Despite PPN Worries, Canada’s Drug Benefits System Is Far from US-Style Coverage

August 21, 2025 – In response to concerns that Canada’s drug benefits system is drifting toward the dysfunctional US model, pharmacy stakeholders have petitioned to ban or regulate preferred pharmacy networks (PPNs). However, a new report from the C.D. Howe Institute finds little evidence of widespread harm by PPNs in the Canadian system.

In “Friend or Foe? Preferred Pharmacy Networks and the Future of Drug Benefits in Canada,” Paul Grootendorst examines whether PPNs pose risks to patient care and independent pharmacies. His analysis finds no independent data to confirm risks to patient care, and that there are no signs of widespread harm to Ontario patients. He concludes Canada’s system is structurally far from the US model, and that while PPNs have modestly affected small pharmacy revenues, it is not enough to undermine overall financial viability.

All private drug insurers in Canada have introduced PPNs. PPN member pharmacies charge insurers discounted fees and provide ancillary supports for patients taking certain medications. The insurer, in return, encourages its beneficiaries to go to those pharmacies by charging lower copays. They can be open networks that allow any pharmacy to join, or closed, where only select pharmacies can participate. Patients can still visit any pharmacy, but they may pay different amounts depending on whether the pharmacy is in- or out-of-network.

PPNs distribute specialty medications that are typically used to manage complex, chronic conditions, like multiple sclerosis, cancer, and rheumatoid arthritis. Specialty medications are used by less than two percent of private drug plan claimants in Canada, but they accounted for about 28 percent of total private drug plan spending.

“Given the extreme differences in drug pricing, concerns about Canada adopting a US-style drug benefits system are understandable,” said Grootendorst, Professor at the University of Toronto’s Faculty of Pharmacy. “But when you compare both systems, you find that Canada’s structural safeguards – from federal price regulation to less vertical integration, as well as the currently limited scope of PPNs – make that scenario highly unlikely.”

Grootendorst found evidence of PPNs adversely affecting the financial viability of small independent pharmacies (SIPs), reducing core pharmacy sales revenues by 5 percent but stresses that this is not enough to tip the balance between profit and loss for most pharmacies. Even without PPNs, most SIPs would earn only a small portion of their revenues from this segment. However, with the specialty medication share of private plan drug spending on the rise, it remains important to monitor potential trends in pharmacy sector concentration.

The study also addresses patient care concerns, such as potential fragmentation when patients obtain medications from multiple pharmacies. Grootendorst notes that regulators and insurers may consider improving information-sharing systems and exploring drug plan sponsor willingness to pay for more inclusive PPN networks.

Implementation and regulation of PPNs must balance patient access, insurance premium costs, and ensure that they do not have undue adverse effects on competition in pharmacy retail markets.

“PPN regulation is gaining momentum, with consultations, investigations, and potential sanctions underway,” said Grootendorst. “My hope is that these consultations will find a fair, low-cost way for insurers to negotiate fees with pharmacies and explore how barriers for small and independent pharmacies in the specialty drug market might be overcome.”

Read the Full Report

For more information, contact: Paul Grootendorst, Professor, Leslie Dan Faculty of Pharmacy, University of Toronto; Raquel Schneider, Communications Officer, C.D. Howe Institute, 647-805-3918, rschneider@cdhowe.org.

The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.

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