This article was originally published in Seniors’ Life Magazine in May 2010, it comes to us courtesy of Jonathan Straw, the author as well as the editor at Seniors’ Life.

I’m sure you heard about it, even if it was second hand. Shoppers Drug Mart announced that they were going to be cutting back their services, shortening their business hours and laying off staff. It was the topic of choice around my office and I’m sure you had at least one conversation with a friend about it too. After a little digging I found that this is nothing but a “scare” tactic the pharmacy chain is using to try and battle a movement by the Provincial Liberal Government. This is a really a smoke screen put up by Shoppers because the Government has finally outlawed the scheme of Generic Drug Manufacturers who use payola, or as they like to call it in today’s verbiage “professional allowances” to rebate the pharmacy chain in an effort to be the brand of choice on their shelves.

Here’s how it worked. The generic drug manufacturers have showered an estimated $800 Million on pharmacies by rebating them anywhere from 40% to 80% of the cost of the drug(s). By artificially keeping the price of the generics higher ( an estimated 32.5% higher than any other industrialized nation ) the pharmacies were able to pocket that money.

Under the new Drug Reform Legislation, this practice will cease and the pharmacies will have to sell generic drugs at 25% of the cost of the corresponding “brand name” product. Susan Eng, the vice-president of the Canadian Association of Retired Persons said “There will be a huge savings to the public purse.” Eng went on to explain “the savings will be redirected to things that will help all patients, especially older Canadians with chronic ailments.”

The move to control the cost of generic drugs is part of a larger effort by the Provincial Liberals to reduce health care spending. Health takes up approximately 46% of the provincial budget with fears of it climbing to as much as 70% in the next 12 years. Drug expenses are a significant part of that problem. In 1985, drugs accounted for 10.3% of health spending while in 2008, drugs made up 17.7%. Through the Ontario Drug Benefit Program, the provincial government pays for most drugs for 2.8 million Canadians, including all people over the age of 65, welfare recipients, residents of special care homes and the disabled. The expected savings brought about by these sweeping changes are estimated by health officials to be as much as $500 Million.

Now you can see why Shoppers Drug Mart made their announcement. You and I and anyone who depends on a service like their FREE Home Delivery will have to make up for the shortfall because they can’t artificially inflate generic drug prices anymore or collect the payola from the manufacturers either. Nice move eh?

So now the pharmacies have reacted angrily by saying that this will cause stores to close and lead to higher dispensing fees and possible layoffs. In essence, they are just trying to drag the public into their fight with the Provincial Government through threats of slashing free home delivery, free pharmacist consultations and the number of locations remaining open etc.