Ontario outplayed the pharmacies in game of hardball

TheGlobeandMail.com – News/Pokitics – Even as chains bobbled the ball, Health Minister proved a skillful manager for Liberals
Published on Monday, Jun. 07, 2010. Last updated on Tuesday, Jun. 08, 2010.  Adam Radwanski

They spent millions upon millions of dollars mailing flyers, commissioning polls, buying up ad space and busing protesters around the province.

For their trouble, Ontario’s pharmacies might have emerged in even worse shape than they appeared to be in two months ago.

Few insiders seriously expected that the provincial Liberals would back down on the basics of their plan to cut generic drug prices in half by eliminating the “professional allowances” – the large sums paid by manufacturers to retailers in return for selling their products, which is where pharmacies have until now made much of their money. But there was speculation that the government would offer concessions aimed at increasing other forms of revenues.

Instead, with the revised reforms announced Monday, Health Minister Deb Matthews barely conceded anything at all.

The government didn’t increase the $100-million it previously announced as compensation for the delivery of new services; it merely promised to make sure stores get that money through a transitional fee for the next few years, while they set those services up. Nor, other than a slight boost to the premium for rural pharmacies, is it increasing dispensing fees beyond the extra $1 per prescription that was already promised.

Other changes to the plan, notably a few more generics being exempted from the new price cap (which is 25 per cent of the brand-drug equivalent), will have only a marginal impact on stores’ bottom line.

But passing mostly unnoticed on Monday was that arguably the biggest concession was given not to pharmacies, but to other businesses at their expense.

In regulating the relationship between manufacturers and stores, the first draft of the new rules exempted “ordinary commercial terms” – including “prompt payment discounts and “volume discounts” – from a ban on “rebates.” That led the generics companies to warn that the stores, particularly the big chains, would be able to demand professional allowances under a different name.

It did seem a significant loophole. But not any longer. In the updated version of the regulations, the commercial terms have been capped at 10 per cent of the sale price.

In other words, the pharmacies actually have less leeway to make up their losses than they might have thought. And with the reforms set to take effect July 1, they’re out of time to lobby or negotiate – though they’d contend the Liberals were never really bargaining in good faith to begin with.

From a government not previously known for seeking out confrontation, it’s a fitting end to a game of hardball.

Certainly, the drugstores played right into the government’s hands. In April, a news conference convened by pharmacy representatives to deny they were “holding Ontarians hostage” was interrupted by an announcement from Shoppers Drug Mart that it was cutting its stores’ hours in Ms. Matthews’s hometown. It was the epitome of a weirdly tone-deaf campaign that, especially in its first couple of weeks, helped the Liberals cast their opponents as “Big Pharma” rather than mom-and-pop independents.

But it would be taking something away from Ms. Matthews not to acknowledge that this was a remarkable example of issues management. She framed the debate before the pharmacies had a chance to do so, braced a normally skittish caucus for the coming onslaught and seemed to have every stage of communications mapped out well in advance.

As she struggles to bring health spending growth down to a more sustainable level, most of her other fights will require more nuance; it won’t be possible to demonize doctors the way she did pharmacists, and the challenges surrounding their profession are much more complex. But at the least, she’s positioned herself as an immoveable force once she decides on something.

If only they’d known then what they know now, the pharmacies might have saved themselves a big chunk of cash spent trying to change her mind.

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