A 20 January 2018 joint statement by the pan-Canadian Pharmaceutical Alliance (pCPA) and the Canadian Generic Pharmaceutical Association (CGPA), on behalf of participating federal, provincial, and territorial public drug plans, announced a new five-year initiative that will provide significant drug plan savings to the provinces related to generic drug coverage. Though the primary beneficiary of the savings will be participating public drug plans, the Canadian Life and Health Insurance Association (CLHIA) has confirmed in a public statement that, “these discounts will continue to apply to employer sponsored plans,” thus private drug plan sponsors are likely to see notable financial savings.

1. Febraury 2018
Aon Risk Solutions
Health and Benefits Practice
GenericDrugPricing
A 20 January 2018 joint statement by the pan-Canadian Pharmaceutical Alliance (pCPA) and the
Canadian Generic Pharmaceutical Association (CGPA), on behalf of participating federal, provincial,
and territorial public drug plans, announced a new five-year initiative that will provide significant drug
plan savings to the provinces related to generic drug coverage. Though the primary beneficiary of
the savings will be participating public drug plans, the Canadian Life and Health Insurance Association
(CLHIA) has confirmed in a public statement that “these discounts will continue to apply to employer-
sponsored plans,” thus private drug plan sponsors are likely to see notable financial savings.
Background
The pCPA is a public coalition of all Canadian provinces and territories
working together to achieve greater value for brand name and
generic drugs by negotiating better pricing for publicly funded drug
programs (including federal drug plans). The initiative aims to increase
the sustainability of drug plans through lowered costs, improve pricing
consistency across the country, and ultimately increase access to
new drugs in Canada by indirectly encouraging investment in the
generic drug market. The CGPA represents generic drug manufacturers
across Canada.
Between 2014 and 2017, the pCPA negotiated 25% - 40% price
reductions for 19 molecules in varied dosages. As of 1 April 2018, the
total will rise to include 68 of the most commonly prescribed generic
drugs in Canada. Prices for all will be reduced by 25% – 40%, resulting in
overall discounts of up to 90% off the price of their brand-name
equivalents. These drugs include those used to treat high blood pressure,
high cholesterol , and depression, among other conditions.
A key component of the pCPA initiative is that tendering will not be
pursued by the participating drug plans over the five-year term of the
agreement. The generic drugs covered are manufactured by multiple
generic companies represented by the CGPA, and the guarantee against
tendering will help to ensure supply stability and continued investment
in the Canadian generic drug market over the next five years.
In 2017, the Quebec government passed legislation to establish a
tendering process in order to reduce the cost of certain drugs covered by
the province’s public drug insurance plan, specifically generic drugs. The
initial notice of tender was to be issued on 1 July 2017, but negotiations
between the province and the CGPA led to a five year agreement
wherein, the Quebec government tabled the planned competitive
bidding process in favour of a negotiated pricing agreement for generic
drugs. Although the specific details of the agreement are unknown,
savings for the public drug plan in Quebec are estimated at $1.5 billion
over the life of the agreement, reducing the current annual $800 million
generic drug spend by about $300 million per year. The terms of the
Quebec/CGPA agreement came into effect on 1 October 2017.
Expansion of generic drug pricing agreement good
news for private drug plan sponsors

2. Geography and the structure of provincial drug programs will play a
role the overall financial effect of the revised generic pricing structure.
Aon data shows that employers in provinces where robust pharmacare
programs are in place, namely British Columbia and Manitoba, may see
go-forward savings as high as 5.4%. In other provinces (excluding
Quebec), the savings are likely to land at about 3.8%. These figures
represent broad estimates only. Though all plans are likely to see a
positive benefit, there will be a large degree of variation based on
individual plan characteristics.
Regardless of geography and plan specifics, the new pricing structure
for key generics will have a positive financial impact on plan sponsors.
The degree of impact will hinge on how much exposure each plan has
to the generic drugs specified in the pCPA/CGPA agreement and their
current utilization rate. Plan sponsors are encouraged to evaluate claims
data to determine what savings might be available come April 1 and
how those savings might create opportunities for strategic benefits
plan improvements.
Should you wish additional information on this topic, please contact your local Aon Consultant, or send an email to canada.hbknowledge@aon.ca.
Contact information
Projected private drug plan savings
Potential drug
plan savings
3.9%
(*estimate)
Potential extended
healthcare plan
savings
2.3% – 3.1%
(*estimate)
Based on Aon data, the expanded list of generic molecules subject to
the pCPA agreement is likely to generate annual private drug plan
savings of about 3.9% for plan sponsors across the country, and overall
annual extended healthcare plan savings between 2.3% and 3.1%. At
this time, these estimates cannot be extended to claims originating in
Quebec as the specific terms of the CGPA agreement with Quebec have
not been made public.
*Savings projections are based on Aon sourced prescription drug data for 2016/2017 for plans in provinces other than Quebec. Extended healthcare plan savings will vary depending on drug
utilization as a percentage of overall extended healthcare claims.
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