The Decibel - The rise in exclusive deals between insurers and pharmacies

Episode Date: February 28, 2024

Exclusive deals struck between insurance companies and pharmacies are increasingly drawing scrutiny from patients, pharmacists and cabinet ministers. The arrangements, known as preferred pharmacy networks (PPNs), are meant to deal with rising prices of pharmaceutical drugs. But detractors say these plans mean less transparency, competition and consumer choice.The Globe’s retailing reporter Susan Krashinsky Robertson and wealth management and insurance reporter Clare O’Hara explain why the blowback against PPNs is rooted in questions about who gets to approve treatment for patients.Questions? Comments? Ideas? Email us at [e-mail]

So last month, Manulife announced that it was changing its coverage plans for specialty care drugs. Susan Krishinski-Robertson covers retail for The Globe. And basically what they said is that they would, quote unquote, primarily be fulfilled by Shoppers Drug Mart and other Loblaw-owned pharmacies. These specialty care drugs include the medication for chronic but common illnesses like rheumatoid arthritis, Crohn's disease, and osteoporosis. The change here was that they were ending their agreement, which is called a Preferred Pharmacy Network or Preferred Provider Network, also known as a PPN, with another health care provider called Bayshore Health Care. And basically the change that was made was that

Manulife was cutting that down to a deal just with blah blah and shoppers. This change didn't go unnoticed by the public. Here's the Globe's insurance reporter, Claire O'Hara. And the result of that was there was a lot of patient groups as well as group benefit clients who were currently getting their prescriptions from Bay Shores. And it left a really big public outcry as to why this was happening. There was also political pressure. Minister François-Philippe Champagne came out and raised competition concerns. And this public outcry worked.

Manulife reversed course. And they were swinging entirely the other way, where they went from an exclusive agreement to now they were going to everyone could choose any pharmacy of choice within Canada for their specialty care drugs. Together, Susan and Claire, along with small business reporter Chris Hennay, looked into these PPNs, Preferred Pharmacy Networks. Today, we're talking to Claire and Susan about how PPNs work, who benefits, and who doesn't. I'm Maina Karaman-Wilms, and this is The Decibel from The Globe and Mail.

Susan, Claire, great to have you here. Thanks for having us. Thank you for having me. Okay, so I think it's worth starting with the definition here, or at least an understanding of what this term means. So this is PPN, this is Preferred Pharmacy Network or Preferred Provider Network. Claire, let's start with what exactly these are and how do they work? A PPN is a Preferred Pharmacy Network or Preferred Provider Network. And in Canada, about a decade ago, all major insurers started looking at these type of agreements.

And what it is, is there's a pharmacy or a group of pharmacies that make an arrangement with a life insurance company. That life insurance company will send their employees or group benefit clients to those pharmacies in order to get discount pricing. Now, the insurers say it's a way for them to manage the increased cost of pharmaceuticals in Canada. And the PPNs are able to say, well, we can do bulk purchasing. And that way, we can give the discounted price and pass it on to the employees or the employers directly.

Okay. Okay. So if you've got like an insurance plan with your company, whoever you work for, this might be part of that. This is where you could essentially get your medication from then. Yeah. It is important to note that these PPN arrangements in Canada are primarily around group benefit packages. It isn't something that you might find in an individual insurance package for a retiree or a newcomer to Canada. It is something that's more specifically involved with specialty care drugs in these group benefit clients. Okay. And is there a standard model for PPNs or are there, I guess, different types? Yeah. And that's definitely where we decided to dive into. It's a very complex environment. There's a lot of different nuances

and wording that each insurer uses. And what we found out is there seems to be several different models. And the big ones are there's an open network or there's a closed network. And there can be mixes of that as well. So with Manulife, they actually have a bit of both. And so in an open network, what that means is that as an employee, I can choose to go to the open network and get the discounted drug. Or if I don't want to go to that list of pharmacies, if I have a local pharmacy that I have a better relationship with, I can continue to go to that pharmacy, but I just won't receive the discount on that drug. In a closed network, which is a little more controversial, is the arrangement does not allow an employee to go outside and choose a pharmacy of their own liking. Okay. And I guess just wondering, why aren't all plans like an open PBN? Why have the closed option? So it's not actually transparent around why the

insurers decide to go with an open or a closed. And as I pointed out, Manulife and some of their clients, they seem to have both of them. So the employer could take on the decision whether they wanted to be in a voluntary open or closed type of network. And that's probably has to do with the cost involved. And other insurers, they just don't give that option. If you sign up for the specialty care plan, you only have the mandatory option, which means then your employee would have to use that network of pharmacies. Now, the other term that we should touch upon is the exclusive agreement. And that is sort of where the public outcry came with the manual life shoppers deal, because in that scenario, it wasn't that they were just setting up a closed PPN,

it's that they were only picking one group of pharmacies, which was the Loblaw group of companies. Okay, that's like a step further than a closed PPN then. And while it's certainly not the first exclusive agreement in Canada, it's certainly the largest between, you know, you have the largest insurance company in Canada partnering with a prominent Canadian name like Loblaws. Okay. So then just, I guess, to explain this a little bit further, what happens if you need one of these drugs and you're part of one of these plans, but the drug that you need is not at the pharmacy that's closest to you? What happens then? In some cases, these plans will provide for home delivery. And so they say that that is a part of an offering convenience to individuals. And so it's often an option where you can pick up

in pharmacy or home delivery. In some cases, home delivery is actually the only option that's offered. We spoke with a patient who had a medication for psoriatic arthritis, which had a cold chain protocol. So the medication had to be kept at a certain temperature at every step of the delivery chain and had to be injected. In other cases, you know, for these specialty medications, it might not be a typical pharmacy that you're going to. Some of these are infusion drugs where you actually have to have an infusion at a clinic overseen by a nurse. And that requires a visit to an entirely different type of location, which might have different resources attached to it. And so in some cases, it's just a bit more of a complex system for delivering the medication. One thing that we've heard from insurers that's also not entirely transparent is they all sort of give the opportunity for you to apply for an exception to use a local pharmacy.

What we don't really have a big picture on is what percentage of those patients are approved to use the outside pharmacies. And how common are PPNs in Canada? Do we know? That's a really good question. We would love to know that. But the transparency over the PPN system in Canada is not very good. You know, there aren't a lot of public records that tell us exactly how many PPNs there are, how common they are, you know, what percentage of drug costs are represented by PPNs. And so, you know, even some of the groups that we spoke to, even pharmacist groups themselves say it's hard for even them to track all of the PPNs out there, because sometimes these are deals that are done confidentially, and, you know, companies are not necessarily entirely public with them.

It's also something that the insurance companies aren't putting publicly up on their website. They'll say there's 300 pharmacies, but they won't list all the pharmacies on their website publicly. It sounds like it's more of a relationship nurses and trained professionals that can administer these drugs. I guess I'm wondering about the position of pharmacies now. Do we know, do PPNs have support amongst pharmacies? Not entirely. So we spoke with pharmacist groups who said they believe there's no role for them. The Alberta Pharmacists Association, for example, put out a position statement last year

objecting to the rise of PPNs, and their CEO told me that open or closed or exclusive, she doesn't believe there's really any argument for these. And for an insurer essentially playing a role in steering a patient's care, she believes that that, and her group believes, that that should be the responsibility of health care providers, including pharmacists.

Others see it as a more complex picture. There are also nationwide pharmacy associations, one that represents both large chains like Loblaws and Independence, and their president told me that she believes that there is a role in some cases for open PPNs. There are also large retailers who have told us their position on it. I spoke with an executive at London Drugs, a major chain out west, who told me that they do participate in open PPNs, but really see no argument for these types of exclusive deals. That, you know, if a pharmacy is able to provide the same level of service as any other pharmacy, they should have a chance to participate in delivering those drugs if their patients want it.

And so there is a bit of a plurality of opinions. But certainly, I think it's fair to say that across the pharmacy industry, that there is rising concern about the proliferation of these agreements over the last decade in Canada. And with the open PPN network, you know, the insurers have also come forward that have those networks saying we also, you know, allow local pharmacists to sort of apply and join the network. And that's also sort of true with some of the mandatory ones. They say we're not exclusive to one pharmacy. So if there is a pharmacy that would like to come into our network, there's a process for them to apply. Although we are hearing more in the industry from the local pharmacies that that's not actually a very easy task. And sometimes they're

told that the network is closed right now for new pharmacies to join. So that's another area that's not very transparent. And we can't really get a sense of what that process looks like. Okay. So it sounds like there's not a ton of transparency here. So we've kind of got a bit of information around this, but not a totally clear picture. And of course, we are talking about the Canadian system. And so I just want to ask, is this common elsewhere that we see PPNs kind of in the space?

Yeah, the US is really the blueprint for this system. PPNs are much, much more common in the U.S., and they started to spread across the U.S. much earlier than they did here in Canada. It's not a perfect comparison, of course, because the Canadian and U.S. healthcare systems are quite different, and there are things that prevent certain aspects of the expansion of PPNs from happening with the same cadence here. But definitely people in the industry look to the US as an example of what they want to avoid here in Canada. We've heard lots of concerns about the potential of PPNs if they become common enough

to really limit individuals choices about where they receive care, and also to limit the access of independent small business owners to the business that they need. We've been told that in the US there are places where independent pharmacies have shut down because this kind of patient steering has become so common and it makes it harder for them to compete with the larger chains who enter into these types of agreements. And so definitely, while the US is not a perfect comparison for Canada, and we certainly can't use it as a crystal ball, it is something that people are watching as a warning sign for the kinds of systems that many people in the industry don't want to see here.

Yeah. So it sounds like patient care is a big part of this, but competition or lack thereof is a really key part here as well. As is individual's choice. I think one of the huge refrains that we heard over and over as we spoke to people across the industry is that anything that limits people's choice is not a positive development for Canada. And I think what we have to remember is that because it's around the group benefit environment in Canada, that it's not like you can go shop around. You can't just decide to go use Sun Life or go use Green Shield or go use another one because you're at the beck and call of what your employer chooses. We'll be right back. Claire, it sounds like the point, a big part of these plans is to really cut down on costs to save some money. But let's actually dive into this a little bit.

Who exactly is seeing the cost savings? Yeah. And again, not a ton of transparency of how these arrangements work. And in fairness, there's a complex, I guess, calculation to it because it all goes back to the employer. So let's remember that it's the employer that's choosing the benefit plans. And so if they sign up and they say, we're going to opt in and include the specialty care medication for our employees. And if you think about your group benefit plan, maybe your insurer covers 80% and you cover 20%. that would be the breakdown of the cost savings.

There's other plans where the insurer is taking more risk of the benefit policy. So the 100% might just go to the employer saving on that, and they're called the plan sponsor in those arrangements. So it's really not a one-off answer. There is a 2018 report that the Ontario Pharmacists Association did. And in that report, there was patients who were commenting on it could be $500 a year that they saved themselves because the percentage jumped from they got 80% coverage and it dropped down to 50%. So that was out of pocket for them that they had to pay $500. Okay. And what about the role of the employer? Because it

sounds like they have a kind of a part in this and choosing what happens here. So can you tell me about that? Yeah. And it goes back to the sort of open and close, the nuances and the wording of voluntary and mandatory. So the employer is the one that's selecting whether or not they have them, but it's the network that they may not have a choice with. So while they can opt in and out of having that specialty care drug coverage, they're not able to say, well, I want an open network. It's up to, you know, if they're with Manulife, that might be an option because they used to. Well, previously, prior to this agreement, they had an option. In other cases, the employer will not get to decide. It'll be like, if you opt

in, you have to go to the mandatory network. If you opt in, you have to go to the mandatory network. You opt in, you have to use these pharmacists. There's also an interesting role that employers can theoretically play here. I mentioned London Drugs before. So as a pharmacy, London Drugs has a policy. They do participate in open PPNs and in fact told me they believe there's a role for those standards of care reasons that I raised earlier, but they are not supportive of closed or exclusive PPNs. And in fact, as an employer, London Drugs dropped its insurance provider about a decade ago. It pulled out of Great West Life, which was its insurer at the time now, which is

now Canada Life, and switched over to Desjardins. And they told me that was because of the Great West Life policy at the time of participating in enclosed PPN, which London Drugs does not support. And so, you know, theoretically, employers also have a choice as to the types of insurance plans they're willing to participate in. And we touched on this a little bit before, but I just want to talk about pharmacies again. So from the perspective of the pharmacies, like are they saving money with PPNs or how does that work? I think from the perspective of the pharmacies, the benefit is not cost savings. It's volume of traffic and volume of customer traffic that is directed their way and enough to make up for whatever downsides there are to participating in a PPN. There are sometimes increased costs

to participating in a PPN. So when I spoke with London Drugs, one of the things that they told me was that when there are open PPNs, sometimes pharmacies will have to make a commitment to certain standards of care, they called it. And so that can mean things like holding a specialty drug in their own inventory so that it is available for individuals who need it a lot sooner. And what that is, is that's a cost for a pharmacy. And then what about the person who needs the medication? Like do PPNs have any benefit for the plan member? So the insurers would say the reason that they're getting into these agreements is for patient care. You know, these are third party networks. For the most part, they're not run in-house by the insurance companies. So these are companies' names that

are not typically known and they're not household names for the most part. But what they are is some of them can be specialty care clinics that, like Susan had pointed out earlier, that you go physically to that clinic and they have nurses on staff. And they're specialized in those drugs that you would sit down there and get your IV administered. They know how to manage and store the drugs versus having it dropped off on your doorstep and you would have to maybe get a nurse to show up at your home. That would also be part of the PPN if you needed that. They would set that up. So the insurers certainly, when they're talking about there's cost savings, but they're also talking about a level of patient care. There's also concerns about whether insurers should be part of that care to begin with.

Yeah, I guess I am wondering a little bit about the insurers, Claire. Like, what have they said? Because there seems to be a bunch of criticism, particularly around competition as well as transparency, which we've touched on here. So what have insurers said about all of that? The Canadian Life and Health Insurance Association, you know, they got back to us and said that, you know,

part of the reason that they have these agreements is really about trying to manage the increasing costs of medication, especially around specialty drugs. But they didn't really go in further into what the benefits were and why we started to see these PPNs over the last decade. And I will say it's also, it's an arrangement that is constantly evolving. Some of the insurers had one agreement in place. Now some of them have three networks in there and it's constantly evolving. Some of the insurers had one agreement in place. Now some of them have three networks in there and it's constantly evolving. It's constantly changing. So as a consumer, you might be set up and you have a specialty care nurse and you're going through, you know, Express Scripts Canada. And then you might find out later, like we just saw in the

Manulife Shoppers deal, that could change, right? And that's a big impact to someone if you're already used to getting your medication through one provider, and that all of a sudden that can change on you. And Claire, you just mentioned that drug prices are increasing. Do we have a sense of how much they've increased by? So to break out the specialty care drugs, we don't know specifically around what the increase is. Private health insurers don't break out what their total cost of each drug is individually. We do know that they paid out about $14.3 billion in drug claims. We don't know specifically how much of that would be the specialty drug claims. It is known in the industry that drug costs are getting more expensive. We've seen in the public

health plans, which account for about 43% of prescription drug spending, that they saw their costs rise 6.4% in 2022. And that was mostly around, they stated around specialty care drugs. Okay. This is a big picture question, but I'm wondering, like, are PPNs essential? Like, is there a better way maybe for provinces to address some of these issues we're talking about, like transparency, access, choice? Is there a better way to do this? Well, some of the people we spoke to pointed out that one jurisdiction in Canada has already taken action on this, and they actually didn't take action specifically on PPNs. They simply took action on patient choice. So Quebec has legislation in place that protects people's right to choose the health

provider or the social services provider that they go to. That includes hospitals, pharmacies, clinics, any other health or social services provider. It's generalized language in their legislation that was not designed specifically to address PPNs because it was written before PPNs really began coming to Canada. But people across the industry have told us that this functionally makes PPNs not a thing in Quebec. And some of the people in the industry who object to the rise of PPNs have questioned

why other jurisdictions, and of course, health care is a provincial jurisdiction, why other jurisdictions haven't taken similar actions. Okay, so we've talked a little bit about maybe things legislatures can do, also what employers can think about. But I guess, can employees, like the people who are actually part of these group benefits plan, can they do anything about this? Yeah, well, it might not seem like it because they are locked into a group benefit plan with their employer. I do think they have a voice. You know, there are certain circumstances where if they're part of a union, they can go to their union rep. And there are scenarios where

unions have gone and brought it to the employer that they're not happy with these arrangements, particularly if they catch wind of it happening before. So they can go and fight for their employees that way. And I think even if you're not part of a union addressing it directly with your HR or whoever handles the benefit plans, there's a power in numbers to let them know that you're not happy with this change or the locked in, particularly if they change providers or make a change like Manulife did. Susan, Claire, thank you so much for being here today. Thanks. Thanks for having us. That's it for today.

I'm Maina Karaman-Wilms. Our producers are Madeline White, Cheryl Sutherland, and Rachel Levy-McLaughlin. David Crosby edits the show. Adrienne Chung is our senior producer. And Angela Pachenza is our executive editor. Thanks so much for listening, and I'll talk to you tomorrow.