How B.C.’s generic drug reform will affect your benefits plan

British Columbia Health Services Minister Kevin Falcon announced on July 9, 2010 the signing of the Pharmacy Services Agreement with B.C. pharmacy associations. The agreement was meant to lower the prices of generic drugs for the province’s PharmaCare plan, employer sponsored drug plans and the general public.

The agreement came into effect on July 28, 2010 and remains in effect until March 31, 2013.

According to the communiqué the changes to generic drug prices differ based on whether the generic drug is already in existence or is a “new” generic drug (released on or after November 1, 2008). The price of new generic drugs paid through PharmaCare will be decreased as of July 28, 2010.

Similar to the Ontario government’s plan, B.C.’s generic drug prices will be decreased in stages to eventually equal 35% of the brand name drug price. However, the price will also apply to the general public (including employer sponsored drug plans) as generic drug manufacturers that want to obtain or maintain PharmaCare coverage for a generic drug are required to make the drug available for sale in British Columbia at or below the maximum PharmaCare price.

Pharmacy dispensing fees and mark-ups reimbursed to pharmacies by PharmaCare will increase incrementally and are estimated to total $60 million of the $170 million expected to be saved by PharmaCare through the reforms.

The negotiated dispensing fee and mark-up schedule only applies to payments made by PharmaCare. For private plans the dispensing fee and mark-up schedule are determined by the relevant insurer and/or pharmacy benefit manager.

Implications for plan sponsors
Mercer warns that while the ingredient price of many generic drugs will decrease over the next three years, overall employer sponsored drug plan costs will not necessarily decline.

“A typical plan sponsor spends only 25% to 30% of total dollars on generic drugs, while brand name drugs represent the majority of spending,” reads the communiqué. “The net impact for British Columbia plan sponsors will depend on the current mix of generic and brand drugs under the plan and the reaction of the pharmacy industry in the marketplace. It is too soon to be able to conduct meaningful analysis that will determine the over-all cost impact for plan sponsors.”

Mercer identifies six factors that could contribute to an increase in drug plan costs:

• Dispensing fees for all prescriptions, whether for generic or brand name drugs, may rise as the agreement did not extend dispensing fee controls to private payers.
• Pharmacies may increase the mark-up included in the ingredient cost from the current levels — typically 10% of the drug cost. Mark-up is determined through an agreement between a pharmacy and the pharmacy benefit manager and any change would have to be renegotiated. However, pharmacies might refuse to accept the provider drug card unless the mark-up is significantly increased.
• Generic price savings may well depend on the pharmacy benefit manager price controls and the degree to which plan members look for price-competitive pharmacy providers. Plan sponsors in urban settings with a high concentration of pharmacies (or who find pharmacies prepared to promote other options, such as mail-order or preferred provider arrangements) and those with plan designs that provide strong consumerism incentives are most likely to reap savings.
• As pharmacists’ prescribing roles evolve, increased utilization of drugs is expected to occur.
• Generic drug savings only materialize if patients remain on the drug or doctors continue to prescribe the generic drug to new patients. To the extent that physician education by the brand pharmaceutical industry results in increased prescribing of other brand products in the same therapeutic class, the promise of generic competition is not fully realized.
• Market forces may affect drug prices and plan costs in unexpected ways.

“Although savings are hoped for, many factors will influence whether they will in fact be achieved,” reads the communiqué. “The changing environment will encourage business models to evolve. Since pharmacy revenue is largely left intact in British Columbia, plan sponsors in this province will have greater opportunities to partner with pharmacists for further cost reductions than in some other provinces such as Ontario, where pharmacy profits are much lower.”