PMPRB Price Guidelines: 2004 Price Increases
Our October 2003 NEWSletter article on Price Increases: Monitoring Compliance with the Guidelines attracted considerable interest and some questions. (October 2003 NEWSletter, page 3.) Among other things, some non-industry stakeholders have asked for more detailed information on the maximum allowable price increases under the Guidelines for 2004.
Prices of all patented medicines, new and existing, prescribed or not, are reviewed according to factors set out in the Patent Act and the PMPRB´s Guidelines. Under the Act, the Board is required to consider changes in the Consumer Price Index (CPI) in determining if the price of an existing patented medicine is excessive. The Guidelines, which have been developed in consultation with stakeholders, are based on the factors in the Act. Among other things, they provide that increases in the price of an existing patented drug should not be greater than increases in the CPI.
Calculating the CPI-Adjusted Price
With a view to promoting compliance with the legislation and the Guidelines, and in order to ensure predictability, the Guidelines set out a methodology for forecasting changes in the CPI and calculating the CPI-adjusted price. In summary, the Guidelines limit price increases to changes in the CPI, calculated over a three-year period. In the event that this formula would allow an increase in one year greater than the annual increase in the CPI (for example, if there had not been a price increase in the previous year), the Guidelines also limit the annual increase to 1.5 times the increase in the forecast CPI. The CPI-adjustment factors are published annually in the April NEWSletter and on the web site.
| Allowable price increases for patented drug products in 2004 are based on the forecast increase in the Consumer Price Index of 2.2%. In some cases, the Guidelines allow a larger increase, but never more than 3.3%. |
Filing Price Information
Under the Patented Medicines Regulations, patentees file price information on each patented drug product twice a year: in July, for the period of January to June, and in January of the following year, for the period of July to December. Patentees are required to file prices net of discounts, rebates, and other concessions by class of customer and province. For purposes of the Guidelines, the PMPRB calculates the average transaction price across Canada, on an annual basis, based on all sales of each patented drug product. The PMPRB expects that all prices will be within the Guidelines.
Schedule 4 of the Compendium of Guidelines, Policies and Procedures states that the price of an existing medicine during the year under review will be presumed to be excessive if it exceeds the benchmark price of the DIN adjusted for the cumulative change in the CPI from the benchmark year to the year under review. For patented drugs first marketed in Canada more than three years prior to the forecast period, the benchmark year is the calendar year three years preceding the forecast period. For example, for 2004, the corresponding benchmark year is 2001. The usual practice is to calculate the average of the prices at which a drug product was sold to all classes of customers in all provinces during the period under review.
The formula was developed in consultation with stakeholders. For a more detailed explanation, you will want to consult Schedule 4 (http://www.pmprb-cepmb.gc.ca/CMFiles/2004compendium-e21LTW-152004-1350.pdf, page 37.)
It is important to note that there is no requirement for a manufacturer to seek the approval of the PMPRB before implementing a price increase. The PMPRB expects that manufacturers will comply with the Guidelines. As part of its regulatory mandate, the PMPRB will continue to monitor prices to ensure this is the case.
Investigations
In the event that the increased price is not within the Guidelines, Board Staff will conduct an investigation which may result in a Voluntary Compliance Undertaking by the patentee or a public hearing.
The criteria for commencing an investigation are:
- a price is 5% or more above the maximum non-excessive price and there are cumulative excess revenues of $25,000 or more;
- cumulative excess revenues are $50,000 or more; or
- complaints with significant evidence.
In the event that the Board holds a hearing and concludes that a price is excessive, it can order a price reduction. Section 83 of the Act provides that the Board may make such a finding and order in respect of the price at which a patented medicine is being sold in any market in Canada. It is therefore open to the Board to determine whether, in any particular circumstances, a patented drug is being sold to any class of customer or in any province at an excessive price in respect of any period of review. Under the Act, the Board may also order the manufacturer to offset double any excess revenues it received if it finds that there was a policy of excessive pricing.
For more information, the Compendium of Guidelines, Policies and Procedures is available on our website under Legislation, Regulations and Guidelines or by contacting us at 1 877 861-2350.
Excerpt of the January 2004 NEWSletter
