A critical analysis of BC Pharmacare’s Reference Drug Program

Issue: BCMJ, vol. 45 , No. 8 , October 2003 , Pages 395-399 Clinical Articles

Starting in 1995, BC Pharmacare introduced the Reference Drug Program, through which prescription drugs that Pharmacare’s managers claimed to be therapeutically equivalent were clustered into five therapeutic classes:
• Nitrates
• Angiotensin-converting enzyme inhibitors
• Dihydropyridine calcium channel blockers
• Histamine-2 receptor antagonists
• Nonsteroidal anti-inflammatory drugs
Pharmacare continued to fully subsidize the price of less expensive drugs in each class, while either making patients pay the entire difference in price for more expensive drugs, or requiring special authority to claim full subsidies. The Reference Drug Program has shifted prescription costs to patients and failed to contain growth in prescription drug spending. Furthermore, claims that there are no negative health outcomes to reference pricing are weak.


The Reference Drug Program has shifted the cost of drugs to patients and has not contained the growth of prescription drug spending.


 Financial consequences of the Reference Drug Program

Previous estimates of savings from the Reference Drug Program (RDP) range from $20 to $44 million annually.

For specific classes, Pharmacare managers claim annualized savings of $5 million for angiotensin-converting enzyme (ACE) inhibitors and $9 million for calcium channel blockers (CCBs). For histamine-2 receptor antagonists (H2RAs) and proton pump inhibitors (PPIs, which were subjected to special authorization at the same time as reference pricing of H2RAs), they anticipated savings of $12 million per year. External research does not support these claims.[1,2]

Schneeweiss and colleagues claim savings of $6.7 million in the first year of RDP for ACE inhibitors, whereas Grootendorst and colleagues claim $1.2 million per year in the first 2 years, a huge difference.[3] Furthermore, Grootendorst and colleagues claim savings for all three cardiovascular classes of $7.7 million in 1997.[4]

Other research indicates that the annualized savings for H2RAs and PPIs from January 1996 through May 1999 were between $7.3 million and $8.7 million.[5] There is no published independent estimate of financial consequences for NSAIDs, but Maclure and Potashnik in the BC Ministry of Health stated savings of $5 million, presumably during the first year.[6]

In the midst of this confusion, BC Pharmacare’s actual expenditures before and after implementation of the RDP show that BC Pharmacare, which had enjoyed relatively good budgetary performance before RDP, experienced significantly higher spending afterward.

From 1985 to 1995, BC Pharmacare’s costs per capita increased by 7% annually, versus 10% for provincial and territorial plans in the rest of the country. However, in the 5 years since the imposition of the Reference Drug Plan, BC Pharmacare’s cost per capita increased by 11% annualized versus 8% annualized for the rest of Canada. The total increase has been 30% more than in the rest of Canada (Table 1).

Furthermore, private spending has shown a similar change. Until 1995, private spending had been growing more slowly in BC than in the rest of Canada. But in the 6 years after 1995, private spending per capita in BC grew by 63%—18% more than in the rest of Canada.

When this is added to the disproportionate growth in BC Pharmacare since the introduction of reference pricing, total per capita prescription drug spending increased by 73% in BC, as opposed to 58% in the other provinces and territories.

So, BC has not only failed to contain public spending on drugs, it has also shifted costs to individuals more than other provinces have, for an apparent net loss.

Nitrates

Grootendorst and colleagues concluded that Pharmacare expenditures on the nitrates class over 3 years was $14.9 million less than they would have been in the absence of the RDP.[8] However, much of these savings were caused by the entry of a new competitor into the market, an event independent of the RDP.

Pharmacare imposed the RDP for nitrates in October and November 1995. There was an almost immediate change in prescribing toward the less expensive reference drugs, as shown in (Table 2). Pharmacare exempted sublingual nitroglycerin from the RDP. Sixteen percent of nitrate users received exemptions via special authority.[4]

However, between January and March 1996, manufacturers of nitroglycerin patches reduced their prices significantly. The mean price per daily dose of the patch dropped from 83 cents to 36 cents.[8] Because of the lower price, Pharmacare started to fully subsidize them again.

The RDP initially destroyed the market share of all restricted nitrates, but only the manufacturers of nitroglycerin patches eventually reduced prices. This happened because Health Canada granted approval to 3M Pharmaceuticals in August 1995 to sell its new nitroglycerin patch, Minitran, in Canada. 3M Pharmaceuticals launched its patch at a low price all over the country. Other manufacturers were forced to match 3M’s price or lose market share everywhere. In January 1996, when BC Pharmacare listed Minitran, 3M’s price was between 57 cents and 97 cents, depending on the dose. List prices for other patches were between $1.02 and $1.42, but came down quickly. This confounds any conclusion about the results of reference pricing alone on nitrate expenditures.[7,8]

Another important effect of the RDP was that many seniors (or their insurers) who did not receive exemptions from payment, nevertheless opted to pay for the more expensive, restricted drugs. Seniors with lower incomes who did not receive exemptions were more likely to proportionally reduce their use of restricted cardiovascular drugs by between 6% and 14% after Pharmacare imposed RDP.[4]

Private payment for nitrates went up by more than 25 times in the period between the implementation of RDP and the price reduction for nitroglycerin patches caused by 3M’s new product (Table 3). However, even after the prices of nitroglycerin patches dropped, private expenditures in 1996 increased by more than 7 times what they were during the baseline period.

ACE inhibitors

Pharmacare introduced the RDP for ACE inhibitors in January 1997. Schneeweiss and colleagues demonstrated that the majority of seniors on restricted ACE inhibitors paid the difference rather than switching to a reference ACE inhibitor when Pharmacare imposed the RDP.[9,10] Looking at all BC seniors who had been using an ACE inhibitor before the RDP, they found that only 18% of those on restricted ACE inhibitors switched (Table 4 ).

Fully 75% of seniors on restricted ACE inhibitors stayed on their drugs. The authors estimate savings of $6.7 million, but this is only to Pharmacare, and does not include the amount that patients or their private insurers paid.[10]

Dihydropyridine calcium channel blockers

For CCBs, the amount of private payment tripled, although the amount of mean monthly defined daily doses of all CCBs went down by 17%, a greater decline than the trend before the RDP predicted.[11] If we gross up the figures to compensate for this secular reduction in prescribing of all CCBs, private payment was more than 3.5 times the amount before the RDP (Table 5).

Histamine-2 receptor antagonists and proton pump inhibitors

Marshall and colleagues claimed savings of $1.8 million to $3.2 million for reference pricing of H2RAs, but found that private expenditures on H2RAs spiked up to 16% of costs, from almost zero before the RDP.[5]

Health consequences of the Reference Drug Program

Grootendorst and colleagues’ conclusions about health outcomes for the cardiovascular classes are ambiguous, and they express some dissatisfaction with their ability to determine the effect of reference pricing on a number of indicators of morbidity. Their final report states that they found no evidence of an increase in rates of mortality associated with cardiovascular or renal disorder.[4] However, their technical report notes increased adverse events, including death:

• In each drug group, those who were not dispensed restricted drugs post-RDP had higher death rates within the first 20 weeks post-policy than the other groups.

• Patients who had been using restricted ACE inhibitors before reference pricing but stopped using ACE inhibitors altogether (rather than switch to a reference drug) had a very high hazard of mortality within the first 12 weeks after reference pricing.

• After controlling for the baseline differences in mortality for patients using restricted and unrestricted ACE inhibitors, patients exposed to the RDP had a higher risk of death from cardiovascular disease than those not exposed, although it was not statistically significant.

• In the short run, exposure to reference pricing for ACE inhibitors (and, to a lesser degree, CCBs) likely increased the risk of admission to hospital for surgery related to cardiovascular and other diseases, and revascularization.

• In the short run, there was also some evidence of longer stays in hospital and more visits to physicians and emergency rooms by patients exposed to the RDP for nitrates.

• In the long run, exposure to reference pricing increased the odds of admission to hospital for revascularization by 6 or 7 times for nitrate users.[4,11]

Grootendorst and colleagues mention these effects tentatively, suspecting sample selection bias, and do not estimate their costs.

Schneeweiss and colleagues found little evidence of adverse events for ACE inhibitors. However, in the first 2 months after the policy, the rate of hospitalization for patients who switched to a reference ACE inhibitor from a restricted one increased by 19%, even after correcting for hospitalizations before the policy. However, the increase is not statistically significant because the confidence intervals are between –1% and 42%.[9] Such a result surely invites further inquiry.

As well, patients on ACE inhibitors had a monthly mortality rate 20% higher than for all other British Columbians before the RDP, with a confidence interval of 0% to 44%. In 1997, the first year of the policy, the rate appears to have been above 20% for all months but two, and above 30% in 6 months, but this is still within the confidence interval.[9] Schneeweiss and colleagues did not report differences in mortality for those who switched ACE inhibitors versus those who did not after the policy.[9]

Conclusions

The research so far indicates that the Reference Drug Program did not achieve its stated objectives:

• Savings to Pharmacare have not been satisfactorily quantified.

• Some apparent savings to Pharmacare are due to increased competition.

• Some apparent savings to Pharmacare are due to increased private payment.

• The RDP did not slow the growth in Pharmacare’s spending relative to spending by other provincial pharmacares.

• The RDP did not slow the growth in BC’s private pharmaceutical spending relative to private spending in the rest of Canada.

• The tentative evidence regarding patients’ health indicates that more research is required before making claims that the RDP did not negatively affect health outcomes.

Competing interests

In the last 5 years, the author has received speaking fees from a number of research-based pharmaceutical manufacturers, and the Fraser Institute has received research grants from research-based pharmaceutical manufacturers.

Table 1. Per capita public provincial/territorial and private prescription drug expenditures: BC vs rest of Canada, 1985 –2001 (current $).

 

Public provincial/territorial Private Total
Year BC Rest of Canada BC Rest of Canada BC Rest of Canada
1985 $43 $40 $41 $58 $87 $101
1995 (RDP introduced Oct) $87 $106 $93 $144 $189 $257
10-year annualized growth (total) 7% (101%) 10% (167%) 9% (129%) 10% (148%) 8% (117%) 10% (156%)
2001 forecast $163 $167 $152 $209 $327 $406
6-year annualized growth (total) 11% (87%) 8% (57%) 8% (63%) 6% (45%) 10% (73%) 8% (58%)

 Table 2. Mean monthly number of prescriptions of nitrates dispensed to senior citizens in British Columbia, percentage of total.

Drug

Baseline
(Apr 1994 to Oct 1995)
Initial RDP of nitrates
(Nov to Dec 1995)
Nitroglycerin patch exempted 
from RDP (Jan 1996 to May 1999)
Reference drugs 8 38 10
Restricted drugs 31 11 18
Nitroglycerin, patch 31 18 41
Nitroglycerin, sublingual 31 33 31
Total 100 100 100

 Table 3. Mean monthly payment for nitrates per 100 000 seniors in BC, by payer.

 

Baseline, 
Apr 1994 to Oct 1995 (share of total)
RDP for nitrates Nov to Dec 1995 (share of total) Change from baseline Nitroglycerin patch exempted Jan to Dec 1996 Change from baseline (share of total) RDP for CCBs Jan 1997 to May 1999 Change from baseline (share of total)
Pharmacare $138 696 $44 625 -68% $69 772 -50% $69 699 -50%
Private $789 $19 776 2406% $6576 773% $3863 390%
Total $139 485 $64 401 -54% $76 348 -45% $73 562 -47%
Percentage of baseline 100% 46%   55%   53%  

 Table 4. Patterns of drug use after reference pricing for seniors using restricted ACE inhibitors in BC, January 1997.

 

Paid the difference Exempted Switched to reference Switched class Stopped therapy
Patients 19 083 12 446 7517 1654 1093
Proportion 46% 30% 18% 4% 3%

 Table 5. Mean monthly payment for CCBs per 100 000 seniors in BC, by payer.
 

 

Baseline, Oct 1995 to Sep 96 (share of total) Post RDP for CCBs, Apr 1997 to Mar 98 (share of total) Change from baseline Normalized to baseline Change from baseline
Pharmacare $468 227 $378 711 -19% $454 643 -3%
Private $5340 $15 763 195% $18 924 254%
Total $473 567 $394 474 -17% $473 567 0%
Percentage of baseline 100% 83%   100%  

References

1. Auditor General of BC. Managing the Cost of Drug Therapies and Fostering Appropriate Drug Use. 1998/99 Report 2. http://bcauditor.com/AuditorGeneral.htm (1998; retrieved 13 August 2003).
2. Maclure M, Nakagawa RS, Carleton BG. Applying research to the policy cycle: Implementing and evaluating evidence-based drug policies in British Columbia. In: Informing Judgment: Case Studies of Health Policy and Research in Six Countries. New York, NY: Milbank Memorial Fund, September 2001:35-70. Full Text 
3. Anis A. The author responds. Reference drug pricing [correspondence]. CMAJ 2002;167:127-128.
4. Grootendorst PV, Dolovich LR, Holbrook AM, et al. The Impact of Reference Pricing of Cardiovascular Drugs on Health Care Costs and Health Outcomes: Evidence from British Columbia. Volume I: Final Report to HTF. Health Transitions Fund Project NA222. Hamilton, ON: Centre for Evaluation of Medicines, 4 October 2001.
5. Marshall JK, Grootendorst PV, O’Brien BJ, et al. Impact of reference-based pricing for histamine-2 receptor antagonists and restricted access to proton pump inhibitors in British Columbia. CMAJ 2002;166:1655-1662.
6. Maclure M, Potashnik TM. What is direct evidence-based policy-making? Experience from the Drug Benefits Program for Seniors in British Columbia. Can Public Policy 1997;23(S1):132-146.
7. Graham JR. The fantasy of reference pricing and the promise of choice in BC’s Pharmacare. Public Policy Source No. 66. Vancouver, BC: The Fraser Institute, 2002.
8. Grootendorst PV, Dolovich LR, O’Brien BJ, et al. Impact of reference-based pricing of nitrates on the use and costs of anti-anginal drugs. CMAJ 2001;165:1011-1019.
9. Schneeweiss S, Walker AM, Glynn RJ, et al. Outcomes of reference pricing for angiotensin-converting-enzyme inhibitors. N Engl J Med 2002;346:822-828.
10. Schneeweiss S, Soumerai SB, Glynn RJ, et al. Impact of reference-based pricing for antiotensin-converting enzyme inhibitors on drug utilization. CMAJ 2002;166:737-745.
11. Grootendorst PV, Dolovich LR, Holbrook AM, et al. The Impact of Reference Pricing of Cardiovascular Drugs on Health Care Costs and Health Outcomes: Evidence from British Columbia. Volume II: Technical Report. Health Transitions Fund Project NA222. Hamilton, ON: Centre for Evaluation of Medicines, 4 October 2001.

 


John R. Graham, BA (Hons), MBA

Mr Graham is the director of pharmaceutical policy research at the Fraser Institute in Vancouver, British Columbia.

John R. Graham, BA (Hons), MBA. A critical analysis of BC Pharmacare’s Reference Drug Program. BCMJ, Vol. 45, No. 8, October, 2003, Page(s) 395-399 - Clinical Articles.



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