Article: Ontario’s backroom deals make for drug-policy chaos

Posted in the Globe and Mail today

The heated battle between the Ontario government and pharmacists over the pricing of generic drugs seems to have cooled a bit.

The new rules were supposed to be in place already, but the provincial government has quietly delayed their implementation. Not coincidentally, the province’s powerful drug czar, Helen Stevenson, is set to step down, setting the stage for some concessions.

Under the system that’s to be replaced, the government drug plan negotiates (or, more precisely, imposes) a price it will pay to pharmacies for generic drugs – 50 per cent of the price of the equivalent brand-name drug. Pharmacies, in turn, buy generic drugs from manufacturers at that fictional price, but then receive “rebates” in the 40- to 80-per-cent range.

The province has decided that this system – which it created and endorsed – is too expensive, and that the drug plan will only pay 25 per cent of the price of the equivalent brand-name drug, and eliminate the rebates (or kickbacks to use a cruder term).

The change will cost Ontario pharmacies about $750-million.

But the government has softened that blow a bit with new rules that will provide pharmacies with about $250-million: These include a slightly higher dispensing fee and an extended scope of practice (pharmacists will be able to offer vaccinations and bill for such things as drug counselling).

Before the new rules take effect, there will likely be another hike in the dispensing fee, and the big pharmacy chains such as Shopper’s Drug Mart and Rexall will get the right to manufacture their own generic drugs, which could be a cash cow.

While Ontario may be able to buy peace with pharmacies, drug policy in the province remains abysmally confused precisely because it consists of grandiose promises that are watered down by backroom deals.

The current mess dates back to 2006, when the Ontario government adopted Bill 102, the Transparent Drug System for Patients Act. It is a name that, as you will see, is rich with irony.

Bill 102 gave birth to generic drug prices set arbitrarily at 50 per cent of brand-name prices, which was a fiction because it allowed the (nudge-nudge, wink-wink) rebates/kickbacks. (A generic company would sell drugs to a pharmacy for the 50-per-cent price, but only on paper. It then give the pharmacy a “rebate” for dispensing its product rather than a competitor’s.)

The new rules set the price of generics at an equally arbitrary 25 per cent of the brand-name drug’s price and do not allow rebates except for volume discounts.

By doing so, Ontario scored a lot of points in the public-relations war by painting pharmacists as greedy beneficiaries of kickbacks when they were actually following the government’s own rules.

The reality is that the current government is shamefully hypocritical in this domain, as it continues to insist on similar “rebates” to pharmacies from manufacturers of brand-name drugs.

Since 2006, Ontario has been negotiating secretive (or, if you prefer, non-transparent) deals with pharmaceutical companies in exchange for listing their drugs on the Ontario Drug Benefit formulary.

In Canada, new drugs are approved (or not) by Health Canada and prices are set by a federal agency. Provinces and private insurers, in turn, decide if a drug will be included in their formularies – meaning the patient will be reimbursed. There is also an agency called the Common Drug Review that makes recommendations in the hope that the provinces will have similar policies.

Prices of brand-name drugs are regulated by the Patented Medicine Prices Review Board. Generally, Canada pays the median price among the Organization for Economic Co-operation and Development countries; we have neither the highest nor lowest drug prices, but middle-of-the-road ones.

Those prices are public, as they should be.

Government drug plans can negotiate discounts for bulk purchases, a power they do not exercise nearly often enough.

But Ontario is doing something else entirely. It is demanding that brand-name manufacturers discount the price set by the prices review board or see their drug excluded from its formulary. Drugs such as Fosavance and Cipralex were rejected by the provincial Committee to Evaluate Drugsbut subsequently placed on the formulary after a “pricing agreement.”

The appropriate name for this practice is a kickback.

It is not clear how often this occurs, but it reeks of a backroom deal.

Initially, Bill 102 allowed for practices called generic substitution and reference pricing (policies that meant the drug plan paid only for the cheapest drug that worked). But brand-name companies lobbied successfully to get them removed. One can assume that “rebates” were the price paid.

Since the longstanding, secretive practice was exposed earlier this year by Globe and Mail columnist Adam Radwanski, there has been much political fallout but not nearly enough public outcry.

The Quebec government is furious because it has a deal with brand-name manufacturers that it will pay the lowest price in Canada for drugs – not just the lowest published price. (Quebec, the home base of most big drug companies in Canada, has a rule that its drug plan will pay for brand-name drugs for 15 years after a generic is listed, a gift worth about $120-million annually to Big Pharma.)

The Patented Medicine Prices Review Board, obviously, is not too happy. It sued one company, Pfizer, to get information on its deal with the Ontario government, but the courts ruled the information was proprietary.

The province seems happy to keep this all hush-hush. So much for transparency and public accountability.

Instead of whaling on pharmacists, perhaps the Ontario government should be turning some of its scrutiny – and its anger – inward because some of its drug policies are, frankly, malodorous.