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SUSAN DENTZER: Let’s start by talking about why pharmaceutical prices in Canada are lower than the United States.
TOM BROGAN: Well, I think there’s four primary reasons. The first in a sequence is probably history. Canadian drug prices have for many, many years been lower than the U.S. When I was in government we did studies comparing U.S.-Canadian prices — we used data from 1967, ’68, in the ’72, and in the ’80s — and in every study the range was about 15 to 20 percent lower than U.S. prices. So there’s that history there that will become relevant in a second.
The provincial governments have very large buying power, and have set up a system, partly by design, that encourages price competition for new chemicals coming to market. The Patented Medicine Prices Review Board plays a role, and there has been, on top of that, a policy with the provincial governments of no price increases for about ten years and that has helped increase the spread.
So all of those things together have worked to increase the difference between Canadian and U.S. prices.
SUSAN DENTZER: You mentioned the history. What was happening? Companies were just bringing out their drugs at lower prices, or charging Canadians lower prices for the drugs?
TOM BROGAN: One thing we weren’t able to explain when we did those studies — just why that was happening. Our biggest suspicion was the economics — our economic standard of living between Canada and the United States, and our economic standards are about in the ballpark of 20 percent lower than in the U.S. And it’s become clearer to me over the last 15 years consulting with drug companies on a day-to-day basis that domestic economies do play a role in how they determine what the price is — something along the lines of ability to pay, not that formal, but that does play a role…
SUSAN DENTZER: And then, as you mentioned, the provinces play a role. Let’s expand a bit on that. Why are the provinces in the business of this?
TOM BROGAN: What’s critical to know is that in Canada the ten provinces and three territories have drug plans that pay for drugs, or subsidize drugs, for senior citizens and people on welfare. And they are in combination the single largest buyer. They don’t operate together, they operate independently. But they all have programs that are very large, relatively speaking. On average it probably accounts for 40 to 45 percent of total drug spending…
What happens is companies have to price according to that market, if they want to get listed, in order to succeed. In a class that’s heavily dominated by provincial buyers, you have to price accordingly. And if the price is low, then you have to come in a bit below the market, or at the market price. If you’re not listed, that could be quite damaging to long-term sales.
SUSAN DENTZER: And then you mentioned the Patented Medicines Price Review Board, which you helped to set up.
TOM BROGAN: That’s right.
SUSAN DENTZER: What is that entity, and what does it do?
TOM BROGAN: The Patented Medicine Prices Review Board, as the name suggests, monitors and reviews the price of every patented medicine in Canada. It has guidelines to determine what is an acceptable price under certain conditions, and they’re for new chemicals that really falls into two categories.
One are drugs that are so-called me too drugs. They don’t have a significant improvement in therapy or a reduction in adverse events. They have certain pricing rules applied. Drugs that have substantial benefits or are breakthrough — in other words, there are no competitors — have another set of rules. So the board has rules that mean your price is about the same as other drugs in that same class. That is, the me too drugs can’t be priced, in general, more than the other drugs that are already on the market.
So that’s where that history element comes into play, that you have to price against drugs that have been there already in the market established, and if the price is already low, then you’re going to be priced below what might be in the United States, for example.
SUSAN DENTZER: The common way the Canadian system is described in the United States is with very simple phrases used. People say, “Well, prices are lower in Canada because the Canadian government fixes drug prices.” What’s right or what’s wrong with that statement?
TOM BROGAN: Well, I suppose it’s partly true in the sense of the Patented Medicine Prices Review Board. I think the board would argue that they’re not fixing prices; rather, reviewing, and in fact, the act states that they are to review prices to insure that prices aren’t excessive. Well, one can interpret that as price fixing if one likes. The board, I’m sure, would object.
That is part of the issue, part of the reason why prices are lower. If the board were to disappear tomorrow, prices would not change dramatically. It’s an important element, and it draws a lot of criticism, but it’s not by any means the entire story behind the lower prices in Canada.
SUSAN DENTZER: The board, nonetheless, believes it has been successful in reducing prices. How much lower it believes Canadian prices are than U.S. prices?
TOM BROGAN: What the board does is compare against international prices and keeps track of that fairly closely, and it’s a fairly sound way to measure the differential. Since the board has been in existence, prices have dropped from about 25 percent above the median international price — there are seven countries in that international basket, by the way — to about equal to the middle price of that group of seven countries. So that’s one indicator.
Another indicator is a comparison against a group of drugs in each of the seven countries that the board uses as a comparator, and the Canadian prices are in about the range of, or a little higher than European prices, but lower than the U.S. price, and that difference has moved in Canada’s favor toward lower prices over the time the board has been in existence.
SUSAN DENTZER: How much lower does the board say Canadian drug prices are than U.S. prices?
TOM BROGAN: The board’s most recent annual report shows statistics that indicate the U.S. price is about 69 percent higher than the Canadian price, the basket of drugs that they have looked at. So the difference seems to be about 69 percent.
SUSAN DENTZER: And it’s not all the board’s doing, though, you’re saying.
TOM BROGAN: No, it’s not. Definitely not entirely the board’s operation. The board has had a much larger effect than I ever thought it would, but the provinces and history have continued to play a very large role, that when you introduce a new drug, in order to get market access in this country, you have to price compete for those drugs that that have competitors, and that keeps driving that price differential.
On top of that, we’ve had a price freeze — what amounts to a price freeze — by the provinces…
SUSAN DENTZER: Pfizer has told us that these formularies [preferred drug lists] on the provincial level often militate against Canadians getting access to good, new drugs, and they cite the example of Aricept, an anti-Alzheimer’s drug that they’ve had difficulty getting listed on the formularies. Is that a problem?
TOM BROGAN: It’s a hard question to answer. The degree to what militates against good health, because in several provinces there are ways for emergency cases to have drugs paid for. Remember, people can still buy the drugs. The plan won’t pay for them in some cases.
There has been some criticism of slow listings, there has been some criticism that the provinces haven’t paid, or aren’t paying for drugs that groups think that they should be paying for. So there is that argument.
Now, all of the provinces have rather robust review processes that take a hard look at the therapeutic merits of every new drug, and in some cases they felt that some drugs are priced too high, or don’t fit the type of drug they want to pay for. Not everyone agrees with that assessment, and that’s often a problem in getting market access where you can’t convince the province that that particular product is worth the price, given its therapeutic merits.
That argument has been made that this process is slowing access to good new products, and on the other hand, the provinces have said no, that we just don’t think that that product fits our cost benefit model.
SUSAN DENTZER: Let me ask you now a bit about the importation debate here. The arguments made against importation of drugs from Canada into the U.S. fall into several categories. One of them is safety, and the FDA has argued variously at different times that the drug distribution system in Canada is not so safe, or it has argued that there is a regulatory gap between the drug monitoring system of Canada and the U.S. system, and therefore, we can guarantee that drugs as they move across the border are safe. What do you think the situation really is?
TOM BROGAN: I think there’s probably an issue of where are the drugs really coming from. If they are, in fact, coming through the the normal Canadian distribution system, I don’t know of any differences between the Canadian and U.S. systems. However, I’m not sure that the FDA is comfortable that they can guarantee that they’re actually coming from Canada…
SUSAN DENTZER: And the other argument that is made, mainly by Canadians now, I should say, is that having a lot of exportation of drugs from Canada to the U.S. would disrupt the Canadian drug supply. Is there any sign that that has happened so far, or could it be a prospect if there were widespread exportation of drugs to the United States?
TOM BROGAN: I think this is a serious problem for Canada. I think the Internet pharmacies, or the exportation, it doesn’t generate a lot of economic activity for Canada. Therefore, there’s not a lot of merit in defending it. From an economics point of view, it it will certainly cause companies to raise prices in Canada, or be very unwilling, reluctant to launch drugs at a significantly lower price than in the U.S. So that’s not beneficial for the country.
We are starting to hear stories of stores running out of supply because of the concern by companies that these are going to be exported back to the U.S. So overall, I think it’s not a positive for Canada. The economic benefits certainly don’t outweigh the risk for pricing or access to products.
SUSAN DENTZER: …[T]he large pharmaceutical companies have taken steps to clamp down on the distribution of drugs to Internet pharmacies.
TOM BROGAN: Several companies have launched campaigns and programs to limit the supply to stores that they thought were using this as a vehicle to export to the U.S. And it, from all accounts, is beginning to have a significant impact on the flow for those companies that are able to keep track of this. It’s not an easy job to keep track of stores that might be buying and selling to Internet stores or themselves selling into the U.S.
SUSAN DENTZER: So to the degree the Internet pharmacies are continuing to get product, where are they getting it from if not through the conventional wholesalers?
TOM BROGAN: We’ve been told that the Internet pharmacies will buy from other so-called bricks and mortar stores, and use that as a supply of product.
SUSAN DENTZER: So there is some sign, you said, that the [efforts] … on the part of pharmaceutical companies to dry up the Internet pharmacy market is working.
TOM BROGAN: It’s very difficult to measure. In fact, I don’t know if anyone has been able to measure that improvement. But from the stories we’re hearing from retail pharmacy and the marketplace, the supply is a lot tighter than it used to be. So it seems to be having an effect. Again, very, very difficult to quantify, and I don’t know that anybody has done that yet. But it seems to be working.
SUSAN DENTZER: Another argument that the FDA makes in particular is that because of what we talked about, the great demand that would ensue from the U.S. if there were legalized importation and the relatively small supply of drugs in Canada, is that what would step in to fill that gap is counterfeit product. Is that a realistic fear, that counterfeit drugs would be made and shipped to Americans via Canada?
TOM BROGAN: Again, it would have to go outside of the legitimate distribution channel. We do have a tightly regulated market. If that was to happen, it would not be by bona fide wholesalers or legitimate Canadian pharmacies. The best of my understanding, yes, this is a real possibility from reports I see in other countries where there is counterfeit product being produced, often diluted product. It could happen. Again, it would have to be outside of the normal Canadian channels.
SUSAN DENTZER: Even if [importation] were to become legalized and had the potential of disrupting supply of drugs in Canada, it’s a U.S. issue, it’s not a Canadian issue?
TOM BROGAN: If it came to the point of disrupting public health in Canada, I think you’d probably see a change in attitude. But I don’t think anybody has seen that happen yet. So stand back, wait and see attitude is probably quite prudent for a civil servant.
SUSAN DENTZER: …[W]e’ve been told that because many of the Internet pharmacies are located in Manitoba and are doing quite well and are producing a lot of tax revenue for the province, that the industry minister and others there are inclined to see that industry grow, and are not especially responsive to concerns about how this could be potentially disruptive of the drug supply. What do you think is going on? What do you think the actual situation is?
TOM BROGAN: I can’t comment on the government view. I simply don’t know. There are a lot of people, not only in Manitoba, would view this, the inflow of money into Canada from the U.S. as a good thing. But I don’t think people have examined the issue thoroughly enough to understand that this is not clearly positive in our favor overall economically or from a public health point of view.
However, I do not know what’s in the mind of the government of Manitoba.
SUSAN DENTZER: Let’s move to the whole issue of global pharmaceutical pricing. Commissioner McClellan, head of the FDA in the United States, has said that what this points [out] is that Canadians and Europeans and others are underpaying their fair share of pharmaceutical R&D while Americans are arguably, if anything, overpaying their share of global pharmaceutical R&D. First of all, do you agree with that statement, and what do you think the way out is?
TOM BROGAN: Well, I certainly wouldn’t have said this very many years ago, but I do think the Canadian prices are getting on the low end of the spectrum, and in Europe they’re even lower than the Canadian prices. So I think the same holds true.
On the other hand, there are a lot of Canadians that think that drug prices are already too high, and therefore increasing drug prices is just not a practical solution. However, I think that we have to take a broader view, and have to consider supporting the R&D efforts of the pharmaceutical manufacturers if we want those latest medications and the ones that provide the most benefit.
So it is a difficult situation in this country where the public thinks prices are too high, and on the other hand, we’re now down over 60, nearly 70 percent lower than the U.S. prices. Yes, there probably is some issue around prices being too low in Canada.
SUSAN DENTZER: Then is it also fair to say that Canadians are underpaying their share of global research and development?
TOM BROGAN: That argument has been made for quite some time. And if you equate investing in pharmaceutical purchases with R&D spending, yes, I suppose somebody could make that case.
SUSAN DENTZER: So if I herded into this room the governors of Minnesota, Illinois, Michigan, New Hampshire, the mayor of Boston, the mayor of Springfield, Mass., and all these other folks now who are petitioning the FDA to allow importation of drugs from Canada, what would you tell them?
TOM BROGAN: We wouldn’t be able to meet the demand for those products. They would be jeopardizing R&D in the United States, and R&D worldwide because it’s quite clear that the U.S. is the primary source of pharmaceutical R&D, especially over the last few years. So I think it’s kind of a short term solution to a longer term problem. But this problem isn’t going to cease anytime soon, when you look at the demographics and the increase in new technology, the demand for new technology.
SUSAN DENTZER: So what would you say to these folks a better approach would be?
TOM BROGAN: I think we have to find better ways not just in the U.S. — but Canada as well — better ways to finance these products, and make the most efficient use of them, and consider them as part of the economy, because a lot of these products have spin-off effects reducing hospital stays, a better quality of life, faster return to work, those kind of elements.
You have to look at it in a bigger picture. And there is the issue of how are we going to pay for this demand in technology. It doesn’t stop at drugs, by the way. Throughout all health care the spending is increasing very dramatically.