Excellent Op-Ed From Windsor Star

ALFIE MORGAN writes to the Windsor Star

To reduce the cost of Ontario drug benefit programs, the province is cutting the price it pays to generic drug companies by 50 per cent. The province will save $750 million, but numerous other costs will ensue, perhaps exceeding this savings. First, numerous small businesses, namely independent pharmacies, will have to go out of business. Second, “new” health care costs will spring up if we are to keep health care near what it is now.

The price cut will translate into a loss of revenue of about $228,000 for each independent pharmacy as it eliminates the so-called professional allowance given to them by generic drug companies as legislated by the province’s Bill 102 in 2006 (not a “kickback”). It covered numerous operating expenses — estimated by an industry insider as follows:

- Covering the difference between that actual prescription filling cost of $12-14 and the reimbursement of $7 from the government (increased only 59 cents over 20 years). That $5-$7 difference amounts to an average revenue loss of $125,000 for each pharmacy (given an average government-paid 25,000 prescriptions per year).

- Free delivery, about $35,000 a year.

- Discounts to seniors and social services recipients, to the tune of $60,000 annually.

- Dossett packing (packing numerous medications for seniors by time of day), costs $39,000 a year.

- Clinic days to provide customized consultations for the public, $12,000 per year.

- Medicine supplies (medicine measuring spoons, droppers to patient and disposal of old medicines and syringes), about $2000 a year.

Total: $273,000. The intended cut of the $228,000 allowance is 83 per cent of such expenses. Clearly, removing this allowance will create havoc in the independent pharmacy’s financial position — given a net of profit, with the allowance, of 1.8 per cent on sales, according to Industry Canada)

Remove the allowance and this tiny profit is gone and many pharmacies will be in the red. Pharmacies can either pass on the cost to customers who will be reluctant to pay, or go out of business.

Because of their vulnerable financial position, conservatively, 30 to 40 per cent of Ontario’s 1,634 small pharmacies will have to go out of business — about 490 to 653 pharmacies. This will cost Ontarians quite a bit:

- 490 to 653 small enterprises will be lost forever along with the ripple effect on the economy.

- Thousands of direct jobs –5,880 to 7,836 — since the average pharmacy employs about 12 employees. They will not be absorbed by larger pharmacies because they will also be cutting staff to make up for the loss of the professional allowance.

- The loss of direct jobs will have ripple effects; unemployment insurance payments, loss of tax revenue for municipalities, declining spending and consumption of goods and services, and so on.

- Losing these enterprises will mean loss of property taxes for the municipalities and income tax for the province and federal government.

Then there are the “new” health care costs: Pharmacies, independents and chains, will have to trim their business operations to make up for the loss of the contribution from generic drug companies, cutting out extra services, having shorter hours, laying off staff. How will this affect people who need pharmacy services, especially seniors?

When pharmacy hours are reduced and patients cannot call their pharmacist, they will have to go to emergency rooms or see their doctors — another added cost for the province. Even if one extra person per pharmacy visits the emergency room, the potential increase in health care cost adds up to $ 200 million (one per day from each of Ontario’s 3,268 pharmacies at $200 per visit). Seeing a doctor will cost the province $30 million (one per day from each pharmacy at $30 per visit). That means $230 million new costs per year, thus far.

This calls into question the economic viability of the province’s decision. The trade-off is just not worth it. On one hand, it will save an estimated $750 million, but it will create negative impacts exceeding the savings by far. What is the logic here? The province is proposing a modest reimbursement to pharmacies of $100 million — far from the hole left by the $750 million removed from pharmacies.

Clearly, the powers that be need to rethink this decision: Consider the trade-off and the potential direct and ripple effects. As Churchill said, “The road to hell is paved with good intentions.”

So, where do we go from here? Some say, let the generic drug companies provide distribution discounts to pharmacies. Wishful thinking: The proposed law prohibits this practice. Additionally, with their margins cut so thin, they will be in no mood to dole out money to pharmacies. And the pharmacists, I am told, do not particularly want this allowance practice anyway.

Rather, they would prefer a new funding model that will allow them to cover the cost of delivering high-quality health care services. Is that too much to ask? A reasonable course here will be for the minister of Health to meet with the profession and arrive at a fair and equitable, win-win solution. This is not an open and shut case.

Alfie Morgan is professor emeritus of business administration, University of Windsor.