Comparative effectiveness review and therapeutic substitution in Canada: lessons about centrally planning the allocation of health care resources

Lessons from Abroad for Health Reform in the U.S.

9 March 2009

Washington, DC

• View Conference Booklet (PDF) with submissions by all speakers, and speakers' biographies

Canada’s federal government certifies both the safety and effectiveness of all new drugs before they can be legally sold. As a result of the various government approval regimes through which all new drugs must pass, Canadians have very low rates of access to innovative medicines via the public health system, with wide variations amongst different provinces. Canadians spend a higher proportion of their post-tax incomes on prescription drugs than Americans, and the Canadian government spends more on health care as a result of increased but avoidable hospitalization.

Comparative effectiveness review in Canada

Once certified by Health Canada (Canada’s counterpart to the U.S. FDA), new drugs must receive additional approvals from federal, provincial and territorial (FPT) governments before they become eligible for reimbursement under publicly funded drug insurance programs. In 2003, FPT governments created a quasi- governmental* process for assessing the comparative effectiveness of new medicines, called the Common Drug Review (CDR). The CDR “uses Clinical and Pharmacoeconomic Drug Reviews to evaluate the comparative benefits and costs of the drugs under consideration and make common formulary listing recommendations” to public drug plans (CADTH, 2008:1). CDR recommendations are non-binding, and FPT governments make separate jurisdictional decisions about final reimbursement. All FPT jurisdictions participate except the province of Quebec.

In practice, FPT governments have not eliminated their own separate reimbursement approval processes, and so the CDR has added another hurdle to patients who need access to new drugs. The CDR also does not publish the details of its methodology for assessing the comparative effectiveness of new drugs. The lack of transparency means there is no way to replicate, verify or challenge CDR decisions, or to raise questions about the assumptions that influence how it measures the value of new medicines.

Under Canada’s comparative effectiveness regime, access to new medicines is very limited. Canadians already wait more than a year on average (380 days) for Health Canada to reach a decision on the safety and effectiveness of new bio-pharmaceuticals. Then on top of this, comparative effectiveness and public reimbursement review adds another year on average (323 days) to the wait for access to new medicines (Skinner, Rovere and Glen, 2007).

Only a small percentage of the new drugs previously certified as safe and effective by Health Canada actually end up being recommended for reimbursement by the CDR. As of May 2006, the CDR had recommended for reimbursement only 48% of the new pharmaceuticals and only about 30% of the new biologics that it reviewed during 2004 and 2005 (Skinner, Rovere and Glen, 2007). Even fewer new drugs are finally approved for reimbursement by public drug plans. On average, only 42% of all drugs that Health Canada approved as safe and effective in 2004, 2005 and 2006 had actually been reimbursed* as of October 2007 (Skinner and Rovere, 2008a).

Importantly, there is also wide variation in the final reimbursement decisions made by the FPT governments (Skinner and Rovere, 2008a; Skinner, Rovere and Glen, 2007). If the FPT reimbursements were actually based on objective scientific considerations of comparative effectiveness, and not on rationing, then there should not be such variation.

It is noteworthy that unlike its public drug plans, Canada’s private- sector drug insurance market does not use centralized comparative effectiveness review, and access to new medicines is much better for privately insured Canadians.† All new drugs are usually eligible for private-sector insurance reimbursement in Canada as soon as they are certified by Health Canada (Skinner, Rovere and Glen, 2007). This means that due to the comparative effectiveness review used by governments in Canada, recipients of publicly funded drug plans receive access to less than half as many new drugs as privately insured people, and they must wait up to a year longer to get access to the few new medicines that are finally covered by governments.

Therapeutic substitution in Canada

Comparative effectiveness review is based on a flawed assumption that only one drug treatment among all the choices available to treat a particular health condition is adequate or best for all patients, all of the time. Following the faulty premise that “one-size-fits-all,” one provincial government in Canada experimented unsuccessfully with government-imposed Therapeutic Substitution. The policy required patients to switch from their existing prescription to a drug that government authorities deemed equivalent, even though it was composed of an entirely different chemical molecule. A recent study published in the journal Alimentary Pharmacology and Therapeutics (Skinner, Gray and Attara, 2009) strongly suggests that while advocates of Therapeutic Substitution argued that the policy would save money, it actually ended up causing increased health care utilization, resulting in significant net avoidable overall health expenditures.

Cost burden of prescription drug spending in the United States and Canada

Government interference in Canadian drug markets is apparent in a variety of policies including: price controls on patented drugs; restrictive public formularies; comparative effectiveness review; therapeutic substitution; and direct provision of drug insurance. Yet, if one examines overall spending on prescription drugs in Canada versus the United States it becomes clear that Canada’s approach to drug policy is not producing lower costs for Canadians. In 2007, per capita spending on prescription drugs was 1.5% of per capita GDP‡ for Canadians compared to 1.7% for Americans. Per capita prescription drug expenditures were a slightly higher percentage of after-tax income in Canada than in the United States: Canadians spent 2.5% of their personal income after taxes on prescription drugs compared to only 2.3% for Americans (Skinner and Rovere, 2008b).

Conclusions

Actual Canadian experience suggests that centralized comparative effectiveness review will likely be abused by insurance payers to avoid accountability for rationing decisions that restrict access to new medicines. Experts have observed that the centralization of comparative effectiveness review has facilitated rationing not only in Canada, but also with the Pharmaceutical Benefits Scheme in Australia, the Pharmaceutical Management Agency in New Zealand, and the National Institute for Health and Clinical Excellence in the United Kingdom (Pollard, 2006; Sundakov, 2005).

Government interference in drug markets has not delivered the savings on overall drug spending promised by its advocates in Canada. One-size-fits-all drug policies can also produce significant net additional health care expenditures that could have been avoided, if governments had not interfered in the private decisions made by patients in conjunction with the expert advice of their physicians.

Recommendations

Comparative effectiveness is used to centrally plan the allocation of health care resources. The limitations and failures of central planning are well known in the science of economics (e.g. Hayek, 1945). Alternatively, payers could simply expose health care consumers to price signals through partial percentage insurance reimbursement, deductibles, and premiums linked to pre-determined expenditure limits. This would be expected to produce a more efficient and sustainable allocation of health technologies.