In our June 2010 Legal Update we reported that the Ontario Ministry of Health and Long-Term Care had announced amendments to its drug reimbursement and drug interchangeability regulations that impacted, among other things, prices for generic drugs in the province. The Governments of both British Columbia and Québec have also recently announced reforms that will impact generic drug pricing in those provinces.

On July 7, 2010, the Government of British Columbia, the BC Pharmacy Association, and the Canadian Association of Chain Drug Stores announced that they had reached an agreement (the Pharmacy Services Agreement) that would be phased in over a three-year period and eventually result in a cap on generic drug prices of 35 per cent of the brand name drug price (although the Province is able to grant exceptions where no manufacturer commits to make a generic drug available at the maximum accepted list price or where the generic drugs available at such price are not available in sufficient supply). Prior to implementation of the agreement, the average generic drug price in British Columbia was 65 per cent of the brand name drug price.

Lower generic drug prices will apply to drugs covered by PharmaCare under the public drug plan (which covers the cost of prescription drugs for eligible residents of British Columbia), but savings will apply to drugs that are listed on the provincial formulary bought in the private sector for individuals covered under employee and union drug plans, and for those paying out of pocket.

The agreement is expected to lower annual health care costs by $380 million: $170 million per year in savings for the provincial health system, and $210 million per year for employee and union drug plans and individuals.

Pharmacies will be partially compensated for their lower revenues through an increase in the maximum dispensing fee reimbursed by the Province. Additional funding will also be available, allowing pharmacies to offer more clinical services to customers such as medication therapy. Unlike in Ontario and Québec, there are no rebate restrictions.

In late June 2010, the Québec Government also followed Ontario’s lead and announced that it would be cutting the cost of generic drugs in the Province, likely to a similar 25 per cent level. Québec has an agreement with generic pharmaceutical manufacturers that requires Québec generic drug prices to be the lowest in the country. Québec residents previously paid approximately 54 per cent of the cost of brand name drugs for generic equivalents. In a November 5, 2010 notice to generic drug manufacturers, the Conseil du médicament set out transitional measures to bring generic drug pricing in the Province in line with that of Ontario. The Québec Government’s move is expected to save the provincial drug insurance program $164 million per year.

The Governments of British Columbia and Québec have both addressed the issue of controlling drug costs through negotiations of agreements with the relevant industry bodies. The Government of Alberta took a similar approach when, on April 1, 2010, it also reduced the price of generic drugs in the Province to a maximum of 56 per cent of the price of existing brand name drugs and 45 per cent of new brand name drugs. Like British Columbia, Alberta does not have "no rebate" provisions.

In contrast, the Ontario Government enacted price reductions through legislation that, effective July 1, 2010, saw the price of generics reduced to 25 per cent of brand name drugs (a reduction from the prior 50 per cent) and the elimination of professional allowances. This is in addition to the prior enactment of provisions that prohibited rebates for drugs listed on the Formulary, whether sold on the private or public markets. In addition, the Ontario legislation has eliminated professional allowances for drugs on the Formulary and capped professional allowances respecting sales of "interchangeable drugs" to 50 per cent of interchangeable product private sales to March 31, 2011, 35 per cent from April 1, 2011 to March 31, 2012, and 25 per cent April 1, 2012 to March 31, 2013. Thereafter, they will no longer be available. For a summary of the Ontario legislation please see Ontario Announces Amendments to Drug Reimbursement and Drug Interchangeability Regulations Effective July 1, 2010.

With health care costs becoming an increasing proportion of government budgets, other provinces will likely follow suit and more changes to the current drug reimbursement systems are likely.