Drug price regulations need overhaul to protect consumers, experts say

It's often said that only suckers pay the sticker price. But that's what Canada often pays for prescription drugs, according to experts, because of a regulatory system that's fallen out of step with the realities of today's pharmaceutical market.

System to ensure Canadians don't overpay for pharmaceuticals no longer works in today's market

Drug price gouging?

8 years ago
Duration 2:20
For the second day in a row, there was public outrage over the skyrocketing cost of a prescription drug

It's often said that only suckers pay the sticker price for a new car. Savvy consumers are expected to haggle, hold out and do whatever it takes to talk the dealership down to something a bit more reasonable. 

But it doesn't work that way with prescription drugs in Canada where, according to experts, a regulatory system that was once meant to keep prices under control has fallen out of step with the realities of today's pharmaceutical market. 

The result? A system that often gets the haggling all wrong.

"We are stuck with a set of regulations that are tantamount to saying we'll pay no more than the sticker price," says Prof. Steve Morgan, who teaches health-care policy at UBC. 

"It's like saying we'll pay whatever the dealership says. It's frankly ridiculous." 

The drug companies can charge whatever they want.— Joel Lexchin, professor of health policy, York University

Critics railed this week against the drastic price jumps of two medications. The price of cycloserine, used to treat a rare and dangerous form of tuberculosis, went up by 2,000 per cent overnight after its rights were sold to a for-profit company. Daraprim, a drug for certain patients with compromised immune systems, soared by 5,000 per cent.

Experts say both drugs are good examples of a crack in Canada's drug price regulations. 

Neither is usually available in Canada, but they, and other drugs, can be imported through a special federal program. 

The Special Access Programme (SAP) lets in drugs that are not approved for sale in Canada when there is a special medical request to give them to specific patients with serious or life-threatening conditions, "when conventional therapies have failed, are unsuitable, or unavailable," according to Health Canada's website. 

But drugs imported under the SAP are not subject to any of Ottawa's usual price controls. 

"The drug companies can charge whatever they want," says Prof. Joel Lexchin, who teaches health policy at York University in Toronto. 

Price controls 

Drugs that are approved for sale in Canada are subject to price controls, though Lexchin and others say that system is also far from perfect. 

Patented drugs fall under the authority of the Patented Medicine Prices Review Board (PMPRB), a federal agency which sets a price based on what the same drug costs in other countries. The price of generic or off-patent drugs is influenced by the individual provincial health-care systems. 

Canada's maximum price for any given patented drug is the median of what the drug goes for in France, Italy, Sweden, Switzerland, Germany, the U.K and the U.S. The price stays locked, rising only with inflation. 

"So, typically, Canada is not going be lowest and it's not going be highest," Lexchin says. 

It's a cheap, simple way to keep prices in check — introduced as a safety measure with the Free Trade Act of 1987. Other territories in Europe and the Americas have used a similar approach for decades. 

But there are ways around the rules. Lexchin notes companies continually introduce and promote new drugs, pushing their own older products off the shelf. 

The cost of all that promotion is factored into the price of the drugs. And Lexchin estimates drug companies spend somewhere between $2.25 billion and $4.5 billion per year in Canada on promotion. 

And a complicating factor is that sometimes a particular drug isn't available in all seven countries. It may only be sold in three, two — or just the U.S., which effectively has no price controls at all. 

Sticker price 

Beyond those problems, critics say the PMPRB's system has fallen out of step with how the market works, because drug companies are no longer being transparent about prices. 

Companies now typically maintain a standard price for a drug across all territories, according to Morgan, then quietly arrange rebates or discounts with each country's regulator. 

The result? A regulator like the PMPRB will base a drug's maximum price on its listed price in France, Germany and elsewhere, but will have no idea how much money those countries might have been rebated in an undisclosed deal with the drug company. 

"This causes a lot of problems for Canada," Morgan says, because we end up going with the drug's sticker price rather than what it's actually selling for on the world market. 

Morgan says rolling universal coverage of drugs into the health care system would address the problem. 

"Canada would be best protected against ... high prices and supply interruptions if we had a single-payer system for prescription drugs," he says, though he concedes that would take a lot of "political will."