Can provinces bring down generic drug costs?

As we reach the May 15th deadline, Canada’s other provincial governments are watching the aggressive showdown between the Ontario government and the province’s pharmacists very closely. Ontario has announced a two-stage reform intended to reduce the cost of generic drugs—first, beginning on May 15th, 2010 for government funded purchases, and in 2014, for those purchased by the general public.

The new rules ban generic pharmaceutical companies from providing pharmacists with “professional allowances” to stock and sell their products. These payments are reflected in the price of the drugs paid by the province under the Ontario Drug Benefit program and by the general public. Ontario believes the rebate payments—more than $750 million in 2009—are responsible for the rapid rise in the cost of generic drugs in the province, which are among the highest-priced in the world. Ontario’s goal is aggressive: to drive down these prices from half of the price for the associated brand-name drug to about a quarter—a 50% savings.

Ontario’s Minister of Health and Long-Term Care, Deb Matthews, has written to her provincial counterparts to urge them to collaborate in creating a national strategy to lower the cost of prescription drugs. Her concern is that if the provinces do not stand united on this issue, the drug store chains will make bulk purchases in jurisdictions that are more favourable to them to bypass the tougher rules.

Watching events unfold in Ontario, health officials in other provinces may be concerned about the possibility of the work-around and the threat of small pharmacy closures and cutbacks in hours and service in the larger chains. The industry has mounted an expensive campaign to push back against the new Ontario rules. Manitoba and New Brunswick have adopted a wait-and-see attitude, while Quebec has signalled that it will adopt Ontario-style reforms.

Lost in the public messaging is another part of the Ontario proposals to replace some of the lost income from rebates with direct payments to pharmacists for providing professional services such as consultation on managing chronic conditions. The pressure from the spokespeople for pharmacists has been to demand a dollar for dollar replacement of the lost rebate revenue through increases to dispensing fees.

CARP supports the proposed changes because they will reduce the cost of generic drugs for everyone, expand professional services from pharmacists and increase the drugs that could be listed in the public formulary. CARP would support special consideration for truly independent pharmacists, especially those in underserviced areas, including ensuring that the compensation structure will permit them to maintain a reasonable level of service for their patients.

Meanwhile, since the federal government’s National Pharmaceutical Strategy has been stalled for years, both the Western and the Atlantic provinces are working on common purchasing strategies. This determination by all provincial governments to lower both generic and brand-name drug costs will only accelerate as health care expenditures continue to rise out of control. We have not seen the end of confrontations between the pharmaceutical sector and taxpayer funded public health plans.

Keywords: drugs, pricing