'I don't think PPNs are going to expand generally to include conventional, non-specialty drugs,' says author and professor at University of Toronto
Preferred pharmacy networks (PPNs) are no longer an unconventional feature of Canada’s private drug insurance landscape. Rather, they’re becoming a central tool for insurers looking to manage the ballooning costs of high-cost specialty drugs.
But even as PPNs expand, their implications for plan sponsors, patients, and independent pharmacies remain under-scrutinized.
Paul Grootendorst has spent the past year diving into the economic mechanics behind PPNs, motivated in part by the uproar that followed Manulife’s 2024 move to restrict access to specialty medications through Shoppers Drug Mart.
Since then, the backlash from independent pharmacies stems largely from their exclusion in dispensing specialty drugs through preferred pharmacy networks. For decades, they operated under a system where insurers reimbursed them at “usual and customary fees,” a model that was financially sustainable when drugs were inexpensive.
“Everyone was happy. The private drug insurance benefit system was quite generous. The insurers would reimburse pharmacies, usual and customary fees, passing these costs along to the drug plan sponsor. But that model didn't work very well when the drugs became high cost, because the markups were getting expensive,” explained Grootendorst, professor at the Leslie Dan Faculty of Pharmacy at the University of Toronto.
Aas drug prices soared, that model began to break down, added Grootendorst. Specialty medications costing $100,000 or more meant that standard markups translated into tens of thousands of dollars, something plan sponsors were no longer willing to absorb. That shift prompted insurers to tighten networks and negotiate lower rates, effectively sidelining many traditional pharmacies while independent pharmacies have since raised a host of concerns through advocacy and lobbying efforts.
Grootendorst acknowledged that PPNs are primarily a feature of private drug plans, where they serve as a cost-management tool for insurers. These networks allow insurers to negotiate discounted dispensing fees - usually for high-cost medications - by directing patients to a limited set of pharmacies willing to operate at a preferred price point.
In some cases, PPNs also include ancillary services such as adherence support or assistance with navigating insurance coverage, often bundled into manufacturer-sponsored patient support programs. These additional offerings may include benefit advisors and waived copays to ensure medications remain accessible to patients.
According to Grootendorst, the types of pharmacies that participate in PPNs vary based on the scope of drugs included in the agreement. When PPNs focus solely on high-cost medications, the network tends to be limited to a small number of specialized providers, naming Bayshore, McKesson, and Shoppers Drug Mart as examples currently operating in the specialty drug arena.
However, if a PPN covers a broader range of medications, including lower-cost or conventional drugs, the network could expand to include a wider mix of pharmacy types. This may involve traditional retail chains or independent, pharmacist-owned pharmacies.
In his paper for the CD Howe Institute, Grootendorst examined the structural differences between the Canadian and US drug systems. While he didn’t set out to offer direct guidance to employers, Grootendorst was firm on several key points. He reiterated his belief that Canada is far from adopting a US-style drug benefits model, and he doesn’t see PPNs expanding into the realm of conventional or lower-cost drugs.
“I don’t think we’re anywhere near the US model,” he said. “I don’t think PPNs are going to expand generally to include conventional, non-specialty drugs.”
Grootendorst drew sharp contrasts between the Canadian and US drug benefit systems, stressing that Canada is unlikely to replicate the dysfunction seen south of the border. In the US, he noted, pharmacies are fewer, heavily consolidated, and dominated by large corporates. Independent operators struggle because powerful pharmacy benefit managers (PBMs) demand steep rebates in exchange for access to patients.
This aggressive dynamic fuels list price inflation in the US, where PBMs negotiate secret rebates, further solidifying their control. He believes the setup to be “completely dysfunctional, a real rat’s nest,” pointing out that Canadian regulatory guardrails, such as federal price controls on patented drugs and negotiated agreements on generics prevent similar distortions.
He also underscored that the potential savings from applying PPNs to lower-cost drugs would be minimal. On a $25 prescription, even a 50 per cent discount would only save a few dollars. Meanwhile, higher-income employees benefit disproportionately from health coverage due to tax treatment, making them especially unwilling to trade flexibility for modest plan savings.
According to Grootendorst, a key limitation in the current discussion around preferred pharmacy networks revolves around the lack of transparency. Much of the contracting between specialty pharmacies and insurers remains opaque, as does the range of options actually offered to group plan sponsors.
He acknowledged that because he’s not an industry insider, and because providers tend to “keep their cards very close to their chest,” there’s little visibility into how these agreements are structured or negotiated.
Still, he speculated that opening up PPNs to include more pharmacy providers could be possible though likely more costly. Pharmacies currently benefitting from high volume under exclusive deals would need compensation for losing that traffic.
“If the plan sponsors are willing to pay for it, you could imagine opening up these networks,” he said, suggesting one potential solution would be for insurers to survey members directly to gauge how much more they’d be willing to pay in exchange for expanded pharmacy access.
One of the more heated claims he tackled was the idea, mostly from independent pharmacy groups, that using multiple pharmacies for specialty and regular drugs creates a serious health risk for patients. Grootendorst didn’t find the evidence to back that up, noting that while pharmacy stakeholders describe the risks as “deadly serious,” organizations like the CLHIA point to strong satisfaction rates and improved access to high-cost medications.
“I haven’t seen any reports of people being harmed by the PPNs,” he added. “There’s no signals of serious patient harms, no disciplinary cases from the Ontario College of Pharmacists, for instance.”
For him, the more constructive focus is on how to reduce the risk of fragmented care. He argued that better clinical information sharing between standard pharmacies and PPN providers could address potential gaps. He also pointed to existing models, like pharmacists in Ontario who can now diagnose and prescribe for minor ailments but are required to share dispensing data with primary care providers.
As to whether PPNs might soon expand to cover all drugs and not just specialty medications, he’s ultimately skeptical.
“I just don’t see it,” he said. “Plan members, especially in unionized and public sectors, are used to broad pharmacy choice. Try telling a professor or a federal employee they can only fill prescriptions at one pharmacy chain. There’d be hell to pay.”
