Very, very quietly, the BC provincial government is negotiating new arrangements for the purchase of generic drugs that could save the province hundreds of millions of dollars. Done right, all BC taxpayers will win as more money becomes available for other health services. Done wrong, much of the savings for the province’s PharmaCare program will come from higher costs to employee benefit plans and costs to individual drug purchasers.
Brand name drugs are protected by patents and only the company that holds the patent can produce them. When the patent lapses many different generic drug companies can produce the drug.
This should drive the cost down but in recent years a number of studies have found that Canadians pay among the highest prices in the world for generic drugs. In 2008 Canada’s Competition Bureau issued a report saying:
Canadian taxpayers, consumers and businesses could save up to $800 million a year if changes are made to the way private plans and provinces pay for generic drugs. The potential savings could climb to over $1 billion per year in coming years, as several blockbuster brand name drugs lose patent protection. Obtaining these savings, however, requires changes to allow the price Canadians pay for generic drugs to be based on the competitive price of the drug.
The higher price for generics in Canada is explained by the relationship between the generic drug companies and pharmacies. The generic drug companies offer pharmacies fees and rebates to stock and sell their products and these payments are added to the customers’ price. As a result, information from Alberta and Ontario shows that if a brand name drug cost $100, the public could expect to pay $75 for a comparable generic drug that would do the same job.
This all has huge implications for BC. BC’s Health Minister told the legislature last month that currently 40% of the PharmaCare budget goes for the purchase of generic drugs. But in the coming years a number of very popular brand name drugs will go off-patent and the Minister expects the figure for generics to rise to 52%. One drug, for example, that will soon be available generically is Lipitor. According to the Health Minister, PharmaCare now pays $47 million annually for the drug and BC employee benefit plans and individual purchases buy another $60 million worth of it.
Provinces across Canada have taken steps in recent years to reduce the costs of generics. Ontario acted most aggressively first reducing the amount it would pay for generics to 50% of the cost of comparable brand name drugs. Now they have gone much further reducing their payment to 25% and outlawing some of the practices that drove up costs.
In late 2008 BC struck a deal with the province’s pharmacists limiting PharmaCare’s cost for generic drugs to 50% of the price of an equivalent brand name drug. The Minister estimates that move saved nearly $30 million annually, $9 million of which was returned to the pharmacies for payment of services. Now BC has joined provinces like Ontario and Alberta in calling for more savings. In April the Finance Minister told the Globe and Mail he was giving pharmacies until the end of June to negotiate a new deal. He said:
The status quo is unacceptable…We are aiming to reduce our costs significantly, and will go to unilateral action, as Ontario has, if forced.
Done right, all of this sounds like welcome news from government, but there is a chance things could go wrong for many British Columbians. In the first round of measures to cut costs neither BC nor Ontario insisted that the savings they were getting for their provincial drug plans be shared with employee benefit plans or with people who paid for their own drugs. As a result, an article in the Canadian Medical Association Journal reported that while costs fell significantly for Ontario’s drug plan, they rose significantly for employee benefit plans and individual purchasers. Comparable information for BC is not available.
Employee benefit plans are already facing mounting cost pressures. Employers are pushing to cut back on employee benefits and their costs. Employers will push even harder if the BC generic deal ends up saving money for PharmaCare but paying for it through higher costs for benefit plans. Middle income individuals with no benefit plans and too much money for PharmaCare risk being left out in the cold again.
So far, the Minister of Health refuses to say if benefit plans and individuals will share the same savings as PharmaCare under the new deal. He says he will not “get into our negotiating position and strategy.”
This time around Ontario is extending its policy to benefit plans and individuals. In BC pension plans, unions and individuals are urging our Minister to do the same.