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Public pay change for Generic Drugs-Ontario,Canada

Country: 
Canada
Partner Institute: 
Centre for Health Economics and Policy Analysis, McMaster University, Hamilton
Survey no: 
(16)2010
Author(s): 
Christopher J. Longo
Health Policy Issues: 
Pharmaceutical Policy, Funding / Pooling, Access, Remuneration / Payment
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no yes yes no no

Abstract

In July 2010 the Ontario Drug Program made changes to generic drug funding from 50% to 25% of branded price, increased dispensing fees, and eliminated professional allowances to pharmacies over 3 years. This represents a regulation change to the 2006 Drug Interchangeability and Dispensing Fee Act, and the Ontario Drug Benefit Act. The reaction by pharmacists and the generic drug manufacturers was negative, but it is expected that patients will benefit.

Purpose of health policy or idea

The Ontario government has introduced legislation that reduces the price a generic manufacturer can charge, from 50% of the branded price to 25% of the branded price, along with changes to pharmacy dispensing fees and the elimination of professional allowances paid to pharmacies by the generic drug manufacturers. These changes will be phased in over a 3 year period. The main thrust of the policy is for those on the government plan (elderly and those on welfare) but in fact the policy also has an impact on private payor pricing as well, although the timelines are delayed for the private sector.

The government expects that this regulatory change will allow them to save in excess of Canadian $500M per year, some of which will be reinvested in the drug program to improve access for Ontarians. Although pharmacies may see a reduction in profits, it was felt that the generic manufacturers will not be adversely affected since they are no longer required to pay the professional allowances to pharmacies. The claim by government is that these allowances accounted for as much as a 20% discount, but this would likely represent larger purchasing groups rather than individual pharmacies. Compensation increases to pharmacists, especially in rural communities, are expected to partly offset the loss of revenues in pharmacies (there is a schedule that includes increases over the next few years, and those increases are larger in rural communities). These changes also apply to the private sector and should result in cost savings both for insurers and corporations, which is expected to have a positive economic effect on the private sector.

Main points

Main objectives

The primary objective of this generic drug policy was to reduce the economic burden on the public payer, to bring prices more in line with international norms, and to improve access for patients who pay through a drug plan or out-of-pocket.

Type of incentives

This policy used legislation and changes in regulation, with an offsetting increase in pharmacist dispensing fees. Hence a small financial investment was required, but represents only a portion of the savings governments expect to realize through this policy change.

Groups affected

Generic drug manufacturers, Pharmacists and Pharmacies, Patients

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Characteristics of this policy

Degree of Innovation traditional rather traditional innovative
Degree of Controversy consensual controversial highly controversial
Structural or Systemic Impact marginal rather marginal fundamental
Public Visibility very low high very high
Transferability strongly system-dependent rather system-neutral system-neutral

The use of regulation to manage prices of health services is a traditional approach. To couple this with increased reimbursement to pharmacists, and elimination of professional allowances is somewhat unique and controversial at the same time. An overwhelming support for this comes from many health professionals and patient interest groups as might be expected. However, those stakeholders with the most to loose (pharmacists and generic drug manufacterers) have been very open regarding their opposition.

Political and economic background

Provincial governments have been operating with a deficit budget over the past few years, and projections suggest this is expected to continue for the next 3-5 years. As a consequence, efforts to improve efficiency and reduce budgets are high on the priority list, especially in health where the budget has been growing well above inflation for many years. Although no new legislation has been put in place (new generic drug price legisilation began in 2006) there has been a realization that drug budgets were one place where savings could be realized in relatively short timeframes. This most recent change is an aggressive attempt to manage costs, by cutting prices by 50%.  The removal of professional allowances to pharmacies means that the impact on generic manufacturers is minimized since they were the source of these allowances. These efforts are consistent with recent efforts to manage healthcare budgets by controlling the rate of growth. It is not expected that this effort will result in a year over year reduction in the overall drug budget, but it should result in a significantly smaller rate of growth (likely 1% to 3% overall including branded pharmaceuticals).

Complies with

Budget deficits (recession) have forced governments to examine options that minimize budget growth without affecting citizens adversely. Pharmacies are suggesting that some services will be affected, but patients will still benefit from lower prices.

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no no yes yes no no

Origins of health policy idea

The original legislation from 2006 was meant to: improve patient access, ensure better value, and promote appropriate use. The policy was driven by legislation, and was initially driven by the Minister of Health, and included consultations with a variety of stakeholders. The legislation includes efforts to control both branded and generic drug prices, but the most recent efforts (July 2010) have focused on generic drug pricing. The justification for this effort is partly due to the fact that Canadian generic prices are amoungst the highest in the world. Although this latest effort to reduce generic drug pricing was initiated by the Minister a variety of stakeholders were involved and include: the branded pharmaceutical manufacturers, the generic pharmaceutical manufacturers, pharmacists, pharmacies, health professionals, and patient interest groups. Although the methods employed are not new, and in some ways this is an extension of earlier initiatives, this is felt to be a much bolder move, and the reaction from stakeholders captured more media attention than usual. It remains to be seen whether other provinces will follow the lead of Ontario, but it is safe to say that health policy initiatives in Ontario rarely go unnoticed by other provinces in Canada. 

Initiators of idea/main actors

  • Government
  • Providers
  • Patients, Consumers
  • Scientific Community
  • Private Sector or Industry
  • Media
  • Political Parties

Approach of idea

The approach of the idea is described as:
amended: Changes to generic drug policy began in 2006 and resulted in a decrease in generic drug prices from 70% of branded price to 50% at that time. This represents a second, but very aggressive phase of this effort, with further reductions to 25%.

Stakeholder positions

Those with the strongest opposition to this policy change are the Ontario Pharmacists Association and the Canadian Generic Pharmaceutical Association, as both groups stand to loose revenues and these lost revenues could affect service levels in pharmacies. However, a number of patient interest groups (Canadian Association of Retired Persons, Best Medicines Coalition), nurses (Registered Nurses Association of Ontario), branded pharmaceuticals (Canada's Research Based Pharmaceutical Companies) and some of the media (The Star) are supportive as they expect it will result in better access for patients and potential cost savings to the government. Although no formal alliances were openly identified most patient focused groups were supportive of the initiative both in terms of lowering prices, and improved funding to pharmacists for those in remote regions. Government attempted to minimize conflicts by ensuring most stakeholders were involved in early consultations, and by providing early notification of policy intent before it was enacted. Ensuring conflicts were partially addressed through the increased dispensing fee schedule over the next 4 years, is expected to ease the level of conflict.

Actors and positions

Description of actors and their positions
Government
Minstry of Healthvery supportivevery supportive strongly opposed
Minstry of Trade and Developmentvery supportiveopposed strongly opposed
Providers
Generic Drug Manufacturersvery supportiveopposed strongly opposed
Pharmaciesvery supportivestrongly opposed strongly opposed
Pharmacistsvery supportiveopposed strongly opposed
Registered Nursesvery supportivesupportive strongly opposed
Physiciansvery supportiveneutral strongly opposed
Patients, Consumers
Best Medicines Coalition (Patient Advocates)very supportivesupportive strongly opposed
Canadian Association of Retired Personsvery supportivesupportive strongly opposed
Scientific Community
Researchersvery supportiveneutral strongly opposed
Physiciansvery supportiveneutral strongly opposed
Private Sector or Industry
Insurance companiesvery supportivesupportive strongly opposed
Branded drug manufacturersvery supportivesupportive strongly opposed
Media
Globe and Mail (National)very supportiveneutral strongly opposed
The National Post (National)very supportiveneutral strongly opposed
The Star (Ontario)very supportivesupportive strongly opposed
The Sun (Ontario)very supportivesupportive strongly opposed
Political Parties
Liberals (currently in power)very supportivevery supportive strongly opposed
Conservativesvery supportiveneutral strongly opposed
New Democratic partyvery supportiveneutral strongly opposed

Influences in policy making and legislation

Legislation was already in place (2006) but changes to regulations for this and other policies will result in a net savings to government and patients.

Actors and influence

Description of actors and their influence

Government
Minstry of Healthvery strongvery strong none
Minstry of Trade and Developmentvery strongweak none
Providers
Generic Drug Manufacturersvery strongvery strong none
Pharmaciesvery strongstrong none
Pharmacistsvery strongstrong none
Registered Nursesvery strongweak none
Physiciansvery strongstrong none
Patients, Consumers
Best Medicines Coalition (Patient Advocates)very strongneutral none
Canadian Association of Retired Personsvery strongstrong none
Scientific Community
Researchersvery strongweak none
Physiciansvery strongvery strong none
Private Sector or Industry
Insurance companiesvery strongneutral none
Branded drug manufacturersvery strongstrong none
Media
Globe and Mail (National)very strongstrong none
The National Post (National)very strongstrong none
The Star (Ontario)very strongstrong none
The Sun (Ontario)very strongstrong none
Political Parties
Liberals (currently in power)very strongvery strong none
Conservativesvery strongstrong none
New Democratic partyvery strongneutral none
Minstry of Health, Liberals (currently in power)Registered NursesBest Medicines Coalition (Patient Advocates), Insurance companiesCanadian Association of Retired Persons, Branded drug manufacturers, The Star (Ontario), The Sun (Ontario)ResearchersNew Democratic partyPhysicians, Globe and Mail (National), The National Post (National), ConservativesPhysiciansMinstry of Trade and DevelopmentPharmacistsGeneric Drug ManufacturersPharmacies

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Adoption and implementation

This policy amendment was initiated by the executive director of the drug program branch, and included consultation with a variety of stakeholders including pharmacists, drug manufacturers, health professionals and patient interest groups. The governments released information through academic, professional, and media channels to ensure all stakeholders were fully aware of the intended policy change. Although strong objection both at the announcement of the intended policy change, and when it was enacted was voiced from both the Ontario Pharmacist's Association and the Generic Drug Manufacterers Association, most other stakeholders were supportive of the initiative. The objections focused on issues of maintaining appropriate service levels to patients at pharmacies, where supporters identified the potential for improved access for patients.

Monitoring and evaluation

At this time it is not clear whether an evaluation beyond a budgetary one will be undertaken.

Expected outcome

It is highly likely that this policy will achieve its objectives of both reducing the generic drug budget and providing improved access for patients. However, there still exists some concern from pharmacists/pharmacies that the quality of services, especially in rural communities, could be adversely affected.

Impact of this policy

Quality of Health Care Services marginal rather fundamental fundamental
Level of Equity system less equitable system more equitable system more equitable
Cost Efficiency very low high very high

This policy will reduce costs for generics for both public and private payors over the next three years and lead to broader listing of other drugs which will benefit patients directly, both in terms of how much they pay (especially those without coverage) and in terms of the scope of available publicly funded drugs.

References

Sources of Information

Ontario Ministry of Health and Long-Term Care. Ministry Programs. Ontario Drug Benefit Program. http://www.health.gov.on.ca/en/public/programs/drugs/

Ontario Ministry of Health and Long-Term Care. Public Information.Transparent Drug System for Patients Act (2006). http://www.health.gov.on.ca/english/public/legislation/drugs
/hu_drugsact.html

Ontario Pharmacist's Association. News Release June 8, 2010. http://www.opatoday.com/index.php?option=com_content&view=article&id=340:
ontario-pharmacists-association-voices-concerns-over-provinces-drug-system-reforms&catid=44:news&Itemid=255

Author/s and/or contributors to this survey

Christopher J. Longo

Affiliation, McMaster University, Strategic Market Leadership and Health Services Management, School of Business, and Centre for Health Economics and Policy Analysis

Suggested citation for this online article

Christopher J. Longo. "Public pay change for Generic Drugs-Ontario,Canada". Health Policy Monitor, November 2010. Available at http://www.hpm.org/survey/ca/a16/1