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Home > Membership
Benefits > Group Health Benefits
Following months of consideration and discussion with the various stakeholders, on April 7, 2010, the Ontario government announced sweeping changes to what all Ontarians will pay for generic drugs*. Interestingly, these changes were not introduced in the house, but rather via a public announcement. Once regulatory amendments are in effect, it is clear that these changes will result in substantial savings for both the Ontario government and private payors. The prescription drug system in Ontario is complex, with may different stakeholders (government, brand manufacturers, generic manufacturers, wholesalers, pharmacies, insurance companies, pharmacy benefit managers, employers and individuals – to name a few) who will be impacted in some way by these reforms. Canada spends about $25 billion a year on prescription medicines. The split between the public sector drug benefit plans (such as the Ontario Public Drug Benefit Program) and the private sector is about 45% public sector and 55% private sector. It should be noted that rising costs in drug plans have largely accrued from increased drug utilization - for instance more patients needing medications for chronic illnesses - and actual increases in the costs of medications. In the past 10 years, provincial drug plans have witnessed annual increases of anywhere from 8% to 15%. Private sector drug plan sponsors have listed similar cost increases with higher percentage of brand name prescriptions being paid under sponsored plans with 75% of drug benefits for brand name and 25% for generic drugs. The generic drug utilization is higher for public plans due to the ODB drug formulary. For the past several months, the Ontario government has been reviewing the drug system in Ontario, specifically as it applies to the pricing of generic drugs. This review followed the extensive changes introduced in 2006 via Bill 102. In 2006, Ontario launched Bill 102, the Transparent Drug System for Patients Act which introduced broad ranging changes for manufacturers and pharmacy. It amended the Ontario Drug Benefit Act as well as the Drug Interchangeability and Dispensing Fee Act, which governs the private sector. It established a firm limit on “allowances” to be paid to retail pharmacies doing business in the public sector only (the Ontario Public Drug Program). It also set generic drug prices only in the public sector at 50% of the brand. Because plans in both the public and private sectors like to emulate changes like this, a 50% limit became the new price in Canada for generic drugs. Bill 102 was passed into law in late summer of 2006 amid a backlash from retail pharmacy, which was collectively upset over the impact of the act’s limit on allowances. Once of the most significant and unintended consequences of the passage of Bill 102 was a shift in costs of prescription medications and fees for pharmacy service from the newly legislated public sector to the seemingly untouched private sector. Since the passage of Bill 102 in Ontario, drugs sold in pharmacies to consumers are sold under what is now referred to in Canada as a two-tiered drug pricing system. Patients in the public program pay a lower price for drugs than patients in the private drug benefit sector. Before the passage of Bill 102, there was little distinction between public sector drug plan and private sector drug plans regarding fees paid to pharmacy and ingredient costs. In fact, private sector plans often mimicked any changes that were realized by changes in public sector plans. Since the passage of Bill 102, however, private sector plans pay about 50% more for prescription and fees than plans in the Ontario Public Drug Program. The changes announced April 7th will phase in equality to drug pricing for private plans For Employer Sponsored Group benefit plans and individuals without Drug Plans the pricing will be phased in as follows:
*Generic is the term used to describe a drug product that has the same active ingredients as a name brand drug but which is sold at a lower price. Laws prevent generic drugs from being manufactured until a name brand drug’s patent protection has expired -about 20 years. Pharmacists are required to substitute brand name prescriptions to generic drugs where an equivalent generic substitution is available. For the public plan, regulations will be posted for 30 days at which point it is expected that the prices will be reduced to 25 per cent. Further clarification is required to determine if there will be a period for pharmacies to dispense existing stock at the old price. At the same time, the government announced the following: If approved, legislation will phase-out the professional allowances that are paid to pharmacists by generic drug companies. The government said these allowances have kept the price of generic drugs higher. Professional allowances will be eliminated on the public plan once legislation takes effect. Once regulatory amendments are in effect, it is clear that these changes will result in substantial savings for both the Ontario government and private payors (which includes hospitality employers). Initial estimates indicate that employers will see the Ontario portion of their prescription drug plan costs drop by approximately 8% immediately, and by 16% within two years, with additional savings available depending on their program designs. The coming expiry of patents on so many widely used drugs in the next few years also creates a considerable money saving opportunity for companies who cover prescription drugs through health plans. With patents of major brand names, such as Lipitor, expiring in the near future, the proposed legislative changes spell substantial cumulative savings for employers. Lipitor: a drug that is used for lowering blood cholesterol and preventing strokes. It is the top selling branded pharmaceutical pill in the world. Patents are set to begin expiring in 2011.
Advair: it is used to treat pulmonary disease and asthma. It comes off patent sharing in 2010. Nexium: is used to treat gastro esophageal reflux disease. The patent expires in 2014. Crestor: another big selling drug which is used to treat high cholesterol and cardiovascular disease. Some of the most-used prescription drugs in Canada will be coming off patent in the next several years, meaning governments and health care plans will be able to buy generic versions of them.
ORHMA in partnership with Group Lockhart and Manulife Financial are committed to providing cost effective drug benefit plan delivery for the Hospitality Industry. We will be working to develop benefit plan designs to encourage higher utilization of generic drugs by employees to provide the lowest cost drug benefits that are therapeutically effective.
“These reforms are the most positive change in employer sponsored benefit costs in decades.” James Lockhart, President, Group Lockhart Inc.
For more information on ORHMA’s Hospitality Group Benefit Program, please contact our Plan Administrator: James Lockhart, President, Group Lockhart Inc. 1-800-265-1224 or jlockhart@grouplockhart.com
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