Thank you very much.
Good morning.
My name is Mitchell Levine. I'm the chairperson of the Patented Medicine Prices Review Board, or PMPRB. I am also a practising physician and assistant dean and professor in the Faculty of Health Sciences and a faculty member of the Centre for Health Economics & Policy Analysis at McMaster University.
With me today is Doug Clark, the PMPRB's executive director. Mr. Clark will be familiar to some of you from his testimony in 2019 during his Standing Committee on Health appearance regarding the study of access to treatments for rare diseases and disorders in Canada.
Before I turn things over to Mr. Clark to walk us through the changes that have been made to our pricing regime and their impact, I thought it would be helpful to do a quick refresher on the PMPRB to provide a little background on the circumstances that have led to our issuing new guidelines last month.
As you know, 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.
The PMPRB is a quasi-judicial tribunal with a regulatory mandate to ensure the 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 and become unaffordable to consumers. The PMPRB is a creature of the Patent Act, which is the responsibility of the Minister of Innovation, Science and Economic Development, 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 members of the federal health portfolio.
The PMPRB's regulatory framework is administered day to day by staff, public servants who monitor and investigate patented medicines that appear to be excessively priced. Staff apply the tests and thresholds specified in the PMPRB guidelines to identify potential cases of excessive pricing. When a price seems excessive, an investigation is then opened by the staff, and the patent team may be asked to submit a voluntary compliance undertaking, or VCU, which may include a written commitment to lower the price of the patented medicine and to pay back any excess revenue. In the absence of an acceptable VCU, an investigation may proceed to a public hearing before a panel composed of board members, like myself, who are part-time Governor in Council appointees. During such a hearing, the board panel acts as a neutral arbiter between the patentee and the staff. If the panel determines that the patented medicine was sold at an excessive price, it may issue a legally binding order requiring the patentee to reduce its price to a reasonable level and to repay any excess revenue that resulted from selling the patented medicine at an excessive price.
Since the establishment of the PMPRB over three decades ago, our operating environment has undergone significant change. Most notably, the nature of the products we regulate has changed dramatically. In the late 1980s and through the 1990s and into the early 2000s, the top-selling products in Canada were conventional small-molecule drugs for common ailments like high blood pressure or elevated cholesterol that would cost between a few hundred dollars to $1,000 a year per patient. In the early 2000s, the pharmaceutical industry began to shift its R and D focus to complex biological drugs that are often used to treat less common conditions and can cost several hundreds of thousands of dollars per year.
We have witnessed the upshot of that shift over the past decade, with the average annual cost of the top-selling patented drugs increasing by approximately 1,000% and the proportion of high-cost drugs—that is, drugs costing more than $10,000 per year—rising from 5% to 40% of overall pharmaceutical spending, while less than 1% of the population are using these medicines. By any measure, Canadians are paying a great amount of money for this new wave of high-cost patented medicines.
Of particular concern is that Canada pays the fourth-highest prices among the 31 OECD countries, 17% above the median price of those countries. Canada is the second highest in the OECD in terms of how much it spends on patented medicines as a proportion of total health care costs and in per capita spending. Only the U.S. is higher in both cases. From 2014 to 2018, growth in spending on patented medicines in Canada has doubled that of GDP, and it is over three times the growth of inflation.
As expensive drugs for rare diseases account for a rapidly increasing share of total spending, payers are becoming very concerned about sustainability. Not only are these drugs incredibly costly relative to the top-selling products of a few decades ago, but their market characteristics also shift the balance of power decidedly in the favour of patent-holding monopolists when negotiating a reimbursement price with public or private insurers.
This point was made rather emphatically by the pan-Canadian Pharmaceutical Alliance, pCPA, in its submission to this committee last year on access to treatments for rare disease.
It stated:
The pCPA often negotiates under very challenging circumstances starting with an extremely high list price, severe untreated disease, no competing products, and high patient and care provider expectations to conclude negotiations quickly. As such, the pCPA remains very concerned that the prices achieved through negotiation remain largely unfair, excessive and not cost-effective and that pCPA needs collaborative federal support to manage.
As members of this committee well know, Canada is the only developed country with a public health care system that doesn't include price coverage for prescription drugs. The pCPA accounts for approximately 43% of total pharmaceutical expenses in Canada, with the remainder being taken up by private insurance and out-of-pocket payments. If the pCPA believes its power buying is woefully insufficient to secure a fair price from monopolist pharmaceutical companies for the types of drugs that are increasingly dominating the market, one can only imagine how the mixed bag of buyers who account for the remaining 57% of pharmaceutical expenditures in Canada can fare in their efforts to negotiate a price they can afford.
As a federal ceiling price regulator, the PMPRB exists to protect payers in precisely these circumstances, and thereby serves as a proxy for the monopsony power that Canada lacks because of the patchwork nature of pharmaceutical coverage in this country.
If one accepts the proposition that an unbridled free market is not in the public interest when it comes to patented medicines, then really the only question is, what rules should a regulator apply in seeking to protect consumers from excessive prices in today's pharmaceutical marketplace?
The PMPRB has been actively consulting stakeholders and the Canadian public on this all-consuming question for the better part of five years. This brings me to the last point I would like to make before Mr. Clark explains to you the rules that the government has ultimately landed upon, and their projected impact over the coming decade.
I understand that some stakeholders have taken issue with the transparency and authenticity of these consultations, describing them as a sham that largely took place behind closed doors. The truth is quite the opposite. Between Health Canada and the PMPRB, the government has produced more than a dozen policy documents over the past five years, and has twice travelled from coast to coast to consult with anyone who expressed even a passing interest in them.
In the past year alone, we have held multiple policy forums where attendees were encouraged to voice their views of concern and dialogue directly with government representatives. After the initial consultation process, the PMPRB published its first proposed draft of new guidelines in November 2019.
Since then, the PMPRB has attended over 60 meetings across Canada with more than 260 members of its stakeholder community. Every document that we have ever published or presented at any forum at any time throughout this process is available on our website. We have received more than 300 stakeholder submissions in response to the documents we've put out over that period.
During this period we published a revised set of draft guidelines in June 2020, which was followed by an additional consultation period. Then in October we published the final version of the revised guidelines. We have made substantive changes to our initial guidelines proposal as a result of that feedback. While these changes are too numerous to mention now, we would be happy to provide a comprehensive list to the committee if its members are interested in the details of those changes. More than 90% of the changes are favourable to industry.
It is a complex and contentious area for policy development by any government at any time, because it seeks to reconcile seemingly conflicting public policy objectives—namely, facilitating access to patented medicines at non-excessive prices while recognizing the legitimate interest of pharmaceutical patentees in maximizing the value of their intellectual property. Not surprisingly, the PMPRB’s stakeholder community holds divergent and even diametrically opposing views on these reforms, with the industry on one side, the payers on the other side and patient groups scattered across the divide. Although consensus is not a realistic goal for us, we have made every effort through the consultation process to foster a productive, fair and transparent dialogue with our stakeholders, to listen carefully to their concerns and to have them reflected in the final guidelines document to the greatest degree possible
We believe the final product of our efforts represents an important step towards greater fairness in pricing, not only by bringing Canadian prices more in line with international comparators but also by introducing new pricing tests based on value for money and the health system's affordability.
While I recognize that our guidelines have given rise to a great deal of angst on the part of industry, I would ask the committee to consider how that could ever be avoided when the desired outcome of the policy is to lower prices and to reduce total expenditures on pharmaceuticals. To put the matter another way, what inferences might one draw about these reforms if they did not elicit such a reaction from industry? Nevertheless, a non-excessive price should be a fair price, and a fair price means a price that will permit the sustainability of both the health care system and the pharmaceutical industry.
Thank you very much for your time and attention.