Canadian Plan Could Hike Drug Prices : Health: While U.S. reformers are promoting Canada’s system, some lawmakers there want to emulate U.S. patent laws on pharmaceuticals.

In a move that has sparked impassioned debate about preserving the integrity of the Canadian health care system, Canada’s Conservative government has introduced legislation to treat brand-name pharmaceuticals much as they are treated under U.S. patent law, which could lead to significantly higher drug prices here.

Ironically, the move to emulate one element of the U.S. health care system comes at a time when U.S. health care reformers are urging policy-makers to follow the Canadian model.

Canada has managed to contain health care costs more effectively than the United States--while insuring every legal resident--and health policy analysts say the Canadian pharmaceutical-patenting system is one important factor in this success.

Now, opponents fear that if the government switches over to U.S. patenting procedures, drug prices here are likely to rise to match U.S. levels, which are substantially higher than those in Canada.

“(This) is a very, very dangerous piece of legislation with respect to the Canadian health care system,” said Sergio Marchi, an opposition member of the Canadian Parliament, in heated debate in the House of Commons last week.

But Dann Michols, assistant deputy minister for pharmaceuticals at the Canadian Department of National Health and Welfare, said the proposed legislation would not necessarily lead to higher drug prices. He said the government has projected only a “minimal” increase in health care costs here, since the bill contains provisions for controlling drug prices.

Americans have expressed curiosity about Canada’s pharmaceutical-pricing policy since October, when the U.S. General Accounting Office revealed a startling survey comparing U.S. and Canadian drug prices. It showed that the Canadian subsidiaries of U.S. drug companies were charging prices 32% lower, on average, than their parent companies were charging in the United States.

In some cases, there were huge price differences. For instance, the American price of Xanax, a commonplace anti-anxiety preparation made by Upjohn Co., was 183% higher than the Canadian price. And American post-menopausal women were found to be paying 162% more than Canadian women for Premarin, an American Home Products Corp. estrogen drug.

Of 121 drugs sampled, the GAO found 27 whose U.S. prices were at least double the Canadian ones.

Prescription drugs are not directly covered by the government’s universal health insurance system in Canada, the way trips to the doctor are. Most patients here buy the drugs at pharmacies, then seek partial reimbursement under private insurance policies.

Yet Canadian government policy--in the form of patent law--still influences the market in favor of the patient. As things now stand in Canada, a drug’s patent typically expires after 20 years--just as it does in the United States. In both countries, generic competitors can then enter the marketplace with their own versions of the drug.

But Canadian generic-drug manufacturers have a way of getting into the market earlier than that--after just seven or 10 years--under a special provision that lets them pay a predetermined royalty to the brand-name producer.

This royalty system, called “compulsory licensing,” appears to be unique to Canada. It has led to a much greater availability of generic drugs here than in the United States--and to a resulting reduction in drug prices overall.

Angus Ricker, a health care researcher for the social-democratic New Democratic Party, cited a 1985 Ontario study showing that when a generic producer put a drug onto the market to compete with a brand-name product, the price of the brand-name drug fell by an average of 20%. If there were five generics competing, the brand-name price fell 42%, he said. And in the case of very popular drugs, with 10 generic competitors, Rickers said the brand-name drug’s price fell 72%.

Not surprisingly, brand-name pharmaceutical producers don’t like Canada’s “compulsory licensing” provisions. They have been complaining for years that the royalties they get from the generic manufacturers are never enough to compensate them for what they lose to the competition.

The government of Prime Minister Brian Mulroney has evidently found this a persuasive argument, since it announced earlier this year that it intended to do away with compulsory licensing. Legislation was introduced in June, and debate resumed Monday when Parliament reconvened after a special recess for a national referendum.

Another factor motivating the government has been the recently completed free-trade negotiations with the United States and Mexico. Washington made elimination of compulsory licensing a condition of completing the North American Free Trade Agreement.

In Parliament on Monday, Canadian International Trade Minister Michael Wilson said Canada would scare off foreign investors if it did not bring its patent laws into line with those of America and the rest of the world. “We can no longer afford to be out of line with international development,” he said. “We are not an island unto ourselves. We have to compete, and if we don’t compete, we’re the losers, not the other countries.”

Michols of the health and welfare department conceded that the government’s bill does involve a “trade-off between industrial development and the health care system,” but said the proposed law’s potential benefits to Canada are greater than the harm it might cause.

He said Canada could get more than $400 million in new research and development projects and foreign investment if compulsory licensing is ended. By contrast, he said increases in drug prices would cost Canada $103 million.