Abstract
— Dr. Michael Law, assistant professor, Centre for Health Services and Policy Research, UBC
Provincial governments seeking to cut spending on generic drugs — by reducing prices to a lower percentage of the brand-name equivalent — are still overpaying for most of these drugs, according to a study from the Centre for Health Services and Policy Research at the University of British Columbia.
The research was conducted by Dr. Michael Law, assistant professor at the Centre and an expert adviser with EvidenceNetwork.ca. Dr. Law focused his analysis on generic drug expenditures in Ontario, as that province has gone the furthest by reducing generic prices to 25% of the brand-name cost, and so has the lowest prices in Canada.
“I was interested in evaluating the real impact of the dramatic percentage reduction in Ontario, from 65% to 25%,” says Dr. Law. “Paying one-quarter of the brand price sounds like a great deal, but the numbers say otherwise, when you examine whether these new prices are internationally competitive.”
The study compared the 2011 prices of generic drugs on the Ontario Drug Benefit Formulary to price listings for 2 other public drug programs — the US Department of Veterans Affairs and the New Zealand government. Out of the 100 most frequently dispensed generic products in Ontario, 82 were listed on one or both of the other programs.
“Among those 82 drugs, 90% of the time, they were more expensive in Canada than in the 2 comparator countries and on average, they were twice as expensive,” says Dr. Law.
The largest price discrepancy was for simvastatin (10 mg), which was more than 30 times more expensive in Ontario. If the Ontario government had paid the best comparator prices for the 82 generic products, it would have saved $129 million in 2011, according to Dr. Law's study. Extrapolating to the total Ontario market, the savings would be $245 million.
The traditional and arbitrary formula of setting generic prices as a percentage of brand-name prices is not optimizing savings, according to Dr. Law. The other countries use different mechanisms to achieve better pricing, he says. “If you look at New Zealand, for example, it uses contractual agreements with firms that guarantee them a certain amount of volume for a particular price and use competition to get the best price possible.”
Dr. Law is encouraged by the recent commitment of Canada's premiers to have the provinces collaborate on bulk purchasing of generics. “In the generic drug market, there is genuine competition. If we can capture some of that competition then I am hopeful that the provinces will be successful in this initiative.”
Canada's potential purchasing power could provide an advantage, he adds. “If you banded all the provinces together, our public programs are bigger than both of those other insurance schemes by a wide margin.”
Achieving savings in the per-unit price of generic drugs could yield multiple benefits, says Dr. Law. “Governments could not only save money, they could improve coverage for people. With estimates like the one our Centre put out earlier this year — that 1 in 10 Canadians can't afford their prescription drugs — I think there's a real opportunity here to get better prices and improve coverage at the same time.”