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Cost reductions in provincial drug plans

The British Columbia government has announced that new generic drug pricing regulations will come into effect on April 1, 2013.

New Generic Drug Pharmacy Agreement in British Columbia

This change will reduce the cost of generic drugs covered under the provincial PharmaCare program to 25% of the brand name price. As of April 1, 2014, the generic cost will be reduced to 20% of the brand name price.

British Columbia first announced generic drug price reductions in July 2010 that came into effect in October 2010. In February 2012, the BC government announced the agreement would end as cost reductions to the provincial PharmaCare program had not met expectations.

While this is positive news for plan sponsors, significant reductions in prescription drug claim costs are not likely. Price reductions are only applicable to drugs covered under the PharmaCare program. The prices of generic drugs not included in the PharmaCare formulary are not impacted, nor are brand name drug prices. As well, in aggregate aging employee populations and the proliferation of biologic and high-cost drugs will lead to increased prescription drug costs for plan sponsors. Taking all of these factors into account, the annual rate of prescription drug claim inflation is expected to increase in the coming years after having stabilized over the most recent few years.

British Columbia’s announcement may impact generic drug pricing in Quebec as well, considering that Quebec’s drug policy stipulates that the price demanded by the generic drug manufacturers may not exceed the lowest price offered in other Canadian provinces (also referred to as the “trailer clause”). While Ontario announced earlier in 2012 that the price of the top 10 generic drugs would be cut to 20% of the brand name price, British Columbia’s reduction to this level in 2014 will apply to a wider range of drugs. Quebec may match this pricing when it takes effect, though there could be changes in other provinces in the interim.

Note that these reductions only apply to generic drug pricing and do not affect mark-up or dispensing fees which also contribute to the final cost.

Now more than ever, plan sponsors should consider implementing a pay-direct drug card if one is not already in place. Doing so enables a myriad of cost control options such as formularies, tiered coinsurance, and restrictions on dispensing fees and mark-up.

Quebec Ends 15-Year Rule for Reimbursement of Brand Name Drugs

Quebec’s 2013 budget announced the elimination of the “15-year rule” which required the provincial drug plan to reimburse the brand name drug price even after patents had expired and generic alternatives were available. The rule was introduced in 1994 to encourage pharmaceutical industry investment in the province. No effect is expected for plan sponsors as the change affects only the RAMQ program.