Trump’s pharma pricing order could have big effect in Canada

Opinion

President Donald Trump’s May 12 executive order that U.S. drug prices must not exceed the lowest price in other nations doesn’t mention Canada explicitly, but could cause significant damage to our public health-care system and ripple around the globe.

The move could massively increase prices in Canada (and other reference nations) and create a significant incentive for pharmaceutical companies to delay launching new medicines in lower-priced markets.

U.S. market size means that policy changes south of the border to regulate prices directly through the use of reference pricing, or indirectly benchmarking prices to Canada through importation, could have significant effects on the availability and price of pharmaceuticals in Canada. To preserve high prices in the United States, pharmaceutical companies might also choose to delay launching new medicines in Canada and other markets.

Research modelling the effect of U.S. prices for patented medicines if they are equal to or less than Canada’s shows prices in Canada increasing by an average of 216 percent and in some cases, more than 10-fold. By contrast, the United States would receive a discount of about 7.54 percent.

After accounting for changes to profit margins and purchase volumes, the average decrease in expenditure across affected classes in the United States is 5.53 per cent, while the average increase in Canada is 41.74 percent. Notably, pharmaceutical company profits increase slightly — they are more than compensated for the decline in U.S. profits by an increase in Canadian ones.

Canada’s pharmaceutical pricing regulations provide additional uncertainty. We benchmark retail prices to reference countries to determine maximum legally allowed prices. If prices rise in all countries, the maximum price in Canada also rises (enabling access, but threatening fiscal sustainability and increasing health-care costs). If they do not, Canadian prices cannot rise, threatening access to medicine. Overall, the most likely outcome is a combination of both.

Prices will likely rise in all reference markets, but not uniformly across treatment classes. Depending on population needs and health-care priorities in other markets, this detail could be important for some classes of medication.

Regulations apply to the retail price of patented medicines, which are not the net prices to payers. Canada’s systems allow for confidential rebates and other price-lowering reimbursement terms — like budget caps — and operate under a presumption that list prices will remain relatively steady and at a globally competitive level because our prices are referenced around the world. The actual cost implications for public and private insurance plans will depend on their ability to moderate retail price increases through negotiation and formulary changes (such as requiring generic substitution or adding conditions for coverage).

Research suggests that pricing regulations delay access to some new medicines. As the United States moves forward with this policy change, the government will need to monitor drug supply chains to mitigate any shortages related to price and market disruptions. It should also track the launch of new products in the United States and other reference countries to monitor prices to ensure that Ottawa’s Patented Medicine Prices Review Board mandate to prevent excessive pricing does not have large unintended consequences in reducing access to new medicines.

The bad news is that this policy change is entirely within U.S. jurisdiction to control. Canada already uses reference pricing to regulate prices in our market; it would be a bit hypocritical to complain about the Americans doing the same.

The effect in Canada would be increasing costs for hospitals, public and private insurance plans and potentially reduced access to medicines in the future. Increasing costs will have the greatest effect on the uninsured and underinsured in Canada, making addressing gaps in coverage more urgent.

The market disruption also changes Canada’s relative competitiveness and provides an opportunity to grow the life sciences industry. While we may not fully be able to control increasing pharma costs, encouraging the development of a larger life sciences industry to compensate with economic growth and increasing government tax revenue is a strategic response. If global companies have significant market and footprints in Canada, they also have a stake in ensuring that U.S. disruptions cause minimal damage to our economy.

» Rosalie Wyonch, senior policy analyst at the C.D. Howe Institute, leads its Healthcare Policy Research Initiative. Her column was previously published on the C.D. Howe Institute website.