Drug Costs

Question 1

What are the top 3 drug classes by percentage of public drug program spending?

Answer 1

1. Anti-TNF drugs for Rheumatoid arthritis and Crohn’s disease
2. Antineovascularization agents for age-related macular degeneration
3. Antivirals for treatment of hep C infections

Question 2

What are some of the contributors to high drug costs? (7)

Answer 2

1. The expanding use of biologics
2. New cancer therapies
3. End of the “patent cliff”
4. Continuing trend toward higher rates of utilization
5. Federal Pricing Policies
6. Pharmaceutical industry consolidation
7. Monopolistic pricing of old drugs

Question 3

What to know about new cancer therapies and their contribution to high drug costs? (4)

Answer 3

1. Increasingly expensive; often minimal benefit
2. Limited savings from generics due to changing protocols.
3. In 2018, cancer drugs accounted for 36% of all hospital drug costs.
4. In 2019, cancer drugs accounted for 7.8% of public drug plan costs (community-based)

Question 4

What does “end of the patent cliff” mean?

Answer 4

Fewer blockbusters coming off patent resulting in few opportunities to reduce spending within a drug class

Question 5

What policy change was enacted to ensure more appropriate (lower) drug pricing?

Answer 5

• In 2020, the PMPRB planned to revise the list of reference countries to drop the USA and Switzerland, and add a few different countries more similar to Canada. This reduced the listed price of new drugs by 11%

Question 6

Pharmaceutical pricing is based on: (4)
NOT based on…

Answer 6

1. Rarity and severity of the disease;
2. Absence of effective alternative treatments;
3. Indirect medical and social costs avoided;
4. Effectiveness of the drug
   NOT based on the cost to develop the drug

Question 7

Non-patent meds are not regulated by the PMPRB, and instead prices are generally influenced by? (3)

Answer 7

1. Provincial drug plan policies
2. Hospital P&T committees
3. Competition among pharma companies

Question 8

What are the characteristics of a “free” market? (4)

Answer 8

1. Many buyers and sellers
2. Homogenous products
3. Freedom to enter and exit the market
4. Complete, costless information on price and qualities

Question 9

What is equilibrium price?

Answer 9

The price at which firms are willing to produce is equal to what households are willing to purchase

Question 10

The erosion of free market characteristics increases the likelihood of ______ _______

Answer 10

market failure

Question 11

Market failure is “the norm” in health care and the pharmaceutical industry; the rules of the “free” market do not apply. Why?

Answer 11

1. Powerful sellers/providers secure high prices.
   - Monopolies and oligopolies.
2. Savings from any realized efficiencies do not flow through to buyers.
   - Efforts by companies to lower operating costs don’t lead to lower drug prices as companies compete for market share

Question 12

Buyers can respond to market failure by coming together to create a monopsony or an oligopsony to restore some balance to the exchange. How does that work?

Answer 12

1. Effectively increasing the size of buyers while also reducing the number of buyers
2. These large buyers have more power in the marketplace and are better able to secure more value for themselves from the exchange.
   - Market failure persists but is mitigated for some.
   - Buyers excluded from large buying groups (small buyers and individuals) often find their costs increase even more