Legal and Social Affairs Division
Drug pricing in Canada is an area of shared jurisdiction among federal, provincial and territorial governments. The price of every patented drug, both prescription and non-prescription, sold in Canada is regulated federally through the Patented Medicines Prices Review Board (PMPRB).
The PMPRB was established in 1987 under amendments to the Patent Act. Under the Act and its regulations, the PMPRB’s mandate is to ensure that the wholesale prices charged for patented pharmaceuticals by manufacturers are “not excessive”.
It does this by limiting increases in the price of existing patented drugs to the rate of general inflation, and by comparing the sale price of the same drug marketed in France, Germany, Italy, Sweden, Switzerland, the United Kingdom or the United States.
The jurisdiction of the PMPRB is limited to the “factory-gate” price charged by the manufacturer to wholesalers, pharmacies and hospitals, rather than the retail prices charged to end-users by wholesalers and pharmacies.
In addition, the PMPRB does not have jurisdiction over a drug’s price once its patent expires, as the regulation of non-patented drug pricing falls under provincial jurisdiction. Limits set on the prices of generic drugs are generally based on a percentage of the patented drug’s price.
Recent trends in patented drug pricing within Canada
The PMPRB monitors trends in the prices of patented drug products through the Patented Medicine Price Index (PMPI), which measures the average year-over-year change in the wholesale price of patented medicines.
The PMPI is designed to reflect the component of patented drug sales growth that can be attributed to changes in price. The PMPI is compared to the general rate of inflation, as measured by the Consumer Price Index (CPI), to determine whether the price change for a patented drug is excessive.
Figure 1 illustrates the average year-over-year change in the wholesale price of patented medicines sold in Canada compared with the general rate of inflation. It shows that between 1988 and 2014, increases in the PMPI were generally less than increases in the CPI.
FIGURE 1 – Annual Rate of Change, Patented Medicines Price Index (PMPI) and Consumer Price Index (CPI), 1988–2014
Source: Prepared by S. Norris from PMPRB, Annual Report 2014, page 22.
Trends in Canadian drug prices compared internationally
Patentees are required to report the prices charged for their product in seven comparator countries: France, Germany, Italy, Sweden, Switzerland, the United Kingdom and the United States. Of these, only the United States does not have drug price controls.
Figure 2 illustrates that in 2014, average drug prices in Canada did not increase over 2013 prices, while in the United States, they rose significantly. As for the other European comparators, most experienced price decreases, as they had the previous year. The only exceptions were Germany and the United Kingdom, where prices increased modestly.
FIGURE 2 – Annual Average Rates of Price Change, Canada and Comparator Countries, 2014
Source: Prepared by S. Norris from PMPRB, Annual Report 2014, page 25.
However, not all drugs sold in Canada are marketed in all of the comparator countries. As a result, Canadian drug prices are frequently compared to prices in fewer than the seven other jurisdictions. In fact, the PMPRB noted that it is not uncommon for the United States to be the only country for which a comparable price for a product is available.
Figure 3 illustrates the average foreign-to-Canadian price ratios for 2005 and 2014. It shows that in 2005 Canadian patented drug prices were on average equal to or lower than European comparators, except in Italy. By 2014, Canadian prices were higher than prices in all European comparators, except for Germany. The price differential with the United States continues to grow.
FIGURE 3 – Average Foreign-to-Canadian Price Ratios: 2005, 2014
Source: Prepared by S. Norris from PMPRB, Annual Report 2014, 27.
Key issues facing patented drug pricing
- Comparatively high prices of patented drugs
Some observers have suggested that the PMPRB’s approach of capping the price of new patented drugs to the median price charged in the seven industrialized comparator countries leads to artificially high patented drug prices. They argue that the comparator countries have some of the highest patented drug prices worldwide.
Compared with all OECD countries, Canadian drug prices are fourth highest and are about 26% above the median drug prices among those countries.
Even within the list of comparator countries, Canada now has on average the third highest patented drug prices. The PMPRB expects that Canada will soon rank second behind the United States. That is because other European comparator countries have been able to institute further price control measures. The PMPRB has suggested that its consumer protection powers would have to be extended to implement similar measures in Canada.
- The pan-Canadian Pharmaceutical Alliance
In 2010, provincial and territorial governments formed the pan-Canadian Pharmaceutical Alliance (pCPA) to negotiate prices for both patented and non-patented drugs covered under their respective public drug coverage programs. In January 2016 the federal government joined the pCPA.
While the pCPA has been successful in obtaining lower drug prices, the PMBRB has noted that this has created inequities, as private health insurers and individuals paying out-of-pocket for drugs do not benefit from these lower prices.
Furthermore, the lack of transparency in the pCPA negotiation process means the PMPRB faces difficulties determining the true market price of a drug, creating upward price pressures in the private market.
- Rising patented drug prices
Over the past two decades, increased drug consumption, rather than changes in patented drug prices, has contributed the most to the rapid rise of prescription drug expenditures in Canada. However, this is expected to change as an increasing number of new high-cost drugs are being developed for smaller populations with serious conditions.
These drugs account for 30% of drugs currently under development and 20% of drugs approved in the past decade. They are priced in the hundreds of thousands of dollars per patient treated.
As these new high-cost drugs gain entry into the Canadian market, they will likely raise additional questions as to how consumers can best be protected from excessive prices for patented drugs and whether the prices of these drugs indeed reflect value for money.
Joel Lexchin, “Chapter 2: Drug Pricing in Canada” in Z.U.D. Babar (ed.), Pharmaceutical Prices in the 21st Century, Springer international Publishing: Switzerland, 2015.
Canadian Institute for Health Information, Drivers of Prescription Drug Spending in Canada, 2012.
Karin Phillips, Catastrophic Drug Coverage in Canada, Library of Parliament (forthcoming).