The battle for market share between generic and brand name drug manufacturers is expected to heat up as the patents for several brand name drugs expire next year, but employers aren’t expected to reap the benefits.
While pharmacies may benefit from the promise of savings through rebates, plan sponsors aren’t seeing cost reductions, said Michele Bossi, Toronto-based health and productivity practice leader at Buck Consultants.
“Employers may think they are doing everything they can to get the lowest cost drugs for their plan, but when you look at what’s going on behind the scenes between drug manufacturers and pharmacies, there may be some things that are interfering with the lowest costs being passed on to the plan sponsor,” she said.
While it is not uncommon for generic drug manufacturers to extend rebates to pharmacies, brand names have also begun dropping prices in an effort to remain on a benefit plan sponsor’s preferred drug list.
“It’s a whole new playing field right now,” said Marilee Mark, Waterloo, Ont.-based vice president of marketing for Manulife Group Benefits. “Now you’re seeing companies or pharmacy benefit managers that may negotiate with brand name drugs for them to offer their brand name at a lower price than a generic.”
A combination of factors has led brand manufacturers to enter the competition for lower price, said Eric Michael, Minneapolis-based central division pharmacy leader at Watson Wyatt.
“It is a difficult economic time, the patents are expiring and there are no new drugs coming out,” he explained.
The Ontario Ministry of Health and Long Term Care “opened the floodgate” for competition in 2008 when it initiated a tendering process for drugs included in the Ontario Drug Benefit (ODB) plan, said Michael.
The process, for example, resulted in the brand drug Vasotec, manufactured by Merck Frosst Canada, being listed as the only high blood pressure drug covered for ODB recipients.
“When it comes to the rebating, it’s a slippery slope and I don’t think it’s a change for the better,” he said. “What Ontario did made sense for them. It did lower costs for the taxpayers of the province but I’m not sure all the untold impact was fully evaluated.”
The injection of brand names into competition for preferred status in Canada may lead to a system resembling that of the United States, said Michael.
It would involve an increased number of rebates from brand name drug manufacturers to the pharmacy benefit managers. Those managers would, in turn, try to push plan sponsors to designate preferred and non-preferred brands, he explained.
As a pharmacist, Michael has seen how the process of designating preferred and non-preferred brands can affect employees.
Employees visiting their pharmacy must explain, “In this case, I’m allowed to get generic and, in this case, I am not,” he said. “It is very hard for them to comprehend and creates confusion. And in some ways (it) sends a contradictory message to members.”
The diverging interests will require more vigilance on the part of plan sponsors, he said.
It is important for plan sponsors to demand transparency from pharmacy benefits managers, he said. That includes reviewing the flow of money to make sure managers are acting in the best interests of sponsors.
“We haven’t really had to (do that) because the trend wasn’t that out of control,” he said. “Now it’s showing up on the balance sheets and the economy is down so we have to address these sorts of things.”
The costs of pharmaceuticals are projected to increase by 15.2 per cent in 2009, according to Buck Consultants’ Canadian Health Care Trend Survey, which examined responses from 11 major Canadian insurers. (The 2009 figure is comparable to increases from recent years. In 2005, pharmaceutical costs rose 15.1 per cent. In 2007, the increase was 14.3 per cent.)
As sponsors attempt to contain costs, it is imperative the process is approached with a solid plan to effectively navigate through the generic and brand name drug rebate developments, said Mark from Manulife.
“You can’t just have a knee-jerk reaction and then another knee-jerk reaction,” she said. “We definitely need to be more dynamic in benefits plans than before. It’s a definite reality and employers will have to adjust to this reality.”
Drug patents expiring in 2010
Here are some of the major drug patents that will expire next year:
•Norvasc (high blood pressure)
•Prevacid (heartburn and acid reflux)
Source: ESI Canada 2008 Drug Trend Report
TIPS FOR EMPLOYERS
Strategies for obtaining competitive prices for generic drugs
•‑Develop preferred pharmacy networks — pharmacies would compete, by offering discounts to plan providers, to belong to a network from which plan members are encouraged to purchase their prescriptions.
•‑Provide patients with incentives to seek lower prices — plan members could be encouraged to obtain their drugs through preferred provider networks to potentially avoid or reduce co-payments.
Source: Benefiting From Generic Drug Competition in Canada: The Way Forward, Competition Bureau of Canada
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