Ottawa, October 4, 2018—The retail price of prescription drugs can be confusing to many Canadians as it is made up of different components, such as the price of the medication itself, markups and fees. A new Conference Board of Canada report calls for better understanding around the retail cost of pharmaceuticals in Canada.
The report, Health Care Aware: Understanding Pharmaceutical Pricing in Canada, finds that pharmacy markups—the dollar amount added to the ingredient cost of a prescription medication—can vary greatly depending on several factors, including: type of drug; location of where the drug is dispensed; and whether the drug is paid for under a public or private insurance plan, or out-of-pocket.
For example, a high-cost drug of $3,000 covered under public insurance in Ontario could total close to $3,190, which includes a six per cent pharmacy markup and a standard dispensing fee. In comparison, in Saskatchewan, which has a dollar cap of $20 for pharmacy markups for drugs over $200, the same medication would cost approximately $105 less.
“Several factors contribute to the final retail costs of prescription medication, which leads to uneven access for Canadians across the country and raises questions about fairness,” said Isabelle Gagnon-Arpin, Associate Director, Health Economics and Policy.
- Variations in the final retail cost of the same drug across provinces and territories, and even within jurisdictions, can be a source of confusion for many Canadians.
- Pharmacy markups are added to the ingredient cost of a prescription medication and can vary across several factors, such as location, drug coverage under public or private insurance or whether it is considered a specialty drug.
- Ingredient costs account for approximately three-quarters of prescription drug expenditure in Canada, while dispensing fees and markups make up the rest.
Spending on all pharmaceutical drugs (not limited to prescription medications) is the second-largest cost to the Canadian health care system, behind only hospital costs. In general, the final price paid for a prescription drug is made up of:
- the drug ingredient costs: the price paid to the drug company by a pharmacy or wholesaler;
- wholesaler markup (if applicable): to cover costs and profit;
- pharmacy markup: amount that can be added to the ingredient cost of a medication to cover pharmacy costs and profit; and
- professional services or dispensing fees: charged by pharmacists to fill a prescription.
Most Canadian provinces have specific policies that regulate pharmacy markups, although policies vary based on where the medication is dispensed. They are usually a percentage of the ingredient costs, and average about eight per cent across the country. The only exception is Newfoundland and Labrador, which does not allow surcharges with pharmacy markups. In comparison, markup costs represent around 12 per cent of the ingredient costs for claims paid by private drug plans. Other strategies used to contain costs include setting dollar caps and lowering the maximum allowed amount reimbursed for markups on high-cost drugs.
Better understanding is needed to ensure that markups reflect the true operating and investment costs incurred by wholesalers and pharmacies. Markups and professional fees would also need to be addressed and reviewed as part of a national pharmacare program to ensure equitable access to medications for all Canadians.
This report is the first in The Conference Board of Canada’s Canadian Alliance for Sustainable Health Care
(CASHC) Health Care Aware
research series, which aims to bring greater transparency to a number of complex issues in health care.