30 September 1998
L. Denis Desautels, FCA
Auditor General of Canada
Madam Chair, thank you for this opportunity to present the results of our audit of the Patented Medicine Prices Review Board, 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 Patented Medicine Prices Review Board (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.
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.
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 which affect the eventual price paid by consumers.
In addition, the Board does not have jurisdiction to regulate the prices of non-patented
drugs. However, this is not always well understood by the public. The result is a
considerable expectation gap. Approximately 70 percent of the Board’s expenditures
are for salaries. We sought to determine whether the Board manages its financial and human
resources efficiently. The Board met our expectations of financial control for an agency
of its size and financial complexity, with financial management capabilities focussed
primarily on meeting central agency requirements.
The Board has adopted a policy of using voluntary compliance undertakings to deal with cases where an excessive price is suspected. This has resulted in efficiencies in the use of its resources.
Further efficiencies can be achieved, however. For example, opportunities exist for the Board to improve the co-ordination of its work with Health Canada in performing scientific reviews to categorize new patented medicines.
There is also potential for the Board to work more closely with Statistics Canada to improve the reporting of drug price trends and to minimize any potential duplication of effort.
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. I am concerned that its current estimate of health care savings as reported to Parliament is overstated.
Finally, the audit identified areas in the legislative framework that are difficult to apply or may no longer be relevant. Madam Chair, I am not raising concerns with the broader aspects of the Patent Act or the regulations. Rather, my 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 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.
Madam Chair, that concludes my opening statement. We would be pleased to answer your Committee’s questions.