How other countries balance drug prices and innovation (part 1)

This is the first of two posts reviewing how countries around the world factor patient access and innovation into prescription drug pricing. A subsequent article will address how France and England navigate these issues.

The idea that patients in the US shouldn’t pay more for prescription drugs than patients in comparable countries around the world has broad-based political appeal. That’s why lawmakers on both sides of the aisle have proposed legislation to base what Medicare pays for drugs on prices in other countries with comparable GDPs and make it easier to import drugs from Canada. But before we put US drug pricing levels at least partly in the hands of non-US policymakers, it’s worth taking a look at how other countries approach drug pricing and how much emphasis their policymakers place on the competing priorities of patient access to drugs (which is facilitated by lower prices) and drug innovation (which is facilitated by higher prices). This post reviews how Germany and Canada factor access and innovation into prescription drug pricing.

Germany: Product Reference Pricing with an Eye for Innovation

In Germany, the passage of the 2011 Pharmaceutical Market Restructuring Act established two goals as paramount in the country’s approach to drug pricing: maximizing patient access to high-quality prescription drugs and establishing durable pharmaceutical market incentives that ensure high-value innovation. This 2011 reform, known as Arzneimittelmarkt-Neuordnungsgesetz or AMNOG, established a process in which an independent research nonprofit and a federal regulatory agency jointly evaluate the clinical benefits of new drugs after the European Medicines Agency grants those drugs marketing approval.

For each new drug, this joint body of researchers and regulators use a strategy known as product reference pricing to compare a product’s indication-specific benefits with existing therapies and assign the new drug’s comparative benefits to one of six categories: “major added benefit; considerable added benefit; minor added benefit; nonquantifiable added benefit; no evidence of added benefit; and less benefit than the appropriate comparator(s).” During the first year that the drug is on the market, the manufacturer can set the price at any level it chooses.

Following this assessment of a drug’s therapeutic benefits, drug manufacturers initiate pricing negotiations with the National Association of Statutory Health Insurance Funds, an organization representing German health insurance payers that cover more than 90% of the population. In these pricing talks, statutory insurers use reference pricing to set upper bounds on reimbursement. If the statutory payers and manufacturers fail to reach an agreement on a fair reimbursement level, the dispute is sent to an arbitration board that sets a price. Manufacturers may elect to opt-out of this process at various junctures to avoid conceding a low price that would be listed in the official German drug price list, which could compromise the company’s profits in a number of other countries that partially base reimbursement levels on prices paid by German insurers. However, manufacturers that opt-out of this process must exit the German market.

All things considered, the 2011 AMNOG reforms restructured the German approach to drug pricing with an eye for both innovation and access. The explicit focus of the German model on upholding both patient access and incentives for innovation is a notable and important example of how policymakers can balance these competing priorities. Though drug research and development is a notoriously long process, early research indicates that the 2011 reforms seem to have effectively upheld both innovation and access thus far.

Canada: Emphasizing Access

In Canada, outpatient drug benefits are not included in Medicare, the country’s health care financing system that is primarily administered and funded by provincial and territorial governments. As a result, roughly two-thirds of Canadians purchase private drug coverage individually or through their employer, though the Canadian government provides drug coverage to certain populations under certain circumstances. (Note: this post does not address the distinct structure of drug pricing and assessment in Quebec. Unlike the rest of the Canadian provinces and territories, Quebec conducts its own health technology assessments and reimbursement negotiations.)

Much like in the US, the formulary placement process in Canada begins after federal regulators grant marketing approval to new drugs. After new drugs are approved, an independent, federally-funded, not-for-profit health technology assessment organization, the Canadian Agency for Drugs and Technologies in Health (CADTH), evaluates the clinical and economic value of those drugs. With the exception of Quebec, CADTH advises publicly-funded drug plans across the country on formulary decisions in regard to the clinical benefits and cost-effectiveness of both new and on-market drugs. CADTH’s reimbursement recommendations are not binding, however, so drug plans are ultimately free to make their own reimbursement decisions.

CADTH’s extensive resources and drug product reviews contain very few references to innovation, an indication that the organization does not view innovation as a primary consideration in its recommendations. Instead, CADTH’s focus seems to be on helping publicly-funded drug plans design well-evidenced and value-based formularies and reimbursement protocols.

Once CADTH issues a recommendation on how payers should reimburse a newly-approved drug, a conglomerate of publicly-funded drug plans known as the pan-Canadian Pharmaceutical Alliance (pCPA) determines whether to enter into negotiations with a manufacturer. As a negotiating bloc with a substantial number of covered lives, the pCPA allows public drug plans to purchase drugs at lower prices than they would otherwise be able to secure. Like CADTH, the publicly-stated objectives of the pCPA do not include promoting innovation. Instead, the pCPA focuses on achieving lower prices and better access for patients.

As an independent and quasi-judicial federal body, the Patented Medicine Prices Review Board (PMPRB) is responsible for regulating the prices of all patented drugs in Canada. The purview of the PMPRB includes non-prescription drugs but excludes non-patented prescription drugs like generics. Using pricing data that manufacturers submit biannually to the board, the PMPRB determines if drugs have been priced excessively. In making this determination, Canadian federal law stipulates that the PMPRB “shall not take into consideration research costs other than the Canadian portion of the world costs related to the research that led to the invention pertaining to that medicine or to the development and commercialization of that invention, calculated in proportion to the ratio of sales by the patentee in Canada of that medicine to total world sales.” Once the PMPRB makes a determination of excessive pricing, it may direct the manufacturer to reduce the drug’s price “to such level as the Board considers not to be excessive.”

The PMPRB’s inability to consider drug development costs incurred outside of Canada indicates that the Canadian government may not view incentivizing global drug innovation as its responsibility. From a self-interested standpoint, this arrangement makes sense: a disproportionate share of global pharmaceutical revenue comes from the United States, so the Canadian government has little incentive to keep manufacturers’ profits high to reward innovation. Rather, the Canadian government’s approach emphasizes managing drug prices. Though this may benefit Canadian patients, this strategy does little to promote the ongoing development of new prescription drugs.

Research for this piece was supported by the Laura and John Arnold Foundation.


Hidden information below


Email Address*