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Cablegate: Janssen-Ortho Promotes Managed Price Increases for Quebec

This record is a partial extract of the original cable. The full text of the original cable is not available.

031621Z Mar 04

UNCLAS SECTION 01 OF 02 QUEBEC 000041

SIPDIS

SENSITIVE

DEPT FOR WHA/CAN BREESE
DEPT PASS HHA FOR STEIGER
DEPT PASS USTR FOR MELLE AND CHANDLER
USDOC FOR WORK AND HERNANDEZ

E.O. 12958: N/A
TAGS: ECON ETRD CA
SUBJECT: JANSSEN-ORTHO PROMOTES MANAGED PRICE INCREASES FOR QUEBEC
PHARMACEUTICALS

REF: QUEBEC 0012

1. (SBU) Summary: Consulate met with Janssen-Ortho
representatives February 25 to discuss their plan to get the
Quebec Government to adopt a modified American-style pricing
system that would manage price increase pressures in the
pharmaceutical sector. After a meeting with the Quebec Ministry
of Health, they reported back that the GC was pleased with a
fresh approach to the problem that could address their needs. A
final response will probably not be forthcoming until early
October. Since the proposal would require regulatory change,
and with balkiness on the part of the public over a perceived
double standard in drug pricing, it is unlikely the Quebec
Government will take the bait, no matter how adventageous. End
Summary.

2. (U) CG Keogh and Pol Asst Nadeau met February 25 with
Janssen-Ortho Inc, the Toronto-based pharmaceutical subsidiary
of Johnson & Johnson. Dr Penny Albright, Vice President for
Government and Health Economics, Robert Kamino, Senior Director
Strategic Business Licensing and Acquisitions, and France
Mignault, Regional Director of Health Policy and Governmental
Affairs had requested the meeting to outline a proposal on
managing price increase pressures in the pharmaceutical sector
that they were about to propose to the Government of Quebec.
Janssen-Ortho is the fourth largest pharmaceutical company in
Canada in terms of sales (Pfizer is first). Quebec represents
about 12% of total drug sales in Canada.

3. (SBU) Quebec has historically been more responsive to the
pharmaceutical industry than any of the other Canadian
provinces. In Janssen-O's view, the Parti Quebecois had been
good for the industry, but the current Liberal government is
seen to be pragmatic and pro-US, with strong interest in
attracting U.S. investment. According to Janssen-O, Quebec is
the key to resolving the disparity in the price of prescription
medicines between the U.S. and Canada that has encouraged cross
border Internet sales, because its legislation has stricter
pricing rules. In short, if Quebec is on board, the other
provinces are likely to follow, they reasoned.

4. (U) In Quebec, there are more than 10,000 people employed
in the pharmaceutical industry. The market was $3.2 billion in
2002. Brand name pharmaceutical research and development in
Quebec has increased by nearly 500% since 1988 to $423.2 million
in 2001. The Quebec government paid over $1.9 billion for
prescription medicines through the Regie de l'Assurance Maladie
du Quebec (RAMQ) in 2003, up 9% over 2002. This makes Quebec's
public drug plan one of the two largest and most influential in
Canada, but the government is hard pressed to continue with this
outlay. The GQ has strongly discouraged drug price increases.
There have been none since the early 1990's.

5. (SBU) This policy has caused friction between the Counseil du
Medicament and the manufacturers. In addition, the cancellation
of the formulary update (the normal deadline for price changes
would be March 5) is of particular concern to the industry.
Quebec has decided to delay the formulary until June. The
Janssen-O representatives said the postponement of the decision
to add new drugs to the provincial list is preventing access to
new and better drugs. As the pressure on the system increases,
RAMQ is faced with several options: losing access to
pharmaceuticals if they continue to reject price increases;
delisting products with increased prices; or accepting price
increases of 2-3 percent when the provincial health budget is
already under extreme strain.

6. (SBU) An alternative, proposed by Janssen-Ortho, is
negotiated prices that would allow increases in some cases
(private insurers) while reducing the price for RAMQ. In
addition, the RAMQ could negotiate the price of a newly
introduced product before listing it on the formulary to achieve
an initial price that is lower than other customers. There are
no legislative or legal impediments to implement this sort of
arrangement in Quebec.

7. (SBU) According to Janssen-O, discussions with the RAMQ have
been underway for 3 years. At the start, the answer was a flat
out "no." Quebec drug plan representatives defended all
Quebecers against price increases and treated the proposal as a
threat to the "Quebec Model" of social justice, to avoid any
perception that the government might be in cohoots with the
pharmaceuticals industry. The government mood remains sensitive
and careful but there is a recognition that the system is not
working, said the Janssen-O reps. Finance Minister Yves Seguin
has already said he will have difficulty balancing the budget,
in part because of lower federal transfer payments for
healthcare.

8. (SBU) Compounding the PLQ government's problem, 1.5 million
Quebecers are over 65 years of age. 1 million are on some sort
of social assistance; 1.7 million are under the Quebec
government drug plan; and 4 million are covered by private drug
insurance. At present, there are approximately 2,000 products
listed on the Quebec formulary, many of which are generics.
Because of the province's social justice component, it lists
certain products not covered by other provinces, i.e.
anti-smoking patches. Quebec lists more drugs, and does it
faster, than other Canadian province. However, this represents
only 60 percent of the total drugs approved by Ottawa.

9. (SBU) The Janssen-O representatives see the new pricing
scheme as a win-win situation for the industry and the Quebec
government. A segment of society would pay more, i.e. privately
insured customers would be hit by a 4% increase, but the elderly
would greatly benefit from this scheme. This would help Quebec
manage the pharmaceutical budget and deal with the current
confrontation with the industry.

10. (SBU) Following their February 25 meeting with Assistant
Deputy Minister of Health Jocelyne Daganais and staff members,
Janssen reported back that the GQ was pleased with a fresh
approach to the problem of drug pricing that addressed the
government's needs as well as the interests of the industry.
The government is studying options and would be taking several
months to assess the situation, probably working to an October
deadline (the dates when they would normally implement changes
to the drug plan are June 1 and October 1). They mentioned that
the major issues to resolve with Janssen-Ortho's proposal were
the need for regulatory change to enable implementation and the
need for assessing how the various stakeholders would perceive
this arrangement.
11. (SBU) Comment: The Quebec Government is in a real bind
over balancing the budget and grappling with increased health
costs and diminished "equalization" payments from Ottawa.
Increased medical costs are real issues because of the rise in
the dollar, internet pharmacies, and higher expectations on the
part of Quebecers who voted the PLQ into office on a health
platform. The government has tried to implement pragmatic
polities early in its administration. However, Charest is not
doing well in the polls. Ultimately, we think it is unlikely
that the Quebec government will find going to a U.S. pricing
system palatable, with the need to implement new regulations and
the fear of criticism for "double standard" healthcare. End
Comment

KEOGH

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