Generic Drug Sector Study - Chapter 5. The Generic Drug Reimbursement Framework

Public and private drug plans cover about 98% of all Canadians. ⁶⁴ Provincial plans cover about nine million Canadians with another one million covered by federal plans. These people include many in relatively high use groups, such as seniors and persons suffering from serious illnesses. A further 2/3 of Canada's population is covered by private prescription drug plans obtained through their employer or purchased on an individual basis. ⁶⁵

Though covering fewer Canadians than private plans, public drug plans, reflecting the high use groups they cover, are the largest source of funding for retail prescription drug purchases in Canada. Of estimated prescription Canadian drug expenditures of $21.1 billion in 2006, including pharmacy mark-ups and dispensing fees, public plans accounted for an estimated $9.6 billion or 45.5%. Private insurers accounted for $7.6 billion in expenditures or 36%. Out of pocket payments for drugs, co-payments and other prescription drug expenses not covered under either private or public plans accounted for $3.9 billion in expenditures or 18.5%. ⁶⁶

The prevalence of public and private drug plans makes them key determinants of the competitive framework for generic drugs in Canada. This chapter examines relevant features of both categories of drug plans and their implications for the Canadian generic drug competitive framework.

5.A. Public Drug Plans

5A.1. Scope and Nature of Public Plans

In 2006, according to CIHI forecasts, the provinces and territories were the main providers of public drug plans in Canada, accounting for about 84.2% of all related expenditures. The remaining public plan expenditures are paid under federal drug benefit plans and social security funds. The federal drug benefit plan accounts for about 6.7% of the total expenditure and social security funds for about 8.8%. ⁶⁷

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Public Plan Pharmaceutical Product Coverage

Public plans fully or partially reimburse drugs that are listed on their drug formularies. These are developed in consultation with expert drug advisory committees and reflect individual plans' listing and reimbursement policies. ⁶⁸ In order for generic products to be considered for formulary listing, the standard filing requirements include the following:

• Consent to access information about the drug from various agencies
• Confirmation from the manufacturer of its ability to supply the drug
• Data indicating bio-equivalence to the brand drug product
• Health Canada NOC
• Price information
• Approved product monograph. ⁶⁹

In addition to meeting these filing requirements, generic drugs may also be subject to additional interchangeability requirements in order to be listed on a formulary.

Interchangeability can deal with factors beyond a drug's bio-equivalence to a brand product. For example, bio-equivalent drugs may not be deemed interchangeable with a reference brand product due to:

• Difficult packaging or delivery devices
• A particularly bad taste
• The lack of a marking on a tablet allowing it to be easily divided into two where such a marking exists on the brand reference product.

If these or other characteristics of a generic product could interfere with the proper use or delivery of the drug, the product may not be listed on the formulary.

The timing of the listing of generic drugs on public formularies can vary significantly across provinces, depending on the frequency with which provincial formularies are updated and reviews of generic drug interchangeability are conducted. ⁷⁰

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Public Plan Beneficiaries

The coverage of public plans can vary substantially from province to province. All provincial and territorial drug plans provide coverage for seniors (New Brunswick and Newfoundland and Labrador apply an income test) as well as residents receiving social assistance.

Through specific targeted programs, or more generally, through plans available to all residents, all provinces and territories also provide coverage for residents with specific medical conditions and/or who may face exceptionally high drug costs. The specific medical conditions most commonly covered are cystic fibrosis, diabetes, cancer, organ transplant, AIDS/HIV, and multiple sclerosis.

Four provinces offer universal eligibility for drug coverage: British Columbia, Alberta, Saskatchewan and Manitoba. The Ontario Trillium drug plan provides coverage to all residents who are not covered under a private plan and who have high drug costs relative to their income. Quebec maintains cost and income based drug plans that are available to all residents who do not have private drug insurance. ⁷¹ New Brunswick, Nova Scotia, P.E.I., Newfoundland and Labrador, and the territories do not provide universal or general cost and income-based programs.

There are six federal drug benefit programs, serving:

• First Nations and Inuit
• Veterans
• Members of the military
• RCMP
• Prisoners in federal correctional facilities
• Refugees

The Non-Insured Health Benefits (NIHB) plan for First Nations and Inuit is the largest of the plans accounting for 65% of all federal plan expenditures in 2005-2006. The plans for Veterans and National Defence are the next largest accounting for 22% and 7%, respectively. The remaining plans collectively account for about 6% of federal spending. ⁷²

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Reimbursement

Drugs covered by public plans are normally acquired by patients from retail pharmacies. The amount reimbursed is determined by the applicable public plan policy on allowable drug costs and pharmacy mark-ups and professional fees, less any applicable patient co-payments and deductibles.

Limited exceptions to the delivery of pharmaceuticals through retail pharmacies apply in the cases of the Department of National Defense (DND) and NIHB. DND delivers drugs through 50 of its own base pharmacies located throughout Canada. Drug supplies are also carried with DND when troops are deployed in foreign theatres. While most NIHB costs are reimbursed through retail pharmacies, the plan also maintains nursing stations on remote reserves which receive supplies obtained through bulk purchasing administered by The Department of Public Works.

5.A.2 Public Plan Generic Drug Related Policies

Public plans may incorporate a variety of policies pertaining directly or indirectly to generic drugs. Key among these are the following:

• Provincial interchangeability laws
• Formulary price caps
• Maximum cost reimbursement
• Net acquisition cost
• Standing offer contracting
• Most favoured nation provisions
• Deductibles and co-payments.

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Interchangeability Laws

Interchangeability laws provide the legal basis for interchanging generic products and brand pharmaceuticals. The laws generally apply to all interchangeable products, whether they are dispensed under public or private plans or paid for out-of-pocket. They generally consist of two elements:

• Provisions that allow pharmacists to interchange bio-equivalent products
• Provisions that protect the dispenser of the interchanged drugs against related legal proceedings.

Interchangeability laws may be mandatory, requiring that the lowest cost interchangeable products be dispensed, or, they may be voluntary, permitting, but not requiring, pharmacists to interchange products.

Provinces having mandatory interchange laws include Saskatchewan, Manitoba, Newfoundland and Labrador, and Prince Edward Island. Newfoundland and Labrador and P.E.I. further require that the interchangeable product dispensed be the lowest priced product available. ⁷³

In the remaining provinces ? Nova Scotia, New Brunswick, Quebec, Ontario, Alberta, and B.C. ? legislation permits interchange, but does not make it mandatory. Pharmacists may substitute a prescribed drug with an interchangeable drug. ⁷⁴

Most provinces' legislation also provides protection for pharmacists from liability for any legal proceedings stemming from the substitution of an interchangeable drug, provided that substitution is legally allowed in that province. ⁷⁵ However, in all provinces, physicians can prevent interchange of generic products by indicating that ?no substitution? is to be made. This may occur where there is a medical reason why a patient must receive a specific brand of drug. Also, a patient may request ?no substitution? and pay any additional drug costs out-of-pocket.

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Formulary Price Caps

Under formulary price caps, a generic drug must be priced at or below a maximum price in order to be listed on a public plan formulary. Two provinces, Ontario and Quebec, currently use price caps to limit maximum prices for generic drugs under their provincial formularies.

In Ontario, under the Transparent Drug System for Patients Act, 2006 , generic drugs normally must be priced at no more than 50% of the reference brand product price in order to be listed on the ODB formulary. There are limited exceptions to this rule. Where there is evidence that the generic product would be the only drug product of its type designated as interchangeable with an original drug product, the drug price may be negotiated between the provincial drug plan and the drug manufacturer. This price may be higher than the 50% maximum, but lower than the price of the original product. ⁷⁶

In Quebec, a regime is being implemented under which the price of the first generic drug will be limited to 60% of the price of the reference brand product. The price of subsequent generic drugs will be limited to 54% of the brand-name drug. ⁷⁷

In Ontario, after an initial formulary price is established, subsequent price increases are regulated.Changes to the drug benefit price of products on the provincial drug plan formulary are subject to approval by the Executive Officer of Ontario Public Drug Programs.

Quebec implemented a policy in 1994 preventing price increases for drugs listed on the province's formulary, except in certain circumstances. ⁷⁸ However, the province is in the process of implementing a mechanism to allow drug price increases tied to the province's consumer price index. ⁷⁹

Maximum Generic Cost Reimbursement

Maximum generic cost reimbursement policies, generally listed under provincial plans as maximum allowable cost or lowest cost alternative reimbursement policies, do not prevent generic drugs from being listed on public plan registers if they are relatively high priced. ⁸⁰ Instead, they provide an incentive to dispense low cost generics by stipulating a maximum amount that will be reimbursed for a group of interchangeable products. If a higher cost brand or generic product is dispensed, the difference must be paid by either the patient or the pharmacy.

Maximum cost reimbursement policies apply in all provinces as well as the Yukon. ⁸¹ In most cases, maximum cost reimbursement prices are obtained from manufacturers. The exception is B.C., which sets maximum reimbursement cost based on pharmacy prices obtained through its Pharmanet system.

As with interchangeability policies, exceptions may be made to the maximum generic cost reimbursement policies in limited circumstances. For instance, if a patient must receive a particular drug for medical reasons, or the lowest cost product is unavailable due to a supply shortage, provincial drug plans may reimburse the cost of a more expensive product, with no additional cost to the patient.

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Net Acquisition Cost

Pharmacies actual acquisition costs of drugs, whether they are patented or no longer patent protected, are used by many provinces as a basis for reimbursing drugs under their public plans, subject to any applicable maximum price or cost reimbursement policies. In these provinces, the maximum amount that can be reimbursed for generic drugs is the lower of the pharmacy actual acquisition cost or the maximum generic cost reimbursement price.

In some provinces, regulations or policies further stipulate that the actual acquisition costs reported by pharmacies should be the net acquisition cost, incorporating the value of any purchase price reduction, rebate, allowance, free products, or discount received by the pharmacy or dispensing physician. These provinces are Nova Scotia, New Brunswick, Quebec, Saskatchewan and British Columbia. ⁸²

Standing Offer Contracting

Standing offer contracting involves the use of a competitive bidding process to establish the maximum price that will be reimbursed. The winning manufacturer guarantees delivery of the specific drug at the contracted price. In return, the manufacturer's product is given preference or used exclusively during the contract period. ⁸³

A number of provinces have attempted or considered using a standing offer contract process. However, Saskatchewan is the only province currently following this approach. The province uses standing offer contracting for 91 high volume interchangeable drug groups.

Most Favoured Nation Provisions

Most favoured nation provisions require that the price offered to a provincial drug plan by a manufacturer for a particular drug product be no more than the lowest amount charged to other provincial drug plans elsewhere in Canada.

Most favoured nation provisions currently apply under the drug plans of two provinces: Quebec and Newfoundland and Labrador. ⁸⁴ In Quebec, all generic drug manufacturers must sign a commitment that they will submit a guaranteed selling price for any drug they wish to have entered on the list of medications. ⁸⁵ The guaranteed selling price may ?not be higher than any selling price granted by the manufacturer for the same drug under other provincial drug insurance programs.? ⁸⁶

In Newfoundland and Labrador, in order to have a product listed on the formulary, the manufacturer must provide for a specific period, a guaranteed price for the product that is no higher than the best price available elsewhere in Canada. ⁸⁷

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Deductibles and Co-Payments

Deductibles are amounts that patients covered by drug plans must spend on prescription drugs before the plan will begin to reimburse costs. Co-payments are amounts that beneficiaries are required to pay for prescription drugs that are partially reimbursed under a drug plan.

Provincial drug plans typically implement deductibles and co-payments as a means to keep overall drug plan costs down and to discourage over-use of prescription drugs. However, with interchangeable generic drugs, significant deductibles and co-payments may also provide incentive for patients to search for lower priced products.

Co-payments and deductibles are required under many public drug plans. While in many cases they are limited, in some, plan beneficiaries can spend substantial amounts. For example, under the B.C. Universal Fair Pharmacare plan, those under 65 years of age are required to make co-payments of 30% amounting to 2 to 4% of their total family income before pharmaceuticals will be fully reimbursed. Under the Saskatchewan Special Support Program, a deductible of up to 3.4% of annual family income applies. Under Manitoba's Pharmacare program, deductibles are between 2.32% and 5% of adjusted family income. The Ontario Trillium drug program similarly has an income based deductible. The Alberta provincial drug plan requires residents to make co-payments of 30% to a maximum amount of $25 per prescription.

5.A.3 Public Plan Generic Drug Policies Competitive Effects

Despite differences among their generic drug plan policies, reimbursed generic prices tend to vary little between the provinces. The following table indicates this, comparing invoice prices of generic drugs in retail pharmacies. The table compares 2006 average invoice prices for 579 generic drugs sold by prescription in retail pharmacies in nine provinces for which data were available. ⁸⁸ For each drug, the unit invoice price in each province relative to the national average unit invoice price was calculated.

Table 13. Average Unit Pharmacy Invoice Prices Of generics Relative To Canada Average, 2006

	AB	BC	MB	NB	NL	NS	ON	QC	SK
Mean	0.979	1.021	0.979	1.021	0.992	1.016	1.010	0.972	1.009
Median	0.998	1.031	0.992	0.998	1.000	0.997	1.000	0.985	0.998

Data source: IMS Health.

In all provinces, average generic prices are within 2.5% of the national average. Median prices are within 1.5% of the national average. ⁸⁹

Those interviewed for this study generally indicated that there is limited competition in generic drug provincial formulary pricing. Prices in all provinces for initial and successive generic drug products are generally considered to reflect the former maximum price guidelines under Ontario legislation and regulations. Under the guidelines, the first generic listed on the ODB formulary was to be priced at no more than 70% of the brand equivalent. Subsequent generics were to be priced at no more that 90% of the price of the first generic.

This view exists despite public plans policies designed to ensure that low cost generics are dispensed. These policies are generally considered to have played an important role in ensuring that the lowest priced generic drugs on provincial formularies are dispensed or reimbursed. They also help guarantee a minimum level of cost savings from generic drugs. However, they have not generated strong competition among generic drug manufacturers to reduce their public plan list and formulary prices.

This observation is consistent with incentive structure under most public plan designs. Interchangeability policies, while they provide a basis for substituting lower for higher cost drugs, do not, in themselves, provide incentives for companies to reduce the formulary prices reimbursed by public plans.

Maximum cost reimbursement policies similarly provide limited incentives for generic drug manufacturers to compete on price by offering lower formulary prices. Key competitive features of these policies include:

• The price of the lowest cost product is publicly listed on provincial formularies, or maximum allowable cost or least cost alternative prices lists.
• Competing generic drug manufacturers can protect their competitive positions by matching formulary price decreases offered by other manufacturers.
• Generic drug manufacturers that are the first to offer lower formulary prices are generally not given preference under public plans.

Due to these features, a manufacturer offering a lower formulary price to a public plan may have a limited opportunity to gain significant market share while decreasing its return on sales. Instead, other manufacturers can protect their competitive positions by offering matching formulary price decreases.

Net acquisition cost policies that are aimed at capturing the value of rebates and other such benefits potentially allow public plans to increase their benefits from competition among generic manufacturers. However, the monitoring and auditing capabilities of public plans has traditionally focused on pharmacy invoices that do not capture off invoice rebates, discounts and other benefits.

Establishing a framework to ensure that such benefits are captured would require much more extensive auditing capabilities to allow public officials to broadly examine pharmacies' operations and finances. In designing an effective net acquisition cost policy, an additional concern would be to avoid interfering with efficiency enhancing or normal business terms, such as volume or loyalty discounts and prompt payment rebates.

Public plan maximum formulary price policies require generic drugs to be priced at or below a maximum price relative to their interchangeable branded products. This potentially gives provinces the means to ensure a minimum cost saving for generic drugs. However, these policies do not reflect either the development and supply costs nor the competitive prices of generic drugs. Further price regulation of this nature runs the risk of preventing the supply of high cost generic drugs for which the development cost is higher than the allowable price.

Most favoured nation policies, while intended to ensure that a province's generic drug prices will be no higher than those of other public plans, can act as a disincentive for manufacturers to compete by offering lower formulary prices to other public plans. They may do this by ensuring that low formulary prices initially offered in one province will be automatically extended to other provinces having most favoured nation policies. Even if the initial offering of the low price conveys a competitive advantage in the first province, this will result in a lower price being received by other provinces with most favoured nation provisions.

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As noted, significant deductibles and co-payment requirements apply under various public plans in Canada. However, no indication was provided by research or interviews that these have led to generic drug price competition among pharmacies. In any case, if co-payments and deductibles are increased as an indirect means to promote generic drug competition, the issues of health care quality and access would have to be addressed. ⁹⁰

Where it has been possible to apply, standing offer contracting appears to provide significant competitive benefits. As noted, Saskatchewan is the only province obtaining pharmaceuticals through this approach.

Of the 91 drugs for which standing offer contracting is used, information on 37 drugs, which were also sold in other provinces (and were part of provincial reimbursement claims), was available. ⁹¹ The following table compares current Saskatchewan generic drug formulary prices for this set of drugs to prices in British Columbia, Saskatchewan, Manitoba, Quebec and Ontario, expressed as a percentage of the brand product price. ⁹²On average, Saskatchewan pays the lowest percentage of the brand price, about 42%. Ontario has the next lowest average price, 46%, reflecting the recent maximum formulary price caps implemented in the province.

Table 14. Current Formulary Listing Price of Generics Drugs as a Percentage of the Brand Price

	BC	SK	MB	QC	ON
Mean	0.59	0.42	0.58	0.65	0.46
Median	0.61	0.43	0.61	0.63	0.47
Number of Drugs	37	37	37	36	34

Data source: Brogan Inc.

While increased direct contracting by public plans may have the potential to increase their benefits from competition among manufacturers, parties with whom this matter was discussed pointed to a number of related obstacles and issues to be addressed. They include:

• Ensuring that such contracting promotes or sustains competition among generic manufacturers, rather than results in a concentrated and uncompetitive generic drug supply sector.
• The need to effectively and efficiently integrate contracting practices and pharmacy operations.

In addressing the first of these issues, it would be important to ensure that competitive contracting is designed to protect competition through successive rounds of contracting. Processes that result in the exit of manufacturers over time may ultimately lead to a loss of effective competition.

On the second issue, in effectively integrating contracting practices and pharmacy operations, it is important to consider how to deal with existing inventory when there is a change in contracted manufacturers. A further consideration may be ensuring that different interchangeable products remain available to deal with circumstances where a contracted generic product cannot be used by a patient for medical reasons.

Reliance on competitive contracting also places greater emphasis on successful bidders being able to supply the market, and mechanisms to ensure that alternative sources are available where a contractor is unable to meet demand.

The practices noted above are not the only ones that might be considered to shift the focus of generic competition to public plans. Others might involve, for example, restricting access to formularies as a means to encourage price reductions.

Practices shifting the focus of generic competition to public plans, away from pharmacies, in any case, would increase emphasis on the regulation of pharmacy professional fees and mark-ups. As these practices would limit the potential to provide rebates or professional allowances by generic drug manufacturers, they would tend to make pharmacies more reliant on professional fees and mark-ups, and would make the pharmacy net returns more transparent.

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5.B Private Drug Plans

5.B.1 Overview

Private drug plans generally complement public plans by covering persons or costs not covered by the public plans. As noted, about two-thirds of Canadian residents are covered by private insurance. According to the CIHI, private insurers, including group and individual insurance, paid $7.6 billion for prescription drugs in Canada in 2006 representing 35.8% of total prescribed drug expenditures. ⁹³

This section describes the private drug plans sector in Canada and its role within the competitive framework for the generic drugs in Canada.

5.B.2 The Canadian Private Drug Plans Sector

While individuals may purchase private drug insurance, group benefit plans provide approximately 95% of private coverage in Canada. ⁹⁴ These plans are normally sponsored by or organized by employers, or professional orders or associations. In choosing the level and type of coverage to provide, plan sponsors look for a balance between more comprehensive coverage (desired by plan members), managing their risk exposure, and minimizing their drug coverage or insurance premium costs.

Plan sponsors have the option of providing either fixed cost (insured), or uninsured plans for their members.

Insured Plans

Under insured plans, drug costs are principally reimbursed by the drug plan provider. These groups pay a ?premium? per employee or family. Smaller groups usually choose the premium method of funding as a means to manage their risk. Premiums include the cost of anticipated claims expense, administration costs, a charge for risk and an estimate for claim cost increase. At renewal time the claims experience is analyzed. If the rate varies from what was anticipated, this may be reflected in either higher or lower rates on renewal.

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Administrative Services Only

Larger groups are more likely to sponsor uninsured or administrative services only (ASO) plans as the size of their membership can adequately diversify their exposure to risk. These groups choose to ?self insure? which means they pay the claim costs plus a

percentage or per claim fixed charge for administration. Since the group assumes the

?risk? of large claims, no risk charge needs to be incorporated.

Insured and ASO drug plans are provided in Canada by both for-profit insurers, such as Great-West Life, Manulife and Sun-Life, and not-for-profit companies, such as Green Shield Canada, Alberta Blue Cross and Medavie Blue Cross.

The administration of these plans is complex and highly technical. It requires:

• Maintaining and updating drug formularies
• Developing and maintaining a network of pharmacies
• Claims adjudication
• The manual and electronic processing and settlement of drug claims
• Expertise in the analysis and assessment of claims information
• Expertise in the development of coverage and reimbursement policies
• Expertise in the development of flexible software solutions
• Coordination with provincial plans.

Non-profit drug plan providers, such as Blue Cross and Green Shield Canada, have developed capabilities to provide these services for their own and other group plans that they administer. ⁹⁵ For-profit drug plan providers widely contract out the electronic processing and settlement of claims to third party pharmacy benefits managers (PBMs).

PBMs serve as intermediaries between the plan provider and the pharmacy to settle claims. They may also provide other pharmacy benefit management services listed above. In some cases, PBMs may deal directly with employer or other plan sponsors rather than through a plan provider. ESI Canada and Emergis are the two largest PBMs in Canada. Other Canadian PBMs include ClaimSecure and NexgenRx.

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5.B.3 The Role of Private Drug Plans in the Generic Drug Competitive Framework

Private plans may adopt similar policies to those used by public plans on generic drug pricing and interchangeability. It has been stated that in Canada, provincial government drug plans have structured the pricing and gross margins that both public and private plans pay. ⁹⁶

The view is supported by the following table comparing generic drug costs reimbursed by provincial plans in comparison to private plans. Drugs covered in the table include both generics and brand-name drugs that have lost patent protection. They were both public and private plans reimbursement claims in 2006.

Prices used for constructing the table include both drug costs and pharmacy mark-ups reimbursed. For each drug, the average unit price in Canada was calculated. The ratio between the national average unit price paid by a public plan and the unit price paid by a third party payer was computed. The table shows descriptive statistics of the ratios between the unit prices paid by the provinces on average and the private plans.

For both brand-name and generic drugs, the prices paid by private plans tend to be higher than the price paid by the public plans. On average in 2006, non-patented brand, per unit, cost public plans about 90% of the cost of private plans. For generic drugs only, the ratio was 93%.

Table 15. Public Plans versus Private Plans Unit Price Ratio, 2006

	Non-patented Brand-name Drugs	Generic Drugs
Mean	0.90	0.93
Median	0.93	0.93
Standard Deviation	0.11	0.05
Minimum	0.40	0.62
Maximum	1.22	1.19
Number of Drugs	378	245

Data source: Brogan Inc.

The higher prices paid, on average, by private plans versus public plans may reflect the granting of higher mark-ups by private plans or their payment of higher drug prices than the provinces. ⁹⁷

This relationship between public and private plan generic drug prices is undergoing change. Although Ontario legislation has capped generic drug prices under ODB plans at 50% of the brand price where more than one generic is available, these prices are not being provided to private plans in Ontario. Consequently, a two-tiered price structure exists in the province for generic drugs. Further concern has been expressed that not only private plans do not currently benefit from lower generic prices in Ontario, private plan prices may increase to compensate for the lost revenues on ODB sales under the reduced ODB maximum generic drug prices.

The limited role of insurers and PBMs in seeking lower cost generic drugs is an important difference between the generic drug competitive frameworks in the US and Canada. In the US, insurer owned and independent PBMs are highly active in negotiating generic drug rebates or discounts from manufacturers. These can provide important savings on drugs costs for plan sponsors. ⁹⁸ Determining the reasons for this difference between the Canadian and Us generic drug sectors was beyond the scope of this study.

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⁶⁴ The remaining 2% of the population that is not covered is concentrated among working age persons in the provinces of Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island.

⁶⁵ Coverage of persons under public and private drug plans is as reported in Paris, V. And Docteur, E (2006), ?Pharmaceutical Pricing And Reimbursement Policies In Canada?, OECD, Directorate For Employment, Labour And Social Affairs -Health Committee, DELSA/HEA/WD/HWP (2006) 4, p. 17.

⁶⁶ CIHI, supra , note 2, pp. 9-11.

⁶⁷ Ibid . More than 80% of the expenditures under social security funds are provided under the Quebec Drug Insurance Fund for residents who are not otherwise covered by provincial programs or by private health insurance.

⁶⁸ Public plans may also provide for drugs to be reimbursed that are not listed on formularies in certain circumstances.

⁶⁹ Different information may be required for authorized generics. For example, in lieu of bio-equivalence data, letters may be supplied from the manufacturer of the generic and the manufacturer of the brand drug (possibly the same manufacturer for both) stating that the generic is manufactured under the identical master formula, and manufacturing and quality control specifications as the brand product.

⁷⁰ For some provinces (Prince Edward Island, Nova Scotia), the review of applications for listing may take as little as a month. However, in other provinces, the formulary review and update process may be less frequent, for example on a quarterly or semi-annual basis .

⁷¹ See Paris and Docteur (2006), supra , note 65, p. 18.

⁷² See, Federal Healthcare Partnership 2007-2010 Business Plan , p. 26.

⁷³ For Saskatchewan, see The Pharmacy Act , 1996, S.S, 1996, c. P-9.1 at sections 54-55. For Newfoundland and Labrador, see Pharmaceutical Services Act , SNL 2002, c. P-12.01 at sections 9 and 21. For P.E.I., see the Interchangeable Drug List Regulations (EC 287/05) at sections 15-16.

⁷⁴ For Ontario, see Drug Interchangeability and Dispensing Fee Act , R.S.O. 1990, c. P-23 at sections 4(1) and 5. For Quebec, see Loi sur la pharmacie L.R.Q., chapitre P-10, at s. 21 . For Nova Scotia, see Pharmacy Act , S.N. 2001, c. 36 at section 28. For Alberta, see Pharmaceutical Profession Act , R.S.A. 2000, c. P-12. For New Brunswick, see Pharmacy Act , S.N.B. 1983, c. 100 at section 39. For B.C., see Pharmacists, Pharmacy Operations and Drug Scheduling Act , R.S.B.C. 1996, c. 363 at section 30.

⁷⁵ The exceptions are Quebec and Nova Scotia. In Nova Scotia, licensure requirements ensure that all pharmacists have liability coverage when interchanging legally allowable substitutions.

⁷⁶ These provisions came into force on October 1st, 2006.

⁷⁷ La politique du medicament, p. 40. These price caps are due to be put into effect in February 2008. However, Quebec's ?most favoured nation' clause, discussed below, means that Quebec will also benefit from the new Ontario price caps for generic drugs under t he Transparent Drug System for Patients Act 2006.

⁷⁸ La politique du medicament (Quebec Drug Policy), edited by La Direction des communications du ministère de la Santé et des Services sociaux, see section entitled L'établissement d'un prix juste et raisonnable des médicaments, p. 7. Note that this policy also applied to wholesalers' mark-ups.

⁷⁹ This framework is due to come into effect in February 2008.

⁸⁰ The term maximum allowable cost has, in some provinces, been applied across therapeutically similar, but not necessarily interchangeable generic drugs. This discussion refers only to cases involving bio-equivalent interchangeable drug products.

⁸¹ In Quebec, however, this policy does not come into effect unless the original brand product has been on the provincial formulary for 15 years.

⁸² However, Quebec allows limited rebates for rapid payment.

⁸³ Exceptions may be allowed for medical or supply reasons.

⁸⁴Au Québec, la legislation concernant le remboursement des médicaments génériques fait reference à la clause du meilleur prix consenti au Canada.

⁸⁵Regulation Respecting the Conditions on which manufacturers and wholesalers of medications shall be recognized , R.Q. c. A-29.01, r.1.1

⁸⁶Ibid. , see Schedule I.

⁸⁷Pharmaceutical Services Act , chapter P-12.01 at section 23.

⁸⁸ The prices partially reflect price changes implemented in October 2006 caused by the lowering of Ontario's maximum ODB formulary generic drug prices to 50% of the brand product price.

⁸⁹ The sample does not include generic drug products obtained under the Saskatchewan Standing Offer Contract process, which is discussed further below.

⁹⁰ For discussion of these concerns, see, for example, Paris and Docteur (2006), supra , note 65, pp. 35-38.

⁹¹ It may be noted that all of Saskatchewan's 91 standing offer contracts are supplied by two companies, Dominion Pharmacal and Nu-Pharm, which sell these drugs exclusively in the province.

⁹² In the case of Ontario, prices are based on the revised maximum formulary price formula implemented in January 2007.

⁹³ See CIHI, supra , note 2.

⁹⁴ Paris and Docteur (2006), supra, note 65, p.18.

⁹⁵ These companies may also provide related services to provincial drug plans.

⁹⁶ CIBC Report, supra , note 38, p. 61.

⁹⁷ Higher private plan prices may occur, for example, where the price of brand and generic drugs on a provincial formulary is frozen over time but the price for other parties is allowed to increase.

⁹⁸ See Federal Trade Commission, Pharmacy Benefit Managers: Ownership of Mail-Order Pharmacies , August, 2005, p. 9 which reports maximum allowable costs to plan sponsors of generic drugs obtained through PBMs of, on average, 62% off the manufacturer's wholesale price.