Canada's Big Pharma Drug War

The Ontario government has recently announced major changes to the way that it will pay for generic drugs for those covered under its public drug plan, primarily people 65 and over and those on social welfare. The aim is to rein in rapidly increasing costs for the Ontario Drug Benefit Program. Up until recently spending has been going up by more than 10% annually and overall across Canada drug costs are the second most expensive part of the health care system behind only hospitals.

 

The current government made a first attempt to deal with drug spending back in 2006 when it reduced the price for generic medicines from 70% of the brand name drug to 50%. At that time, $222-million in savings (from a drug bill of $3.5-billion) from reduced generic prices and other reforms was predicted. There was never any independent analysis about whether those anticipated savings were realized. Now faced with a deficit of over $20-billion and health care costs that take up 42 cents of every public dollar, the government is looking at a new initiative to rein in at least one segment of health care costs. The question of whether that 42-cent figure represents too much spending on health care or is mostly the product of a series of tax cuts that have reduced government revenue is a crucial issue that must be taken up soon.

 

One of the key factors that makes public drug plans affordable is the existence of generic versions for many of the products that are on the provincial formulary. Generic drugs work the same as the original brand-name products but are much lower in cost since generic companies don't incur the research and development expenditures and also don't engage in costly promotion of their products.

 

However, in order for generic drugs to get used they need to be dispensed by pharmacists and this gives the pharmacy owners a huge stick in dealing with the generic companies. In effect what the pharmacy owners tell the generic companies is that they will not stock their products unless the companies sell to them at a discount. The pharmacy owners are reimbursed by the government at the list price of the medication not the discounted price. Therefore, the discount goes to the pharmacy owners not the government. These discounts amount to about 20% of the price of the drug.

 

What the government is now proposing to do is to eliminate these discounts, also referred to as professional allowances. Savings from making this change are projected by the government to amount to $750-million annually which would be a substantial reduction in the annual $4.14-billion that the government spends on prescription medications.

 

The pharmacy owners, primarily the large chains such as Shoppers Drug Mart and Rexall are vigorously protesting this move. Their claim is that these discounts are necessary to make their businesses economically viable and that without the discounts they will have to cut services, close stores earlier and/or start charging for services that have been provided for free up until now such as home delivery.

 

Few people seem to have much sympathy for the large chains but the smaller independent stores are in a different situation. The large chains have become like supermarkets selling everything from books to telephones to cameras to groceries. Filling prescriptions is only a relatively small part of their business. However, typically the small independent stores focus on filling prescriptions and selling over-the-counter drugs and other drug related consumer products such as suntan lotion, toothpaste and the like. Losing the discounts could have serious consequences for them and for their patients especially if these stores are located in rural communities.

 

The government is not completely indifferent to what pharmacists are saying and has announced some relief for them. Dispensing fees for pharmacists in rural communities will go up $3 and in urban centres they will go up $1 amounting to about $100-million in total. The message from the groups speaking on behalf of pharmacies is that this is too little.