Social Policy in Ontario

A tough-talking Ontario government set off a new war with the province’s pharmacies yesterday that could spread across Canada, unveiling details of major reforms to the way generic medicines are marketed and sold.

The province confirmed that it was ending “for good” the sometimes-exorbitant rebates drug stores receive from the makers of generic pharmaceuticals, calling the payments tantamount to kickbacks.

At the same time, it is mandating that generic medicines be sold at no more than 25% of the cost of the brand-name product, down from the 50% allowed now.

Deb Matthews, Ontario’s Liberal health minister, said other changes would provide about $240-million in new income for pharmacies.

But the stores’ net loss in revenue from the reforms is potentially twice that amount. Her officials estimated that the retailers take in at least $800-million a year now in rebates, officially called professional allowances.

Ms. Matthews said ending those payments is necessary to curb the price of generic medicines in Canada, among the highest in the industrialized world.

“I would not go so far as to call them kickbacks or rewards, but there are people who would do that,” she said.

“I have a simple message for big pharmacies: the days of artificially high drug prices paid on the backs of patients and taxpayers are gone, and they are gone for good.”

Angry pharmacists, though, said the rebates fund important patient services and keep them solvent; doing away with them will spell disaster, they warned.

“This is a cut in health funding for pharmacy: front-line health-care providers are getting cut,” said Donnie Edwards, spokesman for the Ontario Community Pharmacies Coalition, a trade-association umbrella group.

“Who gets hurt? The patient … This could be detrimental to their health. They need to know that.”

Observers expect that other provinces will watch Ontario’s actions closely and emulate all or part of the reforms.

In fact, generic drug makers are afraid the rest of Canada will demand the lower generic prices that are part of Ontario’s plan, but will lack the will to take on pharmacies by ending rebates.

The result could directly hit the manufacturers’ bottom line, said Jim Keon, president of the Canadian Generic Pharmaceutical Association.

“It is possible generics will simply stop making some drugs available,” he said. “Of course, that is a very bad thing, because it means the government will have to pay for the brand product at four times the price.”

The generic market is becoming increasingly important, as a number of blockbuster drugs – from Lipitor to Celebrex – come off patent in the next few years.

When Ontario made an initial, tentative step to rein in rebates and cut generic prices in 2006, it sparked a firestorm of opposition from pharmacies, whose message of dire consequences dominated media coverage. As it turned out, the industry has thrived, with 140 more stores now than before the changes. The drug-store trade groups have this time hired high-profile lobby and public relations firms to help press their case.

Perhaps girding for the public-relations clash to come, Ms. Matthews brought along to her news conference the heads of the Canadian Association of Retired Persons, the Canadian Cancer Society and the Ontario Federation of Labour, with all of them predicting the changes would bring lower drug prices to their constituents.

The federal Competition Bureau has identified rebates – paid by makers to ensure their products are stocked by pharmacies – as the chief culprit for generic prices that have long been higher here than in many other countries.

Ontario’s 2006 law, which partially cut the payments, did not apply to the private sector, where medicine is funded by workplace benefit plans and by individuals out of their own pocket. The province says rebates in that area shot up to an average of about 85% of the drug price, as pharmacies tried to compensate for lower allowances on the public side.

This time, the legislation applies to both systems. Professional allowances will be eliminated and prices reduced to 25% immediately for drugs funded by the government plan, and over the next three years in the private system.

Meanwhile, the province is boosting the dispensing fee paid to urban pharmacies by a dollar to $8, and to rural stores by $4. It is also dedicating $100-million to pay for specific professional services offered by pharmacists, such as counseling diabetes patients on medicine use.

tblackwell@nationalpost.com

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