Open drug-price regulation can save consumers billions
12-Oct-2006: In the ongoing discussion about the soaring cost of prescription drugs -- $20.6-billion a year and counting -- one of the issues rarely talked about, paradoxically, is the cost of drugs themselves.
Canadians assume, in that charming Canadian way, that the price they pay at the pharmacy is a fair one. They assume, too, that because prescription drug prices are highly regulated, there is little variation and, hence, little reason for comparison shopping.
How wrong they are.
The reality is that while there is a lot of regulation it is not necessarily sound regulation.
As a result, the price for the same drug can vary by as much as 30 per cent from one pharmacy to the next.
Understanding how and why requires a crash course in the netherworld of pharmaceutical pricing.
The Patented Medicine Prices Review Board regulates the price of patented drugs -- essentially brand name drugs.
(In Canada, 56 per cent of prescriptions are for brand name drugs, but they account for 82 per cent of drug costs.)
When they have a new drug, companies make submissions to the PMPRB on price. By and large, the Canadian price is the median price for the drug in other OECD (Organization for Economic Co-operation and Development) countries.
In other words, prices for brand name drugs in Canada are about average. Those prices, however, are not cast in stone, and big buyers (such as government drug plans) can negotiate discounts for bulk purchases.
When drugs are off-patent -- either the patent expires or, in exceptional cases, it is suspended -- generic versions can be produced. This is not the case for all drugs, but a likely scenario for the big sellers.
Generics are cheaper than brand-name drugs. (Brand-name companies say that is because they spend on research and development, while the generics simply copy their successes without incurring risk.)
About 44 per cent of prescriptions in Canada are for generic drugs, but they account for 18 per cent of drug costs.
Yet, according to a recent study, Canadian prices for generics could be lower. They are, on average, 26 per cent higher than in other industrialized countries.
The PMPRB does not regulate generic prices. Rather, those prices tend to be negotiated (some say imposed) by provincial drug insurance plans.
With Canadian prices well above the international average, it would seem, on the surface, that generic companies are gouging. But it's not that clear-cut.
The price that generic manufacturers are paid for their products is actually 40-60 per cent less than the price you pay in the pharmacy, even before the dispensing fee.
Government drug plans purchase prescription drugs from pharmacies, not manufacturers.
There are about 10 big generic manufacturers and they are all competing to get into pharmacies, most of which are associated with big chains.
The only way to get your drug on the shelves is to offer a better price than competitors, but prices on drugs are essentially set to the penny by provincial drug plans.
So, the pharmacies determine what drugs they will stock by negotiating "rebates," "reimbursements," "discounts," "professional allowances" (pick your terminology) from generic manufacturers.
These are the polite words. The process has also been described -- fairly accurately -- as a kickback. (To be fair, pharmacies do this because the dispensing fees they receive -- also regulated by government -- are often laughably low.)
After years of tacit acceptance of this bizarre practice, governments are starting to question it. Both Ontario (Bill 102) and Quebec (Bill 130) are moving to regulate the practice of rebates.
By one estimate, cracking down on the practice and allowing a reasonable mark-up (say, 20 per cent) could reduce drug costs by $1.5-billion a year in Canada.
This, naturally enough, has pharmacists up in arms because those savings would come largely at their expense.
Pharmacists deserve to be reasonably compensated for their work, especially now that governments see them as key players in reigning in health costs by giving pharmacists the right to prescribe and depending on them to act as a generic substation. We also benefit from a robust generic drug sector, along with brand-name makers.
But taxpayers deserve more transparency and honesty in drug-pricing policies. And governments need to do a better job of ensuring they are getting value for money.
That can be achieved with three simple steps:
Base generic prices, like brand name prices, on comparisons with other OECD countries that have domestic generic manufacturing;
Ban or, at the very least, cap rebates from generic manufacturers to pharmacies;
Compensate pharmacists fairly for the services they provide.
There is a lot of money at stake in the drug business and many vested interests. It is the role of public policy-makers to balance those interests, and to ensure consumers get the best deal.
Currently, that is not the case. The process of setting prescription drug prices is too convoluted and secretive.
Source: Globe and Mail
