Saving Public Money at Private Expense? Impact of Ontario's Generic Drug Pricing Reform on Out-of-Pocket Drug Expenditure

To address its rising drug costs, the province of Ontario decreased the amount that it reimbursed generic drugs under public insurance plan in 2006. As pharmacies compensate for the loss of revenue under public plans by raising generic drug prices and dispensing fees charged to private payers, this policy may increase the costs for private payers. This study investigates and quanti…es the eect of this policy on out-of-pocket drug expenditure by private payers. I employ a dierence-in-dierences design that compares the change in out-of-pocket payments of private payers in Ontario with the similar change in other Canadian provinces that did not implement such reform. I also model the heterogeneity of the policy eects using the …nite mixture model. The results indicate that the policy increases out-of-pocket payments for private payers in Ontario by 20%, with a large part of this higher cost burden falling on a small proportion (33%) of the population. Further, the policy is regressive, as it has a larger impact on low income households than high income households. There is also evidence that the policy increases the proportion of households incurring catastrophic drug spending in Ontario by 45%. These …ndings support Ontario's recent policy reform that extends price caps to generic drugs covered under private plans. However, more is needed to ensure uniform drug costs across public and private plans because pharmacies can always increase unregulated dispensing fees and mark-ups that they charge private payers.