You could soon be paying more for drugs

TheStar.com – Business
Published On Tue May 18 2010.   By James Daw,  Personal Finance Columnist

Ontario has moved to force down generic drug prices, while leaving pharmacies to recover lost revenue elsewhere.

That could leave consumers and sponsors of private drug plans paying more for dispensing fees, patented drugs and other services.

Meanwhile, another shoe is about to drop that could further exaggerate differences in prices and fees depending on who is paying.

A coalition is forming so sponsors of private drug plans can better use their buying power to negotiate lower prices, and also to save money through better management of drug use by employees.

It’s still early days, but the major consulting company behind the idea expects to sign up dozens of large companies in the next few weeks.

“Most employers in Canada don’t manage the price file of the drugs,” says Wendy Poirier, director of the health and group benefits practice for Towers Watson in Canada.

They hire an insurance company that earns an administrative fee to manage medical and drug plans. The insurer makes sure no employee gets more than his or her entitlement, but does not necessarily negotiate prices or monitor whether one pharmacist is charging $150 while another is charging $100 for the same drug, says Poirier.

“But, of course, Ontario regulates what it will pay for drugs for its plans (for seniors, the poor, patients in hospitals and those with dread diseases like cancer). Then the teeter-totter goes up somewhere else, because pharmacies strive to make a profit.”

Towers Watson, the consulting company formed from the recent merger of Towers Perrin Forster & Crosby Inc. and Watson Wyatt Worldwide Inc., brings seven years of experience with a buying coalition in the United States.

In the United States it works with more than 130 U.S. companies that pay about $2.8 billion for drugs for more than 2 million employees and retirees.

In Canada, Poirier says her company has been working with 12 companies that spent $150 million for drugs in 2009, and with Green Shield Canada, to develop the structure for negotiating and monitoring drug prices through the new Canadian Rx Coalition.

None of these dozen companies has yet to join the coalition, however. The formal invitation to join went out late last week, and the consultants are waiting for a response.

Towers Watson promises the coalition members will get more information than they now receive about the terms of pricing deals with drug suppliers and pharmacies.

They will get step-by-step advice on managing drug utilization, serving members with diseases and selecting the list of generic and patented drugs their plans will cover, as provinces do.

Controlling costs, says Poirier, should help companies avoid having to reduce their group medical coverage in the face of ever-rising prices.

Drugs now account for about 70 per cent or about $14 billion of the cost of employer-sponsored medical plans in Canada, according to Towers Watson. Prices more than doubled in the past decade, rising faster than government budgets for drugs.

A company called Telus Health Solutions, a subsidiary of the telephone system operator that offers technology for prescription payments, set a maximum dispensing fee on behalf of companies whose drug plans are run by various insurers.

But some pharmacists charge more, and more may in future. Towers Watson points out in a slide presentation that some pharmacies refused to dispense drugs or charge drug plans when the Canadian Auto Workers union negotiated discounted prices with some brand-name drug makers.

Poirier promises companies that join the new coalition will receive full disclosure about the terms of pricing deals from Green Shield Canada.

There is no guarantee the coalition will succeed. But if the consortium idea does succeed, and other similar purchasing groups emerge, then consumers left out of a drug plan or a coalition could see higher prices.

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