Discount cards for patented drugs: Could they harm private prescrip drug insurance plans?
Recently, discount cards have appeared on the Canadian market, offering partial refunds on the cost of patented drugs.
Such cards are tempting for prescription drug users who are worried about using the cheaper generic drugs. These cards could, however, have an impact on sponsors of private prescription drug insurance plans and ultimately on the premiums charged for such plans.
The trend toward using discount cards originated in the 2000s in the United States when pharmaceutical companies introduced discount programs to protect their market share after the arrival of much less expensive generic products. Patented-drug discount cards are now very common (except in Massachusetts, where discounts are prohibited). However, federal programs such as Medicare do not allow drugs to be discounted, since discounts are considered an inducement to consume medications. Currently, several cases have been brought against pharmaceutical companies by associations who argue that plan members are not told how the discount cards will affect their insurance plans.
This article seeks to shed light on the potential impact of discount drug cards in Canada.
Why the discounts?
For many drugs, the patents have recently expired or are about to expire. The table below provides a sampling of such drugs, which represent close to 20% of the prescription drug market in Canada:
Drug companies are interested in protecting their market share, since billions of dollars are at stake. The discount cards are financed in whole or in part by drug companies and were introduced to protect their market share.
Reaction of pharmacists
Discount cards are not yet common in Canada and pharmacists are still reluctant to accept them. The Québec association of owner-pharmacists has warned its members about potential risks in accepting them since, on the one hand, the code of ethics of Québec pharmacists prohibits discounts and, on the other, the markup on patented drugs is usually much lower than on generics.
Impact on government plans
Government authorities have been observing the situation but have not issued any official bans. However, in 2010 the Québec government vigorously opposed Pfizer’s efforts to introduce a loyalty card for the prescription drug Lipitor. Since the card only gave a discount to the consumer, the public drug insurance plan would end up paying the full price for Lipitor when the generic drug was much less expensive.
Yet the situation in Québec changed in 2013 following the elimination of the 15-year rule, which terminated the privileged position of the patented drugs. Now, refunds from the public plan are based on the lowest price as soon as a generic drug becomes available. Other provincial drug plans have similar rules.
As the following table shows, this means that Québec’s prescription drug insurance plan is no longer affected by the use of discount cards:
A member of a public plan benefits from using the discount card, because the patented drug costs the same as the generic drug.
However, pharmaceutical companies have little incentive to promote discount cards to public plan users, since it lowers their price to the same level as that charged by generic drug manufacturers. On the other hand, it is a way to promote their product and encourage consumers to buy patented drugs.
Impact on private prescription drug insurance plans
In Canada, the typical plan generally reimburses 80% of the cost of patented and generic drugs. As soon as a generic drug becomes available at a lower price (say 25% to 50% of the price for the patented drug), plan members gain an advantage by buying the less-expensive generic because they pay 20% of the drug price. As soon as an employee chooses a generic, the employer’s plan costs decrease. Experience shows that when employees are required to pay part of the drug cost, they have a strong incentive to buy generics, if they are available.
The discount card could thus reduce or even eliminate the financial incentive for employees to use the cheaper generic drug. The following table makes it easier to understand the issue for private plans:
As indicated, each time a plan member chooses the patented drug, the insurance plan will pay out $56 more than if the member had chosen the cheaper generic. This amount is then reflected in the insurance premium.
This situation already exists in many plans, where 5% - 10% of users must continue using the patented drug as prescribed by the doctor (“no substitution” on the prescription). In these rare cases the discount card is good news for the plan member, and does not add any additional cost to the private plan. However, when the plan member has no therapeutic requirement and the discount card eliminates the financial advantage of using the generic instead of the patented drug, one can expect to see an increase in the purchase of patented drugs and therefore an increase in the cost to the private plan.
What to do
If an employer is concerned about discount cards increasing the use of patented drugs, there are two choices available:
- Amend the plan to ensure the refund is always based on the cost of the lowest priced equivalent drug. Then, no matter whether the member chooses a patented or a generic drug, it will not affect the amount refunded, because the amount paid out by the plan will be based on the lowest price.
- Amend the plan so that refunds are based on the cost of the lowest priced equivalent drug, unless otherwise indicated by the doctor. In this case, the doctor must provide a document that states why the patented drug must absolutely be used (a number of insurers have adopted this approach in the past 12 months).
In Québec, however, current rules require private plans to refund drugs on the list of medications insured by the public plan at a minimum of 68% of the cost paid at the pharmacy. If we take the preceding example, the private plan must refund at least $68 if the patented drug is purchased, even if the plan has a clause stating that the refund is based on the lowest price ($30 in our example). It is not clear why the Québec Ministry of Health and Social Services has imposed such a restriction on private plans when the public plan is permitted to base the refund on the lowest price. Efforts are currently underway to avoid this inequity.