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The Difference between Cost-effectiveness and Affordability

Lauren Fischer  | January 16, 2018

Tags |  Policy

Today’s guest post comes from Lauren Fischer, Vice President, Corporate Affairs at Lilly Canada.

Who sets the price of a patented medicine in Canada? Whose role is it to assess whether it’s affordable? And how do we ensure people continue to have access to new medicines? To address these questions, we must first distinguish between price, value, and affordability.


Patented Medicines Prices Review Board (PMPRB) regulates the Canadian prices of patented medicines. The PMPRB has the authority to determine a “non-excessive” price – in effect, a “ceiling price” for each patented medicine. This ceiling is the maximum price that can be charged for that medicine in Canada.


The value of medicine is often expressed as the number of Quality-Adjusted Life Years (or QALYs) it provides, on average. QALYs measure both the quantity and the quality of life. It’s the job of medicines to help people overcome the burden of a disease, and a medicine’s value is found in its ability to increase that quantity and/or quality of life.


The cost-effectiveness of a medicine is the amount it costs to use that medicine for its desired effect. Cost-effectiveness is often expressed as a cost-per-QALY, a number which health technology assessment bodies like 
CADTH and INESSS estimate using data and assumptions. There is no “universal” cost-per-QALY number for a given medicine: value assessments vary depending on the characteristics of the populations using the medicine. Because of their limitations, when making their assessments, experts at CADTH and INESSS supplement cost-per-QALY measures with additional measures of value.


Affordability is an assessment of the cost and value of one item in comparison to all the other things one might want to buy with the same budget. Affordability is about tradeoffs. Only the person evaluating those tradeoffs can make an accurate assessment of whether that purchase is affordable to them.

In Canada, we see some people going without and others seeking help paying for medicines they can’t afford. The affordability of medicines is a matter of public concern, and is weighted with ethical considerations. We share the government’s view that all Canadians should have access to the medicines they need without affordability standing as a barrier. That’s why innovative medicines companies are at the table with government drug plans, negotiating discounts of $1 billion annually  below PMPRB mandated ceiling prices. Government drug plans provide coverage to Canada’s most vulnerable citizens: the elderly, people on social assistance and people with high drug costs in relation to their income. We offer significant rebates to these plans, because we share government’s desire to preferentially support people who need it most.

In the coming weeks, we’ll write more about this topic. The distinctions between price, cost-effectiveness, value, and affordability are important, and despite that, these concepts are often conflated. One example: Health Canada is proposing changes to the way the prices of medicines are regulated as a way to address affordability. They’re seeking input, and we hope you’ll provide yours.

While we support the government’s desire to increase the affordability, accessibility and appropriate use of prescription medicines, we see different ways to keep our healthcare system working for Canadians. And we’re eager to partner with government and stakeholders on solutions.