Mr. Chair, members of the committee, good morning. Thank you for the invitation to appear before you today.
Before I move on to the questions, I want to take a few minutes to explain where the Patented Medicine Prices Review Board, or the PMPRB, stands in the Canadian health care system, the challenges we currently face as a price regulator, and the ongoing efforts to modernize the way we fulfill our regulatory mandate.
The PMPRB was created in 1987 as the consumer protection pillar of a major set of reforms to the Patent Act, which were designed to encourage greater investment in pharmaceutical R and D in Canada through stronger patent protection for pharmaceuticals. PMPRB is a quasi-judicial body with a regulatory mandate to ensure that patentees do not abuse their patent rights by charging consumers excessive prices during the statutory monopoly period. Its creation arose out of the concern that stronger patent protection for medicines might cause prices to rise unacceptably so as to become unaffordable to consumers.
PMPRB is a creature of the Patent Act, which is the responsibility of the Minister of ISED, but given the nature of the products that we regulate, the provisions in the act that relate to us are the responsibility of the Minister of Health. While the PMPRB is part of the health portfolio, our role as an administrative tribunal with a quasi-judicial function means that we operate at arm's-length from the minister and from other health portfolio members.
Under our current framework, new patented medicines are assessed for the degree of therapeutic benefit they provide relative to existing medicines on the market. Depending on the outcome of that process, patentees are expected to set their prices with regard to a price ceiling that is based on the price of that same medicine in what we call the PMPRB7 countries, the price of medicines in Canada in the same therapeutic class or some combination of the two.
Once a patentee sets a medicine's introductory price in relation to that ceiling and enters the market, it may increase its price but subject to limitations based on changes in the consumer price index. Our only absolute ceiling is that the price of a patented medicine in Canada can never be higher than the highest price in the PMPRB7.
The PMPRB's regulatory framework is implemented by the board staff, who are public servants like me and who monitor and investigate patented medicines that seem excessively priced. The staff apply the tests and thresholds specified in the PMPRB's guidelines to identify potential cases of excessive pricing practices. When a price seems excessive, the patentee is asked to submit a voluntary compliance undertaking, which may include a written commitment to lower the price of the patented medicine and to offset any excess revenues.
In the absence of an acceptable VCU, an investigation may proceed to a public hearing before a panel composed of Governor in Council appointed members of the PMPRB's board. During such a hearing, the board panel acts as a neutral arbiter between the parties, i.e., the patentee and staff. If the panel determines that the patented medicine was sold at an excessive price, it may issue an order requiring the patentee to reduce its price to a reasonable level or to repay any excess revenue that resulted from selling the patented medicine at an excessive price.
An order of the board can be enforced in the same manner as an order of the Federal Court.
Since the establishment of the PMPRB over three decades ago, the pharmaceutical industry has changed significantly. R and D is increasingly focused on high-cost medicines such as biologics, genetic therapies targeted to smaller patient populations and medicines for rare diseases. The risk of excessive pricing is often greater for these products since they have few, if any, competitive substitutes and demand for new and better treatments among the more severely afflicted population is very high.
This is especially true for medicines that are the first of their kind or for which alternatives are less effective or have less tolerable side effects.
The current market dynamic has led to affordability challenges for public and private payers that, if left unaddressed, pose a very real threat to the sustainability of the pharmaceutical system in Canada. Between 2006 and 2016, the average annual cost of treatment for the top 10 selling patented medicines in Canada increased by 1,500% and the number of medicines in Canada with an annual per-patient treatment cost of at least $10,000 increased fivefold.
Fully 30% of public and private insurer spending on pharmaceuticals in Canada is allocated to these drugs versus only 5% a few short years ago, yet it covers fewer than 2% of beneficiaries. Drugs designated as orphan by the U.S. FDA or the EMA now account for almost 50% of new patented medicines coming under the PMPRB's jurisdiction every year.
The patented medicine prices in Canada are among the highest in the world. When it comes to the 35 member countries of the Organization for Economic Co-operation and Development, or the OECD, only the United States and Mexico have higher prices than Canada. In 2017, median prices of patented medicines in OECD countries were on average 19% lower than the prices in Canada.
Over the past several decades, many developed countries have relied on international price comparisons as a method to contain pharmaceutical costs. As regulators in these countries grapple with a growing influx in very high-cost drugs, they are increasingly looking at other methods for evaluating drug prices that consider the relative cost of the drug in relation to its health benefits and the impact reimbursement would have on total population health and health system expenditure. Although public list prices in other countries are still commonly referenced, they are increasingly a starting point to a more probing and substantive analysis of a medicine's economic value and affordability.
Corresponding changes to the PMPRB's regulatory framework are necessary so that it too can adapt to these changes. As members of the committee may know, the Minister of Health has recently proposed amendments to the PMPRB's regulatory framework that, if passed, would equip us with the regulatory tools and information we need to effectively protect Canadian consumers from excessively priced patented medicines in today's environment. The desired result of these changes is for the ceiling prices of patented medicines in Canada to be more closely aligned with prices in like-minded countries, more reflective of their relative value to the health system and more informed by the affordability constraints of the Canadian economy.
The modernization of the PMPRB is just one aspect of the Government of Canada's broader effort to not only make prescription drugs more affordable for Canadians, but also to ensure that Canadians have faster access to new medicines to meet the needs of the health care system.
We are aware of concerns that the proposed changes to the PMPRB's regulatory framework might delay or compromise Canadians' access to the very latest patented drugs. However, there is little evidence to support the argument that lower prices result in less access. The reality is that many countries with similar health care systems and economies to Canada's pay less for drugs yet enjoy the same or better access. The same is true of R and D investment.
Canada is not alone in struggling to reconcile finite budgets with patient access to promising, but costly, new health technologies. While our system can absorb one, two or maybe even dozens of high-cost drugs, it will collapse under the weight of hundreds, no matter how good they are. At the end of the day, the single most important determinant of access is affordability. The best drug in the world won't bring value to society if no one can afford it, or if the effect of paying for it for the fortunate few is to deprive effective health care to multitudes.
Thank you. I look forward to your questions.