Generic drug plan innovation up to plan sponsors

According to a panel of experts, organizations that are proactive and ready to cut a deal will fare much better than those which choose to let the government set the rules for them.

A recent International Foundation of Employee Benefit Plans webinar entitled Law & Order: the case for drug reform in Canada featured Marc Kealey, president of ArcisRx and principal with Kealey & Associates, Inc, and Murray Gold, a partner Koskie Minsky LLP. They explained that as Canada tires of its dubious distinction of paying the highest prices in the world for generic drugs, provincial governments have taken—or will be taking—action to bring costs down.

Quebec, Ontario and Alberta have either proposed or tabled drug reform legislation and British Columbia and Atlantic Canada are expected to do so shortly. The benefits of such reforms—should they be passed—are enhanced affordability for plan sponsors, clinical expertise for drug plan re‐design and analytics, and an alternative distribution process to get medications to plan members with assurances of high levels of service and cost savings.

Failure of competition
The reason behind Canada’s astronomical generic prices, according to Gold, is that the current pricing scheme benefits pharmacies, not consumers.

“Competition in the retail pharmaceutical sector does exist,” he says. “However, it does not exist at the consumer level. Rather, it is pharmacies that benefit from competition between generic drug manufacturers.”

When a generic drug is prescribed by a physician, the pharmacist can generally fill the prescription with any one of several chemically identical generic medications. Accordingly, generic drug manufacturers compete with each other so that the pharmacist will prescribe their product, hence the rise of “professional allowances” which are currently so contentious in the Ontario debate.

As a result, the price charged by the generic manufacturers to the pharmacy either remains constant or increases over time, and this price is passed on to the consumer.

The Ontario government recently announced reforms to generic drug pricing for both the public Ontario Drug Benefit Program (ODBP) and for private consumers, to be implemented through amendments to regulations made under the Drug Interchangeability and Dispensing Fee Act and the Ontario Drug Benefit Act.

These reforms focus on two key elements: reducing the maximum cost of the generic drug to 25% of the cost of the original brand name drug by 2014, and the elimination of professional allowances immediately for the public ODBP, and by 2014 for private consumers.

The purposes of these reforms, Gold explained, are to lower generic drug prices and to focus competition on price, not professional allowances. The idea is that the generic drug that wins shelf space does so by charging a lower price to consumers.

He also pointed out that some of the most important purchasers of medications are not individuals, but drug plans. Under the new drug pricing rules in Ontario, these consumers will be expected to make competition work.

“If the forces of competition are now supposed to work at the level of the consumer, then the consumer has to be active,” says Gold. “The consumer must be informed and intelligent. An implicit message in this legislation is that while the regulations are changing in order to assist the consumer, they are not going to do the job of the consumer.”