The effect of evidence-based drug coverage policies on pharmaceutical R&D: a case study from British Columbia

Morgan, S and Cunningham, C (2008) The effect of evidence-based drug coverage policies on pharmaceutical R&D: a case study from British Columbia. Healthcare Policy, 3 (3). e128-e153. ISSN 1715-6572

Abstract

Background:

To manage public expenditures in the mid-1990s, British Columbia implemented evidence-based drug coverage policies, including “reference pricing.” Industry lobbied against the province's policy, arguing that reference pricing harms patients and that it is inconsistent with federal and provincial legislation. Researchers and the courts have studied and rejected industry's claims. However, industry also threatened to halt R&D investment in British Columbia and continues to so threaten other provinces contemplating evidence-based drug coverage policies. The purpose of this study is to review evidence regarding these threats.

Methods:

Provincial-level R&D data for 1988–2006 were used to analyze the impact of BC PharmaCare's policies on pharmaceutical R&D in British Columbia. We used statistical analyses to determine whether the province's policies affected BC-based R&D as expressed in two ways: (1) as inflation-adjusted expenditure per capita in British Columbia and (2) as the ratio of expenditure per capita in the province to expenditure per capita in the rest of Canada.

Results:

Evidence-based drug coverage policies had no statistically significant negative effects on BC-based pharmaceutical R&D. BC R&D was slightly above expected trends in 1997 and slightly below expected trends in 1998 and 1999 (though not statistically significantly in either case). From 2001 to 2003, BC R&D was (statistically significantly) above expected trends.

Conclusions:

While they are part of the politics of the pharmaceutical sector, claims and threats regarding connections between coverage policy and location of R&D investment are not borne out in British Columbia's experience. This is likely because, as suggested by business and economic literature, firms locate R&D based on the expected cost-to-firm and productivity of the R&D investment itself. Prudent policy would therefore manage pharmaceutical expenditures using evidence-based policies and pursue scientific and economic development goals through direct and strategic government investment in local scientific capacity.