The price of medicine

When it comes to medicine, is “cheaper” truly cheaper in the long-run? Cheaper may actually cost more due to poorer health outcomes.

When comparing the relative cost of medications, we need to look beyond the price of a drug and rather at the actual cost to treat a disease, including non-drug related costs, and the value a particular medicine brings to treatment from a medical and quality of life point of view. Of course this does not consider the relative value brought by a particular therapy which may cost more but offers significant positive impact on the employee’s day to day lives vs one which costs less and produces less benefits.

Duration and frequency of treatment

It is important to understand how frequently and how long drugs are used for a particular treatment. Some drug therapies may be used quite frequently in the patient’s first year of treatment and then less often in subsequent years. Another drug in the same therapy class may be used more evenly over the same period. Or, a drug therapy may be used for a fixed treatment duration, whereas its alternative should be taken indefinitely or for a longer duration. Consequently, if we look at a patient’s first year of treatment only to compare the cost of these drugs, we may not get an accurate picture of their relative costs. To account for fluctuations in treatment over time, it would be wise to consider a longer time period following the date the therapy started. Ideally you’d like to look back over a five year period to annualize the cost of a drug.

There are also could be additional pharmacy dispensing costs for drugs that will require more frequent dosing, and therefore have shorter dispensing day-supplies. There may also be more frequent dosing for generic versions of therapies than the brand equivalents depending on the laws around pharmacist remuneration in different provinces, which would drive up the cost of the generic version.

Concomitant treatments

Some new treatments replace older therapy while others are added onto existing ones. Therefore, the cost (again, annualized over a 5-year period ideally) of these background/concomitant/previous treatments need to come into the equation when comparing the cost of a new medication that essentially removes the need for additional, concomitant treatments.


There is a large body of evidence demonstrating that poor or non-adherence to treatments cost more in the long-run due to direct drug costs (e.g. longer duration of treatment and wasted drug usage), but also due to indirect costs such as lost productivity, absenteeism, disability, not to mention other healthcare costs.

As a plan member or employer trying to compare costs between treatment options, you should consider this: Is there Real-World Evidence to suggest or validate that a treatment option will deliver better plan member adherence? In other words educate yourself and make informed decisions.

For example a drug in pill form may be cheaper, but it requires a patient to take it regularly every day. If the patient doesn’t adhere to that schedule, they may not get the full benefit of the drug. A similar drug that is administered by injection once a year could be more expensive than the pills over the same one-year period, but it has the value of not requiring the patient to adhere to a strict medication schedule and it could produce better patient outcomes.

Likewise, switching from a pill that is taken 3 times a day to once a day or to a pill that combines 2 different medications, represents not only a reduction in the pill burden that could vastly improve the adherence and the effectiveness of the drug, but also could provide social benefits like reducing the risk of diversion and easing the burden for caregivers.

Impact on productivity and bottom line

In addition to comparing drug costs across different therapies, there are some additional considerations when comparing the relative benefit of medications.

  • How does this condition impact employees and their ability to work?
  • How will sick days, productivity, and short and long term disability be impacted by the employee’s ability to access the treatment? What benefit do the medications provide to the patient in terms of their quality of life?
  • How do these benefits translate into positive outcomes for the company? What is the impact on a company’s bottom line?

The Cost of Your Prescription


There are several additional costs that get added to the actual price of the medicine to round up your total prescription amount.

First, there are markups added to compensate the distributor and the pharmacies that stock the product (i.e. wholesaler and pharmacy), as well as a pharmacy dispensing fee.

The markup is usually a percentage added to the cost of the drug, so this amount varies considerably depending on the actual cost of the drug dispensed.

The dispensing fee is normally a fixed amount charged by the pharmacy regardless of the cost of the drug prescribed. For a low cost prescription, the dispensing fee can sometimes be even greater than the actual drug cost.

There can be variability in the amount of dispensing fees and markups charged by each pharmacy, and even within each pharmacy these often vary significantly between the type of payer (no reimbursement coverage, or government provided plan (public), or employer-sponsored benefit plan (private). Generally speaking, those who pay out of pocket and employer-sponsored plans are charged higher dispensing fees and mark-ups. Depending on the province, generally this ranges between $12-$16 of dispensing fees per prescription, and 10-15% of markups.

It’s important to know that these costs can vary based on where you pick up your medication. Employers can have specific arrangements with insurance providers to negotiate lower fees and markups with pharmacy chains in order to ensure cost effectiveness. Other costs can include the duration of treatment, the frequency of dispensing, potential for non-adherence, and the cost of alternatives being replaced, as well as indirect costs such as the productivity/quality of life cost of not taking the prescribed medicine.

Secondly, the frequency of dispensing also impacts the total cost. A chronic medication which is taken continuously could potentially incur higher total prescription costs over the long term if the volume of prescription is smaller and requires more frequent refills.

Thirdly, non-adherence to a prescribed drug will incur extra costs due to waste, as well as due to poorer health outcomes and productivity losses.