Ontario may mandate lower generic drug prices

NationalPost.com – Canada – Ontario may mandate lower generic drug prices
Published: Thursday, October 01, 2009.   Tom Blackwell,  National Post

A new war is brewing over Canada’s multi-billion-dollar prescription-drug business, fuelling death threats against a top government official, plans for a major lobbying campaign and predictions of furious political debate to come.

The tension stems from proposals by the Ontario government to again revamp its system for reimbursing the cost of generic drugs, perhaps by further slashing the sometimes-hefty rebates paid by generic manufacturers to pharmacies, and mandating lower generic prices. Analysts predict the changes, expected to be unveiled within months, will likely be copied by some or all the other provinces’ drug-benefit programs, possibly leading to taxpayer savings of hundreds of millions of dollars.

Ontario argues it is still paying far more for generic drugs than most industrialized countries, and questions whether pharmacies are reaping too much of the benefit of those cheaper copies of brand-name medications.

Pharmacies say they require the rebates that generic producers pay them — which in extreme cases have run to 2,000% of the list price — to fund services for their customers. Cuts could threaten the viability of many drug stores, they warn.

“It’s going to get incredibly escalated, in terms of a heated discussion,” said Mike Sullivan, a pharmacist and consultant with Cubic Health Inc. which helps manage private drug plans.

“I suspect this is just the beginning of the storm. There are some huge threats here to [pharmacies’] business that will have some long-term and very significant consequences.”

At the core of it all is a prescription-drug system worth $8-billion in Ontario alone. Helen Stevenson, head of the Ontario Public Drug Programs and the province’s most visible bureaucrat on the file, is feeling the heat. “I’ve had all sorts of different threats, including death threats,” she said this week. “There is a lot of money in the drug system…. There is a lot at stake here.”

Ms. Stevenson said she has been under police protection for months, while the Ontario Provincial Police investigate the threats.

Underlying the issue is a major shift in the prescription-drug world, as a series of blockbuster brand-name drugs — from Lipitor to Celebrex — come off patent in the next few years, opening the door to generic versions taking more of the market.

That in itself will lead to large savings for the provincial drug plans that cover about 38% of the cost of Canadians’ medications.

In a presentation to various “stakeholders” this July, however, the Ontario government argued that generic prices are still higher in Canada than in most other industrialized countries. Analysts blame that fact largely on the rebate system.

Ontario passed legislation — known as Bill 102 — in 2006 that lowered the price it would reimburse for generic drugs and cut the rebates – renamed professional allowances – to 20% of the list price.

Though Bill 102 ignited a firestorm of opposition from pharmacies, the province’s July presentation noted that Ontario still has more pharmacies per capita than most similar countries and the stores enjoy relatively fat profit margins. In fact, the number of pharmacies in Ontario has jumped by over 200 to 3,187 since 2006, according to the National Association of Pharmacy Regulatory Authorities.

At the same time, pharmacies have offset the reduced rebates under the public plan with higher rebates in the largely unregulated private sector — drugs funded by workplace health plans and people paying out of pocket, analysts say.

In fact, manufacturers pay drug stores an average rebate of about 85% of the drug’s list price when the purchaser is private, and the rebates have gone as high as 2,000%, said Ms. Stevenson.

The shift in revenue-collection to the private sector has angered employers, who are pressing at least for the complex price-rebate system to be made more transparent.

“You’re selling to the blind who have no concept of what this stuff costs,” said Barbara Martinez of Mercer Human Resources Consulting, which helps employers manage their drug programs. “The average employer doesn’t know the pharmacist just made $115 out of a prescription that costs $92.”

The province has floated a range of options to address the issues, including cutting professional allowances again and further slashing generic prices. Legislation is expected to be introduced by early 2010, government sources say.

“A lot of the other provinces will follow suit,” predicted Mr. Sullivan. “One hundred percent, this will have a huge impact across the country.”

Meanwhile, the pharmacy business is readying to make its voice heard. Sara Feldman, a spokeswoman for the Canadian Association of Chain Drug Stores, confirmed that the trade group has taken on extra help from the Navigator Ltd. and Campbell lobby firms and Hill and Knowlton public-relations consultants to help press home its position to the government and the public.

She argued that the dispensing fees paid to pharmacies by the province fall far short of the stores’ actual costs for filling prescriptions, especially when many are now open 24 hours. If the province takes an axe to the professional allowances paid by manufacturers, without new, offsetting fees, it will seriously affect bottom lines, said Ms. Feldman.

“For many pharmacies, if it wasn’t for the generic allowances, they would be losing money, and you can’t run a business on losing money,” she said.

Pharmacists are pushing for a new system that is focused less on receiving payments from suppliers, and more on fees that adequately reimburse them for specific services, from dispensing drugs to counselling patients on diabetes management.

“Pharmacists should be paid for the care they provide,” said Dennis Darby, CEO of the pharmacists association.

Attacking professional allowances for pharmacists without compensating them some other way would cause “turmoil in the system,” said Jim Keon, president of the Canadian Generic Pharmaceutical Assocation.

National Post   tblackwell@nationalpost.com

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