The battle to bottle up drug costs

For years, Dale Horton and his family bought most of their prescription drugs at their nearby Shoppers Drug Mart, with the costs covered largely by his employers benefit plan. But last year, his family switched to another pharmacy, at Costco Wholesale Canada, after his employer teamed up with the discounter.

A Costco store isnt as close to his home as Shoppers, but Mr. Horton, an inventory specialist at Toromont Industries Ltd., prefers the trek to spending an extra $200 a year at Shoppers.

Its not that I dislike them ... But if I can save myself some money and Im not inconveniencing myself too much, why wouldnt I do that?

For its part, Toromont is shaving hundreds of thousands of dollars from its once-soaring bill to cover the annual prescription drug benefits for its 3,000 employees, partly by partnering with Costco, said David Wetherald, its vice-president of human resources.

In the past 18 months, Costcos prescription sales among Toromonts work force have jumped tenfold, at the expense of other drugstores, no doubt in part because employees dont have to pay the regular $9 deductible per prescription.

Thats coming out of somebody elses pocket, Mr. Wetherald said.

The pockets in question belong to traditional drugstores, whose profit margins already are under attack from provincial governments that are forcing through sweeping changes that slash lucrative generic prescription prices.

In the past two years, spending on prescription drugs rose about three times faster among private plans and individuals compared with public plans almost 7 per cent versus just over 2 per cent according to estimates from the Canadian Institute for Health Information.

The arrival of expensive new specialty drugs for cancer, auto-immune and other diseases will only increase the pressure on costs.

Now, companies such as Toromont are opening up another front in that battle, as they turn to less traditional prescription purveyors to cut the costs of their drug benefit plans. The initiatives threaten to shake up an already pinched drugstore business model, putting pressure on players such as Shoppers Drug Mart Corp. to offer more to plan sponsors, or to suffer losses.

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The battle to bottle up drug costs