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Provinces and territories announce price reductions for generic prescription drugs

Nine provinces and all three territories announced in January 2013 that they will work together in a volume purchasing arrangement to acquire the six most prevalent generic drugs, thereby driving down costs and generating savings.

This is the first time various jurisdictions have coordinated a cost savings strategy for generic drugs; previously, each province and territory negotiated generic drug prices independently. This arrangement is the result of recommendations provided by provincial premiers at the July 2012 Council of the Federation to pursue an initiative to reduce generic drug costs. Through volume purchasing, prices of six specified generics will be limited to 18% of the brand name price effective April 1, 2013. Currently, prices of generic drugs vary between 25% and 40%, depending on the jurisdiction. Quebec, the only non-participant in this arrangement, already has in place a pricing structure that limits its generic drug prices to the lowest price paid by other provincial plans.

The drugs included in the revised pricing scheme are:

  • Atorvastatin ( i.e. brand name Lipitor®, for cardiovascular conditions),
  • Ramipril (i.e. brand name Altace®, for cardiovascular conditions),
  • Venlaxfaxine (i.e. brand name Effexor®, for depression),
  • Amlodipine (i.e. brand name Norvasc®, for high blood pressure),
  • Omeprazole (i.e. brand name Losec®, for gastrointestinal conditions), and
  • Rabeprazole (i.e. brand name Pariet®, for gastrointestinal conditions).

As an example, the brand name cost per 10 mg pill in New Brunswick may be $1.88. The current generic price would be $0.66 (since generic drugs are limited to 35% of the brand name price in this province). As of April 1, 2013 the price would fall to $0.34.

Generic drug pricing has been an area of considerable focus in recent years. As noted in the January 2013 issue of News & Views, the most recent change was British Columbia’s announcement that new regulations will limit generic drug prices to 25% of the brand name price in 2013, falling to 20% in April 2014. Existing arrangements for generic drugs other than the six specified in the recent announcement will remain in place. While this volume purchasing agreement is limited to six specific prescription drugs, we may expect future announcements on mitigating health care costs in the public system, such as an expanded list of prescription drugs.

Though the negotiated cost reductions are also expected to be passed along to private health care plans, plan sponsors’ costs are not expected to reduce substantially. The affected generics are already in use by patients at substantial discounts to the brand name prices. The arrangement reduces costs further, but savings will depend on utilization by plan members and the prescription drug plan design in place. It may be noted that for many private plans, the first drug on the above list (Lipitor®) was the most commonly used drug until a generic version was released in 2010. As a reference point, these six drugs represented 6% of total prescription drug claims costs across Great-West Life’s block of business in 2012.

Plan sponsors are encouraged to review cost controls for prescription drugs on a regular basis to optimize the value provided by their benefits program. Innovations and changes regarding prescription drugs and their delivery to the end user have been frequent, and this trend shows no sign of slowing down. Plan sponsors that remain complacent risk missing opportunities to offer a sustainable plan to their members and potentially cost savings to their organization.