Cost Drivers of Private Drug Plans in Canada, 2012/13

Concerns have been raised in recent years about the sustainability of private drug plans in Canada in light of population aging, the increased use of drugs and the cost of new drugs. This upcoming NPDUIS report analyzes recent trends in prescription drug expenditures in private drug plans and provides insight into the drivers of change.

The report complements the upcoming NPDUIS CompassRx, which provides a similar lens, but from the perspective of the public drug plans. Identifying the major drivers of change and measuring their effect on costs allows policy makers and researchers to understand the current trends and anticipate future cost pressures and expenditure levels.

The rates of change in drug cost in pay-direct private plans have been steadily declining in recent years, reaching a low of 2.2% in 2013. These rates are the net result of important and opposing “push” and “pull” effects.

On the one hand, factors such as the population growth, the increased use of drugs, and the use of more expensive drugs, to name a few, put upward pressure (“push”) on drug expenditures. On the other hand, expenditure levels are pulled downward by generic substitution and price reductions.

The report employs a cost driver model to disaggregate and measure the impact of a number of effects (and sub-effects): demographic, volume, and drug-mix, as well as price and generic substitution effects.

Push and pull effects
Push and pull effects

This graph describes the factors that impacted the rates of change in drug cost in pay-direct private plans in Canada from 2008 to 2013. The 2012 results were adjusted for the addition of a large number of active beneficiaries to the pay direct database partway through the year.

Push and pull effects
2008 2009 2010 2011 2012 2013
Net Change 10.3% 8.3% 4.6% 3.3% 2.7% 2.2%
Total Push Effects 10.7% 8.3% 6.9% 8.1% 9.2% 7.1%
Demographic Effect 7.3% 1.8% 2.9% 4.4% 5.2% 2.5%
Volume Effect 0.2% 3.5% 0.9% 1.1% 0.3% 1.2%
Drug Mix Effect 3.2% 3.0% 3.2% 2.6% 3.7% 3.5%
Price Effect -0.5% 0.2% -2.1% -4.5% -6.0% -4.5%

Demographic Effect Up 2.5%

The demographic effects pushes the drug cost upward mainly due to the increases in the beneficiary population. Note that these increases may be due to the addition of pay-direct private plans in the available database. The figure reports the size of the active beneficiary population.

Number of beneficiaries
Number of beneficiaries

This graph gives the number of beneficiaries in pay-direct private plans in Canada from 2007 to 2013.

Number of beneficiaries
Beneficiaries (million) Year-over-year change
2007 10.3 blank
2008 10.9 5.9%
2009 11.0 1.2%
2010 11.2 1.6%
2011 11.7 4.3%
2012 12.2 4.5%
2013 12.4 2.0%

Volume Effect Up 1.2%

The volume effect has a push effect on private drug plan costs, mainly as a result of the increases in the volume of prescriptions at beneficiary level. Beneficiaries were dispensed 10% more prescriptions in 2013 than in 2007.

Indexed average number of prescriptions per beneficiary
Indexed average number of prescriptions per beneficiary

This bar graph gives the indexed average number of prescriptions per beneficiary in pay-direct private plans in Canada from 2008 to 2013. There was an increase from 1.00 in 2007 to 1.10 in 2013.

Drug-mix Effect Up 3.5%

The drug mix effect had the most notable push effect on drug costs as the utilization shifted from lower- to higher-cost drugs, such as biologics. These drugs have been capturing an increased share of costs, accounting for 20.1% of the private market in 2013.

Biologics share of drug costs
Biologics share of drug costs

This bar graph gives the biologic drugs share of total drug cost in private plans from 2008 to 2013. There has been a gradual increase in the share of biologics, from 11.6% in 2008 to 20.1% in 2013. A comparison between the private plans and the public drug plans reporting to NPDUIS is given for 2011 and 2012. In 2011: biologics in private plans 15.8%; in NPDUIS public 15.4%. In 2012: biologics in private plans 18.1%; in NPDUIS public 18.5%.

Cross Effect

The cross effect results from the interaction between the individual effects.

Price Effect Down 2.3%

The reduction in drug prices pulled down the drug cost levels in recent years as provinces implemented generic pricing policies starting in 2010. These resulted in reductions in generic price levels relative to brand-name reference from 0.61 in 2010 to 0.44 in 2013.

Average unit drug cost of generic drugs relative to the brand-name reference
Average unit drug cost of generic drugs relative to the brand-name reference

This bar graph gives the average unit cost of generic drugs in private plans relative to their brand-name counterparts from 2007 to 2013. From 2007 to 2010, the average unit cost reimbursed for generic drugs was 0.61 of the brand name. This decreased to 0.55 in 2011, to 0.49 in 2012 and 0.44 in 2013.

Generic Substitution Effect Down 2.2%

The shifting utilization from higher-cost brand-name drugs to lower-cost generics had a 2.2% pull down effect on drug costs in 2013. The figure reports the drugs that generate the most savings.

Generic Substitution Number of beneficiaries
Number of beneficiaries

This graph gives an estimate of the savings from the top generic entrants in 2012/13: rosuvastatin (Crestor): 0.8%; pregabalin (Lyrica): 0.3%; oxycodone hcl (Oxyneo): 0.1%; clopidogrel (Plavix): 0.1%; quetiapine fumarate (Seroquel): 0.1%.

Methods: The cost driver analysis follows the approach detailed in the PMPRB report titled The Drivers of Prescription Drug Expenditures: A Methodological Report, 2013.

Data Source: IMS Brogan Private Pay Direct Drug Plan Database (85.7% capture rate as of August 2014).

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

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