Generic drugs at 25%: false hope for savings affecting private plans in

Upcoming legislative changes that will affect the cost of generic drugs, and how this will impact private plans

MONTRÉAL, Aug. 9 /CNW/ - Recently the media confirmed the government's intention to require manufacturers of generic drugs to sell their products at a maximum of 25% of the price of the original drugs. Therefore, if one tablet of an original drug costs the pharmacist $1.00, the generic copy must cost a maximum of 25cents. The current maximum is 60% for the first generic copy and 54% for subsequent copies. This information may lead one to believe that the resulting reduction in costs will in turn reduce drug insurance premiums for private plans.

On the one hand, it is important to understand that, as an incentive for the pharmaceutical research industry, the RAMQ fully reimburses original drugs for a period of 15 years from the drug's registration date on the RAMQ formulary (BAP + 15 rule), even if a generic alternative is available at half the cost. This protection is granted in addition to the protection that is conferred by the federal patent law. Once this protection expires, the RAMQ limits its reimbursement of the original drug to the price of its generic counterpart, regardless of the 68% minimum rule governing the Basic Prescription Drug Insurance Plan (Régime général d'assurance médicaments - RGAM). A policyholder who wishes to buy the original drug must pay the difference between the price of the original and the price of the generic drug.

This same law prohibits private plans from adopting the same control approach as the RAMQ. Indeed, private plans are obligated to reimburse an original drug at a minimum of 68% of the amount claimed, even if the generic drug is sold to the pharmacist at a maximum of 25% of the price of the original. Therefore, the current rules governing the RGAM deny private plans a significant portion of the savings associated with generic drugs.

On the other hand, the price paid by the RAMQ is determined according to an agreement that is negotiated between the government and the Association des pharmaciens propriétaires du Québec (AQPP). The "ingredient cost + 6% (maximum $24.00) + $8.41 in fees" algorithm guarantees that prices do not fluctuate among pharmacies, and that the RAMQ automatically benefits from any price reduction. So far, the government has refused to let private plans benefit from its agreement with the AQPP. Free competition is the only factor that restricts pharmacists in terms of the prices they can charge to patients who are covered by private plans.

According to Johanne Brosseau, Senior Consultant for Aon in Montréal: "This explains why the amount that is charged to a policyholder is often higher than the amount that is charged to the RAMQ for the same drug at the same pharmacy. In addition, prices for the same drug vary from one pharmacy to the next, and actual competition among pharmacies exists only if policyholders are aware of this fact."

The amount charged for a generic drug that is purchased at a lower price does not necessarily translate to a reduction in the amount charged to policyholders who are covered by private plans. There is some concern that pharmacists will take advantage of this situation in order to compensate for the loss of revenue resulting from the sale of drugs to RAMQ policyholders, and reduced rebates paid by generic manufacturers.

Ms. Brosseau warned that, unless the government amends the Act with respect to the minimum reimbursement of 68% imposed by the rules governing the RGAM, and unless private plans introduce appropriate control measures, which several Aon clients have successfully done in Québec, the benefits for private plans of reducing the cost of generic drugs to 25% will be negligible compared to those enjoyed by the RAMQ.

Ms. Brosseau reiterated that, in 2005, Aon formed an association of private plan sponsors for the purpose of speaking out against these inequities in a brief respecting the draft Drug Policy that was presented to the Commission des affaires sociales (, Hearing (in French)- Association of Private Plan Sponsors, May 11, 2005 /Length: 0:56 hrs).

To date, the government has turned a deaf ear, and we must ask why the organizations that are responsible for defending the rights of employers and unions have not insisted on securing the reforms that have become necessary since the introduction of the RGAM in 1997. "We hope that employers and unions will now mobilize and join this association with a view to bringing about the necessary changes and obtaining the right to use the same tools as the RAMQ in order to control the cost of private drug plans in Québec."

About Aon Consulting Canada

Aon Consulting is one of Canada's leading integrated human capital consulting and outsourcing firms. Our more than 800 Canadian professionals in 12 offices coast-to-coast offer benefits, talent management and rewards strategies and solutions to help clients attract, retain and develop world-class talent. Driven by inspired and independent thinking, Aon Consulting is committed to delivering innovative and personalized business solutions with tangible value to help clients shape their organization into the workplace of the future. For more information, visit


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Media relations: Autom Tagsa, 416-542-5659,; Marilynne Madigan, 416-230-9699

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