Ontario to slash generic drug costs

Employers expected to see ‘significant’ savings
By Shannon Klie
|Canadian HR Reporter|Last Updated: 05/04/2010

The Ontario government’s move to slash generic drug prices by at least 50 per cent over the next three years will result in significant savings for employers with drug plans, according to Camille Coutu at Buck Consultants.

“Generally speaking, generic drugs account for about half of benefit costs of a drug plan. If those costs are reduced by 50 per cent, in three years we’re going to see some nice savings under our drug plans,” said Coutu, who is a health and productivity consultant in Toronto.

Over the next few years, a number of highly used brand name drugs will be coming off patent, opening the door for more generic drugs and further decreasing benefit costs for plan sponsors, said Irene Klatt, vice-president of health insurance at the Canadian Life and Health Insurance Association.

Ontario pays 25 per cent to 75 per cent more for generic drugs than most other developed countries, including the United States and the United Kingdom, according to government statistics.

Prior to 2006, generic drugs cost an average of 60 per cent to 70 per cent of brand name counterparts, said Coutu. Then in 2006, the Ontario government limited the cost of generic drugs purchased through the Ontario Dug Benefit (ODB) to 50 per cent of brand name cost.

To offset that loss, pharmacists increased the cost of generic drugs for people not covered by government plans, said Coutu.

“We saw proof that the private plan sponsor drug costs increased on the generic side because the ODB drugs were decreased in price,” she said.

With generic drugs becoming increasingly expensive, brand name drug manufacturers made deals with some of the larger plan sponsors and insurance companies, offering drugs at a lower cost than the generic version if the sponsor listed the drugs as the only option on the drug formulary (a list of drugs covered by insurance plans to treat specific illnesses), said Coutu.

“Everybody was scrambling around trying to manage their costs,” she said.

But now the government has stepped in to implement regulations that will benefit everyone, said Klatt.

“Regardless of if you’re part of the public drug program, have coverage through private insurance or are a cash-paying customer, you are going to see equity in generic drug pricing,” she said.

The government’s proposed changes to the Drug Interchangeability and Dispensing Fee Act and the Ontario Drug Benefit Act would cut the cost of generic prescription drugs by at least one-half and limit the cost to no more than 25 per cent of the cost of the brand name counterpart by 2014. That means when a brand name drug that costs $20 comes off patent, the generic version can cost no more than $5.

The cost savings will give employers more money to invest in health plans, said Klatt.

“It’s going to make their benefit plans go further,” she said.

Employers might even consider offering coverage for more expensive drugs they couldn’t cover before, she added.

One of the ways the government plans to ensure generic drug costs will be reduced is to eliminate the $750 million in annual “professional allowances” generic drug manufacturers pay pharmacists to carry their drugs. Manufacturers charge more for their drugs to offset the cost of the allowances, stated the Ministry of Health and Long-term Care.

Professional allowances were to fund activities that benefit patients such as flu or blood pressure clinics. But since 2006, 70 per cent of allowances have actually been used for fringe benefits, bonuses and overhead costs as opposed to patient services, according to the ministry.

If the legislature approves the changes, allowances for generic drugs purchased through the ODB would be eliminated immediately while allowances for generic drugs purchased out-of-pocket or through private drug plans would be phased out over the next three years.

However, there are other drug plan costs that could increase dramatically, said Coutu.

“Pharmacies are going to get creative in ways to build in more costs,” she said.

This will likely include increased drug-dispensing fees and additional pharmacist fees. Employers should look at their plans to see if there is a dispensing fee cap and coverage of pharmacist fees so there are no unexpected cost increases, she said.

To help offset some of the pharmacists’ loss of income, the government has already said it will immediately increase dispensing fees for the ODB by at least $1, with an annual increase of 2.5 per cent thereafter. So it’s likely dispensing fees for private plans will increase immediately as well, said Coutu.

“I would expect we’re going to get an immediate jump,” she said. “And then it’s going to continue to creep up.”

But the government’s increased dispensing fees and the additional $150 million it has promised for rural and long-term care pharmacy services won’t cover the shortfall from eliminating the professional allowances, said Dennis Darby, CEO of the Ontario Pharmacists’ Association.

“These funds are critical to helping pay for patient care not covered by dispensing fees,” said Darby in a statement.

The cuts will result in shortened pharmacy hours, fewer staff and closed businesses, which will affect service quality and accessibility to medications, he warned.

Drugstore chain Rexall said it will impose a hiring freeze at its corporate head office and start charging delivery fees in Ontario. Shoppers Drug Mart said it would be cutting hours and instituting delivery fees at stores in London, Ont.

One potential solution to the accessibility problem is a prescription drug kiosk. PCA Services in Oakville, Ont., developed the vending-machine-like PharmaTrust, which can dispense non-narcotic prescription drugs 24 hours a day, seven days a week. A customer feeds the doctor’s prescription through a slot on the machine and chats with a pharmacist via video conferencing while the machine fills the prescription.

Currently the machines are only available in two hospitals in the province. The Ontario government approved the technology in December and now PCA Services is waiting for the Ontario College of Pharmacists to finalize regulations governing its use before rolling out the kiosks across the province, said Susan Fenton, vice-president of government and stakeholder relations at PCA Services.

“We’ve had a lot of interest from various employers to put a med centre in their facility so employees don’t have to travel as far,” she said.

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