Quebec has made headlines over the past week by proposing to move to a tendering process for generic drugs in an effort to reduce the $800 million per year it says it spends on generics. 

But if the tendering of generics does become reality — and that’s a big if — it’s not necessarily going to result in a flood of savings for plan sponsors with employees in Quebec.

Read: Quebec move on drug bids ‘one to watch’ as private plans expected to benefit

One reason is that plan sponsors covering medications for plan members in Quebec (for residents who’ve opted out of Régie de l’assurance maladie du Québec coverage in favour of employer-sponsored plans) may not see the impact of a lower tender price. If the rebates related to the tender happen behind the scenes to minimize setting precedents across Canada and the RAMQ formulary price remains as is, none of the benefits will flow to a plan sponsor that has to continue to pay the listed amount. There was two-tiered generic pricing in Ontario for a period of time, so why couldn’t that happen in Quebec?

Also, the Quebec government hasn’t indicated how many tenders would happen immediately and for which drugs. With generics for Altace, Lipitor, Norvasc, Pantoloc, Plavix and Zocor already at 15 per cent of brand prices, the government’s goal of reducing its bill for generic drugs by a third seems optimistic. If that were to happen transparently, it would have an enormous impact on generic pricing in other provinces and on pharmacies that still rely on generic allowances as a key driver of profitability.

Read: Generic industry asks Quebec to abandon ‘risky path’ on drug tenders

In Quebec, the generic price isn’t the main problem. The real issue is dispensing chronic medications in one-month supplies. If a generic drug has a unit price of 30 cents per day, a one-month supply is $9. Add an $11 dispensing fee charged by the pharmacy, and the total claim cost is $20 (pharmacies in Quebec don’t have to break out drug costs from dispensing fees). Even if the government’s goal of a 30 per cent reduction in costs were achievable (again, a big if), it would only shave $2.70 off the total $20 cost in the example above.

It’s time to stop worrying about the cost of generics in Quebec and solve the ridiculous problem of allowing pharmacies to bill 12 dispensing fees per chronic medication per year. (As a pharmacist, I feel very comfortable in using the word ridiculous here.)

Another consideration is the fact that tendering isn’t as easy as it sounds. Look at what happened when Ontario tried to tender generics for four drugs (Enalapril, Gabapentin, Metformin and Ranitidine) in 2008. Not a single generic manufacturer participated. If they had, they could have kissed their relationships with influential pharmacy chains and buying groups goodbye. And Saskatchewan eliminated its tendering process in 2011 because the savings were nowhere near what was achievable with generic pricing reform nationally.

Read: Drug pricing discrepancies in Canada

The average amount paid per generic drug claim for an employer-sponsored drug plan in Canada in 2016 was $24.20, according to Cubic Health Inc.’s national benchmark. A substantial portion of that cost is the dispensing fee, which ranges depending on plan design and region. But it’s fair to estimate an average national dispensing fee between $8.50 and $9 per claim paid across all plans.

Read: A look at the prevalence of cost-control measures in private drug plans

That means the dispensing fee is, on average, 35 to 40 per cent of the cost of a generic drug claim to a plan sponsor. Does hammering down the price of generics by another 10 or 20 per cent (or 30 per cent, as Quebec plans to do) sound like the best focus of time and effort? If the average cost of a generic claim is approximately $15 nationally, savings of 10 or 20 per cent (or even 30 per cent) pale in comparison to what would be achievable through properly managed plans.

All of the focus on generic drugs is interesting when you consider that, for employer-sponsored plans in Canada (excluding retiree plans), generic drugs represent 59 per cent of all claims paid but they only account for 26 per cent of plan spending. It’s a lot of focus on the smallest piece of the spend pie.

And the figures for total claims are well below the 90 per cent levels in the United States. Shouldn’t we be starting there with our collective energies? Generic drugs in Canada are 15 to 25 per cent of the cost of a comparable brand medication, in most cases. So wouldn’t increasing generic fill rates by 50 per cent, to 88.5 per cent (as in the United States) from 59 per cent, accomplish more than hammering down on generic prices?

Read: Drugs costs, genetic testing on agenda for new CLHIA president

At this point, Quebec’s proposed plan to issue tenders for generic drugs seems primarily to be a political trump card. I may be wrong, but even if the tender policy goes through, I’m not sure plan sponsors should hold their breath and expect their generic spend in Quebec to decline materially in the next couple of years. For plans in other areas of Canada, plan design will drive far more savings than incrementally lowering existing generic prices.

Meanwhile, in Quebec, the province’s health minister set a deadline of the evening of July 4 for the generic pharmaceutical industry to come back to the table with a competitive proposal. As of publication, there has been no update from the health minister or the Canadian Generic Pharmaceutical Association on what, if anything, has transpired.

Mike Sullivan Mike Sullivan is president of Cubic Health, an analytics and drug plan management company based in Toronto. These are the views of the author and not necessarily those of Benefits Canada.
Copyright © 2020 Transcontinental Media G.P. Originally published on

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