Prescription drugs: Price reductions announced

Effective April 1, 2018, the prices of nearly 70 of the top prescribed generic drugs in Canada will be reduced by 25 to 40% as a result of an agreement announced jointly by the pan-Canadian Pharmaceutical Alliance (pCPA) and the Canadian Generic Pharmaceutical Association. The two organizations have reached a five-year agreement to facilitate the price reductions. The agreement also stipulates that the participating public drug plans will not pursue tendering for generic drugs over the life of the deal. There was a similar agreement reached in Quebec in 2017.

It is estimated that this initiative will save participating drug plans up to $ 3 billion over five years.

The pCPA has negotiated a series of price decreases for selected generic drugs over the years, leveraging economies of scale. The intent of the organization has been to reduce prescription drug costs for provincial and federal drug programs. The pCPA was established in 2010 and now includes all provincial, territorial, and federal prescription drug plans. Though private plan sponsors are not represented by the pCPA, these plans still benefit from reduced generic drug prices, as well as other measures such as reduced prices for high cost hepatitis C drugs (see details in our News & Views of April 2017).

The Canadian Life and Health Insurance Association (CLHIA) issued a news release that was supportive of this announcement. CLHIA is still advocating for insurers to be represented in the pCPA as they feel a single buying group for prescription drugs would be a more equitable approach for all Canadians. While pCPA’s negotiations for generic drugs provide transparency on pricing, brand name drug price negotiations remain confidential and only benefit the represented provincial and federal drugs plans.

The prices of affected generics already include substantial discounts to the brand name prices due to a series of past price reductions. In fact, the list of drugs outlined in this latest announcement includes the six drugs included in the initial cPCA generic drug agreement in 2013: generic versions of Lipitor® and Altace® (cardiovascular), Losec® and Pariet® (gastrointestinal), Effexor® (depression) and Norvasc® (high blood pressure). Costs will reduce to as low as 10% of the brand name equivalent for certain therapies included in this latest announcement, but plan sponsors’ savings will depend on plan member usage, generic drug utilization rates, and the prescription drug plan design in place. In addition, pharmacies may take steps to raise dispensing fees or drug mark up to recover lost revenue, which would lead to other increases borne by plan sponsors. While these latest reductions are not game changers, the aggregate reduction in generic drug prices over the last 5 to 10 years has been significant.

If we apply the announced price reductions to a sample plan, we can estimate that this could result in a reduction in prescription drug costs of approximately 1% to 3%, although this could vary significantly depending on the group’s profile and the characteristics of the plan.

The impact of the five-year moratorium on tendering is unclear. Advocates suggest that the agreement provides generic manufacturers stability and is less likely to result in drug supply problems. Critics believe that lower prices could be achieved through maintaining a competitive process.

While the focus of many plan sponsors in recent years has been on high cost specialty drugs, cost saving opportunities for generic drugs should not be ignored. The therapies included in this agreement are claimed under a majority of drug plans in Canada. This recent announcement underscores the importance for plan sponsors to implement cost containment measures, such as prescription drug cards, lowest cost alternative, formularies, and specialty drug management.

News & Views - February 2018 (PDF)