Ontario will soon have a new pricing scheme that will halve costs for certain generic drugs for plan members. Proponents say similar programs abroad have produced enormous savings and resulted in better access to drugs, and observers overwhelmingly agree the scheme is a great deal—for the government of Ontario.
Commencing Oct. 1, Ontario’s Competitive Agreements for generic drugs is a follow-up on the Transparent Drug System for Patients Act of 2006. Designed to lower the cost of generic drugs for the Ontario Drug Benefit (ODB), the scheme chooses two pharmaceutical companies which provide their drugs at half the generic brand price. According to Ontario’s Ministry of Health, the plan will improve patient access to drugs and strengthen the transparency and accountability in the public drug system.
However, the wisdom of the plan is in question as drug companies are likely to look to private plans to make up lost revenues. “They’re going to bid for a low price, and then they’ll use their monopoly on the pharmacy shelves to push a higher price into the private sector,” says Brett Skinner, director of health, pharmaceutical and insurance policy research at the Fraser Institute. “That’s how they’re going to make up the difference.”
Describing the plan as a “winner-take-all” situation, he warns that by putting the entire drug supply of the ODB in the hands of a pharmaceutical company, the government runs the risk of a drug shortage should the manufacturer have difficulty producing it in sufficient quantities at the appropriate time. “Because Ontario is such a dominant market and the ODB such an overwhelming purchaser, it could affect access to the drug across the country,” Skinner adds. While the risk of this is somewhat mitigated by naming two suppliers, the government will still be unable to be sure that it has received a truly competitive price.
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Mike Sullivan, president of drug plan management firm Cubic Health, says the ODB already enjoys a cost advantage over the private sector, and that the Competitive Agreements will only increase the disparity between public and private plan members. “They’re the only winners here,” he says. “It’s actually a brilliantly crafted idea. You have to applaud them for that.”
The province maintains that similar schemes in New Zealand and the United States have resulted in savings of up to 81% for public plans. Mark Nesbitt, media relations coordinator for Ontario’s Ministry of Health and Long-Term Care, links competitive pricing agreements to the discounts. “In most cases, prices paid in these jurisdictions for certain drug products are much lower than in Ontario,” he says. “We believe the bulk buying and cost negotiations are what brought the prices down.”
Skinner disagrees. “It may achieve some lower prices, but the real barometer is not what public drug plans in other countries are doing, as they could all be overpaying relative to the market,” he says. “All the government really needs to do to introduce competitive pricing is simply stop reimbursing pharmacies directly, and reimburse the consumer at a partial rate.”
According to Skinner, the American model has competitive pricing in which private insurance plans expose people to a percentage of the price at the point of consumption and directly reimburse patients. “So really what the Ontario government is claiming is not accurate with regards to the United States, which has the lowest generic prices in the world,” he explains.
While the province will soon enjoy significant savings, Sullivan says a similar move by private plans is coming, albeit slowly. “We’re moving toward it, but a lot has to be sorted out between now and then.” He explains that pressure for change from private plan members is what is needed. “Eventually, people are going to get smart and wonder why they’re paying twice the cost or more for drugs than the public sector.”
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