Healthy Skepticism Library item: 15868

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: report

The Use Of Secret Rebates By Provincial Drug Insurance Agencies: What Impact On Patients?
: Department of Economics and Institute for Advanced Policy Research 2008 Jun
http://www.iapr.ca/files/iapr/iapr-pb-08001_0.pdf

Abstract:

British Columbia’s provincial drug insurance plan, PharmaCare, has recently introduced
a novel mechanism to obtain price reductions for PharmaCare. It has instituted a solesourcing
arrangement for a generically available drug in which a single firm is contracted
to be the only listed supplier for all of British Columbia (BC). The single supplier may
charge a high price but must pay a rebate to PharmaCare for every sale made which is
fully or partly insured by PharmaCare. The rebate amount is confidential under the
agreement.
This mechanism is now in use for one product – olanzapine, which is used to treat
schizophrenia and other mental disorders. Olanzapine is generically available everywhere
else in Canada, but in BC, only the branded product, known as “Zyprexa” and made by
Eli Lilly, is available, because Lilly was awarded the sole-sourcing arrangement with the
province.1
This short paper assesses this mechanism. It first demonstrates that the approach to solesourcing
used by BC results in substantially higher prices for consumers whose purchases
are not 100% insured by PharmaCare. While the sole-sourcing has been defended as
being similar to that employed in New Zealand, this paper shows that in fact the approach
employed in BC, with its secret rebates to the province, is completely different from that
used in New Zealand. Finally, the paper discusses the effects of sole-sourcing with secret
rebates on competition in generic drug markets. There are reasons for concern that solesourcing
combined with secret rebates may undermine competition in generic drug
markets and ultimately result in higher costs to patients and insurers.