QUESTION: I am taking a cancer drug that costs $7,000 a month. I feel fortunate because I have private insurance that covers the cost. But I often think about the people who don’t have insurance. If you look at the size of one of my pills, it costs more than its weight in gold! Why are these drugs so expensive?
ANSWER: Your question goes to the heart of one of the most challenging issues facing the health-care system today – the skyrocketing cost of prescription drugs.
A decade ago, the average bill for a cancer patient’s drugs amounted to $2,000 or $3,000 a month, says Dr. Maureen Trudeau, head of medical oncology and hematology at Sunnybrook Health Sciences Centre.
“Now some of the medications cost $6,000, $8,000 or $10,000 a month,” she says.
Despite their big price tags, a lot of newer drugs don’t actually cure cancer. They simply help the patient to live longer – sometimes by just a few months – or will ease the discomfort caused by the disease.
Some patients have insurance – either public or private – that covers most or part of their drug expenses. But other patients do not. Or, some of the newest drugs are not yet included in the various insurance plans.
“I see people who are thinking about selling or mortgaging their homes to pay for their drugs – and that is so un-Canadian,” says Dr. Trudeau.
Dr. Trudeau and other physicians are worried that pharmaceutical prices are heading in a direction that’s “unsustainable” for the health-care system.
Cancer drugs are not the only ones escalating in price. Expensive medications to treat Hepatitis C and rare or special conditions are expected to further inflate Canada’s drug expenditures which now total $30-billion a year
In a recent Angus Reid poll, almost a quarter of the respondents said that in the past 12 months they or someone in their home did not take their medicines as prescribed because of the costs.
What’s needed, some experts argue, is a national pharmacare program that could negotiate lower prices with the pharmaceutical companies for the benefit of all Canadians.
Right now, there is no single body that’s responsible for overseeing prescription drugs in Canada. Instead, drug oversight is spread across different levels of government, involving a variety of agencies and organizations.
For a better understanding of the Canadian pharmaceutical scene, it’s helpful to know who does what – and the gaps in coverage that result from our fragmented health-care system.
Here is the lay of the land:
HEALTH CANADA: Drug approvals
Under the federal Food and Drugs Act, Health Canada is responsible for granting pharmaceutical companies permission to sell their products in Canada. During the approval process, the federal agency reviews the scientific evidence related to drug efficacy and safety. In other words, does the drug do what’s promised and is it safe for patients to take? Health Canada does not take into account the retail cost of the drug when making its decisions. As well, it may approve a new drug even though similar medications already exist on the market.
PATENTED MEDICINE PRICES REVIEW BOARD: Setting prices
The federal Government of Prime Minister Brian Mulroney created the Patented Medicine Prices Review Board (PMPRB) in 1987 as part of a plan to extend patent rights on prescription drugs. Pharmaceutical companies were given the opportunity to sell their drugs for a longer period of time without facing competition from cheaper generics.
To placate critics of the plan, the PMPRB was set up “as a consumer protection agency to ensure that patented-drug prices are not excessive,” says Doug Clark, executive director of the PMPRB.
The PMPRB has a fairly complicated formula for determining what the price should be. But for new, breakthrough drugs, it should be around the median – or mid-point – of the price charged for the same drug in seven comparable industrialized countries. And, at no point, should any drug be the top price among the comparator nations.
The pharmaceutical industry has voluntarily complied with these rules, with a few exceptions.
Alexion Pharmaceuticals Inc. is currently engaged in a high-profile challenge of PMPRB’s authority to set prices. Alexion markets one of the world’s most expensive drugs, Soliris, which is used to treat two rare blood-related diseases – paroxysmal nocturnal hemoglobinuria (PNH) and atypical haemolytic uremic syndrome (AHUS.)
The cost to treat a Canadian patient with this drug ranges between $500,000 and $700,000 a year. That exceeds the price charged in the United States – typically the most expensive market in the world, according to PMPRB. The consumer-protection agency wants Alexion to roll back the price of Soliris. The company has refused, disputing the PMPRB’s price comparisons. A hearing to settle the issue will likely be held this fall.
Mr. Clark is reluctant to talk about the case while it is in litigation. But he says: “If we lose, it would prompt some serious self-examination about whether we have the right tools in place to carry out our mandate effectively.”
Yet even before the Alexion case, the PMPRB’s ability to establish a mid-point price for Canada was already being undermined. Some companies have been setting their “list” price in all the comparator countries at one “high” price, so Canada can never be at a mid-point.
Furthermore, PMPRB does not generally regulate generic drug prices because most are not patented. Canada’s generic drugs tend to be more expensive than those sold in many other industrial countries.
It’s also worth mentioning that pharmaceutical companies pledged to increase spending on research and development in Canada when Mr. Mulroney’s government extended patented-drug protection. Their spending did, indeed increase, reaching a peak in 1997. That year, R&D spending was equal to about 12.9 per cent of their total revenues, according to data collected by PMPRB. Since then, their investment in Canadian R&D has declined and it now equals about 5 per cent of revenues – or the same level it was at when the government extended drug patents.
The federal government has no mechanism to make the drug companies maintain a high level of investment in Canada, says Mr. Clark. The pledge to increase spending was a voluntary part of the bargain – and not enforceable by law.
That means we now face lengthy patents on our prescription drugs – without the offsetting benefit of additional research jobs in the pharmaceutical sector.
PUBLIC AND PRIVATE DRUG INSURANCE PLANS: Who is covered, who is not
Each of the provinces and territories provides some form of drug insurance for select groups of their populations.
As a general rule, hospital patients, seniors and people on social assistance are eligible for drug coverage. (The federal Government also has a drug coverage plan for members of the armed services and First Nations.)
However, there are significant differences between the public plans, and some provinces provide much more extensive coverage than others – especially for costly specialty drugs, such as those used by cancer patients.
The public insurance plans currently pay for about 42 per cent of the $30-billion annual bill for pharmaceutical products used in Canada.
Some Canadians are lucky enough to have access to private insurance, most often through an employee benefit provided by their workplace.
Private insurance plans cover 36 per cent of prescription drug costs in Canada.
The balance – or 22 per cent which equates to $6-billion a year – comes out of the pockets of individual Canadians who have to pay for their own drugs or make co-payments on the medications covered under their insurance plans.
“Coverage of medicines in Canada therefore depends on a patient’s age, income, workplace, and province of residence, but not necessarily on his or her medical needs,” say the authors of the Pharmacare 2020 report, which was recently released by a group of health experts lobbying for universal coverage of medically-necessary prescriptions.
THE COMMON DRUG REVIEW & THE PAN-CANADIAN ONCOLOGY DRUG REVIEW: Deciding what to cover in the public plans
After Health Canada approves a new drug, each province and territory has to decide whether to add it to the list of medications eligible for coverage under their separate drug plans.
The provinces used to make these decisions in isolation without routinely consulting each other. Since 2003, the provinces and territories (with the exception of Quebec) have been pooling their expertise to determine if newly-approved drugs merit coverage. The body that does the analysis is called the Common Drug Review.
But it soon became apparent that cancer drugs are so complex – and so many of them are entering the market – that additional expertise was needed to evaluate them. So, a separate body – the pan-Canadian Oncology Drug Review, or pCODR – was set up in 2010 to deal exclusively with new cancer drugs.
“The purpose of pCODR is to create a consistent, high-quality review that reduces duplication efforts by each of the provinces doing their own review,” says Dr. Mona Sabharwal, the Executive Director of pCODR.
Members of pCODR’s Expert Review Committee look at the scientific evidence and compare the costs and benefits of a new drug with existing therapies. They also consider the opinions and experiences of patients, plus input from the provinces and the pharmaceutical companies.
In some cases, a new drug might extend life by only a short time. Some patients and their families may find the additional time invaluable. But the drug may be extremely costly for the health-care system.
“It is definitely a balancing act. It is never easy,” says Dr. Sabharwal, who has a Clinical Doctorate in pharmacy.
“There will always be someone who is perhaps not completely pleased with our work. Some people will say we are too restrictive. Others will say we are too permissive.”
The conclusions of the expert committee fall under one of three categories:
- A positive recommendation – the drug is both medically worthwhile and cost effective.
- A negative recommendation – there is no compelling reason to cover the drug.
- A conditional recommendation – the drug has therapeutic value but there needs to be an improvement in the cost effectiveness. In most cases that means the cost should be reduced, possibly through direct negotiations with the pharmaceutical company.
Once a recommendation is made, it’s then up to each province and territory to decide whether to add the drug to its list of covered medications.
As of December 31, 2014, pCODR has received 50 drug submissions. Some reviews are still in the works. Of the 39 that have been completed, seven were positive, eight were negative and 24 were conditional recommendations.
All of pCODR’s recommendations are publicly available on its website, which also states how each provincial and territorial government responded to the advice. So, patients can learn how their own province’s drug coverage compares with other parts of the country.
“People may not always be happy with the decisions that we make, but I firmly believe they should be able to see how we came to those decisions,” says Dr. Sabharwal.
THE PAN-CANADIAN PHARMACEUTICAL ALLIANCE: Bargaining with the drug companies
Just as the provinces are pooling their expertise to review what drugs should be covered, they are also joining forces to negotiate collectively with the drug companies for the bulk purchase of prescription drugs.
At a meeting of Canada’s premiers in 2010, the provinces and territories (with the exception of Quebec) agreed to create the pan-Canadian Pharmaceutical Alliance that would act as a single bargaining body.
“We look at the recommendations that come from pCODR, and we then determine whether or not we are going to proceed with negotiations,” says Brent Fraser, former director of drug program services at the Ontario Ministry of Health and Long-Term Care.
A bargaining team is then selected to negotiate with a drug company on behalf of all the provinces.
“There are different tools we can potentially put in place that can reduce how much we pay,” explains Mr. Fraser.
“The manufacturers may be required to pay a portion back to us, based on our volume. Or, we may put limits on how much we are willing to spend within a given year,” he adds.
“I think we have been able to achieve a huge amount through this collective work,” adds Mr. Fraser, who was recently appointed Vice President, Pharmaceutical Reviews at the Canadian Agency for Drugs and Technologies in Health (CADTH).
As of December 31, 2014, the collaborative efforts between provinces and territories have resulted in 49 completed joint negotiations on brand-name drugs and price reductions on 14 generic drugs. “This has resulted in over $315-million in combined savings annually,” he says.
That certainly appears to be impressive accomplishment. But other experts point out that the savings don’t directly benefit the 58 per cent of Canadians who find themselves outside of the public insurance plans for most of their prescription needs.
NATIONAL PHARMACARE: A future option?
A growing number of health experts and public officials – including Ontario’s Health Minister Dr. Eric Hoskins – are calling for the creation of a national drug insurance plan.
Canada is the only developed country with a universal health-care system that lacks comprehensive drug coverage.
Such a program could help reduce the financial burden on individual Canadians.
A single plan might also be in a stronger position to negotiate lower drug prices than bargaining teams dealing with only a portion of the market, say some of the experts.
Others disagree, arguing that a national pharmacare program is not necessarily the solution to high drug prices.
But this brings us back to your original question: Why are prescription drugs so expensive? The industry often points to research and development costs as being key drivers behind pharmaceutical prices.
A 2014 report from the Tufts Center for the Study of Drug Development, which gets funding from the pharmaceutical industry, concluded that it costs $2.6-billion (U.S.) to bring a new drug to market. (Almost half that amount was the cost of capital, with some very inflated assumptions about interest rates.)
The researchers who wrote the report said their conclusion is based on access to confidential corporate data. But they are not at liberty to disclose the names of companies, nor the drugs, they looked at.
The report was met with a scathing rebuke in the New England Journal of Medicine.
“The raw numbers on which the analysis is based are not available for transparent review – and are likely never to be divulged,” Dr. Jerry Avorn, a professor from Harvard Medical School, wrote in a commentary published in May 2015. In other words, why should we believe a bunch of numbers that can’t be checked and verified?
Dr. Avorn readily acknowledges that drug development can be risky. But he also points out that the “the pharmaceutical and biotech industries remain among the most profitable sectors of the U.S. economy and [they] actually spend only a small fraction of their revenues on truly innovative research.”
To get the perspective of the Canadian pharmaceutical industry, I contacted an organization called Rx&D, which represents the makers of patented prescription medications in Canada. I was told no one was available to answer my questions.
The pharmaceutical sector has a long history of secrecy – especially when it comes to the pricing of its products. Health experts say this needs to change.
“We should have a public audit of the records of the manufacturers in order to have a meaningful discussion about pricing as a mechanism for compensating R&D costs,” says Steve Morgan, a professor in the School of Population and Public Health at the University of British Columbia.
Prof. Morgan notes that drug companies get significant tax breaks on their expenditures. What’s more, a lot of the basic science that leads to breakthrough treatments is carried out at publicly-funded institutions such as universities.
“We need to be clear that the taxpayer has already financed the manufacturers,” he says.
Many experts believe that drug companies simply charge what the market will bear – and that’s reflected in the wide range of drug costs found in different countries.
The United States tends to have the highest costs. Medicare, the U.S. public-health insurance plan, has been prohibited by a 2003 law from negotiating lower prices with the drug manufacturers.
Keeping this law on the books was one of the concessions that U.S. President Barack Obama had to make in order to win passage of his health-care reforms.
Countries that engage in price negotiations on a national level reap substantial savings, says Dr. Joel Lexchin, a professor in the School of Health Policy and Management at York University. Australia pays about 10 per cent less for its drugs than Canada, says Dr. Lexchin who is also an emergency-room physician in Toronto
Much bigger discounts can be found in other countries, according to the Pharmacare 2020 report. “Take the blockbuster drug Lipitor, for example,” says the report. “A year’s supply of the brand-name drug in Canada costs at least $811; in New Zealand, where a public authority negotiates prices on behalf of the entire country, a year’s supply of the brand costs just $15. Even the generic version of Lipitor costs at least $140 in Canada, more than nine times more expensive than in New Zealand.”
Dr. Lexchin and Prof. Morgan are among the authors of the Pharmacare 2020 report that spells out the advantages of a national program for essential drugs.
“If you do things together, you increase your purchasing power,” say Prof. Morgan.
Without that collective action, he warns, Canada could be facing a huge leap in the cost of so-called “specialty” drugs that are designed for subgroups of patients. Some of the drugs are targeted at individuals who have specific genetic traits, relatively uncommon disorders or chronic conditions.
“These specialty medicines can cost tens of thousands of dollars a year,” says Prof. Morgan. They currently make up only a tiny fraction of overall prescriptions, but are a sizeable chunk of the total costs.
A recent study of private drug plans in Canada found that specialty drugs account for 2 per cent of all prescriptions, but they added up to nearly a quarter of all the spending on drugs paid for by the private insurance plans.
As more of these drugs come on the market, they could rapidly inflate health-care spending.
Of course, it’s important to keep in mind that new drugs also have the potential to greatly improve the lives of many patients.
“Some of these drugs are going to be real break-through treatments,” says Dr. Sabharwal. “But they are going to be effective only if patients, and society, can afford to use them,” she adds.
