Cost Drivers of Private Drug Plans in Canada, 2017

PDF - 755 kb

2017 marked the highest growth in drug costs since 2010

Driven by increasing pressure from higher-cost drugs and reduced generic savings, there has been a marked increase in drug costs in private plans over the last four years. This follows a period of low growth from 2010 to 2013 when upward cost pressures were kept in check by substantial savings from generic substitutions and price reductions. Overall drug costs increased by 6.4% in 2017, which was higher than the 10-year compound annual growth rate (CAGR) of 4.9%.

The use of higher-cost drugs (drug-mix effect) has become an increasingly important cost driver. Its upward pressure on expenditures, which ranged from 2.6% to 3.7% in the first part of the last decade, reached a high of 4.9% in 2017. This overall result does not include the slight downward pressure exerted by the direct-acting antiviral (DAA) drugs for hepatitis C in 2017. DAA drugs, which have had a significant but sometimes opposing impact on the growth of drug costs over the last few years, have been reported separately in this analysis.

Demographic change also contributed to the stronger than average push effect in 2017. This was due to an increase in the number of beneficiaries, as well as more active beneficiaries entering the higher-cost 55+ age bracket, among other factors. The volume effect, which has remained somewhat stable over the past few years, had an almost negligible upward push of 0.1% on drug costs in 2017.

Cost savings from generic and biosimilar substitution, as well as price reductions, have stabilized in recent years. Pulling costs down by only 2.2% in 2017, they were not able to offset the increasing cost pressures of the demographic and drug-mix effects.

High-cost drugs account for most of the drug-mix effect

Ten drugs contributed to over half of the upward 4.9% push from the drug-mix effect in 2017. Most had annual treatment costs exceeding $10,000, including five immunosuppressants, one oncology drug and one drug for the treatment of cystic fibrosis. Other top contributors belonged to the anti-diabetic and psychoanaleptic classes; while these drugs have lower treatment costs, they are used by larger beneficiary populations to treat more common conditions.

Although Epclusa, used in the treatment of hepatitis C, was the top contributor to the drug-mix effect in 2017, pushing costs upward by 0.5%, other DAA drugs pulled costs down to give a net effect of -0.2%. This may reflect the overall market dynamics, such as new drug launches and evolving reimbursement policies, among other factors.

Reimbursing brand drugs at generic prices would increase savings for private plans

The cost-saving effects of generic substitutions (-1.2%) and price reductions (-0.9%) were nearly equal in magnitude in 2017. Although the lower generic pricing achieved through provincial policies benefited private plans, some of the top-selling generic drugs were not subject to the provincial pricing rules (e.g., esomeprazole) and had relatively high prices.

The results also suggest that for top-selling molecules with generic availability, private plans reimburse a sizable portion of brand use at unit costs that are much higher than the generic levels. Important cost savings could be realized through increased generic reimbursement and/or limiting the reimbursement of the brand product to the generic price.

Biosimilars may offer future cost savings as the impact of generic price reductions declines

A number of biosimilar products have recently entered the Canadian market including some for top-selling drugs such as Remicade, Enbrel and Lantus. However, their initial uptake has been relatively slow, as these products are not considered interchangeable with the reference biologic and may not be approved for the same indications at introduction.

With the exception of filgrastim, biosimilars captured less than 3% of the volume of prescriptions for their respective molecules in 2017, resulting in minimal cost savings. Price discounts, which also impact the potential cost savings, varied considerably by product, ranging from 25% to 47%.

NPDUIS is a research initiative that operates independently of the regulatory activities of the PMPRB.