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Bulk Purchasing

Updated May 2010

Better Pharmacare Coalition Fact Sheet on Cost Containment Strategies: Bulk Purchasing

What is bulk purchasing?
Bulk purchasing agreements aim to reduce costs by increasing the volume of products purchased, which reduces the price per item. In pharmaceutical policy, bulk purchasing agreements combine multiple purchasers (such as provinces or states) to buy their medications. This increase in the amount of drugs purchased potentially results in a decrease in price per medication and an overall lower cost for governments1. In theory, the more you buy, the less you pay.

Bulk purchasing is also known as consolidated purchasing, pooled purchasing, aggregate purchasing and price volume agreement.

Why do governments use bulk purchasing strategies?
In the case of pharmaceutical products, bulk purchasing is a cost containment strategy implemented by governments to reduce overall pharmaceutical costs. Other cost containment strategies include: Therapeutic Substitution, Reference-Based Pricing and Tendering.

Pharmaceuticals represent one of the largest and growing health costs for government. The most recent Canadian Institute of Health Information (CIHI) report estimates that pharmaceutical spending was forecasted to reach 29.8 billion in 20082, which is an annual increase of approximately 9%3. However, within Canada, British Columbia spends less than most other provinces and territories when it comes to the percentage of prescribed drug expenditure per capita at 36.2% compared to 44.1% in Ontario, 43.9% in Alberta and 53.7% in Saskatchewan4.

What impact can bulk purchasing agreements have on patients?
Bulk purchasing agreements can help to reduce costs, which is an important and necessary role for Government. However, there are also some risks associated with bulk purchasing, including limited access to medications, increased costs, reduced medication supplies and restricted choice5.

Bulk purchasing can negatively impact access to drugs by reducing the number of drug suppliers, resulting in limiting access to other medications in the same therapeutic class that are produced by other companies. This can also limit the opportunity for physicians to substitute other medications they feel are more effective for the individual patients’ disease needs.

• Bulk purchasing and tendering:
  One way in which bulk purchasing agreements can limit access to medications is by implementing a tendering process within these agreements6. Tendering is a process in which government, as payer, negotiates the lowest price for a pharmaceutical drug7. In exchange for this low price, the supplier of the drug gets their product listed on the public drug plan. Often, the lowest bidder becomes the sole tender meaning their drug is the only one available in an entire class of drugs (such as statins) to patients on the public drug plan8.
  
  Sole product tendering is particularly problematic for patients when it is done across a class of drugs as it results in a form of therapeutic substitution. In these cases, patients are forced to switch from the drug prescribed by their doctor to another drug that is chemically different from the one they were prescribed. In some cases, patients have been forced to switch numerous times as governments re-negotiate their contracts and award different companies sole tender9.
  
  
• Bulk purchasing and reference-based pricing:
  Similar concerns about bulk purchasing arise when governments have implemented reference-based pricing policies. Under reference-based pricing, drug plans reimburse the cost of only one drug (the reference drug), in an entire class of drugs10. Most often, this is the most inexpensive drug in the class.
  
  Under reference-based pricing, reimbursement for the cost of the drug is based on the assumption that certain medications within a specific drug class are interchangeable, having the same therapeutic benefits; therefore a common level of reimbursement can be established. Reference-based pricing policies apply to drugs that are within the same class and considered therapeutically equivalent, but are different chemically and structurally11.
  
  Therapeutic substitution is a type of reference-based pricing policy. A policy of therapeutic substitution affects patients starting new medications as well as patients already on medications. If a patient is starting a drug for the first time, they are forced to begin with the reference one, even if this was not the drug prescribed by their doctor. Or, if patients are already taking a drug, it forces them to make a medically unnecessary switch from the medication prescribed by their doctor to another medication that is chemically different, but within the same therapeutic class of medications12.
  
  
• Increase costs
  Bulk purchasing agreements can also result in increased administrative costs as provincial and national governments must establish processes, or rely on private companies, to decide which drugs to include in these contracts13.
  
  

British Columbia PharmaCare and bulk purchasing
In July 21, 2009 a bulk purchasing agreement was signed by the British Columbia Health Authority Shared Services Organization and Alberta Health Services14.

These purchasing agreements will be established through a common group purchasing organization (GPO) contract with HealthPRO, which is a private company located in Ontario.

The agreement will combine purchases for the two provinces’ health care systems that serve approximately eight million residents, including 4.4 million people in B.C. It is anticipated the combined volumes of purchases will range from $750 million to $1 billion depending on which products each province wishes to contract through HealthPRO.

Potential expenditures of the Alberta – British Columbia purchasing agreement is forecasted to reach $1 billion, providing these provinces with greater purchasing leverage than they have as sole provinces.

Currently, British Columbia Health Authority Shared Services Organization (British Columbia’s SSO) has signed two contracts for cardiac supplies and home oxygen services that will save $57.5 million over the next five years. These savings represent 38 per cent of the more than $150 million savings that the SSO first identified as potential savings targets in December 2008.

Provincial comparisons
Currently, British Columbia, Alberta, Manitoba and Ontario have implemented policies to reduce pharmaceutical costs. At this point there has been very little review of these policies. However, in a recent article in the Canadian Medical Association Journal (August 5, 2009), it is noted that both Ontario and British Columbia have been criticised for the lack of transparency surrounding drug procurement deals15.

International comparisons
There are many countries that have implemented bulk purchasing strategies including: New Zealand, Australia, France, Italy, Sweden and the United States.

In the US, there are a multitude of bulk purchasing strategies in place. A few examples include: RX Issuing States (RXIS) project, lead by West Virginia, which includes Delaware, Missouri, New Mexico and Ohio; the Minnesota Multi-state Contracting Alliance for Pharmacy (MMCAP), which involves 41 states; and (3) National Medicaid Pooling Initiative (NMBP) involving nine states 16. Research has shown that these agreements have resulted in cost savings for these groups17.

New Zealand has also implemented bulk purchasing agreements. New Zealand’s experience with bulk purchasing drugs has resulted in a reduction of pharmaceutical costs, but has also shown that having purchasing agreements established by a crown corporation serves to negotiate a better deal than private companies18. Moreover, in the case of New Zealand, the agreements put into place by the Pharmaceutical Management Agency (PHARMAC) results in certain manufacturers having all or most of the national market. Research has shown that this can have the potential to limit access to other medications that are not included in purchasing agreements19.

Our Concerns:

• Bulk purchasing agreements must take into consideration the cost of not providing necessary medications to patients. Ensuring the right medication at the right time to the right patient ensures better health outcomes, less doctor visits, less time in emergency thereby reducing costs to the health system20. Restricting choice and access will have the opposite effect.
• Bulk purchasing can reduce patient access or choice to a wide range of effective medications and health products. Experts may be unable to prescribe the medications they feel are most effective to their patients as these medications may not be included in purchasing agreements and therefore not included on the provincial drug reimbursement list.
• Costs may be shifted onto patients if the medications they require are not part of the bulk purchasing agreements, thereby requiring co-pays or requiring that patients pay out of pocket for the entire cost of these medications.
• The new strategy established between British Columbia and Alberta is using a private company to negotiate bulk purchasing agreements. We are concerned that as a private company, HealthPRO (based in Ontario), is responsible first to its shareholders to ensure profits. This will impact the savings earned through the bulk purchasing agreement.

Better Pharmacare Coalition Position and Recommendations
The Better Pharmacare Coalition feels that the health of patients in British Columbia comes first. Increasing choice enhances patient care; limiting choice to innovative medications flies in the face of patient individuality. Ensuring patients get the right medicine at the right time should be the priority of the health care system.

Government must discontinue the practice of trying to pick "winners and losers" in determining which drugs in which category should be covered and by how much. Those are choices to be made together by doctors and patients, the people who know the medical and experiential circumstances, the experts who have the education, training and experience to make such judgments.

The Better Pharmacare Coalition understands the cost pressures on the healthcare system in general and the PharmaCare budget in particular. However, we feel that bulk purchasing is an untried and unproven strategy in British Columbia, therefore caution must be taken in proceeding in order to avoid unintended consequences.

With these principles in mind we recommend:

• BC PharmaCare work with the Purchasing Commission, a BC health economist, and other experienced procurement bodies to examine the ramifications of bulk purchasing agreements and consider not so positive outcomes and experiences in other countries such as New Zealand before making decisions on procurement.
• Decisions about bulk purchasing agreements should be evaluated by all the various stakeholders affected, focusing on the impact on patients and the ability for physicians to provide necessary care and treatment in respecting the needs of their patients.

1. Canadian Pharmacists Association website: Bulk Purchasing Paper, January 2005
2. CIHI (2008) Drug Expenditures in Canada: 1985-2008
3. Canadian Institute of Health Information, Drug Expenditures 1985-2008: 3
4. Ibid: 17
5. Ibid
6. http://www.cfses.com/documents/pharma/10-Role_of_generics.PDF
7. LeLorier, J. (2007). “Lessons for a national pharmaceuticals strategy in Canada from Australia and New Zealand” in Health Outcomes and Public Policy, Vol 23(9): 711-718.
8. Ibid
9. Begg et al. (2003) “Sorry saga of statins in New Zealand” in NZMA, Vol. 116(1170)
10. Skinner et al. (2009), Alimentary Pharmacology and Therapeutics’. Postpring: doi: 10.1111/j.1365-2036.2009.-3940.x
11. Schneeweiss, S. (2007). Health Policy, Vol. 81: 17-28.
12. Gainor et al. (2003): 654.
13. World Health Organization: http://apps.who.int/medicinedocs/en/d/Jh2935e/9.2.html
14. BC PharmaCare news: http://www2.news.gov.bc.ca/news_releases_2009-2013/2009HSERV0010-000125.htm
15. Editorial, (2009) “Provinces seek lower public drug plan costs” in CMAJ, August 5.
16. Connecticut General Assemby: http://www.cga.ct.gov/2005/rpt/2005-R-0724.htm
17. National Conference of State Legislatures (2004). Pharmaceutical bulk purchasing: multi-state and inter-agency plans. Updated November 8, 2004.
18. http://www.ncsl.org/programs/health/bulkrx.htm
19. http://www.aupe.org/in_the_news/news.php?id=1192
20. Ellis et al. (2008). NZMJ, Feb.15

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