Patented Medicine Prices Review Board
CPI Initiative
.
Tanya Potashnik: A/Director, Policy and Economic Analysis
October, 2013
CPI-Initiative - Background
 The Consumer Price Index methodology was introduced as
part of the Board´s Guidelines on Excessive Prices in 1989, in
application of the CPI pricing factor listed in the now subsection 85(1)(d) of the Patent Act.
 The CPI is one of four pricing factors the Board must take into
consideration when determining whether the price of a
patented drug product is excessive.
 The CPI Adjustment Methodology was last amended in 1994
and applies to ‘existing’ patented drug products in
accordance with the Board´s Guidelines.
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CPI-Initiative
 To allow patentees to set prices reflective of current CPI rates,
the Board´s CPI methodology provides for the calculation of
the CPI Adjustment factors based on forecast changes in the
CPI.
 These forecasted CPI Adjustment factors are published each
year in the April NEWSletter.
 Patentees are able to use these published forecasted factors
to increase their prices up to the allowable maximum. The
actual CPI values are obtained in January of the following
calendar year, which are used by Board Staff in accordance
with the Guidelines, to calculate the National Non-Excessive
Average Price (N-NEAP) for the year.
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CPI-Initiative
 Using an actual CPI rather than forecast CPI may provide for:
 better aligning the PMPRB´s processes
 improving internal operations
 reduction of uncertainty that could affecting patentees´ pricing
models and business planning for subsequent years
 predictability and certainty for patentees when they consider price
increases
 An impact analysis conducted by Board Staff shows that over
the last twelve years, forecasted CPI values tended to be
lower than actual CPI.
 The average difference between forecast and actual CPI has
been relatively small. On average, the forecasted CPI has
been 2.03% and actual CPI has been 2.07%.
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Regulatory Burden Reduction
 In alignment with the Government’s Red Tape Reduction Plan and
Economic Action Plan, the PMPRB has committed to examining its price
review process to identify possible ways to reduce the regulatory burden
on patentees and increase efficiency without adversely affecting its
mandate to protect consumer interests.
 The Board consulted stakeholders in a Notice and Comment issued May
2013 on the two priority initiatives to amend the CPI-Adjustment
Methodology and the filing requirements.
 12 stakeholders provided submissions.
 Feedback on both proposals was generally supportive.
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CPI-Initiative: Summary of Stakeholder
Feedback
 Stakeholders were overall supportive of the CPI initiative.
3 Broad Areas of Concern:
 Details on how actual lagged CPI would be determined and
when it would be communicated to stakeholders.
 Assurance that the use of actual lagged CPI was in line with
provincial drug plan policies on price changes.
 Patentees did not want to be in a position where the ability to
raise prices was curtailed during transition period.
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CPI Initiative—Next Steps
 Notice and Comment (May 2013): Maintain the current CPI-
Adjustment Methodology for existing drug products, except
replace the use of the forecast CPI with actual CPI in
calculating the CPI-Adjustment Factor for the forecast period.
 Notice and Comment (October 2013): Provide further clarity
on the proposal with the Side by Side Changes to the
Guidelines.
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CPI Initiative – Proposal Detail
 The current methodology will be maintained and the CPI used will
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be the actual lagged CPI that is available in the 3rd week of January
The new CPI initiative is proposed for 2015 implementation
The January 2014 NEWSletter will announce the actual CPI for the
2013 year, a 12-month period ending in December 2013. This actual
lagged 2013 CPI will be used to calculate the CPI-Adjustment
Factors for 2015
In the April 2013 NEWsletter, patentees were provided with the 2014
forecast CPI-Adjustment Factors. For 2014, the existing CPIAdjustment Methodology will be applied
The CPI initiative is proposed for implementation for 2015, as a
result transitional measures are not being contemplated
CPI-Adjustment Factors that will Influence the
Price if Initiative is Implemented for 2015
CPI-Adjustment
Factors that Influence
Price
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2014
2015
2016
April 2013: Forecast CPI was
released. This will be used in
calculating the adjustment
factors for the forecast period of
2014.
No release of forecast CPI in
April 2014 (for 2015).
No release of forecast CPI in
April 2015 (for 2016).
Actual CPI that is available
January 2015 (for 2014 year).
Actual CPI that is available
January 2014 (for 2013 year)

This number will be used
to calculate the
adjustment factors for the
forecast period of 2015.

We are committing to this
actual CPI number to set
the price ceiling for 2015.
Actual CPI that is available
January 2015 (for 2014 year)

This number will be used
to calculate the
adjustment factors for the
forecast period of 2016.

We are committing to this
actual CPI number to set
the price ceiling for 2016.
Side by Side Changes to Guidelines
(Changes in Red)
Schedule 9—CPI Adjustment Methodology
1.2 The CPI-Adjustment Methodology involves the
following calculations:
Schedule 9—CPI Adjustment Methodology
Adjusting the benchmark prices of the drug product
for the cumulative change in the CPI from the
benchmark year to the year under review (CPIAdjusted Price); and
Adjusting the benchmark prices of the drug product
for the cumulative change in the CPI from the
benchmark year to the year under review (CPIAdjusted Price); and
Applying a cap on the maximum price increase in any
one year, equal to 1.5 times the forecast change in
the annual CPI. In periods of high inflation (over
10%), the limit will be five percentage points more
than the forecast change in the CPI.
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1.2 The CPI-Adjustment Methodology involves the
following calculations:
Applying a cap on the maximum price increase in any
one year, equal to 1.5 times the change in the latest
actual lagged CPI. In periods of high inflation (over
10%), the limit will be five percentage points more
than the latest actual lagged change in the CPI.
Side by Side Changes to Guidelines
(Changes in Red)
2.6 Forecast CPI:
The forecast CPI for the forecast year is based on the
previous year´s actual CPI published by Statistics
Canada adjusted for the latest annual inflation
projections by the federal Department of Finance.
The forecast CPI is also published annually in the
PMPRB´s April NEWSletter.
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2.6 Actual Lagged CPI:
The actual lagged CPI used for the forecast year is
based on the latest actual CPI published by Statistics
Canada adjusted for the latest annual actual inflation
also published by Statistics Canada. The actual
lagged CPI is also published annually in the
PMPRB´s January NEWSletter. There is a 2 year lag
between the year of the actual CPI used and the year
it is applied to. For example, the actual lagged CPI
used for the forecast year of 2015 is the actual 2013
CPI published by Statistics Canada in January 2014.
Side by Side Changes to Guidelines
(Changes in Red)
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2.7 CPI-Adjustment Factor:
The forecast CPI divided by the base CPI,
rounded to three decimal places.
2.7 CPI-Adjustment Factor
2.9 Cap
In any year, the price increase of a patented
drug product may not exceed 1.5 times the
forecast change in the annual CPI. In times
of high inflation (greater than 10%), the limit
will be 5 percentage points more than the
forecast change in the CPI.
2.9 Cap
The actual CPI divided by the base CPI,
rounded to three decimal places.
In any year, the price increase of a patented
drug product may not exceed 1.5 times the
latest change in the actual lagged CPI. In
times of high inflation (greater than 10%),
the limit will be 5 percentage points more
than the actual change in the CPI.
Example (Changes in Red)
2.10 Example of the application of the CPI-Adjustment Methodology at the
national level:
Forecast Year: Jan – Dec 2015
First sale: 1998
Benchmark Year: 2012
National Average Transaction Price in Benchmark Year: $10.00
National Average Transaction Price in 2013: $10.39
CPI-adjusted price: 1.054 (assuming this is the CPI-adjustment factor for 2012) x
$10.0000 (National ATP in Benchmark Yr.) = $10.5400
Cap: 1.020 (1.5 x actual lagged CPI for 2013 assumed to be 1.3%) x $10.3900 =
$10.5978
The 2015 National Non-Excessive Average Price for the patented drug product is
the lower of the CPI-adjusted price and Cap: $10.5400.
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Side by Side Changes to the Guidelines
(Changes in Red)
Removal of C.12.3 Review of Prices of Existing Patented Drug
Products as it no longer applies.
 C.12.3 In the event that the actual change in the CPI is less than the forecast CPI
and an apparent excessive price arises solely due to the patentee´s reliance on
the forecast CPI, the price will not be presumed to be excessive. The patentee is
expected to comply with the actual CPI in all subsequent reporting periods, and the
application of the CPI-Adjustment Methodology for the forecasted year will be
based on the actual change in the CPI for that year. The result for patentees that
took price increases based on the forecast inflation will be that the actual change
in the CPI for the forecasted year will be used to calculate the next year´s National
and Market-Specific Non-Excessive Average Prices.
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CPI Initiative
 Questions?
 Comments?
Thank you.
tanya.potashnik@pmprb-cepmb.gc.ca
www.pmprb-cepmb.gc.ca
Twitter: @PMPRB_CEPMB
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