Drug Pricing Glossary
Every confusing pharmacy and drug pricing term, explained in plain English with real examples.
Bioequivalent
/BY-oh-ee-KWIV-uh-lent/Definition
Two drug products are bioequivalent when they contain the same active ingredient and produce the same blood levels and therapeutic effect at the same rate and extent. Health Canada requires this for generic drug approval.
In Plain English
A scientific way of saying two drugs work the same way in your body. This is what makes generics safe to use instead of brand-name drugs.
Example
Generic atorvastatin is bioequivalent to Lipitor. They produce the same cholesterol-lowering effect in your body.
Biosimilar
/BY-oh-SIM-ih-lar/Definition
A biologic drug that is highly similar to an already approved biologic (reference product), with no clinically meaningful differences in terms of safety, purity, and potency. Biosimilars are to biologics what generics are to chemical drugs.
In Plain English
A cheaper near-copy of an expensive biologic drug. Not exactly identical (like generics are), but close enough to work the same way.
Example
Inflectra is a biosimilar to Remicade (infliximab) for treating rheumatoid arthritis. It costs about 40-50% less.
Brand Name Drug
Definition
A medication marketed under a proprietary trade name by the company that originally developed and patented it. Brand-name drugs are typically more expensive than their generic equivalents.
In Plain English
The original version of a drug, sold under a name chosen by the company that invented it. You pay a premium for the brand name.
Example
Lipitor is a brand-name drug made by Pfizer. After its patent expired, generic atorvastatin became available at a fraction of the cost.
Coinsurance
/co-IN-sure-ance/Definition
A percentage of the drug cost that the patient is responsible for paying after the deductible is met. Unlike a copay, the patient's share varies with the drug's price.
In Plain English
Instead of a flat fee, you pay a percentage of the drug cost. More expensive drugs mean you pay more.
Example
With 20% coinsurance, you pay $4 on a $20 drug and $40 on a $200 drug.
Compounding
/com-POUND-ing/Definition
The practice of a pharmacist preparing a customized medication by mixing, combining, or altering ingredients to create a formulation tailored to a specific patient's needs. Common for patients who need a different dosage form or cannot tolerate certain inactive ingredients.
In Plain English
When the pharmacist custom-makes your medication because the standard form does not work for you.
Example
A child who cannot swallow pills may need their medication compounded into a liquid form with flavoring.
Copayment (Copay)
/CO-pay-ment/Definition
A fixed dollar amount the patient pays for each prescription fill after the deductible has been met. The insurance plan covers the remainder.
In Plain English
A flat fee you pay per prescription, regardless of the drug's price. Like a cover charge.
Example
With a $5 copay, you pay $5 for a $20 drug and $5 for a $200 drug. The plan pays the rest.
Deductible
/dee-DUCK-tih-bull/Definition
A fixed dollar amount or percentage of income that a patient must pay out-of-pocket each year before their drug plan begins to cover costs.
In Plain English
The amount you have to spend on drugs yourself before your insurance starts paying.
Example
With a $200 annual deductible, you pay the first $200 of drug costs each year. After that, your plan starts covering part or all of the costs.
DIN (Drug Identification Number)
/D-I-N/Definition
An 8-digit number assigned by Health Canada to each drug product sold in Canada. It uniquely identifies the manufacturer, product name, active ingredient(s), strength, pharmaceutical form, and route of administration.
In Plain English
A unique ID number on every drug package in Canada, like a serial number for medications.
Example
The DIN for Tylenol Extra Strength 500mg caplets is 00559407. You can find it on the drug package near the barcode.
Dispensing Fee
/dis-PEN-sing fee/Definition
A flat fee charged by the pharmacy each time a prescription is filled. It covers the pharmacist's professional services including prescription verification, drug interaction checking, patient counseling, and record-keeping.
In Plain English
The service charge you pay every time the pharmacist fills your prescription. It is the same whether you get 10 pills or 90 pills.
Example
Costco charges a $4.49 dispensing fee per fill, while Shoppers Drug Mart charges $11.99. That is a $7.50 difference on every single prescription.
Drug Benefit
Definition
The portion of drug costs covered by a public or private insurance plan. The benefit reduces what the patient pays out-of-pocket.
In Plain English
The money your insurance or government plan pays toward your medication. The more benefit, the less you pay.
Example
If your drug costs $50 and your drug benefit covers 80%, you pay $10 and the plan pays $40.
Drug Identification Number
Definition
The full name for DIN. See DIN (Drug Identification Number) for the complete definition.
In Plain English
Another way of saying DIN. It is the unique 8-digit ID on every drug package in Canada.
Example
Look for the Drug Identification Number on the side of any drug box, near the barcode. It starts with a number like 02 or 00.
Drug Utilization Review (DUR)
/D-U-R/Definition
A systematic process of evaluating a patient's medication use to ensure drugs are used appropriately, effectively, and safely. Pharmacists perform DUR checks at the point of dispensing.
In Plain English
When the pharmacist checks your prescriptions to make sure nothing conflicts or is being misused.
Example
The DUR system alerts the pharmacist if two of your drugs interact badly, or if a new prescription duplicates something you already take.
Exceptional Access Program (EAP)
Definition
Ontario's program that provides coverage for drugs not listed on the Ontario Drug Benefit Formulary when a patient meets specific clinical criteria. The prescriber must submit an application to the Ministry of Health.
In Plain English
Ontario's way of covering drugs that are not on the standard list, if your doctor can prove you really need them.
Example
A new cancer drug that is not yet on the ODB formulary may be covered through EAP if your oncologist submits the required paperwork.
Formulary
Definition
A list of drugs approved for coverage under a specific drug plan. Provincial formularies determine which drugs are paid for by government drug programs. Insurance companies maintain their own formularies.
In Plain English
The list of drugs your drug plan will actually pay for. If your drug is not on the formulary, you pay the full cost out of pocket.
Example
Ontario's ODB Formulary lists over 5,000 drugs. If your medication is on the list, ODB helps pay for it. If not, you may need to apply for Exceptional Access.
Generic Drug
Definition
A medication that contains the same active ingredient, dosage form, strength, and route of administration as a brand-name drug. Generics are approved by Health Canada after the brand-name patent expires and must demonstrate bioequivalence.
In Plain English
A cheaper copy of a brand-name drug that works the same way. It becomes available after the brand-name company's patent expires.
Example
Atorvastatin is the generic version of Lipitor. It costs about $0.20/tablet compared to $2.50/tablet for brand-name Lipitor.
Ingredient Cost
Definition
The cost of the actual drug product used to fill a prescription, before any markup or dispensing fee is applied. Often based on the wholesale acquisition cost or a provincial maximum price.
In Plain English
The raw cost of the drug itself, before the pharmacy adds its fees. This is the starting point of your prescription price.
Example
On your receipt, the ingredient cost for 30 tablets of metformin 500mg might be $3.60, before the pharmacy's $10 dispensing fee.
Interchangeability
Definition
The designation by a provincial authority that a generic drug can be substituted for the brand-name version without requiring the prescriber's approval. Only drugs deemed interchangeable can be automatically substituted.
In Plain English
When the government says a generic is good enough to replace the brand-name drug automatically.
Example
If atorvastatin (generic) is deemed interchangeable with Lipitor (brand), the pharmacist can give you the generic without calling your doctor.
Mark-up (Provincial Maximum)
Definition
The maximum percentage markup a pharmacy can charge on drugs covered by a provincial drug plan. Each province sets its own maximum, typically ranging from 8% to 12%.
In Plain English
The government puts a cap on how much extra pharmacies can charge on publicly covered drugs.
Example
If the provincial markup cap is 8% and the drug costs $100, the pharmacy can charge at most $108 for the drug portion (before dispensing fee).
Markup
/MARK-up/Definition
A percentage added by the pharmacy to the wholesale acquisition cost of a drug. This is the pharmacy's margin on the drug product itself, separate from the dispensing fee.
In Plain English
The extra percentage the pharmacy adds to what they paid for the drug. Like retail markup on any product.
Example
If a drug costs $10 wholesale and the pharmacy has a 10% markup, the drug ingredient portion of your bill becomes $11, before the dispensing fee is added.
NPN (Natural Product Number)
/N-P-N/Definition
An 8-digit number assigned by Health Canada to natural health products that have been assessed for safety, efficacy, and quality.
In Plain English
Like a DIN but for natural health products like vitamins, herbal supplements, and homeopathic medicines.
Example
A bottle of vitamin D3 supplements would have an NPN on the label, confirming it has been reviewed by Health Canada.
Orphan Drug
Definition
A medication developed to treat a rare disease or condition (fewer than 1 in 2,000 people affected). Orphan drugs often receive special regulatory incentives because the small patient population makes them commercially less viable.
In Plain English
A drug for a very rare disease. These tend to be extremely expensive because so few people need them.
Example
Drugs for conditions like cystic fibrosis or Gaucher disease are orphan drugs, and can cost $100,000-$500,000 per year.
OTC (Over-the-Counter)
/O-T-C/Definition
Medications that can be purchased without a prescription. They are available on pharmacy shelves or behind the counter and do not require a doctor's order.
In Plain English
Drugs you can buy without a prescription, like Tylenol or Advil.
Example
Ibuprofen 200mg is available OTC. You can grab it off the shelf without seeing a doctor.
Pharmacy Benefit Manager (PBM)
/P-B-M/Definition
A third-party company that administers drug benefit plans for insurers and employers. PBMs negotiate drug prices, maintain formularies, process claims, and sometimes operate mail-order pharmacies.
In Plain English
A middleman company that manages drug insurance on behalf of your employer or insurance company. They decide which drugs are covered and what you pay.
Example
Express Scripts and McKesson are major PBMs in Canada. Your employer pays them to manage the drug plan, and they negotiate prices with pharmacies.
Prescription Drug
Definition
A medication that requires a written order from an authorized prescriber (doctor, nurse practitioner, or in some provinces, a pharmacist) before it can be dispensed. These drugs carry a prescription symbol (Pr) on their packaging.
In Plain English
A drug you can only get with a doctor's prescription. The pharmacist cannot sell it to you without one.
Example
Atorvastatin for cholesterol requires a prescription. Your doctor writes it, and the pharmacist fills it.
Professional Fee
Definition
A fee charged for pharmacist services beyond standard dispensing, such as medication reviews, injection services, or smoking cessation counseling. May be separate from the dispensing fee.
In Plain English
Extra fees for special pharmacist services, like flu shots or medication reviews, on top of the regular dispensing fee.
Example
A pharmacist may charge a $20 professional fee for a comprehensive medication review where they go through all your prescriptions.
Step Therapy
Definition
A requirement by a drug plan that a patient try one or more lower-cost medications before the plan will cover a more expensive drug. Also known as 'fail first' policy.
In Plain English
Your insurance makes you try cheaper drugs first. Only if they do not work can you get the more expensive one covered.
Example
Before covering a $500/month brand-name drug for blood pressure, your plan may require you to try two cheaper generics first.
Therapeutic Substitution
/THER-uh-PEW-tic/Definition
Replacing a prescribed drug with a different drug from the same therapeutic class that is expected to produce the same clinical outcome. Unlike generic substitution, this involves a different chemical entity.
In Plain English
Swapping your drug for a different drug that treats the same condition. This is different from getting a generic of the same drug.
Example
If your insurance does not cover atorvastatin, your doctor might switch you to rosuvastatin (a different statin that treats cholesterol the same way).
Tier (Formulary Tier)
Definition
A classification level within a drug benefit formulary that determines the patient's cost-sharing amount. Lower tiers typically have lower copays (generics), while higher tiers have higher copays (brand-name, specialty drugs).
In Plain English
A ranking system for drugs on your plan. Tier 1 (cheapest for you) is usually generics. Tier 3 or 4 means you pay much more.
Example
Your plan might have: Tier 1 ($5 copay, generics), Tier 2 ($25 copay, preferred brands), Tier 3 ($50 copay, non-preferred brands), Tier 4 (30% coinsurance, specialty drugs).
Unit Price
Definition
The cost per single unit (tablet, capsule, mL) of a medication. Calculated by dividing the total drug cost by the number of units dispensed.
In Plain English
The price per pill. This is the easiest way to compare drug costs between pharmacies or between brand and generic.
Example
If 90 tablets of atorvastatin cost $18.00, the unit price is $0.20 per tablet.
Wholesale Price
Definition
The price at which a drug manufacturer or wholesaler sells a drug to the pharmacy. This is the base cost before the pharmacy adds its markup and dispensing fee.
In Plain English
What the pharmacy paid for the drug. Everything else (markup, dispensing fee) is added on top of this.
Example
A pharmacy buys atorvastatin at a wholesale price of $0.15/tablet, then sells it to you at $0.20/tablet (after markup), plus a dispensing fee per fill.