Wal-Mart jolted the U.S. healthcare industry in September when it began offering approximately 130 generic drugs at US$4 for a month’s supply including the dispensing fee, in the Tampa Bay, Fla. area. Critics noted many of the drugs were old and already available for the same price or less at other pharmacies. Regardless, Wal-Mart rolled the program out in an additional 26 states four months ahead of schedule.

As the population continues to age and the cost of healthcare increases, Wal-Mart has introduced an alternative approach to the problem. Many commentators point out this move is a retail strategy from the pharmacy arm of the corporation. So, it’s more about increasing foot traffic in the stores by offering lower prices on drugs(known in retail lingo as a loss-leader)than solely about helping American’s get access to cheaper prescription drugs.

Despite the criticism, it is worth investigating if a similar system could work at Canadian pharmacies. If one can’t, the industry needs to open up to creative ideas around reducing costs in the face of looming increases. Plan sponsors have a role to play too and it starts with better plan management.

So, could Wal-Mart Canada’s pharmacy or another retail pharmacy introduce a similar generic price slashing program? The answer is a clear no.

“First of all, in general, generic prices in the U.S. are significantly lower than they are in Canada,” says Mark Murphy, vice president, business development and customer services, ESI Canada in Mississauga, Ont. The U.S. industry is characterized by “incredible competition that drives down pricing.” In Canada, the federal government’s Patented Medicine Prices Review Board regulates prices of brand-name drugs and generics are determined by the provincial formularies as a percentage of those prices. “We have no control over purchase price,” says Marc Kealey, chief executive officer, Ontario Pharmacists’ Association(OPA)in Toronto.

Jim Keon, president of the Canadian Generic Pharmaceuticals Association(CGPA)in Toronto, says part of the reason for little change in prices is because healthcare costs are not a pressing issue in corporate Canada. Certain costs fall under government jurisdiction, so companies “aren’t as responsible for as much of the healthcare costs as U.S. companies.” There is not as much incentive to find dollar saving initiatives because the impact is less when compared to American companies. The average size of businesses in Canada is another factor in why some healthcare issues, such as the costs of drugs, are not at the forefront of companies’ concerns, says Jody Cybulski, partner, senior benefits consultant with Blevins Insurance Group in Barrie, Ont. About 80% of Canadians work in small or mid-size firms, he says, “smaller employers pay attention to health expenses but donft have the time, inclination or expertise to do extensive reviews of their plans the way a larger employer would.”

For Canada to create a unique plan to lower medication costs an injection of new ideas is needed. ESI Canada’s Murphy suggests two strategies. The first is using progressive managed formularies with strong generic substitution programs. This can drive greater use of drugs that are cheaper, but are therapeutically equivalent. In Canada approximately 5% of plans encourage the use of lower cost equivalents by incorporating tiered co-payment levels into their formulary compared to almost 90% of plans in the U.S. The second is having plan sponsors or insurers negotiate preferred provider networks. These are groups of pharmacies that in exchange for a promise of higher prescription volume are prepared to lower either the dispensing fee or the markup on medications. “We really don’t see much of that in the Canadian market,” says Murphy.

However, some believe utilizing pharmacists is the way to reduced costs. “If we could have a public program where the pharmacists are acting on behalf of the employers in managing drugs dispensed then you will cut costs more so than just giving cheap generic drugs,” Cybulski says.

OPA’s Kealey claims that keeping drug costs low requires “improving collaboration and understanding that medication management and the counsel attached to that is going to get better outcomes in the aggregate.” Not surprisingly, he believes drawing on pharmacists’ knowledge to not only reduce costs, but produce better long-term health outcomes. What is missing are compensation guidelines. Most recently, Ontario has launched a Pharmacy Council, which Kealey is part of, to advise the government on such issues.

In the meantime, plan sponsors should not sit back waiting for other industry players to create cost-saving strategies. Suzanne Lepage, product manager, pharmacy benefit management for Manulife Financial in Waterloo, Ont., says there are four basic tools that sponsors of any size can use to better manage their drug plans.

The first is using generic substitution in a drug plan. “It’s surprising how many plans out there don’t require members to get a generic drug,” she says adding that this can save potentially 1% to 3%. The second is effective use of positive enrollment and coordination of benefits. By regularly ensuring plan enrollment is up to date and determining if a spouse has benefits, the insurer can better determine which spouses’ plan should pay what claims according to regulations. This can save upwards of 15% says Lepage.

The final two strategies she suggests are member cost-sharing and member education. How a member approaches shopping for drugs changes if they are paying 20% of the cost instead of nothing. A percentage is a more effective than a fixed dollar amount. “Plans with increased cost-sharing for members makes them part of the purchasing process and makes them think twice about how and where they buy.” Combining responsibility for cost with educating members about simple efforts like reducing dispensing frequency, medication adherence and comparison shopping can impact costs.

As workforces continue to age, it’s inevitable the use and cost of medications will increase. In the competitive U.S. market, a tactic like Wal-Mart’s could instigate a wave of price reductions—already competitors Target Corp. and Wegmans have responded with a price match—and push down costs. However, in the Canadian context such rollbacks are not an option. “Prices always increase and if you’re fighting the price side of the equation that’s only one side,” says Cybulski. Murphy is not optimistic about industry stakeholders tackling any side of the equation. “Unfortunately, until somebody&#8212the plan sponsor really&#8212is pushed over the limit in terms of costs the marketplace will likely continue in the same manner.”

Leigh Doyle is assistant editor of BENEFITS CANADA. leigh.doyle@rci.rogers.com

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