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Financial Incentives to Dispense Low-Cost Drugs: A Case Study of British Columbia Pharmacare

Author

Listed:
  • Paul Grootendorst

    (Centre for Evaluation of Medicines, St. Joseph's Hospital)

  • Laurie Goldsmith

    (Department of Clinical Epidemiology & Biostatistics, Centre for Health Economics and Policy Analysis, McMaster University)

  • Jeremiah Hurley

    (Department of Clinical Epidemiology & Biostatistics, Centre for Health Economics and Policy Analysis, McMaster University)

  • Bernie O'Brien

    (Centre for Evaluation of Medicines, St. Joseph's Hospital, Department of Clinical Epidemiology & Biostatistics, McMaster University)

  • Lisa Dolovich

    (Centre for Evaluation of Medicines, St. Joseph's Hospital, Faculty of Pharmacy, University of Toronto)

Abstract

All provincial governments in Canada reimburse some portion of the cost of out-of-hospital prescription drugs consumed by groups such as the elderly or those with low incomes. A characteristic shared by all programs in recent years has been rapid growth in expenditures. In an effort to control costs, policy makers have directed cost-containment policies at patients (e.g., introducing or increasing co-payments), drug prescribers (e.g., bulletins, academic detailing), and pharmacists (e.g., drug pricing policies). This study examines two policies that targeted financial incentives to pharmacies to encourage prescribing of lower cost or “generic” bio-equivalent drugs. The setting of our case study is British Columbia Pharmacare – a publicly funded drug insurance program that assists certain British Columbia residents in paying for prescription drugs and medical supplies received out-of-hospital. BC Pharmacare is responsible for 40-45% of drug expenditures in British Columbia. The specific initiatives we examine are the Product Incentive Plan (PIP), introduced by Pharmacare in 1990, and the Low Cost Alternative (LCA) program, which replaced in the PIP in 1994. Before PIP, when a pharmacy filled a prescription covered by the Pharmacare program, the pharmacy was reimbursed for the drug acquisition cost and paid a professional dispensing fee. Under PIP, for drugs that fell into designated multi-sourced therapeutic classes, the pharmacy also received a bonus payment for dispensing drugs whose prices were less than a pre-set “base” price. The PIP bonus payment was 20% of the difference between the base price and the actual price. The LCA eliminated the bonus payment scheme and reimbursed a pharmacy cost at a rate no greater than the average cost of the generic drugs in the drug class. This analysis applies a conceptual framework which poses funding changes – and their “financial incentive” properties – as part of a communication process between the funding source and affected organizations. The following issues were addressed: First, why were the PIP and LCA introduced? Second, how were the PIP and LCA policies interpreted by pharmacies and pharmacists? This raises issues of both the adequacy with which the policies were disseminated and the characteristics of these policies which were most important to the affected organizations. Third, what was the response to the policy? In this case study we are able to address both whether the policies were successful in achieving its stated objectives and how and why certain stakeholders in the system responded to the financial incentives.

Suggested Citation

  • Paul Grootendorst & Laurie Goldsmith & Jeremiah Hurley & Bernie O'Brien & Lisa Dolovich, 1996. "Financial Incentives to Dispense Low-Cost Drugs: A Case Study of British Columbia Pharmacare," Centre for Health Economics and Policy Analysis Working Paper Series 1996-08, Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada.
  • Handle: RePEc:hpa:wpaper:199608
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    File URL: http://www.chepa.org/Files/Working%20Papers/WP%2096-08.pdf
    File Function: First version, 1996
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    Cited by:

    1. Morgan, Steven G. & Agnew, Jonathan D. & Barer, Morris L., 2004. "Seniors' prescription drug cost inflation and cost containment: evidence from British Columbia," Health Policy, Elsevier, vol. 68(3), pages 299-307, June.
    2. Ernst R. Berndt & Margaret Kyle & Davina Ling, 2003. "The Long Shadow of Patent Expiration. Generic Entry and Rx-to-OTC Switches," NBER Chapters,in: Scanner Data and Price Indexes, pages 229-274 National Bureau of Economic Research, Inc.

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