Drugs are approved by Health Canada. Approval for new drugs is sought by way of a New Drug Submission (NDS). Once Health Canada completes its review and determines that a new drug is safe and effective, the drug receives a Notice of Compliance (NOC) and a Drug Identification Number (DIN).
Generic drugs are often approved by way of an Abbreviated New Drug Submission (ANDS) in which safety and efficacy of the generic drug is established by reference to an already-approved innovative product. Generic drugs also receive an NOC and DIN. When approved by way of an ANDS, the NOC also includes a declaration of equivalence to the reference product. Biosimilars are not eligible to be approved by way of ANDS in Canada and must be approved by NDS. Accordingly, biosimilars do not receive a declaration of equivalence.
Prescription vs. non-prescription
Requirements for sale (e.g., a prescription) are set both federally and provincially. Generally, drugs fall into one of four categories:
- Schedule I drugs require a prescription for sale.
- Schedule II drugs do not require a prescription but a healthcare professional must be involved in the sale and they cannot be kept in a self-selection area. These products are generally kept behind the counter at pharmacies.
- Schedule III drugs can be sold from a self-selection area but require that a healthcare professional be available for consultation. These are generally sold in pharmacies.
- Unscheduled drugs can be sold in any retail outlet.
Some provinces have additional schedules. For example, in British Columbia, Schedule IV drugs are drugs that can be prescribed by a pharmacist in accordance with certain guidelines.
The federal Prescription Drug List established by Health Canada enumerates drugs that must be sold by prescription in all provinces. Further scheduling of drugs is the responsibility of the provinces. However, all provinces base scheduling decisions on the National Association of Pharmacy Regulatory Authorities (NAPRA) drug schedule. Some provinces implement the schedule without changes, while others will modify it.
Biologic and biosimilar drugs are scheduled in the same way as small molecule drugs and generally fall into Schedule I. Generic drugs receive the same scheduling as the reference innovator product.
Interchangeability of drugs is regulated provincially. In some provinces, generics must apply for a designation of interchangeability and, if granted, will be listed as interchangeable. Other provinces leave interchangeability to the discretion of the dispensing pharmacist.
Generally, a designation of equivalence from Health Canada will satisfy the requirements for interchangeability in provinces where it is left to the discretion of pharmacists. In other provinces, such a declaration may simplify the application process. Because biosimilars do not receive declarations of equivalence, interchangeability is less straightforward and may vary from province to province.
Eligibility for reimbursement
In theory, and subject to further discussion below, all drug products are eligible for reimbursement. However, each plan may place restrictions on the types of drugs eligible for reimbursement. For example, some plans may not pay for non-prescription drugs.
Public payers (and some private payers) will generally only reimburse the cost of the lowest-cost alternative which, if a generic is available, is the generic cost. A more expensive alternative can be dispensed but unless certain criteria are met (e.g., a “no-sub” order from a physician), the payer will only reimburse the lower cost and the patient will have to pay the difference out of pocket.
Who are the payers?
In Canada, drugs can be reimbursed publicly or privately. Public payers include the 13 provincial/territorial health plans and various federal programmes (covering Canada’s Indigenous population, military, and prison populations).
The largest public health plans are the provincial health plans. These plans are created by provincial statue and establish a formulary of drugs that are reimbursed for eligible residents. Generally, the provincial/territorial plans provide coverage to older individuals and those with limited incomes, although some provinces provide broader coverage. For example, Ontario recently began providing coverage to individuals under 25 years of age.
Private payers include private insurance plans and cash-paying patients. Private insurance can be purchased by an individual’s employer or by the individual. Private plans may also cover individuals eligible for public coverage in respect of and co-pays or deductibles as well as drugs not reimbursed by the applicable public plan. In some provinces, however, the private plans will align with the provincial formulary to a certain extent.
For individuals admitted to hospital, drugs are generally paid for by the hospital. Hospitals are publicly funded, and each hospital establishes its own formulary of drugs that it provides.
What is the process for securing reimbursement for a new pharmaceutical product?
For public payers outside of Quebec, once a drug is approved (or prior to receipt of market approval), the first step in obtaining drug coverage is an application for a Common Drug Review (CDR) or pan-Canadian Oncology Drug Review (pCODR). Both of these reviews are administered by the Canadian Agency for Drugs and Technologies in Health (CADTH).
For each submission, CADTH constitutes a review team based on qualifications, expertise, and compliance with conflict of interest guidelines. The review involves an examination of the clinical, economic, and patient evidence. The outcome of the CADTH review is a listing recommendation to public drug plans: ‘reimburse’, ‘reimburse with clinical criteria and/or conditions’, or ‘do not reimburse’. Drugs are recommended for reimbursement if they demonstrate comparable or added clinical benefit and acceptable cost/cost-effectiveness when compared with other drugs. Drugs are recommended for reimbursement with conditions if they demonstrate (i) comparable or added clinical benefit and acceptable cost/cost-effectiveness only in a subgroup or only when compared with a drug that is also reimbursed with conditions, (ii) comparable or added clinical benefit but unacceptable cost/cost-effectiveness, or (iii) clinical benefit with uncertainty in a therapeutic area with unmet clinical need. Drugs receive a recommendation of ‘do not reimburse’ when they do not demonstrate comparable clinical benefit or demonstrate inferior clinical outcomes or significant clinical harm.
CADTH has a target review period of 180 days. Embargoed decisions are then issued to manufacturers and the drug plans. During the 10-day embargo period, the drug plans may submit a request for clarification and/or the manufacturer may make a request for reconsideration or file a resubmission based on a reduced price. Once the embargo period ends (pending any reconsideration), the decision is made public. Appeals are not provided for. However, the jurisprudence indicates that judicial review by the courts of such a decision may be possible.
In Quebec, a similar review is undertaken by the Institut national d’excellence en santé et en services sociaux (INESSS).
Unless the drug is considered unsuitable for national negotiations, the next step is for the manufacturer to negotiate with the pan-Canadian Pharmaceutical Alliance (pCPA) to agree on conditions for listing on public formularies. The pCPA was formed by provincial drug plans with various goals, including improving the consistency of drug-listing decisions and capitalising on combined buying power. Under the pCPA, a lead jurisdiction will undertake negotiations with manufacturers on behalf of most or all of the Canadian public payers, resulting in a Letter of Intent (LOI). Generally, the LOI will include the list price and any clinical criteria for reimbursement, and may also include a confidential payment to public payers.
Finally, after entering into an LOI, each individual public payer will enter into a listing agreement with the manufacturer. The listing agreement will largely reflect the contents of the LOI and result in the inclusion of the product on the payer’s formulary. The formulary will include the agreed formulary list price and clinical conditions for reimbursement, if any.
The process for inclusion on the formularies of private payers is less structured. However, we have begun to see an increase in listing agreements with private plans.
Generic products and biosimilars
Once approved for market, generic drugs undergo a simplified process to become listed on provincial formularies, generally requiring only an application to the payer.
Biosimilars undergo a hybrid process. CADTH undertakes a more limited review and provides a summary of the evidence but no listing recommendation. Manufacturers then negotiate with the pCPA as above, and, if successful, enter into listing agreements.
How is the reimbursement amount set? What methodology is used?
Following the negotiations outlined above, drugs are listed on provincial formularies at a price that is agreed upon by the manufacturer and the public payer. Generally, the formulary list prices are similar across all jurisdictions.
As discussed above, manufacturers of innovative products will often enter into listing agreements that include a highly confidential “rebate”. This is paid directly by the manufacturer to the payer and will reduce the effective cost of the drug to the public payer.
Listed generic products are also subject to price controls. To be eligible for listing on public formularies, generics must follow the pricing regime set out by the pCPA. Generally, if there is only one generic on the market, the allowed price is 75–85% of the innovative product. If there are two products, the allowed price is capped at 50% of the innovative price. Once there are three or more generics, oral solids are capped at 25%, while other dosage forms are capped at 35% of the innovative price. Certain enumerated oral solids are subject to further pricing restrictions at either 10% or 18% of the innovative price depending on the molecule.
Generic manufacturers generally set their prices at the maximum allowed price.
How are drug prices set? What is the relationship between pricing and reimbursement?
Manufacturers are permitted to set their own prices, subject to the considerations discussed elsewhere in this chapter.
For drugs that are listed on public formularies, the drug is generally sold by pharmacies at the same price as the reimbursement price as set out above. For individuals covered by public payers, pharmacists are only permitted to charge the agreed list price plus a legislated mark-up and dispensing fee. While in theory a pharmacy could sell at a different price for other patients, this is difficult in practice with the result being that the same price is generally used for both public and private payers.
Private payers may, however, allow a higher mark-up or dispensing fee.
Issues that affect pricing
As discussed above, when making reimbursement decisions CADTH considers whether a new drug represents a therapeutic advantage and, based on the price submitted by the manufacturer, if it is cost-effective. In doing so, it considers the clinical evidence provided the manufacturer undertakes an independent literature review, and considers pharmacoeconomic data. Input is also sought from stakeholders including patient groups and clinicians.
Once generic products are available on public formularies, the public payer will only reimburse the lowest-cost alternative, except in limited situations. Although not technically mandatory, in practice, this results in automatic substitution to the generic product. Some provinces have legislation in place that allows pharmacists to interchange to the low cost alternative without informing the patient prior to making the change.
In addition to the other agencies discussed above, drug prices for patented medicines in Canada may also be affected Patented Medicine Prices Review Board (PMPRB). The PMPRB is constituted under Canada’s federal Patent Act, RSC 1985, c P-4, and describes itself as an independent, quasi-judicial body with a statutory mandate to ensure that the prices of patented medicines in Canada are not excessive. The PMPRB performs this mandate by comparing actual prices to maximum non-excessive ceiling prices that the Board sets at introduction, and annually thereafter, using information obtained from patentees and public sources. The PMPRB also reports on pharmaceutical sales, price, and R&D trends in Canada.
The PMPRB’s jurisdiction under the Patent Act is limited to patentees of inventions pertaining to medicines sold in Canada. The scope of that jurisdiction has been explored on an ongoing basis through litigation in a number of judicial review cases before the Canadian courts. Courts have held that the term “medicine” must be interpreted broadly, and that there must be a rational connection or nexus between the invention described in the patent and the medicine. In order to determine whether such a nexus exists, courts have held that one does not have to, and ought not to, go beyond the face of a patent, although the patent should be considered as a whole. Rather, courts have held that the nexus can be one of the “merest slender thread”. Courts also have held that the invention must be intended or capable of being used for medicine or for the preparation or production of medicine.
In order to furnish the PMPRB with information to perform its mandate, patentees within its jurisdiction are required to comply with mandatory reporting obligations set out in the Patent Act, as well as the Patented Medicines Regulations, SOR/94-688. Although they do not have the force of law, the PMPRB also publishes Guidelines intended to assist patentees in complying with their obligations. Price information is treated as privileged by the PMPRB and includes the quantity of medicine sold in final dosage form, either the average price per package or the net revenue from sales, and the publicly-available ex-factory price in Canada and each of seven defined comparator countries. In support of the PMPRB’s reporting mandate, patentees are also required to report total gross revenues for all sales in Canada and a summary of all expenditures made by the patentee towards the cost of research and development carried out in Canada by or on behalf of the patentee.
The PMPRB conducts investigations, issues orders requiring patentees to comply with their obligations under the Patent Act, and conducts hearings regarding excessive prices. In the event that a patented medicine has been sold in Canada at prices the PMPRB deems excessive, the PMPRB may order the patentee to offset the resulting excess revenues through price reductions for the medicine in question or another patented medicine, or by making payment to Her Majesty in right of Canada. Where a patentee is found to have engaged in a policy of excessive pricing, the PMPRB may require the patentee to offset up to twice the excess revenues. The PMPRB’s hearings are typically conducted in public and the key documents in the proceeding, including reasons for any order, are published on the PMPRB’s website.
The PMPRB’s orders can be enforced in the same manner as orders of Canada’s Federal Court or superior courts. In addition, failure to comply with the PMPRB’s reporting requirements or orders are summary conviction offences punishable by daily fines or imprisonment. Orders of the PMPRB are not directly appealable, but may be challenged and quashed on an application for judicial review before the Federal Court.
In practice, the PMPRB often negotiates with patentees to achieve voluntary compliance with the requirements of the Patent Act. In particular, many patentees choose to enter into voluntary compliance undertakings (VCUs) to deal with excess revenues, rather than taking the matter to a hearing before the PMPRB. These VCUs may include similar terms to an Order of the PMPRB regarding offsetting price reductions or payments to the Crown, and are made public on the PMPRB’s website.
The PMPRB publishes many of the details of its activities in its Annual Report, including information regarding failures to file, failures to report, VCUs, and proceedings regarding excessive pricing. The PMPRB also issues a variety of other communications directed to stakeholders and the general public through its website.