Drug legislation in the provinces will change the way plan sponsors and plan members think about cost controls.

Recent drug legislation introduced in both Quebec and Ontario is expected to put additional financial pressure on private payers and challenge them to find innovative solutions to controlling costs.

In Ontario, this financial pressure is a result of the Transparent Drug System for Patients Act(TDSPA), which came into effect on Oct. 1, 2006. One important outcome of the TDSPA has been the birth in 2007 of dual pricing for generic drugs,(i.e., a lower public payer price list—Ontario Drug Benefit(ODB)generic price at 50% of the brand product—and a higher private payer price list). In addition, professional allowances from generic manufacturers to pharmacists are capped at 20% of the total generic drug costs reimbursed under the public ODB program, but a similar cap has not been established for the private sector. These allowances across the board are now also attached to a Code of Conduct for pharmacies.

In a further change, there has been a decrease in markup from 10% down to 8% on the ODB price of drugs, effective April 1, 2007. Again, this applies only to the public sector.


Prior to TDSPA, pharmacies were accustomed to negotiating their professional allowances with generic manufacturers. The new allowance cap on the public side, combined with the decrease on markup, is creating financial pressures for them. Many Ontario pharmacies have already increased their professional fees to non- ODB recipients to compensate, with some chains increasing by an average of 20%. Charging non-ODB recipients higher markups is another way pharmacies can offset government cutbacks. While private plans using a pharmacy benefit manager have access to cost-control features, cash-paying customers would be the most vulnerable to any price increases.

Private payers will be asked to pay regular prices for generic drugs. With no regulation of pricing for generic drugs, it is very possible that the private payer price for generic drugs will increase from current levels.


Although it is too early to judge the full impact of the Quebec Drug Policy, it is similar in philosophy to the Ontario legislation. Quebec has made provisions as to limiting professional allowances paid by drug manufacturers, limiting price of generic drugs and allowing a lifting of the provincial formulary price freeze.

Other provincial governments are keeping a close watch on what is happening in Ontario and in Quebec. It is likely that this private payer cost shifting will continue as provinces look for increased savings. Given these developments, benefits plan providers may expect the cost of providing drug benefits to increase as a result of legislative changes.


Rising private plan drug costs are, however, nothing new to employee benefits providers. Whether the result of an aging population or newer drug therapies, these costs have been mounting every year.

The most recent analysis of health spending in Canada by the Canadian Institute of Health Information(CIHI)revealed that drugs represent the second largest expenditure behind hospitals. Trends since 1975 show the private sector as the majority payer for annual drug expenditures and prescribed drugs as the largest expenditure for insurance companies. The CIHI report also reveals that drug expenditures are increasing at a more rapid rate than total expenditures. The majority of private sector funding for drugs comes from employers that offer drugs as part of their benefits packages to attract and retain a skilled workforce.


In light of the pressures brought about with the most recent legislative changes, plan sponsors seeking to limit drug plan cost increases will have to analyze all available alternatives. There are in the market plans that can use drug formularies specifically created for cost control and appropriate drug use. Such formularies would list only the most cost-effective drugs, usually first-line therapies. In collaboration with their insurance companies, plan sponsors can encourage the use of trial quantities for new prescriptions, thus reducing waste if the medication is not tolerated, then encourage pharmacists to dispense a larger quantity of medication once a patient has been stabilized, reducing the frequency of dispensing fees. Also, plan sponsors can elect to implement prior authorization programs that limit the use of targeted drugs by authorizing reimbursement only for those individuals meeting medical criteria as defined by clinical protocol.

While controlling costs is an important issue, offering healthcare and drug benefits that help employees and their families remain healthy should be considered as a worthwhile investment. And the best investment employers can make in health benefits is a focus on disease prevention, resulting in a more productive workforce, decreased absenteeism and better long-term control of health benefit plan costs.

Anson Tang is manager, formulary management, at Emergis in Mississauga, Ont. Christine Than is a pharmacist, formulary management, at Emergis in Longueuil, Que. anson.tang@emergis.com; christine.than@emergis.com

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© Copyright 2007 Rogers Publishing Ltd. This article first appeared in the June 2007 edition of BENEFITS CANADA magazine.


Copyright © 2018 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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