A new report from the C.D. Howe Institute, Friend or Foe? Preferred Pharmacy Networks and the Future of Drug Benefits in Canada, states that there has been little evidence to guide the policymaking surrounding preferred pharmacy networks (PPNs). Advocacy, meanwhile, has relied mainly on opinions, theories and anecdotal evidence out of the United States. In short, the report’s author says bans on PPNs are not supported by current evidence.

“PPNs in Canada are primarily used for distributing high-cost specialty drugs through select pharmacies that agree to lower fees in exchange for higher volumes. While some have suggested that PPNs increase market concentration, there is limited evidence of widespread harm to small and independent pharmacies,” they write. “Pharmacy stakeholders have cautioned that the use of PPNs is the latest example of an evolution of Canada’s drug benefits system towards the U.S. model. However, Canada’s system is structurally different, making a drift toward the dysfunctions of the U.S. model unlikely.” 

In the U.S., three vertically integrated conglomerates dominate the drug benefits market while branded drug manufacturers have rapidly raised list prices to preserve margins. “There is evidence that pharmacy benefit managers (PBMs) have extracted most of these price increases in the form of confidential rebates,” they write. “The high drug manufacturer and pharmacy list prices create further demand by drug sponsors for the three large PBMs to negotiate price discounts. This dynamic further cements the big three PBMs’ market dominance.” 

Canada’s drug benefits system differs notably, in several ways: Half of all drug coverage in Canada is publicly administered by government drug plans which don’t use PPNs. There is not the same vertical integration, offering limited opportunity for insurers to direct business to in-house pharmacies. (The report looks in depth at the breakdown of PPN use in Canada.) Third, the federal Patented Medicine Prices Review Board (PMPRB) caps introductory list prices of new patented drugs and only allows manufacturers to raise list prices in line with inflation, post launch. “Private insurers negotiate confidential rebates off patented drug list prices, but these rebates are said to be modest.” 

The report also looks at the impact of closed specialty drug PPNs on small and independent pharmacies (SIP) in Canada and the impact of closed PPNs on patient health.

PPN expansion is unlikely in Canada 

The paper notes in some detail that PPN expansion is unlikely in Canada, given their focus on specialty medications requiring training and infrastructure. “It seems improbable that every community pharmacy would incur the costs needed to administer these medications given that over 98 per cent of plan beneficiaries do not use them. Thus, even with a PPN ban, it seems that many pharmacies would refer patients to a specialty pharmacy to obtain at least some specialty medications. PPN bans will thus not automatically level the playing field.” 

The paper also notes that it is unlikely PPNs will expand to cover all drugs, as the markup savings are limited for most prescriptions dispensed. “A 13 per cent markup on a biologic that costs $200,000 is $26,000. Employers and other plan sponsors are evidently willing to sign exclusive deals to lower these fees. Over 75 per cent of prescriptions, however, are filled with generic drugs. In 2024, the average cost of a prescription filled with a generic drug, including markups and dispensing fees, was $22.53.” 

Some pharmacy stakeholders, meanwhile, have argued that the health risks related to care fragmentation are so grave that PPNs should be banned. “Because there is limited publicly available empirical evidence on the health risks of closed specialty drug PPNs, it is difficult to assess the claims of the different stakeholders,” the paper states. “Banning all closed PPNs on health grounds is not warranted.” 

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