What is Mandatory Generic Substitution?

What is Mandatory Generic Substitution?

Mandatory generic substitution is an option on the drug plan that controls on what basis a drug claim is paid. In situations where a lower cost generic alternative exists to a brand name drug, the drug plan will only cover the lower cost option. If the plan member insists on purchasing the brand name drug, they will only be reimbursed as if they had opted for the generic equivalent. Note that for a Mandatory generic plan this applies even if the doctor writes ‘no substitution’ on the prescription, unlike a standard generic plan which would pay the brand name drug claim if ‘no substitution’ is indicated.

In situations where no generic equivalent exists, the cost of the brand name drug will be covered up to the limits determined in the plan design. This leaves three possible outcomes:

Possible outcomes of a drug claim on a Mandatory generic plan

What is a generic drug?

In Canada, brand-name drugs have a defined duration of patent protection. During that time, only the patent holder can produce the drug. Once the patent expires, other drug companies can apply to produce generic equivalents on that drug. The active ingredients of the generic drug are identical, including purity and dose. The only difference is in the other ingredients such as the dyes and fillers that control the look and shape of the pills.

Generic drugs must go through the same testing as the brand name equivalent to prove they are equally safe and effective. This means that generic drugs are a great alternative. The benefit of generic drugs is that they are often considerably cheaper than their brand name equivalents.

Benefits of Mandatory Generic

Switching a group to Mandatory generic substitution can be a good way to control EHB claims experience. It is protective measure for groups with high or unlimited drug maximums, as these groups pose the greatest risk of very high drug claims. Note that it doesn’t completely eliminate this risk, if an expensive drug has no generic equivalent it will still be covered at the brand amount.

The potential impacts are greater if the plan is switching from a brand name plan. Groups switching from a generic plan will see nominal savings. For experience rated groups, the savings may be greater if existing recurring drug claims will be affected by the change, although this can cause potentially sensitive issues for the plan member(s) affected.

Many plans have a cost sharing of EHB premiums with their employees, so any savings realized will also directly impact the employee contributions. Carriers often have detailed marketing materials on making the switch to mandatory generic, which can be shared with plan members to ensure they are aware of the change and the potential impacts to them the next time they are at the doctors office or pharmacy.

Potential challenges

• Some carriers default to Mandatory Generic if a drug plan is not specified, or may not offer an alternative. When comparing EHB rates, check that everyone has quoted on the same basis.
• If a Doctor prescribes a brand name drug and the plan member is unaware that their drug coverage is mandatory generic, their out of pocket expenses could be very high. Plan members need to be educated to inform their doctors that their plan only covers generic drugs. They can also request a cheaper generic at the pharmacist, even if the doctor has prescribed a brand name drug.
• In rare instances a plan member may have an adverse reaction to the generic equivalent. If this happens the plan member should consult their doctor to see if another generic alternative is available. Many carriers have a process to request a brand name drug for medical reasons. If approved the cost of the brand name drug will then be covered for that plan member.
• Some brand name drug manufacturers offer coupons or reimbursements for plan members that continue to use the brand name drug. It is important to note that if the plan member chooses to continue taking the brand name drug, it is their responsibility to complete the required documentation to submit to these manufacturer reimbursement plans. The groups drug plan will continue to pay up to the generic equivalent.
• Note that the implementation of Mandatory generic substitution may differ from province to province, based on provincial drug coverage and the guidelines in place. These guidelines change over time, so it is important to stay abreast of them to understand the changing impacts on drug claims experience.

Further reading:

Please note these link to external sites:

• Find out more about the numbers behind mandatory generic substitution here
• Find out more about Generic drugs here
• Read the steps Health Canada takes to ensure the safety of generic drugs here
• Get up to date news in the Generic drug space here