Drug reform to save $500M

Originally published in The Windsor Star April9th, 2010. To go to The Windsor Star website, please The Windsor Star

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.

“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 said 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 the hyper-competitive market.

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

“They did that … so the pharmacy chain would favour their brand over another generic brand,” he said.

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 50 per cent.

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

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.

The provincial government, through the Ontario Drug Benefit Program, pays for most drugs for roughly 2.8 million citizens, including all people over the age of 65, welfare recipients, residents of special-care homes and the disabled.

Health officials say they’ll save more than $500 million through the changes announced this week.

© The Windsor Star

Keywords: drugs, pricing, healthcare