Drug pricing and reimbursement: The role of provinces and hospitals in pharmaceutical pricing

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.

To discuss these issues, please contact the author(s).

This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.

For permission to republish this or any other publication, contact Janelle Weed.

© 2024 by Torys LLP.

All rights reserved.