Thank you, Mr. Chairman and honourable members. It's a privilege to be able to address you today.
Canada spends over $15 billion on pharmaceuticals each year. Therefore, how we decide prices is a crucial issue of public policy. I think it's useful to identify the principles that should guide public policy in this space.
The first principle I would propose is that governments do have a responsibility to pursue good value in how they spend taxpayers’ dollars. The second is that all Canadians are equal before the law. The third is that we here in Canada look after our neighbours.
The new PMPRB regulations consist of two components: the revision of the reference price basket of countries and the adoption of a form of value-based pricing for some drugs.
I view the first change as uncontroversial. It ensures that Canadian prices will remain in line with our economic peers, most of which receive larger industry investments than we do. The removal of the U.S. from the basket is reasonable, given that the U.S. is recognized as a global outlier for pharmaceutical prices and its prices drive significant access problems in their own country. Given the remaining reference basket of countries have very good access to pharmaceutical products, any changes in the supply of drugs to Canada after the implementation of the new regulations cannot, I would argue, credibly be attributed to a reduction in our prices.
The adoption of a modified value-based pricing for category I pharmaceuticals is more controversial. Patient groups are legitimately concerned that innovative drugs will not be brought to Canada, and the pharmaceutical industry has raised equally legitimate questions about its impact on investment in developing future innovative therapies.
In its pure form, value-based pricing is a way of operationalizing the principle of equality. Value-based pricing sets the price for a product to ensure that the health gained from buying the product is at least equal to the health lost by other Canadians that results from diverting health care funds from their current activities to pay for it.
The importance of caring for our neighbours drives a divergence from this pure form. The PMPRB’s version of value-based pricing will sacrifice equality to ensure patients in need can access highly effective innovative treatments. For breakthrough treatments, the PMPRB regulations will establish prices that sacrifice at least six years of good health for other Canadians for each year of good health the new innovation produces.
It is legitimate to ask whether this 6:1 trade-off is sufficient to attract investment in developing future innovations. By setting a value-based price, the PMPRB—essentially on behalf of Canada—is signalling to future investors our willingness to pay for future products, which they will take account of. Is the proposed value-based price sufficient to encourage investment to address unmet needs?
Dr. Aidan Hollis of the University of Calgary evaluated the recent highly effective innovative therapies for cystic fibrosis to examine whether the prices the manufacturers would like payers to pay were required to achieve acceptable returns on investment. His detailed evaluation established that standard pharmaceutical industry target returns would have been achieved with prices approximately one-tenth of those that the manufacturers wanted to charge. The evidence does not support this concern that the implementation of the new PMPRB regulations will impact upon investment in the development of novel pharmaceuticals.
The PMPRB is concerned with protecting Canadians from excessive—as distinct from abusive—pricing. Value-based pricing is a robust operationalization of the concept of “excessive”. When we spend over $200 billion a year on health care, the idea that the price for any single technology is unaffordable is not credible.
“Excessive” can be operationalized by considering whether what we have to give up to pay for a new drug is justified by what we gain. As a starting point, giving up more than you gain is excessive unless there are extenuating circumstances—hence, value-based pricing. Having a conceptually robust operational definition of “excessive” strengthens the PMPRB’s processes and provides greater certainty for manufacturers and investors.
The revised regulations are consistent with important Canadian values—