-based pricing is that it doesn't work with a fragmented system. If you have a fragmented system to pay for your drugs, there's no way you can address the health outcomes for the population.

I think the really interesting innovations in the way we organize pricing and the way we organize financial incentives in the pharmaceutical sector come from countries where you don't have the fragmentation of drug coverage that we have in Canada. I think this is the best way to say exactly what we want, what we expect from the drug we buy, and what conditions we need to impose to make this happen. I strongly believe that when you're clear about what you want, other people might not like you, but they will respect you.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Whom do you see harmonizing that?

Dr. Morgan?

[Dr. Steven Morgan]

I want to pick up on a couple of points. First, we just completed a study in which we interviewed decision-makers from nine high-income countries comparable to Canada about issues like value-based pricing, reference pricing, and contract negotiations with pharmaceutical manufacturers.

The punchline of that story—there are two of them—is that there's no question that the global pricing paradigm for pharmaceuticals is now one of secrecy, starting with an inflated list price that everyone in the world can see, but then negotiating rebates from that list price based on some kind of contracted outcomes.

Those outcomes might be something simple like the volume of sales in your country, or they could be something complicated like a true pay-for-performance contract. That is, if the patient survives a certain period, or if they live without a hip fracture for long enough, the manufacturer gets a bonus. Or, on the contrary, if they break their hip early or they pass away early, the manufacturer may need to rebate the cost of drugs.

Second, as Marc-André Gagnon just mentioned, you cannot do this in a fragmented system. You have no technological capacity nor moral authority to negotiate value-based pricing for pharmaceuticals, unless you are also the actor paying for medical and hospital care for the affected population. That's a clear message from international experience.

As it relates to who can help coordinate federal arrangements, this is unquestionably going to be a classic case of the federalism challenge for Canada. We need, in my view, a strong role for the federal government because horizontal policy collaboration, as it's known in the policy literature—that is, collaboration in a voluntary way among partners like the provinces—can only be sustained to the point where partners can afford the collaboration and they can support it in terms of their political will. In essence, in health care, that is the job of the federal government. Canada is to take the provinces places they would like to go but cannot go on their own in a sustainable way.

By the way, this is vertical policy integration, having some meaningful skin in the game financially so that the provinces have an incentive to continue the partnership, but also having some centralized capacity.

Value-based pricing and other mechanisms for negotiated pricing are extremely costly in legal and administrative terms. Small provinces—I would venture to say any province with fewer than a million and a half people—simply can't get in the game in a meaningful way. Again, coordinated capacity such as through the common drug review or other mechanisms is essential, in a sense, for the national equity interests here.

[Hedy Fry, Liberal, Vancouver Centre, BC]

Thank you.

[The Chair, Conservative, Joy Smith]

Thank you very much, you have about 20 seconds more. It's not that long.

[Hedy Fry, Liberal, Vancouver Centre, BC]

No, that's fine. My questions were answered very well.

[The Chair, Conservative, Joy Smith]

Okay, thank you so very much. Now we'll go to Mr. Wilks please.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Thank you, Madam Chair. Thanks to the witnesses for being here today. It's interesting that all of you have mentioned your concerns about pharmaceuticals and their drastically increased costs over the years.

As we go through this study on technological innovation, can each of you tell me how we might be able watch pharmaceutical pricing or the pharmaceuticals as they're made in order to make comparisons? What type of future technology can you see assisting us or those who are trying to control this?

[The Chair, Conservative, Joy Smith]

Do you want to start with Dr. Rachlis, Mr. Wilks?

Dr. Rachlis, can you begin?

[Dr. Michael Rachlis]

As have been outlined, I think there are several different levels that are needed. The first is that there needs to be some sort of national pharmacare program to deal with the reality that millions of Canadians cannot really afford the medications they're taking, or need to take. That is a very serious issue. We also need to deal with the fact that there is a real waste of administrative costs on financing private drug insurance programs. That's one of the main reasons that Justice Emmett Hall concluded that medicare was a waste of administrative costs with hundreds of companies selling medical insurance. That would be a great savings.

Then we also need to get better regulation around the safety of drugs at the national level. I think the federal government also has a major role, as has been mentioned, to try to do something about developing a common drug list, which the provinces cannot do themselves, and also to move into improving the prescribing, because that's another huge issue. Reference-based pricing, which has been mentioned, can be of great assistance to payers and to providers in ensuring that the right drugs are being prescribed. When Vioxx, an anti-arthritic drug, was costing the Ontario drug benefit plan $55 million in 2003, it was being held under really tight control. I think just a few million dollars were spent on it in B.C. because of reference-based pricing. Of course, Vioxx was taken off the market the year before, as it may have caused 30,000 to 40,000 premature deaths from heart attacks in the United States, and maybe several thousand in Canada. But in B.C., because of reference-based pricing, it was largely not prescribed as much as in Ontario, which saved the province a lot of money and the lives of dozens of people.

Finally, the federal government has been talking for almost 20 years now about helping the provinces reform primary health care, and for its own fiduciary responsibility to its own groups—

[The Chair, Conservative, Joy Smith]

Dr. Rachlis, excuse me, but I think we're going to have to give the others a chance to speak now, too.

Dr. Morgan.

[Dr. Steven Morgan]

Quickly, just as a point of clarity, Vioxx was not withheld from the B.C. pharmacare formulary through reference pricing. It was just not listed as a benefit in British Columbia. It wasn't part of the reference drug categories.

If you're thinking about federal involvement in a technology that will help us monitor value for money in this sector, there are two areas in which I think we need investments. First, we need foundational platforms for information and electronic prescribing. British Columbia, Manitoba, and Saskatchewan are the only three provinces in the country that collect information about every single prescription dispensed to every single patient, no matter who paid for it. Those databases are essential for understanding the population's use of medicines and, frankly, for understanding their safety and effectiveness in the long run. It's long overdue that Ontario and Quebec, the big provinces, got up to that level of drug information systems. I think the federal government can take a leadership role in helping spur the provinces on in that capacity.

The other thing that the federal government can play an important role in, and it is making investments in a couple of these files, is in the evaluation and monitoring of these technologies as they're on the market. We have investments from the federal government through things like CADTH, the Canadian Agency for Drugs and Technologies in Health, which does, I think, a laudable job with the common drug review process. We could probably strengthen some of the investments that the federal government makes on drug safety and effectiveness in the post-market world once capacity is up to speed.

Lastly, I think the federal government can take a real leadership role in the emerging paradigm of personalized medicines. Increasingly, prescription drugs are going to be given to people based on the pairing of a diagnostic test and the drug itself. Often, that diagnostic test may be a genetic test. We need to be developing what they call bio-banks, that is, information systems to store that information, and the capacity to analyze that information. That's going to be a scientific paradigm that requires all provinces to be banded together, because in order to detect the signals that you need to do in that era of medicine, you're going to need 20 million or 30 million people in your database.

[The Chair, Conservative, Joy Smith]

Dr. Morgan, I'm going to have to go to Dr. Gagnon now. Mr. Wilks would like to hear from him, but thank you both for your comments.

Dr. Gagnon.

[Dr. Marc-André Gagnon]

I think we need federal leadership.

In the last two or three years we've massively reduced the price of generics. We've also had the patent cliff, so a lot of the blockbuster drugs turned into generics. So it seems as though the cost containment has been working, but, basically, these are windfall savings.

Now the new business model is in place. It's about niche busters for specific niches—biologics, anti-cancer drugs—with very, very high prices. We're not ready for that. Provinces are not ready. We need a bulk-purchasing agency with a strong bargaining position in order to be able to negotiate lower prices for both biologics and anti-cancer drugs.

Can the Council of the Federation do that? I don't think so. The problem with provinces is that the new norm right now is the product listing agreement. Every province tried to get some deal with the drug manufacturers. But the product listing agreement, by definition, is a secret deal, and it's a way to lower the price for you by shovelling the cost to somebody else. Really, it's how you can play one province against another.

[The Chair, Conservative, Joy Smith]

Sorry, but our time has run out. I don't mean to be rude, but I have to be fair to the rest of the committee. Thank you, Mr. Wilks.

We're now going into our five-minute Q and A. We have to be very sharp with the time so that everyone can get a chance to ask questions.

To all the doctors involved, you're very good at answering questions and very good at keeping to the time. That's our biggest challenge here. Thank you.

Now we'll go to Dr. Sellah for five minutes.

[Djaouida Sellah, NDP, Saint-Bruno—Saint-Hubert, QC]

Thank you, Madam Chair.

I have two questions.

First off, I want to thank all of our speakers here today for giving us insight into pharmaceuticals and our health system, and helping us determine whether it can adapt to innovation.

I have tremendous respect for innovation and its value, but my sense is we're putting the cart before the horse.

That said, it's distressing to hear that one in ten Canadians cannot afford their medicines. So that group of Canadians doesn't benefit from the same accessibility, treatment or even modern technology.

According to health economists, the total number of new innovative or breakthrough drugs being discovered has been stable, if not declining, since the 1990s. How do you account for that slower pace of innovation in the pharmaceutical industry since the 1990s? Is the pharmaceutical industry actually innovating or is that more of an illusion?

[The Chair, Conservative, Joy Smith]

Dr. Morgan, would you like to begin with that?

Dr. Sellah, who do you want to begin?

[Djaouida Sellah, NDP, Saint-Bruno—Saint-Hubert, QC]

It's up to them.

My question is for everyone.

[The Chair, Conservative, Joy Smith]

Dr. Gagnon has raised his hand.

[Dr. Marc-André Gagnon]

First of all, it's important to know how innovation is being defined. Normally, innovation is defined on the basis of patents or financial gain.

Financially, the pharmaceutical sector is very innovative. It makes a lot of money. The issue comes into play on the therapeutic side. The indicators we have right now tell a very different story in that regard. What we see in place is a dominant business model that actually favours little therapeutic innovation and often produces “me-too” drugs. The industry uses existing molecules and tweaks them slightly.

For instance, Prilosec became Nexium. It isn't any better than Prilosec, but the manufacturer launches a huge marketing campaign, endeavouring to change doctor's prescription-writing habits, and then everyone starts prescribing Nexium because it's the flavour of the week or month.

That practice is based on a business model. There aren't any financial incentives to encourage companies to invest in more innovative therapies.

I'll give you an example. The year that Merck closed its Merck Frosst facility in Quebec, its profit margin was 47%. Just try to make a 47% profit margin. The company merged with Schering-Plough. It closed two labs: Merck Frosst in Quebec, and Organon in Holland. Those labs were recognized as the company's two most innovative facilities. The reason they closed is simple: under the business model, that type of innovation is less profitable than the “me-too” innovation that will be done in other labs.

What we're saying to these companies is, “we're going to leave the financial incentives in place for you to maintain the business model supporting mediocre but profitable therapeutic innovation”.

[Djaouida Sellah, NDP, Saint-Bruno—Saint-Hubert, QC]

Because it's profitable.

[The Chair, Conservative, Joy Smith]

Dr. Morgan.

[Dr. Steven Morgan]

I wonder if it's okay if I answer a little bit on this question as well.

[The Chair, Conservative, Joy Smith]

Please do.