US embassy cable - 04QUEBEC41

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, Trade 
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