Drug Pricing And Reimbursement: The Role Of Provinces And Hospitals In Pharmaceutical Pricing (Video) – Food, Drugs, Healthcare, Life Sciences

A video series based on the Global Legal Insights publication
“Pricing & Reimbursement 2020-Canada”

This video is the fourth and final in a series which will
explain the legal framework of the health care system, and
regulation of drugs and drug pricing, in Canada at the federal and
provincial levels. The series is based on the Global Legal Insights
publication “Pricing & Reimbursement
2020-Canada“.

Provincial role in pricing

The provinces have their own legislation on how pharmaceuticals
can be priced at the wholesaler and retail levels. Wholesale
margins are regulated with respect to drugs ultimately dispensed to
publicly insured individuals, as the public drug programmes include
caps on the wholesale margins that will be reimbursed. For private
payers, the wholesale margins are a matter of negotiation between
pharmacists and wholesalers.

In many provinces, drug manufacturers, in practice, provide
pharmacies with rebates (typically volume discounts) with respect
to drug products dispensed by the pharmacies which are not factored
into the transparent drug cost (i.e., the established list price).
For generic drugs, these rebates can be very significant, typically
60–80% of the generic drug cost. In Ontario and
Québec—the two largest provinces of Canada—such
rebates are prohibited. There are exceptions to the general
prohibition for certain “ordinary commercial terms” such
as prompt payment discount, volume discount or distribution service
fee.

Provincial cost containment policies

The public plans curb pharmaceutical spending not only by
deciding which pharmaceuticals are listed on the formularies, but
also by negotiating the conditions for eligible reimbursement.
Pharmaceuticals will be listed with specified criteria and the plan
will not reimburse for products that are prescribed outside such
criteria. Provinces may also impose restrictions on the
formularies.

The cost-constrained Canadian provinces are becoming more
creative in the way that they reimburse high cost specialty drugs
through their provincial drug plans. There have been examples where
a province has developed off-formulary programmes whereby
physicians are incentivised to prescribe a lower cost drug product,
for off label use, rather than the higher cost drug. Provinces also
develop tiering policies where patients are required to try a
number of first tier (biosimilar/less expensive) products prior to
gaining access to a second-tier product (innovative biologic).

Tendering

While relatively uncommon for public plans, there have been
instances where provinces have used a tendering process to select
manufacturers to become exclusive suppliers for drugs on the public
formulary. This approach is a cost-savings tactic for facilitating
more favourable supply contracts from drug manufacturers and
wholesalers.

Tendering is becoming increasingly common for hospital procured
products, including for brand name drugs where there are
therapeutic comparators available, with many hospitals
participating in group purchasing organisations in order to secure
lower prices. Contracts that result from tendering tend to be very
purchaser-friendly—purchasers seek broad termination rights
so that they are not bound to the contract terms in the event of a
new product entry or other market changes, and these contracts may
not have any minimum purchase commitments.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.