The new generic drug pricing changes that have taken place across the country have created some evolving implications for plan sponsors.
Not only have these changes led to significant pricing discrepancies across Canada, they have impacted preferred provider arrangements between plans and pharmacy providers, and have impacted drugs that were previously unaffected by pricing changes. Here are a few stories that may be of interest.
Our home and native land
April is expected to be a period of additional change in the drug pricing arena, with Ontario set to lower prices on a number of generic products to 35% of the brand price within the private sector, and with Nova Scotia expected to introduce some legislative changes of its own.
Looking back at the beginning of 2011, prior to the announcement of some of these changes, here is what the landscape looked like through examining the ingredient costs (before mark-ups and dispensing fees) that pharmacies are eligible to charge to private plans in different provinces. You’ll see there are some significant pricing discrepancies that now exist with key generic products. These discrepancies will only get more significant with the changes in Ontario, coming this month.
The following examples also help to highlight why there can be some very different prices charged for the same product within a given province. Drug pricing is more complex than ever before.
Generic Ramipril (Altace) 10mg capsules (common blood pressure lowering drug)
- Ontario: $0.51 per capsule
- BC: $0.51
- Alberta: $0.61 (19.6% more than Ontario and BC)
- Manitoba: $0.63 (23.5% more)
- New Brunswick: $0.67 (31.4% more)
- Newfoundland: $0.72 (41.2% more)
Generic Venlafaxine XR (Effexor XR) 150mg capsules (common antidepressant)
- Ontario: $0.98 per capsule
- BC: $1.07 (9.2% more than in Ontario)
- Alberta: $1.26 (28.6% more)
- Manitoba: $1.39 (41.8% more)
- New Brunswick: $1.35 (37.8% more)
- Newfoundland: $1.35 (37.8% more)
Evolution of problems within preferred networks
The Ontario government is single-handedly responsible for chain and banner retail pharmacies finally finding religion, and realizing how important private plan business is to their respective organizations.
Until Ontario dropped the hammer on pharmacy profitability within the Ontario Drug Benefit (ODB) book of business last June, precious few pharmacy groups realized or understood the opportunities that exist in partnering with plan sponsors and delivering services of value to private plan members. Last June sparked a flurry of “preferred provider network” offerings. This area is the excitement-de-jour in drug plans for many plan advisors figuring they have struck gold for their clients.
Plan sponsors and their advisors should take note—not all preferred provider networks are created equal and it is more confusing than ever to quantify the true value proposition of a given offering for a client without all of the required information. Plans need to start leveraging their own claims experience to measure the potential value they are currently/can expect to receive under different arrangements.
Take the example of this national plan sponsor that has operations in Western and Eastern Canada. This plan sponsor had established a preferred provider network within its experience, but had not previous had the ability to assess its performance. When the company ran the numbers in late 2010, they discovered the following facts.
- In the Eastern region, ingredient costs on brand name drugs were on average 4% less expensive and generic drugs were 4.5% less expensive within the preferred network when compared to all other pharmacies.
- In the Western region, the results were a completely different story. Ingredient costs on brand name drugs were on average 12.5% higher, and generics drugs 18% higher, within the preferred network when compared to all other pharmacies.
The take home message here is for plan sponsors and their advisors to be very careful in screening preferred arrangements.
This area is much more complicated than meets the eye, and a lack of sophistication in assessing offerings could have very negative consequences. At the same time, any preferred network focused uniquely on price and not leveraging other value added pharmacy services is missing the mark.
Drugs outside the realm of pricing changes
This example from March 2011 further demonstrates the complexity in the pricing realm. It also is a great example of what is happening to paper-based reimbursement plans. Any advisor or plan sponsor that continues to think it is far more expensive to implement a pay-direct drug card than to stay as a pay and submit plan may want to look more closely at their current experience.
This example is from Ontario and deals with the medication Doxycycline 100mg, which is not covered under the ODB formulary. As such, it has not been subjected to pricing changes. Add to the mix that mark-ups on ingredient costs are unregulated, and that many paper based reimbursement plans have little to no pricing controls, here is what the same prescription for 60 capsules cost (including mark-ups and dispensing fee) at different pharmacies in the same city a few weeks ago:
- Pharmacy A: $33.15
- Pharmacy B: $49.00
- Pharmacy C: $52.30
- Pharmacy D: $59.45
There are a number of exciting opportunity available in the market for forward-thinking plan sponsors, but what has been happening in the area of drug pricing should serve notice that a more sophisticated approach to designing and managing the drug benefit plan is required.