The significant price differences that exist between the public and private sector in many regions across the country is well documented. One other key difference between public and private sector drug plans that receives little attention, but needs to be a key consideration for private plan sponsors is the proliferation of listing agreements within the public sector.
Listing agreements are effectively contracts that can take on various forms that provide for some kind of consideration (often financial consideration) to the public sector in exchange for that province listing a given brand name product on the formulary. The practice of listing agreements in a province like Ontario is even transparent to the outside world because Ontario has begun the politically astute move reinvesting some of the savings that have been earned from the Bill 102 legislation into more comprehensive drug coverage for Ontarians covered by public drug programs.
That being said, listing agreements are by no means an Ontario-centric issue. These agreements exist in Quebec, British Columbia, Manitoba, and most recently Alberta, since the late October announcement of the changes in Alberta related to the government’s Pharmaceutical Strategy. Listing agreements are related to professional allowances that are paid by generic manufacturers to pharmacies in exchange for the purchase of their products.
While listing agreements can produce some very meaningful savings and other considerations for provincial governments, they can also have negative unintended consequences for private sector plans concerned about containing plan costs. Through the savings that governments achieve through pricing controls and listing agreements, the public plans are now able to “afford” much more comprehensive product listings in their formulary, which puts pressure on private plans to follow suit.
Let’s take the example of Lantus (insulin glargine), a long-acting insulin product that has been available for sale in Canada for years. Lantus was reviewed by the Common Drug Review (CDR) in Ottawa. The CDR is a federal agency that conducts objective reviews of the clinical and cost effectiveness of drugs, and provides formulary listing recommendations to the publicly funded drug plans in Canada.
In their review of Lantus, the CDR did not recommend Lantus for listing on publicly funded drug plans. The body (through CEDAC) did not feel that the product offered any clinical value above NPH insulin that would warrant the significantly higher cost. It is important to note that the CDR did acknowledge that Lantus is an effective product. Their decision was simply related to cost – benefit. To date, every province, with the exception of Ontario, has followed the CDR’s recommendation, and does not have Lantus listed as a general benefit. However, in the province that has been successful in running up a deficit north of $20 billion, any diabetic Ontarian with public drug coverage is entitled to Lantus – despite the fact that it is nearly three (3) times the cost of NPH insulin that has been around since the dawn of time.
Unintended consequences for private plan sponsors
The following are some unintended consequences of listing agreements for the private sector:
• There are a number of private plans that have formularies that mirror the provincial government formulary in their jurisdiction. As Dalton McGuinty, Ed Stelmach et al. become more generous in their coverage (buoyed by financial consideration from listing agreements), and formularies expand, private sector plans that mimic provincial formularies will be hit with higher costs. These private plans will be forced to cover drugs that may not have tremendous added value, but a much higher cost—and these private plans won’t be able to access the same low prices. While nobody is forcing private plans to mimic the government formulary, such plans need to recognize that this issue could adversely impact plan costs.
• As products gain the favour of provincial formularies, their sales forces (to their credit) can get very aggressive in promoting to doctors that key public plans have made the decision to cover the product. If a doctor knows a given drug is covered by the provincial plan, he or she will very often make the assumption that virtually all private plans must be covering the drug as well, so it is easy to see how it can get prescribed more often. Kudos to the pharmaceutical companies for their marketing abilities, but that isn’t very good news for private plans that access these products at a higher cost.
• Pharmaceutical companies realize that if they can strike a deal with one or two provinces for a listing agreement of Product X, in some disease states that have large and influential advocacy groups (i.e. Cancer, Diabetes, etc.), the PR machine will get a hold of a story that if you have disease state A, move to province B or C because the other provinces don’t cover Product X. That isn’t great publicity for politicians looking for re-election. Who wants their electorate to be poorly covered compared to the province next door? As these products proliferate, in terms of their public coverage, they are more commonly prescribed. Some products may add value, but others may have far less value for the additional cost.
I am not suggesting that the public sector is wrong in chasing listing agreements. Why wouldn’t they leverage their size to preferentially benefit their plan members and their provincial pocketbook? In fact, why isn’t every province knee-deep into this part of the playbook? The message for private plan sponsors is that listing agreements are a key strategy in maintaining market share for brand name products.
Pricing differences aside, one of the most negative impacts of the public and private sector divide within drug plans is that the therapeutic mix of products (i.e. how many less costly generic drugs are being prescribed compared to brand name products) can be impacted by these types of agreements, and what happens on the public side. Yet another reason why private sector plan sponsors need to be forget about waiting around for the public sector to solve all of their prescription drug plan cost issues, and start addressing cost containment immediately on their own.