TORONTO — After nine months of discussions with the pharmacy community about how to reduce the government’s costs, Ontario’s health ministry has decided that the best way to accomplish those savings is to slash the reimbursement rate paid to pharmacies when they dispense generic drugs.

Ontario Minister of Health Deb Matthews announced earlier this month that lawmakers would introduce legislation within the next few months to cut the pharmacy reimbursement rate for generic drugs paid for by the Ontario Drug Benefit Plan (ODP) from 50% of the branded price to 25%.

Prices for generics paid by private payers and private plans would be initially limited to 50% and then drop progressively to 35% and 25% of the brand price in the second and third years of the new scheme.

ODP-covered prescriptions for seniors, the disabled and other specified categories account for roughly half of all prescriptions dispensed in the province.

Professional allowances for ODP drugs, which have already been capped, would be immediately eliminated. Allowances for generics paid for by private payers would be capped initially at 50%, then scaled down to zero over three years.

Pharmacies will be able to negotiate “ordinary commercial terms” on these drugs. However, the actual definition of “ordinary commercial terms” has yet to be determined.
Community pharmacy advocates say that the proposed cuts would be financially devastating for drug stores across Canada and would ultimately hurt consumers.

Canadian Association of Chain Drug Stores (CACDS) president Nadine Saby, for instance, described the proposed changes as “cutting to the bone.”

Others said the plan to roll back the reimbursement rate was an assault on one of the nation’s most visible group of health care providers.

“This is a cut in health funding for pharmacy; front-line health care providers are being cut,” noted Donnie Edwards, an independent pharmacist and a spokesman for the Ontario Community Pharmacies’ Coalition, an ad hoc group of Canadian pharmacist and drug store associations.

“Who gets hurt? The patient,” Edwards remarked. “This could be detrimental to their health. [Health ministry officials] need to know that.”

Matthews says the impact on community pharmacies will not be as severe as it appears on the surface. The government will provide funding for other services to make up for some of the losses that would come from the lower reimbursements, she stresses.

For instance, Matthews explains, dispensing fees for ODP-covered drugs — now $7 (Canadian) — would be increased by $1 across the province and by up to $4 in areas defined as “rural and underserviced.”

In addition, an automatic 2.5% upward annual adjustment is to be applied to dispensing fees over the next four years.

Matthews says the provincial government has allocated $100 million to pay for existing and new patient services to be provided by pharmacists. Those services include vaccinations, counseling and patient instruction and demonstrations.

Ministry officials have estimated that Ontario pharmacies take in as much as $800 million annually in allowances and rebates. Matthews says the increases in dispensing fees and the opportunity to earn fees for new professional services together could return about $240 million to pharmacies.

Still, those affected by the planned reductions note that even with the new funding they stand to lose a substantial amount of money if the cuts go through.

CACDS chairman Mark Dickson says the proposal effectively removes all indirect funding for pharmacies in the province. He estimates that in 2011 this loss of revenue would amount to $1 billion, an average of $300,000 for each of the 3,306 pharmacies operating in Ontario.

The proposed reimbursement cuts have also riled up Canada’s generic drug makers, who say that the reductions could force them to lower their prices. That, in turn, will make it difficult for them to afford the development and production of some medications, they say.

“The Ontario government and everyone who pays for prescription drugs will be left paying monopoly prices charged by brand name companies,” Canadian Generic Pharmaceutical Association president Jim Keon says.