Ontario Drug Benefit Program: A Change in Policy

The generic pharmaceutical industry in Canada began its meteoric growth when the Trudeau liberals passed a law allowing small Canadian companies to sell patented pharmaceuticals under a “compulsory licensing” arrangement. The law was in force long enough to build a truly effective generic industry but was repealed when the Mulroney conservatives came into power, supposedly under pressure from the World Trade Organization. The result: Canadian companies had to wait until patents expired before beginning to sell the drugs at lower prices. At first there there were only two Canadian companies of significance, Apotex and Novopharm. Novopharm was sold to Teva a giant international generic firm but a new Canadian company Pharmascience took its place.

This arrangement worked well for a long time. The Ontario government mandated pharmacists to substitute lower priced generic equivalents from a list compiled by the Ministry of Health. Ultimately this saved money for the government and these same lists were used by insurance companies and people who paid for their own medicines. The government started off paying as much as 70% of the price of the branded drug for the generic equivalent.

As the generic industry grew world-wide, more companies came into Canada and were given permission to sell the same generics as those presently being sold .A single entity (i.e. drug) might have as many as 6 different companies competing for the business with the retail pharmacist As all the drugs had to be the same as guaranteed by the government, the pharmacist was able to choose the drug from the generic company of his/her choice putting themselves in the position to demand discounts, over and above the list price paid by the government. The public did not benefit with lower prices from these arrangements An exasperated government changed the price paid by the government from 70% of the brand price to 50% and allowed a maximum of 20% rebate to the pharmacist However, with no control on the rebate the pharmacist received for drugs sold to other than the government, pharmacists demanded and received bigger rebates on the drugs sold to parties besides the government It is grossly unfair to blame the pharmacist for these perceived greedy actions. Their professional fee for filling government prescriptions was $6.47 in 1989 and is around $7.00 now. The regular professional dispensing fee in the private sector is around $12.00. It is quite apparent that the pharmacist has been under-paid by the government for the services they provide.

When the government realized that all their efforts did not, in fact, provide lower prices to the public, they took a major step. The new policy is intended to secure more competitive prices for a select number of drugs reimbursed in the Ontario Drug Benefit formulary To start, four drugs only are in the plan: Enalapril Maleate, Metformin Hydrochloride, Ranitidine Hydrochloride and Gabapentin. The list price in the book will remain at 50% of the brand price, which is the price paid by the government. But a new wrinkle has been added. A contract will be signed with up to 2 generic companies based on bids including security of supply and a secret volume discount. These 2 companies, and them alone, will supply the government needs for a limited time to a maximum of two years. To make a long story short the rebate will now go to the government and not to the pharmacy buyer. How this will lower prices and benefit the public remains a mystery. The government intends to invest their savings into programs providing access to new drug products. Don’t hold your breath!

A major study by the Ontario government has shown that prices paid in other countries for certain drugs are lower. That the government needs to save money on their drug program is a given, especially with the baby-boomers becoming seniors. But what is going to happen to our generic drug industry? The successful bidders may be generic firms from a low wage country and local manufacturers may not be competitive, or even worse the brand name companies who have lost the patent will compete through wholly owned satellite companies and strangle the whole Canadian generic industry. Why not lower the amount the government pays from 50% to a lower percentage and let the generic manufacturers compete as they do now? An added benefit of this system is that the public will get lower prices. This new policy will be implemented in October. Hopefully by that time a higher professional fee will be paid to pharmacists as well as payment for cognitive services.

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