OTTAWA — Canada’s highest court dealt a blow to pharmacy chains earlier this month when it upheld Ontario’s ban on drug stores selling their own brands of private label generic drugs.
In a 7-0 decision, justices of the Supreme Court of Canada said the province’s 2010 decision to outlaw the practice was consistent with its efforts to ensure transparent drug pricing — a decision that could influence other provinces.
In addition to preventing drug chains from selling store brand generics, Ontario law eliminated the so-called professional allowances that generic drug companies paid to pharmacies in exchange for stocking their products.
After the ruling Ontario health minister Deb Matthews said the court’s decision ensures that residents of Ontario will continue to have access to the medications they need at the lowest possible prices.
“These changes have delivered better value for our precious health care dollars and are saving Ontarians $500 million a year,” she said. “We continue to reinvest these savings to give our patients greater access to new drugs.”
In a brief statement issued shortly after the court made its decision to uphold the ban, Shoppers Drug Mart Corp. (SDM), which had earlier appealed the ban, said that while it respects the decision, it is “disappointed with the outcome.”
SDM and other drug chains that operate in Ontario said that offering their own brands of generics would help offset the impact of Ontario regulations designed to lower the cost of generic drugs.
They argued that private labeling allowed them to cut costs by using their own version of the drugs rather than those bought from a manufacturer.
But experts have said that it was unlikely the pharmacies will pass the savings on to customers and would instead use the extra revenue to recover profits that were lost when the professional allowances were banned.
In 2011 a lower court sided with SDM and Rexall Pharma Plus, but the Ontario Court of Appeal overturned that ruling and the Supreme Court ruling upholds the appeal court’s decision.
After the Ontario ban went into effect, drug chains said the province was overstepping its boundaries, but the Supreme Court said the regulations were consistent with the province’s statutory efforts to reduce drug costs.
“If pharmacies were permitted to create their own affiliated manufacturers whom they controlled, they would be directly involved in setting the formulary prices and have strong incentives to keep these prices high,” Justice Rosalie Abella wrote.
“Rather than receiving a rebate financed by inflated drug prices, the pharmacy would share in the manufacturers’ profits from those prices. This was expected to keep the price of drugs to consumers high.”
Abella also noted that Canada spends more on prescription drugs per capita than almost any other industrialized country and that Ontario’s efforts to control its drug spending were justified.
She cited a 2007 Ontario government study that found that some of the leading generic drugs were three times more expensive in Ontario than in France, Germany and Britain, five times more costly than in the United States and 22 times more expensive than in New Zealand.
“Each time the government has introduced new measures, market participants have changed their business practices to obviate the restrictions and keep prices high,” Abella wrote.