Canada’s ‘Uniquely Stupid’ Drug Pricing System Is Ripping Off Patients

Canadians are still paying more for generic drugs than those in foreign markets thanks to a pricing model that one expert calls "uniquely stupid."

As outrage continues to gather in the US over "pharma bro" Martin Shkreli and price gouging, a new report released this week found wild discrepancies in the cost of generics in Canada versus outside.

The Patented Medicine Prices Review Board, Canada's drug price watchdog, compared the cost of 554 leading generic drugs — substances that treat everything from cardiovascular and gastrointestinal ailments to central nervous system conditions and diabetes — in Canada to those in 11 other industrialized countries, including the US, a number of European countries, as well as Australia and New Zealand.

Although the price gap between Canadian and foreign markets decreased from an average of 40 percent in 2010 to 19 percent in 2014, and the average prices of generics relative to their branded counterparts dropped from 63 percent to 36 percent, the report found prices remain higher in Canada. Canadians pay slightly more than Americans on generic drugs, about 25 percent more than the French and almost three times as much as New Zealanders, according to the report.

"Nobody in the world is as foolish in how they buy generic drugs are we are," says Amir Attaran, a law professor at the University of Ottawa and Canada Research Chair in law, population health and global development policy, in an interview.

Related: 'Pharma Bro' Martin Shkreli Refuses to Testify at Congressional Panel

The higher prices are costing the Canadian taxpayer a billion dollars a year, and generics companies "are laughing at us," said Attaran.

In Canada, prices are determined by provinces and territories, which commit to paying a certain percentage of the cost of brand name drugs for the generic versions.

In Saskatchewan, for example, that price is 25 percent of the cost of brand name products. Ontario, on the other hand, now has a tiered pricing system. For example, if there are two existing sources for generics, the province would pay half of the branded price. If there are three or more sources, the amount drops.

For 14 of the most common generic drugs — used to treat a variety of conditions including high cholesterol, high blood pressure, nerve pain, and diabetes — provinces and territories have formed the pan-Canadian Pharmaceutical Alliance (pCPA) to buy in bulk at 18 percent of the cost of an equivalent brand name product.

"This percentage targeting is plain stupid," said Attaran. "It's the wrong way to do it because [the percentage] may give you a perfectly reasonable price or it may be too high for other medicines. It may also be too low for others, and if it's too low, no one's going to sell to you."

He called the percentages arbitrary and compared the system to a dealership selling all used cars at 25 percent the cost of a new car.

"That's a great deal if the used car is a year old and in mint shape, but what if the thing is a 20-year-old wreck?"

Drug price gouging made headlines last year after Martin Shkreli jacked up the price of a patented drug used to treat parasitic infections by more than 5,500 percent.

The impact of this price difference is ultimately felt by the consumer, said Joel Lexchin, who teaches health policy at York University in Toronto.

"If you're paying out of pocket, you're paying more, and if you're getting your drugs covered through private insurance, your premiums are higher," he explained.

Related: Hated 'Pharma Bro' Martin Shkreli's Former Pharmaceutical Company Files for Bankruptcy

If your medication is covered by a provincial drug plan, Lexchin continued, you're paying more in tax dollars. Tax dollars could also cover a wider range of drugs if the prices of generics are lowered.

According to both Lexchin and Attaran, Canada would do well to look to New Zealand's system of tendering — in which the country announces the need for a certain drug, lets suppliers compete and chooses the lowest bidder — as an example for how drug price regulations can be improved.

The model "gives companies the best price forward because if they get the deal, they're supplying all of New Zealand," Attaran explained. "What they lose in profit margin, they gain in volume."

But Lexchin cautioned that having a single supplier for a particular drug also has its risks. There must be safety mechanisms in place in case of an emergency, like a fire at a manufacturing plant, which would prevent the production of and access to the drug, he said.

At a meeting at the end of January, Health Minister Jane Philpott and her provincial and territorial counterparts made tackling drug prices a priority.

"Our government is committed to improving the affordability of necessary prescription medication, and we remain open to exploring further ways we can collaborate with the provinces and territories to do so," she said in a statement.

Follow Tamara Khandaker on Twitter: @anima_tk

Image via Flickr