Grace Parker Palidwor, pictured in her home in Surrey, B.C. on Dec. 16, lives with juvenile idiopathic arthritis, has been forced to receive the drug she takes for her arthritis through the mail, as opposed to her local pharmacist. For many Canadians with private health insurance, the drugs they can take – and which pharmacies they can order from – are being increasingly dictated by secret agreements between insurers, pharmacies and drug makers.Jennifer Gauthier/The Globe and Mail
This summer, Andréanne Rozon, a pharmacist in the small town of Alfred, Ont., east of Ottawa, had a client come in with a prescription for birth control. When she tried to submit the bill to the client’s insurer, she got a surprising message back: “Claim rejected.”
The reason? Ms. Rozon’s pharmacy was not in the insurer’s network of preferred providers. The nearest such outlet was a mail-order pharmacy in Richmond Hill, Ont. – nearly 500 kilometres away.
So, the client “was forced to fill the prescription in that preferred pharmacy,” Ms. Rozon said.
It’s a situation the pharmacist said she is seeing more and more often – and she’s not alone.
Private health insurance gives 23 million Canadians access to lifesaving medication. But exactly which drugs those patients can take – and which pharmacies they can order from – are being increasingly dictated by secret agreements between insurers, pharmacies and drug makers. The deals also influence the insurance premiums that employers and employees pay, but without the details of those agreements being shared.
Other players in the medication ecosystem say the lack of transparency may be driving up costs and unfairly steering employees to health care providers that are not convenient for them, but are more lucrative than others for the insurers.
As drug costs and premiums continue to rise, major insurers say the deals are the best way of controlling costs. But critics point to other cost-saving measures used by public insurance plans that are more patient-friendly ways to make private plan costs sustainable.
“There’s a whole process behind the scenes that is not necessarily transparent,” said Jamie Kellar, associate dean at the University of Toronto’s Leslie Dan Faculty of Pharmacy.
When Canada’s system of publicly funded health care was established in the 1950s and 1960s, it focused on covering hospital costs and doctor bills. For other needs, there was private insurance.
That system continued without any major changes for decades, until the emergence of blockbuster drugs in the 2000s. These drugs could dramatically increase the quality of life for people suffering from serious or chronic conditions, including cancer or cystic fibrosis. But the drugs came with big price tags – some costing into the five, six or seven figures a year per patient today.
Public insurance plans, which cover a range of populations, including veterans and seniors, responded by teaming up to negotiate as a block. They formed the pan-Canadian Pharmaceutical Alliance in 2010 and told manufacturers the plans would not cover the costs of drugs unless they could be given discounts.
The parties signed product listing agreements, in which drug makers offered rebates off list prices in exchange for the public plans including drugs on their formularies – the list of drugs covered by each plan.
The rebates have never been made public because the drug makers did not want insurance plans in other countries to know what discounts were being given out here. (Canada makes up only about 2 per cent of the global pharmaceutical market, although it has the third-highest average price of medication.)
Private insurers, meanwhile, were left out of the negotiations. The Canadian Life and Health Insurance Association (CLHIA), the insurers’ lobby group, has said it would like to be included. But others in the sector say such a move is impossible because private insurers have little leverage to negotiate with. Private insurers have historically been incentivized to have nearly open formularies, adding any drug an employer asks for, so they rarely threaten to withhold a drug from coverage. They may sign product listing agreements with providers for small discounts, but the amounts aren’t made public.
About 80 per cent of Canadians have some form of prescription drug coverage, with 54 per cent covered through employer-sponsored plans, according to a 2019 Statistics Canada report.
Drug costs are the biggest expense in group benefit plans. According to a 2024 CLHIA report, the private insurance industry spent a total of $15.3-billion on drugs in 2023, nearly half of the amount spent on all supplementary health benefits, and up 7 per cent from the year before.
Paul Sabat, a group benefits adviser and managing partner of the Consulting House. Inc., based in Vaughan, Ont., said rising spending on drug benefits is threatening the sustainability of some of his clients’ benefit plans.
“We either do something about the drugs or we have to cancel the program itself,” he said.
But getting drugs is just one part of the supply chain – there is also dispensing them to patients. Just over a decade ago, insurers began striking deals for preferred provider (or pharmacy) networks (PPNs), in which plan members would be steered to certain pharmacies to receive insurance coverage for a drug. For example, a patient might get 80 per cent of a drug cost covered at an out-of-network pharmacy, and 90 per cent at an in-network pharmacy. In closed networks, they might not get the cost reimbursed at all if they go out of network.
Under a PPN, pharmacies typically give a small discount on the markup they charge on a drug, in exchange for a higher volume of patients sent by the insurer.
No insurer contacted by The Globe and Mail – including Manulife Financial Corp., Sun Life Financial Inc., Canada Life Assurance and Green Shield Canada – or the CLHIA could provide estimates of how much plan sponsors save through PPNs. All four insurers declined interview requests with The Globe.
“We’re always pointing at the cost of drugs as the problem, but we’re never looking at the cost of insurance as a problem,” said Suzanne Lepage, a private health plan strategist based near Brantford, Ont.
Insurers say the PPNs help lower the expense of high-cost drugs, which are an increasingly large segment of prescription drug spending. The use of high-cost drugs drove spending up 9.2 per cent in 2023, according to the annual report to March 31, 2024, by Ottawa’s Patent Medicine Prices Review Board.
But insurers do not publicly report the discounts they get through PPNs and product listing agreements, even in aggregate, leaving some people in the industry to wonder whether the discounts are really passed on to plan sponsors and members in the form of lower premiums.
“So, with that lack of transparency, it’s really hard to evaluate whether or not these closed PPNs truly do ensure this sustainability to be used as one of those core rationales for why they exist,” said Jen Belcher, vice-president of strategic initiatives and member relations with the Ontario Pharmacists Association.
In an e-mail to The Globe, the CLHIA said insurers “actively negotiate” for pricing rebates on medications on behalf of plan sponsors.
“As is the case with the pan-Canadian Pharmaceutical Association, these negotiated agreements have strict confidentiality clauses included in them that preclude any disclosure of their terms,” CLHIA spokesperson Susan Murray said.
In a public consultation letter, the CLHIA argues that closed PPNs can generate the highest cost savings. For example, a specialty drug that costs $1-million annually will incur nearly $150,000 in pharmacy markups.
“Through a closed and mandatory PPN arrangement, the employer may be able to realize up to 70 per cent savings on that markup, driving the future sustainability of the plan,” the CLHIA wrote.
Meanwhile, research has shown that private insurers spend a higher percentage of the premiums they collect on administrative costs, taxes and profits than public plans do. For insured plans, CLHIA data show private insurers spent 72 per cent of the premiums they collected on benefits in 2023; for uninsured plans – in which insurers provide administrative services only – the amount was 95 per cent. Public drug plans, meanwhile, only spend about 1 or 2 per cent of their budget on administrative expenses, according to University of British Columbia professor Michael Law.
“You see the public side being much cheaper to run and much more effective at making the plans cost conscious,” he said.
PPNs have also come under fire for reducing patient autonomy.
Grace Parker Palidwor, who is just finishing up her university degree and has lived with a painful chronic condition since she was 18 months old, used to know her pharmacists well.
She would visit her local London Drugs in Langley, B.C., for pain relievers, supplements and various other medications to manage her juvenile idiopathic arthritis.
But since she began receiving prescriptions for specialty medications – first an injection called Actemra in 2019, and more recently an oral medication called Rinvoq in 2023 – Ms. Parker Palidwor has been forced to place her orders with a pharmacy she has never seen, in another city and receive the drugs by mail.
Ms. Parker Palidwor has been forced to place her orders for specialty medications with a pharmacy she has never seen, in another city and receive the drugs by mail.Jennifer Gauthier/The Globe and Mail
But everyone in her family works or attends school full-time; often, no one is at home to accept deliveries. On one occasion, she ran out of the drug while handling those logistics, causing her pain to become much worse. “My arthritis for those couple of days was terrible,” she said.
PPNs were quietly signed for years but attracted little public notice. Roughly one in 10 Canadians with private health insurance has been influenced to switch pharmacies in the past five years by their insurance provider, according to a December, 2023, survey of 1,919 Canadians commissioned by the Canadian Pharmacists Association.
That changed in January, 2024, when Manulife signed a deal with Loblaw Cos. Ltd. to let its pharmacies, mainly Shoppers Drug Mart, be the insurer’s exclusive provider of specialty drugs. After public backlash from pharmacists and patient groups, the two companies dropped the deal.
Manulife declined an interview with The Globe about the deal.
In an interview with The Globe in June, Shoppers president Jeff Leger said his chain stayed away from PPNs for a while because of a belief that people should be able to choose where they receive medications. “But, at one point, we felt we needed to join, because it was a big category, growing, and we weren’t part of it, at least to the level that we thought we should be,” he said.
Loblaw has not ruled out exploring other PPNs in the future, however. The company declined to answer a question about how many PPNs it currently participates in. Other major pharmacy chains such as Rexall, Costco Canada and grocer Empire Co. Ltd., which also owns a number of pharmacies, did not respond to requests for details about their approach to PPNs.
In an e-mailed statement, Rexall referred to PPNs as a “cost-containment strategy implemented by payors,” and confirmed it participates in such arrangements. The company did not answer a question about whether its PPNs are closed or mandatory for patients.
Walmart Canada and London Drugs both responded to say they have no PPN arrangements in place. London Drugs supports only open PPNs, which are not exclusive and allow any pharmacies to participate if they agree to the terms of the arrangement.
The pressure on regulators has built. The Ontario College of Pharmacists discussed the issue at board meetings in 2024 and started work on a policy to limit what it called “payer-directed care.”
The Ontario government launched a consultation in August on whether to limit PPNs. The federal Competition Bureau said in its submission, which it made public, that PPNs could unfairly restrict pharmacies’ ability to compete. The office of the Ontario Finance Minister said in December it was studying the submissions and planning its next steps.
One way public plans have taken a very different tack from private ones to control costs is much more use of generics and biosimilars, which can be sold for a fraction of the cost of a patented drug.
That hasn’t been the case for private insurers, according to the Canadian Generic Pharmaceutical Association. The group says the agreements that private insurers have signed with drug makers and pharmacies are locking out lower-cost generic drugs.
“In fact, if strategies are not implemented to increase the use of specialty generics, it will not be financially viable for manufacturers to launch new products,” the association said in its submission to Ontario’s PPN consultation.
Another way to save costs is managed formularies – that is, private insurers being more aggressive with drug makers about not covering certain drugs if they aren’t effective, or cost-effective, enough.
Reformulary Group, founded by former Ontario top drug bureaucrat Helen Stevenson, uses medical and financial experts to manage a formulary used by more than 1,000 companies. The experts evaluate high-cost and low-cost drugs for medical efficacy and expense. Ms. Stevenson said companies that use her group’s formulary saved an average of 13.5 per cent on their drug spending in 2023.
“We say it’s a smarter formulary at a better cost to the plan and employees,” she said.
Some insurers offer plan members a choice between open formularies and managed ones. Green Shield said in a November public report that claims made through its managed formularies were, on average, 8.2 per cent less expensive than open formularies.
Prof. Kellar said regulatory requirements already exist that enshrine informed and voluntary consent between patients and pharmacists – requirements that PPNs may violate.
“Every patient has the right to choose their own pharmacist and pharmacy,” she said. But in many cases patients are not asked whether they consent to a PPN. “They’re actually being told, if they want their drugs to be covered, they have to go.”