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18%: What Alberta's new generics price cap has to say about the cost-containment drive in Canada

05 September 2013 Cameron Lockwood

With August 30th come and gone, the full impact of the Canadian province of Alberta's May 1st reduction in its generic price cap from 35% to 18% should soon make itself known. For August 30th marked the end of the so-called "conditional exception" that was granted to the vast majority of the 2,804 medicines subject to the new cap - i.e., the grace period during which the government continued to pay higher rates, while seeking justification from manufacturers as to why they did not meet the former's demands. Given the controversy that initially erupted over this policy, we should expect to see more debate in the near future.

A bold move from Alberta
The Alberta government announced its new generics policy as part of its 7th of March budget. In what came as something of a surprise to the public, the indebted province demanded that, from May 1st 2013, all generics be capped at a maximum of 18% of the price of their branded counterpart. The 18% figure puts Alberta squarely on the map as that province with the lowest price cap in the country, beating British Columbia's 20% cap which is expected to come into force from April of next year. Hitherto, Ontario had been leading the charge with regards to generic cost-containment, taking its own cap down to 35% as of 1 April 2011 and 25% as of 1 April 2012.

However, we have seen the 18% figure before. Earlier this year, I wrote about the Generic Pricing Initiative, which saw the prices of six commonly-prescribed generic medicines come down to 18% of the price of the relevant originator nationwide on 1st of April 2013. This initiative emerged from the debate around "bulk purchasing," something of an umbrella term which has been used to describe the provinces' exploration of ways to leverage their collective buying power.

A majority fall - but not quite far enough
Alberta's move sparked major controversy in the province, stirring debate amongst the generics industry and pharmacists. There have been accusations that the policy will have a significant impact on the bottom line of retail pharmacy, especially independents. Calls for an increase in pharmacist dispensing fees - which have remained more-or-less flat over the years - have been ignited, given pharmacist fears that the new pricing policy will impact the willingness of manufacturers to grant rebates.

The government drive to put in place a new "services" model (enabling pharmacists to gain fees from enhanced offerings such as provision of care plans or administering injections) has been met with some scepticism, with claims that this model will incur its own upfront costs and struggle to replace lost revenue. Meanwhile, there are reports that the country-wide generics cost-containment effort has been impacting even the large retail players.

In fact, only a fraction of the multi-source generic medicines impacted by Alberta's new policy actually saw their prices change in line with the province's demands, as reported back in May. A mere 1.5% allegedly dropped to the 18% rate, although around 77.4% took some form of price cut in total. The majority reportedly fell to 25% on average, which has become something of a standard since implementation of Ontario's latest policy. In reality, as reported at the time, manufacturers are not bound by this request. What is more, while the province could in theory simply delist those medicines whose manufactures do not comply, additional policy dictates that alternative supplies must be found before the government can do so. Hence the outcome that manufacturers were granted the conditional exception.

The onward march of cost-containment
Still, the recent expiry of that exception means we should soon see more discussion around this issue. The outcome is significant, as multiple provinces have policies which stipulate that their generic price cannot exceed that of the lowest price found in any provincial formulary - meaning Alberta's bold move will have ripple effects across the country irrespective of whether additional provinces actively implement the same policy. What is clear is that the generics cost-containment drive shows no sign of slowing pace in Canada.

Posted 5 September 2013

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