Paying Pharmacies Properly

Lower generic drug prices may affect pharmacy services, but should they go hand-in-hand anyway?

Generic drugs have Robin Hood-like status among drug-plan managers: they compete with Big Pharma and pass on big savings. But as the ongoing fight over generic drug prices in Ontario drags on, it’s clear both the government and the pharmacies think they’re the “poor” in the story that should get these savings.

The current debate centres around the Ontario government’s proposal to cut the amount paid for generic drugs in half. While people have been talking about what this means for pharmacy services and profits, there has sadly been little debate on whether we should completely change our approach to buying drugs.

Historically, Canada allowed generic drugs to play Robin Hood more than any other developed nation. Up until the late ’80s, we let companies make generic drugs even when a Big Pharma company held a patent. Even though these generic drugs likely cost just a small fraction of the brand-name prices, provincial governments happily covered any generic drug that offered just 30 per cent off of the brand-name price, because we were the only ones in the world getting those savings.

Times have changed, however, and now federal laws prohibit generic manufacturers from making generic versions of brand-name drugs still under patent protection. But our provincial policies regarding generic prices stayed the same. While 30 per cent off might have been a great deal in the past, it’s a terrible deal today. Provincial governments realize this and have been trying to change the rules. Yet, Canada continues to have among the highest generic drug prices in the world.

This is not because generic manufacturers do not compete with each other. Indeed, evidence suggests that they compete intensely to have their version of the generic drug stocked in pharmacies. In return for being chosen as the pharmacy’s supplier, they return a confidential “rebate,” or “professional allowance,” to the pharmacy. So unlike in Robin Hood, the rewards are not passed on to the general public.

Rebates are big money: estimates of the total amount are as high as $2 billion per year. These funds may support the dispensing function of pharmacies, ancillary patient services such as free delivery, blood-pressure checks, and extended hours, or pharmacy owners and shareholders in the form of take-home income and company profits. We don’t know how much is actually going to each, but some indication of the truth is likely found in the plummeting share prices for chain pharmacies.

Now Ontario is pushing back and demanding both that drugs be priced below 25 per cent of the brand price and that rebating be brought to an end. It appears the days of Friar Tuck-like excess may be over for Canada’s retail pharmacy sector.

The real question should be whether this method of paying for generic drugs will result in Canadians getting the right mix of drugs and pharmacy services at a fair price. Chances are it won’t. There is no reason to continue trying to tie payment for a product with payment for a service. Paying inflated prices for generic products in the hope of getting valuable services in return lacks accountability, transparency, and the possibility of strategic direction. We don’t know where the money goes, we can’t check whether it’s actually being used for services, and we get very little say over what services are actually provided.

Our pricing model has become outdated. Generics are happily competing in Canada, and we should take full advantage of that. We also have a wealth of highly trained pharmacists in Canada who we should engage more appropriately and reward more directly as health professionals.

It’s time to move beyond debates that simply confuse generic pricing with professional remuneration. What’s really needed – and is conspicuously missing from the current debate – is meaningful discussion about what we want from pharmacies and pharmacists and how best to pay them for it.