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Steve Morgan is a professor of health policy at the University of British Columbia and has served as an expert adviser to the World Health Organization on pharmaceutical pricing and innovation.

After a two-year delay, new federal regulations for patented medicine prices will come into force this summer – but without key rules designed to prevent price gouging. Politics and court rulings got in the way of Canada applying what would have been a global innovation in pharmaceutical price regulation.

Patented drug pricing and related regulation is complex. But the gist of what Canada has decided to do – and decided not to do – can be understood if you have ever rented a hotel room.

Patented medicines have “list” prices that are similar in ways to “rack rates” for hotel rooms – the exorbitant price listed on the back of most hotel room doors. These prices are the absolute maximum prices that would be charged to any customer. Most customers negotiate far better deals.

Since 1987, Canada has only regulated list prices of patented medicines. We have required Canadian list prices to be on par with those in seven countries that have historically had high prices and significant pharmaceutical investment in research and development. It was hoped this would prevent price gouging while also encouraging R&D investment.

It hasn’t worked. Canada attracts less R&D than its official comparators despite having among the highest list prices.

So, in 2019, the government proposed comparing list prices to a broader group of countries. This much Canada will actually do later this year. But even with more countries to compare with, regulating list prices alone provides little protection against Canadians being overcharged.

Ironically, so many countries now regulate list prices of medicines that manufacturers have responded by inflating their list prices worldwide to the point of absurdity. From there, countries negotiate confidential price deals that can result in discounts of 60 per cent or more off official list prices.

But, just like vacationers don’t know what other guests paid for their hotel rooms, Canada cannot know what other countries actually pay for patented medicines. That price is a legally protected secret at the insistence of drug companies.

Thus, list price regulations alone won’t prevent excessive prices. Just because the rack rate of your hotel room is the same as other rooms in the hotel doesn’t mean it is a reasonable rate to pay – it likely isn’t.

In fact, list prices of many medicines have risen so far that requiring anyone, or any health system, to pay such amounts would represent an abuse of market power. Patents give drug companies market power. They can abuse it because patients requiring medicines are like walk-in guests looking for a hotel room late at night; only, patients can truly suffer, even die, if they don’t get treatments they need right away. Prices charged in such circumstances can go through the roof.

This is happening with increasing frequency worldwide. In Canada, just nine medicines approved before 2006 had annualized prices above $100,000 per patient per year. There were 104 such medicines approved in Canada by 2020, costing Canadians more than $3-billion per year. Astoundingly, seven drugs available in Canada have prices exceeding $1-million per patient.

Such extraordinarily high prices are seldom, if ever, justified.

This is where Canada’s proposed-but-not-implemented rules would have come in. These additional regulations would have required manufacturers not only to have list prices in line with global norms but also to prove the actual, confidential prices charged in Canada are justified in terms of value for money in the health care system – since list prices seldom are. That would have been a global breakthrough in price regulation, which likely explains industry opposition to it.

Deciding not to implement this regulatory innovation is like deciding that Canadians should be happy to pay rack rates for hotel rooms. It leaves patients, families, and employers facing indefensibly high prices with little or no ability to push back.

Despite this, there is hope for protection: national pharmacare.

A universal, public pharmacare program would ensure no household or employer has to pay inflated list prices for covered medicines. It would also be one of the world’s largest purchasers of prescription drugs. That purchasing power would protect Canada from price gouging that can otherwise occur now that the government has accepted half measures on price regulations.

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