Americans look to Canada for lower drug prices, but are they getting the full picture?
Patients everywhere would like both better health care and less expensive prescription medicines. Nowhere is this truer than in the United States, where drug prices are the highest in the world and subpar health outcomes call for improvements.
Although illegal, many Americans have tried to obtain lower cost medicines from other countries. Canada in particular has been targeted due to its close proximity to the United States and its lower prices for brand-name drugs. However, Canadian drugmakers couldn’t supply even a fraction of the prescription drugs demanded by Americans, as Canada imports most of the medicines available in its domestic market.
Sen. Bernie Sanders (I-Vt.) has proposed legislation to allow Americans to purchase FDA-approved prescription drugs from certified Canadian sellers. He and other lawmakers have also suggested imposing transparency measures on pharmacy benefit managers that administer drug benefits for millions of Americans with commercial health plans. Some have proposed requiring benefit managers to pass along rebates they negotiate with manufacturers to health plans (but not directly to individual patients).
Politicians see standing up to the biopharmaceutical industry and promising to do something about high drug prices a great way to appeal to voters. President Joe Biden, for instance, championed and signed the Inflation Reduction Act to give Medicare the power to negotiate lower medicine prices with sellers. Drug manufacturers have lobbied against the act and are now filing lawsuits to block it from taking effect.
The political wrangling in Washington begs the question: Why medicines are less expensive in Canada? For this, Canadians can thank the legislation and barriers erected by federal, provincial and territorial governments over the past 35 years to control drug prices and ration access to medications. Americans should nevertheless take a careful look at mistakes made in Canada, which have had the serious downside of reducing patient access to new therapies. Despite common misconceptions in both Canada and the United States, Canada’s system is far from a functioning model worthy of emulation.
Let’s take a look.
Initially, the Canadian federal government created a tribunal with a mandate to ensure prices of new prescription drugs are not “excessive” during the 20-year patent monopoly period. Since 1987, the tribunal has compared a given manufacturer’s Canadian list price for a new patented medicine with list prices in six European countries and the United States. A clinical advisory committee classifies new medicines into one of four categories: breakthrough, substantial, moderate, or slight/no improvement over existing therapies. The ceiling list price for breakthrough drugs is the median of list prices in the comparator countries; lower ceiling prices are set for less innovative drugs.
Canadian federal, provincial and territorial governments later established health technology assessment (HTA) agencies to evaluate the cost-effectiveness of new medicines. They then created an organization to negotiate reduced drug prices on their behalf. HTA and price negotiation agencies are closely interconnected and managed and funded by the 14 governments to which they report. Input from patients is minimal.
Over the past six years, the federal tribunal worked to expand its powers to reduce new drug list prices in three ways:
- Replace higher-price countries with six lower-price countries in its comparison;
- Use untried tests based on HTAs to determine prices; and
- Require drug developers to report confidential rebates they negotiate with public and private insurers.
Subsequent court challenges by the biopharmaceutical industry and Province of Quebec led to rulings against using tests based on HTAs to establish prices as unconstitutional and reporting confidential discounts as violating trade secrets.
Uncertainty caused by the proposed changes has resulted in fewer new drugs being submitted for marketing approval in Canada compared with the United States. Regulating, rather than negotiating, reduced prices for medicines results in a country’s biopharmaceutical environment being less favourable to drug manufacturing and R&D. This is certainly the case in Canada, where many manufacturing facilities have closed and much pharmaceutical research has been diverted to other countries.
The United States market is nine times the size of Canada’s, but significantly reducing drug prices by legislation will harm the biopharmaceutical sector. Developers can focus on several other large-market countries; even if these countries have lower drug prices than the United States, sales volume may make up for them. India and China have huge populations and, in any case, most medicines are made in India with raw materials sourced from China, even if they are packaged in the United States or other Western countries. It might take a while, but biopharmaceutical companies are multinational organizations that can change course with major local impact.
Do Americans want fewer innovative medicines for cancer, rare disorders and other diseases that currently lack effective forms of treatment? This will be the likely result if biopharmaceutical developers decide the United States is less attractive destination for investment in physical facilities, innovative startups, and R&D.
Getting the balance right between better health care and its cost (not just drugs) requires better thinking than American politicians have so far demonstrated. Don’t import a flawed policy from Canada. High drug prices are a made-in-America problem that require a made-in-America solution.
Nigel Rawson is a senior fellow with the Macdonald-Laurier Institute and an affiliate scholar with the Canadian Health Policy Institute.
John Adams is cofounder and CEO of Canadian PKU and Allied Disorders Inc.; a senior fellow with the Macdonald-Laurier Institute; and volunteer board chair of Best Medicines Coalition.