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Recently announced pharmacy reform in Ontario is a major step in redressing artificially high generic drug prices in Canada. Reforming Ontario's drug system will save Canadian consumers, employers and taxpayers hundreds of millions of dollars by eliminating kickbacks and rebates that have served to inflate the prices that consumers pay for generic drugs in Canada.
Canadians pay among the highest prices in the world for generic drugs. Ironically, it can be argued that the Ontario drug benefit program bears much of the responsibility for high generic drug prices because early in the development of the government's drug plan it pegged the price that it would pay for generics at 70 percent of the branded equivalent cost. This, despite the fact that the development costs of a generic drug are a small fraction of the development costs of the equivalent patented branded drug.
Large drug benefit plans such as those administered by provincial governments represent an enormous segment of the generic dug market in Canada. As such, it is reasonable that they should expect to pay the best available price. But, according to a study on the generic drug sector by Canada's Competition Bureau, hidden rebates paid by the suppliers of generic drugs directly to pharmacies mean that the actual prices paid by pharmacies for drugs sold through large public and private drug plans range anywhere from 40 percent to 80 percent below the invoice price that these plans are reimbursing.[1]
Over the years, countless studies and reports have examined the issue of high generic drug prices in Canada and concluded that Canadian consumers have been paying excessive prices for generic drugs.
- The Patented Medicines Price Review Board (PMPRB) estimated that Canadian non-patented prescription drug spending could have been reduced by as much as $1.47 billion in 2005, if Canadian retail pharmacy prices were the same as the corresponding international median prices.[2]
- A June 2006 report by the PMPRB on generic prices concluded that Canadian retail pharmacy invoice prices for generic drugs are substantially higher than in 10 of the 11 comparator countries considered.[3]
- An April 2007 Policy Paper prepared by Ward Health Strategies for the Canadian Treatment Action Council (CTAC) on Generic Drugs in Canada observed that "in spite of the preferential regulatory environment, generic prices in Canada remain elevated compared to other jurisdictions." [4]
- An OECD paper in 2007 noted that in the Canadian market "relatively high generic prices persist, suggesting that there is scope for increased efficiency of spending and cost control through policy adjustments." [5]
To address this situation Ontario is now pegging the price that it will pay for generics to 25 percent of the branded product equivalent. Despite the protests of the pharmacy sector in Ontario, it should be recognized that this is still not free market pricing and, in fact, a price of 25 percent of the branded equivalent price is still high when compared to the generic drug market in other developed countries.
References
[1] Competition Bureau of Canada, Canadian Generic Drug Sector Study
[2] Federal/Provincial/Territorial Ministerial Task Force, June 2006, "National Pharmaceuticals Strategy Progress Report", available at: www.hc-sc.gc.ca
[3] PMPRB, June 2006, "Canadian and Foreign Price Trends".
[4] Canadian Treatment Action Council, Generic Drugs In Canada: A Policy Paper - http://www.whadvocacy.com/publications/4-reports/116-generic-drugs-in-canada-a-policy-paper
[5] Paris V, Docteur E, Pharmaceutical Pricing and Reimbursement Policies in Canada OECD Health Working Papers, 22 December 2006.
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