Exclusive deals between insurance companies and pharmacies becoming more prevalent in Canada

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Insurance companies are trying to manage the rising cost of prescription drugs by turning increasingly to a tactic that is drawing public scrutiny: exclusive deals with pharmacies and drug suppliers.

Manulife Financial Group MFC-T, Canada’s largest insurer, recently announced – and then cancelled – a deal with Shoppers Drug Mart that would have seen chronically ill patients limited to buying their medication only from pharmacies owned by Loblaw Cos Ltd. L-T, including Shoppers. But these arrangements, called preferred pharmacy (or provider) networks (PPNs), are prevalent throughout the private health insurance industry, though the terms of the deals can vary widely.

Insurance companies say these deals can deliver savings on the premiums group benefits plan members pay for specialized drug care, because the pharmacies are able to supply in bulk. However, patient groups warn that PPNs can limit access to drugs, and independent pharmacists say such deals unfairly lock out thousands of small businesses across the country.

While the public outcry around the Manulife-Shoppers deal brought much more awareness to PPNs, these arrangements have grown increasingly prevalent in Canada over the past decade, following their widespread adoption in the United States. It can be difficult to quantify their growth, however, since the information is not always public.

Pharmacists have felt growing “angst” about how these deals can limit patient choice, said Joelle Walker, vice-president of public and professional affairs for the Canadian Pharmacists Association.

“Ultimately, this is what it is: It’s your insurance company – it’s not your doctor, it’s not your pharmacist who has the clinical expertise – it is your insurance trying to direct the care that you’re getting,” she said.

One patient who has to navigate restrictions is Kari Wutzke. The Vernon, B.C., resident lives with chronic pain, and takes several medications for conditions that include fibromyalgia and psoriatic arthritis.

Ms. Wutzke says she prefers to go to small pharmacies to fill her prescriptions, because the pharmacists get to know her. But she has limited choice in how she receives the drug Tremfya to treat her arthritis. The medication costs $1,800 a dose, and it is delivered to her home every eight weeks. She said she now knows her FedEx driver so well that they exchange texts to make sure she is home to receive the shipment, which needs to be kept refrigerated.

Behind each delivery is a complex web of corporate relationships. Pharma giant Janssen manufactures Tremfya, and at first, when Ms. Wutzke was not covered for all her doses, it told her she would receive the drug through a patient support program called BioAdvance. Janssen uses multinational pharmaceutical distribution giant McKesson – which owns the Rexall pharmacy chain in Canada – to provide free drugs under its “compassionate care” program, McKesson wrote in a statement to The Globe and Mail.

Ms. Wutzke’s case illustrates that customers are not always sure why they are subject to such restrictions, and it is not clear to them if they are even subject to a PPN. McKesson clarified that the compassionate care setup with Janssen is not a PPN. Now that Ms. Wutzke receives doses less frequently, the medication is entirely paid for through her group benefits plan with Canada Life. But she continues to receive it through McKesson, saying she assumed she continued to have no alternative.

All of Canada’s major insurers have some form of PPN arrangement with pharmacies, though they are not consistent in how they communicate them to plan members or the public. The agreements mostly cover expensive specialty drugs that treat conditions such as rheumatoid arthritis, Crohn’s disease and multiple sclerosis, and often include service by care clinics and trained nurses.

The agreements can be extremely complex for consumers to navigate and come in a variety of forms. In an open or voluntary PPN, plan members are given an approved list of pharmacies to access certain specialty drugs. They can still fill a prescription at an out-of-network pharmacy, but it may be more expensive. In a closed or mandatory PPN, insurers restrict plan members to using the approved pharmacies, and they cannot fill their prescriptions elsewhere.

In a position statement released last year, the Alberta Pharmacists’ Association explained that some pharmacies accept less compensation for dispensing prescriptions to be part of these networks, assuming that they will benefit from a higher volume of people being “steered” their way. The association believes neither open nor closed PPNs are acceptable.

”We are opposed to PPNs. Regardless of what you call them, they’re still directing patient traffic,” chief executive officer Margaret Wing said.

Others in the industry say there is a role for open PPNs, which sometimes set a “standard of care” pharmacies must meet to participate. But many warn that in the U.S., restrictive PPNs can dictate that people go to a certain hospital, doctor or pharmacy to be reimbursed by their insurance at all.

Manulife reversed its pharmacy deal with Loblaw’s Shoppers Drug Mart – so what?

“That’s what we want to stay away from,” said Sandra Hanna, CEO of the Neighbourhood Pharmacy Association of Canada, which represents chain and independent pharmacies.

It was this kind of exclusivity that got Manulife and Shoppers into hot water.

Manulife first signed a PPN arrangement for its specialty drug plan in 2014 with Bayshore Healthcare, an independent provider, that included specialty care drug access through 300 affiliate pharmacies across Canada. In October, 2022, Manulife added Shoppers as another PPN. Employers could choose an open or closed network arrangement. Both agreements provided prescriptions in-store or through home delivery.

But on Jan. 17, Manulife told clients it was ending its agreement with Bayshore. All specialty medications would now be “primarily” fulfilled by Loblaw-owned pharmacies.

The announcement was met with negative feedback from customers, Innovation Minister François-Philippe Champagne and the Competition Bureau – who all expressed concern about restricting consumer choice.

Patient groups have also expressed alarm about these exclusive arrangements. “People living with arthritis need timely access to their prescribed medications through a variety of pharmacy options without financial, geographical, or administrative barriers or risk of shortages,” said Trish Barbato, chief executive officer of Arthritis Society Canada.

Manulife backtracked on Feb. 5, saying plan members will be able to fill specialty prescriptions at any pharmacy, though it has not yet released details of how that will work.

Executives at Loblaw and Manulife declined interview requests for this story.

Loblaw spokesperson Catherine Thomas declined to answer questions about which other insurance companies it has PPN arrangements with, and why the Manulife deal was negotiated on an exclusive basis. “We only participate in specialty drug PPNs as required, so that we are able to continue to support our patients who require these complex therapies,” she wrote in an e-mailed statement.

Manulife spokesperson Luke Shane wrote in an e-mail that the company’s agreement with Shoppers was an attempt to provide more access for specialty medications, but it is now “adjusting” the program to ensure people have choice and flexibility.

While Manulife may have received intense scrutiny for its PPN, other major insurers all have their own agreements, though they differ in the details.

Sun Life Financial Inc. SLF-T offers a voluntary PPN agreement for specialty drugs with three different pharmacy networks: Express Scripts Canada Pharmacy, Innomar Pharmacy and BioScript Pharmacy. A small percentage of claims go through Sun Life’s own online pharmacy, Pillway.

Sun Life Canada president Jacques Goulet told The Globe he is “very comfortable” with the insurer’s current PPN. He said plan members that choose an in-network pharmacy receive a discount, but a prescription can also be filled at any pharmacy of their choice.

Canada Life – previously providing benefits as Great-West Life – entered into a closed PPN agreement in 2012 with Health Forward to manage the costs of its specialty drug care plans. A company spokesperson said in an e-mail the agreement was “not exclusive,” as other pharmacies can request to be added to the program.

However, the agreement restricts employees to a network of about 2,000 independent and chain pharmacies when filling a specialty drug. The company allows plan members to ask for “an exception” to use a pharmacy outside of the program.

Sun Life and Canada Life both said they do not have any agreements in which a fee is paid by pharmacies to the insurer.

Benefits provider Greenshield does not employ a third party PPN, but rather has curated a closed network of 1,800 pharmacies and clinics where plan members must go to fill prescriptions for certain specialty drugs. An exception to use an outside pharmacy can be requested by employees. As well, the insurer has built its own in-house pharmacy for all drugs, but only a small percentage of claims are for specialty drugs.

The Canadian Life and Health Insurance Association said insurers are driven to these agreements because they are trying to manage the ever-increasing costs of medication, especially specialty drugs. Federal government statistics show Canada has the third-highest drug prices in the world, behind the U.S. and Switzerland.

Private health insurers, which account for about 37 per cent of prescription drug spending in Canada, do not disclose how much they spend on medication. But data from the Canadian Institute of Health Information show public health plans, which account for about 43 per cent of prescription drug spending, saw their costs rise 6.4 per cent in 2022 – and the increase was mostly because of high-cost specialty drugs. About 2 per cent of patients accounted for 43 per cent of public drug spending, the institute reported.

When it comes to PPNs, Quebec is an exception: It has legislation stipulating that people are “entitled to choose the professional or the institution from whom or which he wishes to receive health services or social services.” This wording has effectively barred PPNs, industry experts point out, though it was enacted in 1992, long before the arrangements became common in Canada.

Jim Danahy, chief executive of retail consultancy CustomerLAB – who has owned pharmacies in the past and advises the industry – said Quebec should be a model for other jurisdictions. “This is a new threat to the patient, that the regulators in Canada, in my view, are negligent in protecting,” he said.

Others in the industry say there is a middle ground, allowing insurers to use PPNs in which any pharmacies can participate if they can pledge to meet certain care standards. Those deals can include a promise to hold even high-cost drugs in pharmacies’ inventories to guarantee availability – an extra expense for them – or to follow up regularly with patients to ensure they are taking their medication consistently and correctly.

Vancouver-based London Drugs only agrees to participate in open PPNs, said Chris Chiew, the company’s vice-president of pharmacy and health care and merchandising services. He does not believe there is ever an argument for a PPN to be exclusive.

“I think fair and equitable access is more important than an exclusive arrangement that might be between an insurer and a pharmacy,” he said.