Preferred pharmacy networks—innovation or inertia?

My favourite band, Rush, released a song called “Freewill” 45 years ago. Geddy Lee probably wasn’t singing about health care, but still managed to nail our whole, if unwritten, national strategy: “If you choose not to decide, you still have made a choice.”Preferred pharmacy (or, provider) networks (PPNs) present this perpetual risk of inertia, despite important—and controversial—needs and concerns for everyone involved.The controversy pits two essential providers—pharmacies and drug insurers—against each other. At stake are double-sided issues:Possible pharmacy revenue loss vs. drug plan savings for employers and patients,Universal status quo pharmacy services vs. differentiated PPN services, and,Pharmacy independence vs. private payer oversight of their PPN operations.Other issues are also in play, including the role of the regulator, the influence of decisions in Ontario relative to other jurisdictions, potential conflicts between the business and profession of pharmacy and the relationship between payers and other regulated health professions (RHPs).A common thread though all these issues is that patient needs, preferences, autonomy and safety have not been rigorously or independently studied. For example, we don’t know if patients are willing to cede some choice in pharmacy so they can personally save hundreds of dollars—or more—annually.PPNs with different RHPs have quietly existed for 30 years. But in August 2024, the Ontario Ministry of Finance invited submissions on pharmacy networks in employer-sponsored drug plans. The provincial election sidelined this inquiry; the Ministry has not publicly stated whether or when next steps may occur.Similar professional and service networks operated by automobile insurers, Ontario hospitals and the Workplace Safety and Insurance Board were excluded from government review.The Ministry’s consultation followed Manulife’s announcement in January 2024 that to be reimbursed, patients must buy any of 260 high-cost, specialty drugs at Shoppers Drug Mart and other Loblaw-owned pharmacies. This defines a closed or mandatory network. Following public and even federal government backlash, Manulife quickly made its PPN open and voluntary. Plan members could then choose any pharmacy and be reimbursed.Insurers offer employers either open or closed networks, promising greater savings for employers and employees on pharmacy fees and more oversight in the latter. PPNs (mostly) handle specialty drugs that cost at least $10,000 annually and are used by 2% of patients. Apart from payer savings, typical PPN advantages include an initial comprehensive review of patients’ health status and all their prescriptions. They also offer free delivery to a home or business and other health-related services. Plan member satisfaction matters to employers and insurers privately report high patient satisfaction with their PPNs.As noted, closed PPNs require some patients to switch to or add a new, in-network pharmacy in order to be reimbursed. This may be less convenient and can present some incremental risk when two pharmacies unknowingly dispense drugs to a patient. Most provinces (but not Ontario) make dispensing safer by having a provincial pharmacy record that allows authorized prescribers and pharmacies to check real-time for drug interactions, duplication and other adverse effects.Provider networks can be managed in the public interest. For almost 20 years, the automobile insurance industry regulator (Financial Services Commission of Ontario) has defined and recommended PPN best practices. Rather than an outright ban of PPNs, the Ontario College of Pharmacists (OCP) could take a similar role. To enhance patient safety, the OCP could also mandate pharmacies to request the patient’s consent to share their prescriptions with other pharmacies involved in their care.Payers, defined here as employers and sometimes unions, clearly see an opportunity in PPNs. But while cost savings are important, PPN and pharmacy operations are proprietary and opaque, so the impact of changes in service delivery and revenue is not known.The need to control costs should not be dismissed. PPNs are one of several tactics to help keep private drug plans sustainable and high-cost drugs accessible. Private health plans are voluntarily provided, so if coverage gets too expensive, employers can shift risk and cost to patients, to provincial plans or to patient support programs funded by drug manufacturers.Pharmacy costs are material. In 2017, the Auditor General reported that pharmacy markups and dispensing fees charged to Ontario Public Drug Programs (OPDP) were 25% of total cost. Private drug plans typically pay much higher fees to pharmacies, and pharmacies want to retain that revenue advantage.An obvious source of contention is that an overall reduction in costs for employers and patients may mean a reduction in dispensing revenue. However, most pharmacies earn substantial revenue from their retail operations (cosmetics, food, toiletries), as well as from very large rebates paid by generic drug manufacturers, also known as professional allowances.Pharmacy corporations like Shoppers Drug Mart that choose to be part of a PPN may accept lower margins to gain new customers as insurers promote service and cost differences inside their network. By definition, pharmacies that are not invited or choose not to participate may see their patient volumes change, but any hit to revenue is offset because they do not have to invest in the equipment, training and reporting needed to dispense specialty drugs inside the PPN.Pharmacists play a crucial role in all drug plans, assuring drug safety and efficacy, and helping patients get reimbursed for drug costs. Increased authority has provided the profession with greater opportunity to improve health and increase health system value. Within the industry, the Canadian Pharmacists Association and the Ontario College of Pharmacists want PPNs banned or regulated while the Neighbourhood Pharmacy Association of Canada agrees the government should intervene but only after further consultation. In general, pharmacies don’t want insurer controls or operational oversight and warn of added patient risk and cost as well as ethical challenges for pharmacists.Neither insurers nor pharmacies appear to have been impacted so far. Private payer pharmacy PPNs have existed since 2015. From 2015 to 2023:The Ontario College of Pharmacy reported that the number of pharmacies and community pharmacists grew 23% and 22%, respectively.The Canadian Life and Health Insurance Association reported that the number of Ontario residents with private health coverage increased 9%.For comparison, Statistics Canada reported that Ontario’s population increased 15% during that same period. From 2019 to 2023, the number of prescriptions dispensed by retail pharmacies in Canada grew 13% overall.The PPN debate is complex, creating both problems and benefits, and winners and losers. Since performance data are proprietary, narratives rely mainly on opinions, theories and American anecdotes. Identifying the best way forward requires valid and reliable Canadian studies—which don’t yet exist—of actual health and financial outcomes.Absent these studies, government inertia may lead them to “choose not to decide.” But if they choose to intervene, one option is modelled after Quebec’s approach to drug insurers in 1996. The government could give the pharmacy and payer communities a choice: Either jointly create their own PPN solution, considering patient and public interests, or have one imposed by government. Design and access standards, patient input and public reporting would assure greater transparency on health and financial outcomes but still protect competitive information.Requiring insurers to self-regulate their PPNs could effectively sustain pharmacy services that create added value for patients and payers. That’s a good choice for all.Chris Bonnett, PhD, provides practical health policy research primarily for public and private drug plan leaders, and advises on strategies to improve health in the workplace. His 2020 doctorate focused on social insurance as a way to achieve universal drug insurance. He has made submissions to Health Canada, The House of Commons Standing Committee on Health, the Advisory Council on the Implementation of National Pharmacare, and CADTH (rare disease drug formulary). He established H3 Consulting after 18 years of progressive experience in employee benefits.This article is a reprint from Healthy Debate.

Preferred pharmacy networks—innovation or inertia?

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