Generics in Ontario

Last week we covered a generic drug pricing deal that will affect most of Canada. This week we’re coming back to Ontario to take a closer look at the local impact of the laws on generics.

While generic drugs are typically sold at lower prices than the brand name option, for pharmacies, stocking them is more than a matter of choice. In the past, the cost born by the retailer was boosted by two factors: a 13% higher provincial subsidy, greater than the one for branded drugs, and the ability to get a rebate from the manufacturing company of the generic. The rebate, incidentally, represented about 800 million dollars in 2010, a health incentive to keep generics on the shelves. Legislation in 2011 shut down both options: pharmacies would get only the subsidy the branded versions were entitled to, and no longer get a manufacturer side compensation for pharmaceutical sales. For the past two years, pharmacies have been fighting the law in the courts. The Ontario Supreme Court upheld it in 2012, and this year, it’s reached the federal level.

For a manufacturer, generics are subjected to the same rigorous standards of pharmaceutical quality control as branded drugs, but they are also required by law to be available alongside the branded version. This represents a captive market of sorts, since many of the branded versions of the drugs are necessary or popular with Canadian consumers.

One of the chains strongly opposed to the measure, Shoppers Drug Mart, has reacted by moving onto selling a house brand version of generics. The courts ruled in their favour in 2012 when that was contested. These legal challenges have united normally rival pharmaceutical companies, who know that despite commercial competition, they are part of a shared industry. For the province, the goal is lower drug cost for Ontario residents, but not decreased spending overall, as this is not an austerity measure.  The idea is to move money earmarked for subsidies over to clinical research.

The same situation, incidentally, is being replicated in BC. Similar efforts to lower the costs of generics are leading to similar legal battles, and it looks like, in Canada, pharmaceutical companies in both provinces, at all levels of manufacturing and sales, will have to adjust to the changes.

Retailers like Shoppers are adjusting how they sell drugs to cope with legal changes on generic drug pricing. Photo source: theglobeandmail.com

Do you usually buy generic or brand name drugs and would a change in price effect your decision?