8 December 1998
Maria Barrados
Assistant Auditor General
Mr. Chairman, thank you for this opportunity to present the results of our audit of the Patented Medicine Prices Review Board (PMPRB), as reported in Chapter 17 of the 1998 Report, tabled on 29 September.
The Industry Committee's Fifth Report issued in April 1997 recommended that the Office of the Auditor General perform an audit of the PMPRB to provide Parliament with information on performance and efficiency. We undertook a preliminary review and then decided to proceed with a full value-for-money audit of the Board.
The PMPRB is a small board with a staff of 35 and an annual budget of approximately $3 million. However, it has a large potential impact. In 1997, Canadian sales of patented drugs by manufacturers amounted to approximately $3.7 billion.
While the Patent Act falls under the jurisdiction of the Minister of Industry, sections pertaining to the work of the Board are under the jurisdiction of the Minister of Health.
The PMPRB has a mandate to protect consumer interests and contribute to Canadian health care by ensuring that prices charged by manufacturers of patented medicines are not excessive. In fact, the Board's mandate is quite limited in scope.
For example, the Board regulates only the price at which the patentee sells the medicine. This is usually the price charged by the manufacturer to a wholesaler or directly to a hospital or pharmacy. This does not include retail markups, distribution costs, or other factors that affect the eventual price paid by consumers. In addition, the Board does not have jurisdiction over the prices of non-patented drugs. This is not well understood, and can lead to a significant expectation gap.
In our examination of the Board's performance in the area of drug price regulation, we noted that the majority of patented drugs sold in Canada are priced within the Board's guidelines. Generally, the Board's guidelines have been applied rigorously.
However, the Board essentially relies on companies themselves to report the data on which the regulation of their drug prices is based. We would expect the Board to do more to obtain a reasonable level of confidence in the accuracy of the data. The Board needs to find cost-effective means to check the accuracy of price information submitted by manufacturers.
We identified areas where the Board needs to be more transparent in the work that it does, and to improve its reporting on the effectiveness of its work. We are particularly concerned that its current estimate of health care savings as reported to Parliament is overstated.
The Board has reported an estimate of its savings to the Canadian health care system as being between $2.9 billion and $4.2 billion between 1988 and 1995.
While the Board has exerted a constraining influence on the prices of patented medicines sold in Canada, the evidence also suggests that other factors have a moderating influence on the prices of these drugs. These factors include provincial cost-containment measures and increased market penetration of drug manufacturers.
We believe that the Board needs to use better evaluation methods to take these external factors into account when measuring the actual impact of its activities. Mr. Chairman, your Committee may wish to pursue with the Board its plans to improve the measurement of its effectiveness.
The audit also identified areas in the legislative framework that are difficult to apply or may no longer be relevant. Mr. Chairman, we are not raising concerns with the broader aspects of the Patent Act or the regulations. Rather, our concerns are in the context of some of the more detailed provisions.
For example, in determining whether a price is excessive, the legislation requires the consideration of prices of drugs in the same therapeutic classes in other countries. Board staff felt they could not meet this requirement because valid data are not available.
Further, the regulations require the comparison of prices in specified foreign countries. However, meaningful comparisons are often not possible to make. In 20 percent of the cases, the only foreign country selling the same drug was the United States, which has the highest drug prices overall.
In addition, the legislation is silent or unclear in two important areas. First, the Patent Act does not address the use of voluntary compliance undertakings. It thus makes no provision for the distribution of money collected from these undertakings.
Second, the legislation is also silent on the dedication of patents for public use and on the Board's jurisdiction over those patented medicines.
Finally, given that the brand name pharmaceutical industry has met its commitment to increase annual research and development spending to 10 percent of sales by 1996, there is a question about the continued relevance of the requirement for the Board to report this information.
The Board has indicated that it is moving forward in the context of its consultations with stakeholders to address many of the findings in our report. Your Committee may wish to seek further details from the Board as to what specific steps, and their timing, are being taken to respond to the recommendations.
Mr. Chairman, that concludes my opening statement. We would be pleased to answer your Committee's questions.