Drug changes panned, praised… But groups say health care will benefit from savings

Originally published in The Ottawa Citizen April 9th, 2010. To go to The Windsor Star website, please click here

Consumer groups are welcoming sweeping changes to the prescription drug market announced this week by the Ontario government, saying the proposed ban on subsidies from drug manufacturers will lead to lower prices and better care.

“There will be a huge saving to the public purse,” says Susan Eng, vice-president of the Canadian Association of Retired Persons (CARP). “Which means that the savings will be redirected to things that will help all patients, especially older Canadians with chronic ailments.”

On Wednesday, Health Minister Deb Matthews announced the government will soon put a stop to a little-known practice that has kept generic drug prices higher in Canada than virtually all other industrialized nations.

The practice saw generic drug manufacturers lavish an estimated $800 million on pharmacies in order to become the supplier of choice in a hyper-competitive market.

John McGrath, a principal at global consulting firm Mercer, estimates the generic manufacturers rebated anywhere from 40 per cent to 80 per cent of the cost of the drug.

“And the reason they did that was so the pharmacy chain would favour their brand over another generic brand,” McGrath said. “It’s more about market access for them.”

Pharmacies then pocketed that money while keeping generic drug prices much higher — an estimated 32.5 per cent higher, according to research — than comparable nations.

With the changes announced this week, pharmacies will be forced to sell generics at 25 per cent of the cost of corresponding brand-name product, down from the 50 per cent allowed now.

Pharmacies have reacted angrily to the news, saying the changes will prompt store closures and lead to higher dispensing fees.

McGrath, who studies the issue for private-sector clients, says both those factors are possible.

“These are still early days, there’s a lot of lobbying going on and a lot of sabre-rattling and I suspect there will be people meeting on the legislature’s lawn in Ontario with placards talking about all the terrible things that are going to happen,” he says. “I know in our strategies, we anticipated a big backlash from pharmacies because they are so well organized and they are a very strong lobbying group. Generic manufacturers are also, I would say, very powerful.”

Mel Fruitman, vice-president of the Consumer’s Association of Canada, says the closure of some pharmacies in urban areas would not hurt consumers. In the suburban neighbourhood north of Toronto where Fruitman lives, he has counted 11 different pharmacies in a five-kilometre radius.

“There are too many drug stores and they’re diluting sales,” he said. “The stores are basically cannibalizing each other.”

The move to control drug costs is part of a larger effort by the provincial Liberal government to rein in health-care spending. Health currently takes up 46 per cent of Ontario’s budget and is projected to consume as much as 70 per cent in 12 years.

Drug expenditures are a significant part of that problem. In 2008, drugs accounted for 17.7 per cent of health spending, compared to 10.3 per cent in 1985, according to the Canadian Institute for Health Information.