Ontario drug announcement: the fallout

The Ontario government’s decision to reduce generic drug prices to 25% of the cost of the original brand name drug over the next three years and ban professional allowances should create cost savings for plan sponsors as patents of brand name drugs run out and generics appear on the market, explains Martin Chung, vice-president with Aon Consulting.

“With patents of major brand names such as Lipitor expiring in the near future, the legislative change we see today spells substantial, cumulative savings for employers,” he says. “This presents an ideal opportunity to explore how best to maximize these savings within an integrated approach to cost management via innovative-, holistic-, value-for-money- (return)-based employee wellness programs.”

According to Hewitt Associates, employers can expect the Ontario portion of their prescription drug plan costs to drop by approximately 8% immediately, and by 16% within two years.

The consultant encourages employers to take the following action to maximize their savings:
• promote generic drugs;
• manage dispensing fees;
• manage markup;
• review post-retirement benefits and look at accounting expense savings;
• for insured medical plans, begin negotiations with insurance companies;
• reinvest in health; and
• communicate with employees.

Beyond Ontario
It is possible that provinces other than Ontario will feel the effects of the proposed rules.

As Quebec’s prescription drug legislation requires that drug costs in that province not exceed those charged in any other Canadian jurisdiction, the new generic prices in Ontario may apply in Quebec for public and private plans. But, the immediate savings will not be as significant, as Quebec generic prices are currently lower than in Ontario. However, the long-term savings are expected to appear automatically to employers with plans in that province.

Ontario is following Alberta’s lead, which earlier this year mandated lower generic drug pricing for both the private and public plans. Other provinces are expected to enact similar legislation to Ontario’s, according to Hewitt.

However, the timing of the McGuinty government’s move prevents the rules from having their maximum effect, according to Mike Sullivan, president of Toronto-based drug plan management company Cubic Health. “Alberta has already announced the changes it wants to make, and they’re far less aggressive than what Ontario has proposed,” he says. “In Atlantic Canada, the changes that Medavie Bluecross is trying to bring about are a fraction of what we’re talking about here in Ontario.”

Effect on private plans
Sullivan agrees that plan sponsors should see drug costs fall as the pricing is effectively being regulated for them. “The good news is [that] the government obviously listened to private plan sponsors and made changes on their side.”

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