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1. What is pharmaceutical policy?

Pharmaceutical policy is the rules, processes, and structures that are put in place by governments and public agencies to manage problems related to the availability of medicines and the role of medicine in health care.

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2. What makes pharmaceutical policy different from other types of health policy?

Pharmaceutical policy is an important component of health care policy that is distinct in several ways. Medicines are often potent agents that require regulation and sometimes prescription-only designation to help reduce the risk of serious harm to patients and populations. Moreover, unlike health services provided by caregivers and health professionals, medicines are commodities sold on a global scale by multinational companies who often hold patents protecting them from competition. Finally, in Canada, pharmaceutical policy is also distinct from policy related to hospital stays and doctor visits because pharmaceuticals used outside hospitals are not covered by the Canada Health Act.

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3. What are the federal and provincial/territorial government roles in pharmaceutical policy making?

Provincial and territorial governments are responsible for providing public drug coverage for their residents, although they are not required to do so under the Canada Health Act as they are for hospital and physician care. The provinces and territories thus make decisions relating to who is eligible for public coverage, how generous public coverage should be, which medicines are covered under public plans, and how much the provincial drug plans will pay for generic (or non-patented) medicines and pharmacist dispensing fees.

The federal government’s role in pharmaceutical policy is primarily regulatory. It is responsible for ensuring that the drugs that Canadians use are safe and effective and that prices for patented medicines in Canada are not excessive relative to other jurisdictions. The federal government plays a smaller role as an administrator of the Non-Insured Health Benefits program, a public health insurance scheme that provides public health and drug coverage for certain special populations: First Nations and Inuit peoples, Canadian Forces members, veterans, RCMP members, and inmates of federal prisons. Federal government policies also affect the pharmaceutical sector indirectly, for example via federal taxes and tax credits.

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4. Why aren’t prescription drugs covered by Canadian medicare?

Canadian “medicare” is not one national universal insurance scheme but is rather comprised of thirteen different public insurance plans administered by the provincial and territorial governments. To ensure that Canadians have equal public coverage regardless of their province of residence, national standards for coverage are enforced through the Canada Health Act (1984). The Act requires the provinces to insure medically necessary hospital and physician services in order to receive federal health transfers. This system of multiple provincial and territorial insurance plans held together by national standards is what Canadians often think of when they refer to “medicare”.

Prescription medicines used outside of hospitals are not one of the services the provinces are required to insure under the Canada Health Act. This means that Canadians do not have access to universal first-dollar coverage for prescription medicines like they do for hospital stays and physician visits. While all provinces offer some sort of public drug coverage for vulnerable residents, for example seniors or those on social assistance, public coverage varies widely across the country. Canada stands as one of only a few countries which lack universal public insurance for prescription medicines.

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5. How much do Canadians spend on drugs?

Total expenditure on all drugs in Canada reached $30 billion in 2009. Prescription drugs accounted for 84.1% of this expenditure, or $25.4 billion. Between 1985 and 2007, the share of drugs in total health expenditure increased from 9.5% to 16.5%.

Among twenty three OECD comparator countries, Canada has the second-highest level of total drug expenditure per capita, after the United States. However, the public sector funds only 38% of total drug expenditure in Canada, the fourth-lowest share among OECD countries, ahead of Poland, the US and Mexico.

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6. How are the prices of drugs determined?

As with most other goods, firms determine the prices of drugs. However, the prices of patented drugs are regulated at the federal level through the Patented Medicine Prices Review Board (the PMPRB), while the prices of generic drugs are controlled at the provincial level.

Patented medicine prices must adhere to the following guidelines:

  • Most new patented drug prices are limited so that the cost of therapy is in the range of the cost of therapy for existing drugs sold in Canada used to treat the same disease
  • Prices for new drugs without existing comparators are limited to the median of the prices charged for the same drug by France, Germany, Italy, Sweden, Switzerland, the U.K. and the U.S.
  • Prices cannot increase by more than the Consumer Price Index
  • The Canadian price can never be the highest in the world

The PMPRB can investigate prices they think are set too high according to these rules.

At the provincial level, governments try to control the prices of generic drugs by setting maximum prices for generics and then creating policies to encourage consumers and physicians to choose generics over patented (more expensive) drugs. In recent years, British Columbia and Ontario have both reduced the amount that can be charged for generics, usually calculated as a percentage of the price of the patented drug. For example, in Ontario, the price of a generic medicine cannot exceed 25 percent of the cost of the original brand-name medicine.

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7. How do Canadians pay for their prescription drugs?

Canadians can obtain public or private insurance to assist in paying for prescription medicines, or they may simply pay for medicines out-of-pocket.

The majority of Canadians are covered by private insurance plans, most commonly offered through employers. Private insurance plans vary in their level of coverage and almost always require the policy holder to pay some share of their prescription costs.

Canadians also pay for prescription medicines through public insurance from the provincial, territorial or federal government. Only select groups qualify for public insurance. The federal government provides benefits for First Nations and Inuit peoples, members of the Canadian forces, veterans, the RCMP, and federal inmates. Each province has its own public drug plan; all provide coverage for social assistance recipients, and most provide some coverage for seniors. In some provinces, for example Manitoba and British Columbia, coverage is not based on age but rather on the proportion of household income spent on prescription medicines. Many provinces also offer condition-specific coverage for medicines, for example, coverage for cancer patients or diabetics.

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8. How do public and private insurers determine which drugs are covered?

Private insurance plans generally provide coverage for all drugs approved for sale in Canada, with some exceptions. Public provincial drug insurance plans tend to be more restrictive in what medicines they will cover and give more consideration to a drug’s efficacy, safety, and cost-effectiveness.

Until 2003, provinces independently assessed the cost-effectiveness of drugs that were approved by Health Canada and made coverage decisions based on their own review. In 2003, the Common Drug Review (CDR) was created as an interprovincial collaboration to assess a new drug’s cost effectiveness. The CDR’s recommendations are not binding: the provincial and territorial governments retain the right to determine which drugs are covered. As a result, each province has a unique list of covered drugs. Quebec does not participate in the CDR.

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9. How are new drugs developed?

Drug discovery often starts with basic research at a public sector research institute, or PSRI. These government-funded institutions at universities, hospitals and non-profit organizations perform the basic research on the underlying pathways and mechanisms of a disease that often can point to promising interventions.

Based on basic research, drug companies pursue applied research to see if there is a chance of developing a useful drug. Drug development can be expensive and risky, which is why drug companies are often the primary stakeholders in this part of the research stream – public-sector institutions often do not have the funds or the risk tolerance to perform extensive pre-clinical and clinical trials.

When a potential treatment is picked up by a drug company, pre-clinical studies are carried out. Developers test the potential drug in vitro (in test tubes) and in vivo (in animals). This shows the potential uses of the drug and the existence and extent of toxic effects. Next, the developer gets approval from Health Canada to conduct a clinical trial. If the clinical trial proves that the drug is of high quality, safe and efficacious, the manufacturer can get authorization from Health Canada to sell the drug in Canada.

The process of running pre-clinical and clinical trials can be very expensive. However, it is difficult to know exactly how expensive it is to develop new drugs, as pharmaceutical companies typically keep this information private. Estimates of the cost of developing a new drug range from $59.4 million to $2 billion.

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10. How does the government make sure that drugs are safe?

Regulation of the manufacture, sale and import of therapeutic products is a federal responsibility in Canada. Drugs are monitored by Health Canada for safety, efficacy and quality in several stages throughout their development and after they are put onto the market.

Pre-market: if a new drug looks promising after pre-clinical trials, developers apply to Health Canada to conduct a clinical trial involving humans. The trial is allowed if it is properly designed and subjects will not be exposed to undue risk. It must be conducted in accordance with international ethical and scientific quality standards.

Product submission and market authorization: if a clinical trial shows that a drug has potential therapeutic value that outweighs the risks, the manufacturer files a New Drug Submission (NDS) to get authorization to sell the drug in Canada. The NDS contains information from pre-clinical research and clinical trials about the product’s safety, efficacy and quality, as well as how the drug will be packaged and labeled. If Health Canada approves the submission, the manufacturer is issued a Notice of Compliance (NOC) and is allowed to sell the drug in Canada.

Post-Market Surveillance: clinical trials reveal how well the medicine works in an ideal controlled environment in a specific subset of patients over a short period. In the real world, drugs are used on different types of people (different ages, ethnicities, health statuses, etc.) and often for longer time periods, and as a result may not work in the same way as in the clinical trial. The drug may not have the same effect, or previously unseen adverse drug reactions may occur. The way a drug works when used in the population is called its “effectiveness.” Information on post-market safety comes from voluntary adverse reaction reporting by healthcare professionals and consumers. Health Canada collects these reports and decides on a case-by-case basis if they should notify healthcare professionals and the public about the possible adverse health effects of a product. Interventions range from issuing warnings to the public and health professionals to removing a drug from the market.

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11. How do drug patents work?

A patent is a set of rights granted by a government that gives the patent holder the exclusive right to make and sell an invention. In Canada, patents are governed by the 1987 Patent Act, are issued by the Commissioner of Patents, and are typically valid for 20 years from the date of filing.

Drug manufacturers file patents before clinical trials start, so the average time that a drug can be sold under patent (20 years minus time for trials and Health Canada approval) is generally about 7-9 years.

After patent expiry, approved generic versions of patented medicines can enter the market. Generic entry often results in a substantial decrease in prices for the related class of medicines because generic manufacturers do not have to go through the same development process that the original manufacturers did and because there is potential for competition in generic products.

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12. How do drug companies market and promote their drugs?

Drug companies market and promote their drugs in two ways: directly to consumers, through advertising, and directly to doctors, through advertising as well as visiting physicians in their offices and providing drug samples.

All industrialized countries except for the United States and New Zealand prohibit full-product direct-to-consumer advertisements, which include brand names, health claims, and risk information. However, Canadians are often exposed to full-product ads through American media (including television, radio, and magazines/print).

Canada allows two kinds of direct-to-consumer advertisements: reminder ads and disease-oriented or help-seeking ads. Reminder ads state the brand name of the drug but do not make any health claims. Disease-oriented or help-seeking ads do not mention a specific brand but they do discuss a condition and encourage consumers to ask their doctors for more information about treatments for that condition. In 2006, drug companies spent over $22 million on reminder advertising in Canada, 83% of it on broadcast advertising.

Pharmaceutical companies say that direct visits with physicians are an important way for them to provide necessary information. Critics say representatives provide biased information and unduly influence physician prescribing habits, and are not regulated enough by the government.

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13. How big is the pharmaceutical industry in Canada? What sorts of jobs are there?

Total direct employment by pharmaceutical manufacturers in Canada was about 30,000 people in 2010. About one-third of this employment is within the generic sector. Forty percent of people directly employed in the pharmaceutical sector are in marketing and sales, 30% are in manufacturing, 20% are in research and development and the rest are in administration and distribution. Canada is about in the middle of OECD countries in terms of employment in the pharmaceutical sector, both in total numbers and relative to population size.

Pharmaceutical manufacturers in Canada are concentrated in Ontario and Quebec, with research and development jobs particularly concentrated in Toronto and Montreal. Data from Statistics Canada indicates that approximately 47% of Canadian R&D is in Ontario, 43% is in Quebec, 8.5% is in the West, and 1.5% is in the Maritimes.

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