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Missing in action: Improving generic substitution in Canada

Health and Benefits

By Kevin Wong and Joanne Jung | August 20, 2019

When it comes to pharmaceutical benefits, the private sector lags behind public employers in generic prescription substitution.

Common wisdom would assume that the private sector is more inclined to better manage benefit costs than government and public sector organizations, but when it comes to pharmaceutical benefits that is not necessarily the case.

The widespread availability of{9B363589-A62B-43EB-AFAD-C43AC78E4F6E} generic pharmaceuticals has made drugs more affordable for many Canadians, with prices as low as 10% of the cost of brand name equivalents. Our research shows 87% of Canadian plan sponsors utilize at least some level of generic substitution, a basic drug plan management feature that incents plan members to choose a generic drug or pay the difference between the brand-name version and the generic. Yet, despite the prevalence of generic substitution, the Canadian Generic Pharmaceutical Association reports a lower uptake of generic prescriptions in the private sector compared to the public

2017 Generic Fill Rate (GFR)

Source: Canadian Generic Pharmaceutical Association
Public Sector 90% 89% 91% 92% 91% 89% 92% 92% 91%
Private Sector 84% 80% 87% 86% 81% 78% 89% 88% 91% 88%

As shown in the table above, some of the largest provinces by population have gaps between the private and public payers of upwards of 11 percentage points. Considering all drugs (brand and generic) are approved by Health Canada, why are private plans lagging behind the public plans in generic uptake, when the majority of private plans have generic substitution?

It all comes down to a list

The significant difference boils down to how broadly insurers are applying generic pricing. When an employee fills a prescription for a brand name drug, the plan should reimburse up to the generic price if the brand drug is considered “interchangeable” with its generic equivalent. Interchangeability is an industry term which determines whether a pharmacist can legally switch a brand drug to a generic without a physician’s approval.

Interchangeability standards differ by province. Ontario determines which drugs can be switched by publishing them on the provincial formulary, which only covers a limited number of drugs. In contrast, Alberta, British Columbia, New Brunswick and Québec pharmacists are able to interchange any brand for its generic equivalent. However, since Health Canada approves and designates all generic and brand drugs marketed in Canada, pharmacists could rely on Health Canada to determine interchangeability in these provinces. But, as it turns out, a number of insurers have opted to limit generic substitution to drugs on the provincial formularies rather than applying it to all drugs that are legally permitted by Health Canada.

Many popular brand name drugs which have generic versions such as Nexium™, Lyrica™ and Cymbalta™ are not listed on some or all provincial formularies. Insurers who only apply generic pricing to drugs listed on the provincial plans will, by default, pay the full price for these drugs, even though there are interchangeable, cheaper generics available leading to missed savings.

What employers can do

It’s no coincidence that the provinces with some of the lowest generic utilization for private payers are the ones with the least broad public formularies. Private sector plans typically cover more drugs than public sector employers, but are being shortchanged on generic substitution by their insurer’s reliance on the public formularies.

Plan sponsors should confirm with their insurance carrier how generic substitution is being managed, and whether they are optimizing savings by expanding interchangeable drugs beyond their provincial formularies. In this era of drug cost consciousness, it seems the private sector has some catch-up to do.


Kevin Wong
Pharmacist Consultant - Canada

Joanne Jung
Canadian Pharmacy Practice Leader

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