Bill 102 may benefit the public sector, but will the private sector lose out?

The implementation of the Transparent Drug System for Patients Act(Bill 102)on Oct. 1, 2006, has changed the way generics are reimbursed in both the public and private sectors in Ontario. The Ontario Drug Benefit (ODB), Ontario’s public program to provide coverage for drug expenses for seniors and those receiving social assistance or provincial disability support, will now reimburse generic drugs on the ODB Formulary for ODB-eligible patients at 50% of the cost of their brand counterparts. Generic drugs not listed on the ODB Formulary do not follow the new ODB generic pricing rules.

Prior to the implementation of Bill 102, the ODB reimbursed the first generic on the ODB Formulary at 70% of the cost of its brand counterpart and subsequent generics at 90% of the first generic price(i.e., 63% of the cost of the brand). This was referred to as the “70/90 rule.” Although manufacturers were not required to provide generic drugs to private payers at the ODB-reimbursed price, the business practice was to have a single price for each drug.

Two-tiered Drug Pricing

Bill 102 was implemented as a cost-savings strategy to decrease the cost that the province pays for the ODB program. Since the 50% rule applies only to ODB patients and ODB claims, the private sector doesn’t benefit from the reduced generic pricing. In fact, the implementation of Bill 102 has resulted in two-tiered pricing, in which manufacturers charge two different prices for the same generic drug depending on who’s paying. The risk to private payers is that they may end up paying more for generics as time goes on—especially since manufacturers may not adhere to the pre-Bill 102 70/90 rule in the future.

For example, take the brand name drug Altace, a drug for high blood pressure, which was “genericized” in December 2006. Prior to Bill 102, the first generic would have been priced at 70% of the brand price and subsequent generics at 63% of the brand price. Since the implementation of Bill 102 for the ODB program, the three Altace generics have been priced at 66% of the brand price. The private sector now pays 3% more for these drugs than it did under the 70/90 rule.

Impact of Drugs Coming Off Patent

Over the next few years, several highly utilized brand drugs will be coming off patent and may have an impact on cost savings for private plans. Let’s take a representative sampling of these drugs as an example: Actonel®, Actos®, Amerge®, Betaseron®, Oxycontin CR®, ParietTM and Xenical®. If private payers could benefit from the ODB 50% generic pricing for these drugs, the potential savings would be $22.3 million per year—compared to $13.4 million per year, if they are priced at 70% of the brand name prices. If the public sector can benefit from such significant savings, why shouldn’t the private sector also benefit?

Even with Bill 102 in effect, the availability of generics will save private payers some money, since generic drugs typically cost less than their brand name counterparts. However, the savings likely won’t be as great, and the development of a two-tiered drug pricing system raises some serious questions.

The Canadian Life and Health Insurance Association Inc. has already identified its concerns with Bill 102 to the province. We’ll have to wait and see if these measures ultimately result in any changes to the legislation.

Becky Chin is a pharmacist currently working as a clinical specialist for ESI Canada in Mississauga, Ont.

For a PDF version of this article, click here.

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


Copyright © 2020 Transcontinental Media G.P. This article first appeared in Benefits Canada.

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