Quarterly Financial Report for the Quarter Ended September 30, 2019: Patented Medicine Prices Review Board

Management Statement for the Quarter Ended September 30, 2019

1. Introduction

This quarterly report has been prepared by management as required by section 65.1 of the Financial Administration Act and in the form and manner prescribed by the Treasury Board Accounting Standard (TBAS) 1.3. This quarterly report should be read in conjunction with the Main Estimates and Supplementary Estimates.

1.1 Authority, mandate and program activities

The Patented Medicine Prices Review Board (PMPRB) is an independent, quasi-judicial body created by Parliament as a result of amendments to the Patent Act (Act) in 1987 (Bill C-22) and its remedial powers were supplemented by further amendments in 1993 (Bill C-91). The amendments were intended to balance stronger patent protection for pharmaceutical patentees with the need to protect consumers from excessively priced patented medicines.

The PMPRB is composed of “Staff”, who are public servants responsible for carrying out the organization’s day to day work, and Board Members, Governor-in-Council appointees who serve as hearing panel members in the event of a dispute between Staff and a patentee over the price of a patented medicine.

If the price of a patented medicine appears to be excessive, Staff will first try to reach a consensual resolution with the patentee. Failing this, the Chairperson^{Footnote 1} can decide that the matter should proceed to a hearing. The Chairperson decides the composition of a panel. Provincial and territorial ministers of health have a statutory right to appear before the panel as parties, and other interested parties or groups may seek leave to participate as interveners.

At the hearing, a panel composed of Board Members acts as a neutral arbiter between Staff and the patentee. If a panel finds that the price of a patented medicine is excessive, it can order a reduction of the price to a non-excessive level. It can also order a patentee to make a monetary payment to the Government of Canada in the amount of the excess revenues earned and, in cases where the panel determines there has been a policy of excessive pricing, it can double the amount of the monetary payment.

The PMPRB has a dual role:

Regulatory: To ensure that prices charged by patentees for patented medicines sold in Canada are not excessive.

Reporting: To report on pharmaceutical trends of all medicines, and on research and development (R&D) spending by pharmaceutical patentees.

Further details on the PMPRB’s authority, mandate and program activities may be found in the Departmental Plan and the Main Estimates.

1.2 Basis of presentation

This quarterly report has been prepared by management using an expenditure basis of accounting. The accompanying Statement of Authorities includes the PMPRB’s spending authorities granted by Parliament and those used by the organization, consistent with the Main Estimates and Supplementary Estimates for the 2019-20 fiscal year. This quarterly report has been prepared using a special purpose financial reporting framework designed to meet financial information needs with respect to the use of spending authorities.

The authority of Parliament is required before moneys can be spent by the Government.  Approvals are given in the form of annually approved limits through appropriation acts or through legislation in the form of statutory spending authority for specific purposes.

When Parliament is dissolved for the purposes of a general election, section 30 of the Financial Administration Act authorizes the Governor General, under certain conditions, to issue a special warrant authorizing the Government to withdraw funds from the Consolidated Revenue Fund (CRF). A special warrant is deemed to be an appropriation for the fiscal year in which it is issued.

As part of the departmental performance reporting process, the PMPRB prepares its annual departmental financial statements on a full accrual basis in accordance with Treasury Board accounting policies, which are based on Canadian Generally Accepted Accounting Principles for the public sector. However, the spending authorities voted by Parliament remain on an expenditure basis.

The quarterly report has not been subject to an external audit or review.

2. Highlights of Fiscal Quarter and Fiscal Year to Date (YTD) Results

This quarterly financial report reflects the results of the current fiscal period in relation to the Main Estimates. The PMPRB’s YTD spending has increased by $571 thousand (14%), from $4.0 million in 2018-19 to $4.5 million in 2019-20 and Q2 spending of 2019-20 has increased by $387 thousand (19%) compared to spending for the same quarter in 2018-19.

The money reported in the PMPRB’s Annual Financial Statements as non-respendable revenue is a result of payments to the Government of Canada made by patentees through Voluntary Compliance Undertakings (VCUs)^{Footnote 2} or Board Orders to offset excess revenues.  The Minister of Health may enter into agreements with any province respecting the distribution to that province of amounts received by the Receiver General, less any costs incurred in relation to the collection and distribution of those amounts. In 2019-20, the PMPRB received $3.4  million and $1.1 million YTD and Q2 respectively in repayment of excess revenues, as compared to $6.6 million and $4.3 million YTD and Q2 respectively in 2018-19.

Revenues that are non-respendable are not available to discharge the PMPRB’s liabilities. While the Chairperson is expected to maintain accounting control, he has no authority regarding the disposition of non-respendable revenues. As a result, non-respendable revenues are considered to be earned on behalf of the Government of Canada and are not therefore presented as a reduction to the entity's total gross budgetary expenditures.

2.1 Significant changes to authority

As shown in the Statement of Authorities of this document, total authorities available for the year have increased by $1.9 million (12%) from $15.2 million to $17.1 million. As announced in Budget 2017, this increase in funding is primarily attributable to reforming Canada’s drug price regulation framework with the aim of lowering drug prices.

2.2 Significant changes to budgetary expenditures by standard object

This section elaborates on variances in expenditures, Statutory items and Vote 1 by standard object to explain changes in spending trends from the same quarter of the previous year.

Overall, YTD spending has increased by $571 thousand (14%), and Q2 spending has decreased by $387 thousand (19%).

For “Personnel”, YTD and Q2 spending have increased by $540 thousand and $315 thousand respectively. The increase is mainly due to hiring of additional personnel needed to operationalize the aforementioned reforms to the PMPRB’s regulatory framework.

For “Professional and special services”, YTD and Q2 spending has increased by $52 thousand and $58 thousand respectively. This is due to an increase in expenditures for litigation-related services.

There were no significant variances to report in the other standard objects.

3. Risks and uncertainties

The PMPRB is funded through annual appropriations. As a result, its operations are impacted by any changes in funding approved through Parliament. The PMPRB has no authority to spend revenues received during the year as a result of payments made by patentees to the Government of Canada through VCU’s or Board Orders to offset excess revenues.

The PMPRB’s funding includes a Special Purpose Allotment (SPA) to conduct Public Hearings, in Vote 1 (Program expenditures) of $4.3 million. The SPA can only be used to cover the costs of public hearings, such as external legal counsel and expert witnesses, etc. Any unspent amount is returned to the Consolidated Revenue Fund (CRF). The PMPRB’s expenditures are influenced by the number and complexity of investigations into the prices of patented medicines, the number of investigations that result in hearings and the number of hearing decisions that form the basis of judicial review applications, all of which are inherently unpredictable.

The PMPRB’s most significant expenditure is “Personnel”, representing 57% of its annual planned expenditures. Given the highly specialized nature of its consumer protection mandate, the PMPRB must continue to attract and retain subject matter experts. Given the organization’s small size, the departure or hiring of a handful of employees in one quarter can have a significant impact on the quarter’s expenditures.

4. Significant changes in relation to operations, personnel and programs

Changes to key senior personnel

There have been no significant changes to key senior personnel.

Changes to programs

There have been no significant changes in relation to programs over the last year.

Approval by senior officials

Approved by:

Ottawa, Canada
November 20, 2019

Statement of authorities (unaudited)

1 Includes only Authorities available for use and granted by Parliament at quarter end
(S) Statutory vote

Table 1: Departmental budgetary expenditures by standard object

1 Includes only Authorities available for use and granted by Parliament at quarter end