Generic drug substitution

Adding generic substitution to a drug plan is an effective way of controlling claims costs. Generic drugs have exactly the same active ingredients as brand name drugs; the only difference is the inactive ingredients such as binders, fillers and dyes. Applying a generic program will result in the member being reimbursed for the lowest cost alternative generic instead of the brand name drug.  The exception would be if the member’s physician has indicated “no substitution” on the prescription. As more highly utilized brand drugs come off patent, applying generic substitution provides a great opportunity to control costs. Pharmacists in most provinces will typically dispense the generic; however, to ensure compliance applying generic substitution encourages members to become smarter consumers and ask questions in order to reduce their own out-of-pocket expenses.

  • If a brand name drug has a lower cost than the generic, Manulife Financial will apply the brand drug price since it is deemed the lowest cost alternative.

Mandatory Generic

Over the past few years, provincial governments have introduced legislation that has reduced the cost of generic drugs on their provincial formularies to  18% to 35% the cost of brand name drugs. This action was perfectly timed to coincide with many blockbuster drugs coming off patent and  can result in savings for  both public and private plans. 

Mandatory generic substitution is a great opportunity for drug plans to optimize  generic drug savings, as the plan  provides reimbursement only for the value of the lowest cost alternative drug; typically the generic drug which is deemed interchangeable by the provincial formulary.

Many plan sponsors already have a generic plan ‑ so what is different about mandatory generic?

The key difference between a standard generic and mandatory generic plan relates to the handling of a physician’s “no substitution” direction:

  • Standard generic substitution lets the patient fill a prescription for a brand drug and pay the difference between the brand and the generic. However, when a physician writes “no substitution”, the brand drug is dispensed and the plan reimbursement is based on the cost of the brand.
  • Mandatory generic reimburses only to the value of the lowest cost alternative drug, even when the physician has indicated “no substitution”.

If the physician has written “no substitution” on the prescription or the plan member wishes to continue with the brand drug, the pharmacist can dispense the brand name drug, but the plan will limit reimbursement to the cost of the lower cost alternative. In the rare case where a plan member cannot tolerate the generic drug or it is proven not as therapeutically effective, the plan member can provide medical evidence and appeal the generic decision. Where appropriate, the plan member will be reimbursed the cost of the brand name drug.

What are generic drugs?

In Canada, brand name drugs have 20 years of patent protection. During that time, only the patent holder can produce the drug; after that, other manufacturers can apply to Health Canada to produce generic versions.

When Health Canada provides approval of the generic version, governments, private insurance plans and consumers can benefit from the lower cost alternative.

Quality, Safety and Efficacy

Generic drugs are considered bioequivalent to the brand product: equal in terms of dosage, safety, strength, and quality. Generic drugs have a different name and appearance, but include the same active ingredients. This active ingredient must be as pure, dissolve in the same manner, and be absorbed at the same rates as its brand name equivalent. Only inactive ingredients such as binders, fillers, or dyes differ.  The differences do not reduce effectiveness.1

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