Pharmaceutical Prices Go Up, Up And Away

Jan 31, 2017

tablets-1001224_1280Over the last fifty years, the average CEO to worker pay ratio grew from 20-1 to 380-1, according to an article published some years ago. That’s a big gulf. The author noticed that CEOs changed their focus along the way from ‘How much do I need?’ to ‘How much can I get?’ That’s a very long way from the days when Henry Ford priced his cars so workers could actually buy one.

Admittedly, no one’s under the illusion he was doing anything other than building a market for the product. As the story goes, if he’d asked people what they wanted, they’d have said faster horses. Horses and buggies being the only game in town at the time. Still, the point is plain that a product only exists if there’s a market.

So today, given astonishingly high and going higher pharmaceutical prices, we can’t help but wonder if pharma CEOs may be losing sight of this basic tenet by pricing themselves out of the market. Are private payor stakeholders at the tipping point or are we already toppling? Left unchecked, will we soon be unable to afford our prescription drugs? In fact, nearly one quarter of Canadians now report either they or someone in their household don’t fill their prescriptions because of the high cost. That’s fully one in four people up from one in ten only a few years ago.

You may believe this is fear mongering. The drug pipeline is filled with hundreds of new drugs and most will follow this new trend of pricing well beyond historical landmarks and sustainability.

A quick primer on how we got here: Canada, unique among countries who offer universal health coverage, doesn’t extend universality to prescription drugs. This has led to a blend of pharmaceutical pricing oversight and regulation mixed with private and public payors. The upshot is that Canadians now pay the highest drug prices in the world second only to the US. It appears a similar refrain is in play for drug pricing – charge whatever price ‘they can get.’

Unlike in the US however, Canada has a regulator, the Patented Medicine Prices Review Board (PMPRB), created decades ago to moderate patented drug prices and ensure R&D for its patentees. It’s protected us from some outrageous price increases such as those recently seen in the US. Even basic drugs such as the EpiPen skyrocketed to about US$600 compared to about $100 in Canada. In large part, we have the PMPRB to thank for the lower price.

But you may have noticed we mentioned a brand name drug. That’s because the PMPRB only covers patented drugs as generics are a whole other ballgame for which Canadians are paying up to 30% more than other countries by their own estimate. Since research and development is at an all-time low, there really isn’t any justification for the escalated drug prices. And what about those life transforming, very expensive medicines that are increasingly coming to market? Nope. No coverage for them, mostly…they’re just too expensive. So guess what? The public payor in most instances have not stepped up to pay for these medications.

All this said, the PMPRB is hamstrung by pharmaceutical companies who do end runs around the regulator with either undisclosed rebating, or aggressively marketing new drugs and crowding out arguably still effective older and cheaper products. As well, the vagaries of its pricing system mean top dollar pricing in the marketplace. It’s maybe not surprising then the PMPRB is in existential angst because its ability to achieve the mandate got into Henry’s Model T and drove off into the sunset.

That’s a bit of background behind the escalating prices we all pay for drugs, patented or generic.

Let’s not forget, the end products of which we speak are drugs some need simply to continue living. What happens then and who pays? And when does so much…so much price escalation…become too much? The largest drug budgets in Canada are those of the provincial and federal government. They’re large and in the billions. Even so, there are now hundreds of rules and restrictions limiting risk and exposure which ultimately deny payment for most new and breakthrough medications. It’s not a stretch to question the market’s sustainability. So here’s a question for pharma – if the public payor (largest budgets in the country) won’t pay for these new drug therapies, what makes you think the private payor will? Perhaps pharma executives would do well to remember another Henry Ford quote, “When prices go up, business goes down.”

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