Generic drug cost changes

Summary of changes:

	BC	Ontario
Effective	July 28, 2010	July 1, 2010
Public reimbursement of generic drug costs	reduce from 50% to 35% of brand name drug cost reimbursed by PharmaCare	reduce from 50% to 25% of brand name drug cost reimbursed by ODB; reduce price of interchangeable drugs purchased privately (out-of-pocket or third-party) from avg 65% to maximum of 50% of brand name cost, which will become 25% over three years. There are exceptions: 1) non-solid dosage forms (creams, patches) may be reimbursed up to 35% of brand name drugs; 2) companies can apply for exemption if manufacturing or raw material costs substantially increase.
Dispensing fee increases	Increase from $8.60 to $10.50 over 2 years	Fee has been stagnant for two decades. Increase from $7.00 to $8.00; there is an up to $5.00 fee increase for rural pharmacies depending on their location.
Drug markup changes	Increase in markup accepted by PharmaCare from 7% to 8% in Oct. 2010	No change in markup accepted by ODB (8%) and there remains no markup cap
Professional allowances	No restriction, but they are likely to disappear as manufacturers will not be able to afford them	Before July, professional allowances were capped at 20% of sale price for publicly reimbursed drugs, no cap for privately paid drugs. Now banned for publicly reimbursed drugs and to be phased out over three years for privately-paid drugs. Fine-tuning of the definition of a "rebate" to allow them for specific things at a value up to 10% of drug cost
Reinvestment	$35M for patient care activities (medication management, chronic disease management); also some money for rural pharmacies	$100M fund for clinical services (yet to be defined); $75M in transitional funding; $25M for rural pharmacies; $50M for Ontario's MedCheck program

References:

• BC: http://www.mediaroom.gov.bc.ca/DisplayEventDetails.aspx?eventId=498
• Ontario: http://www.blakes.com/english/view.asp?ID=4050

My own notes for future commentary:
1) what BC changes will do
-there are two scenarios; either generic companies keep their prices the way they are (avg 65% of brand name cost) or lower to levels covered by PharmaCare (35% of brand name cost). remember that this is a non-legislative approach and thus, no company is obligated to reduce to this magic 35% number.
-however, judging from the profits of the generic companies and the low cost of manufacturing (I would imagine) for most of these drugs, I would bet that these companies WILL lower to 35%, especially since they have to anyway for Ontario.
-you will see reduced generic profitability; reduced professional allowances for pharmacies; reduced sponsorship for pharmacy student events =(, professional development conferences, and other research initiatives currently not funded by the government; likely an increase in generic mergers (although they have already started) to improve their economy of scale; increase in the prevalence of drug shortages as there is even less incentive to produce poorly utilized drugs; improvement in hospital budgets as I would imagine they also benefit from reduced drug costs.
-35M is peanuts. it's fantastic but really it's very little money to push the kinds of clinical activities that would actually benefit patients. compared to how much money the government is saving. i'm curious to see how this will play out.
-the real interesting thing is what happens to the pharmacy side. obviously there is a small dispensing fee and markup increase. but more importantly, how will pharmacy pricing change??
-reduction in drug costs means that the markup increase, which is a percentage of actual acquisition cost, is really just going to get buried (7% of 50% is more than 8% of 35%). the dispensing fee increase is more tangible.
-i'm not sure how OTC drugs will play into this because they are not affected by this policy and can make up a significant chunk of a pharmacy's business (particularly the big ones), especially if the pharmacies can charge for diagnosis and management of minor ailments as part of the clinical services package for 35M.
-there are two or three possible solutions, and likely there will be pharmacies who will gravitate to all sides of the business model. the first is going to become product oriented. they will be the first to adopt licensed pharmacy technicians and just churn out prescriptions like mad, cut on pharmacist time in the pharmacy, and make their money on the dispensing fee, which might actually be viable if you can cut the pharmacist time. these pharmacies will also decrease their 'services' to patients. they will target the easy patients who just want their drugs filled at the lowest cost possible, and they won't serve the difficult patients who are always arguing or have difficult health problems to solve, etc. (or they'll serve them very poorly until they leave).
-the second is going to become blister pack oriented - ie they will try to milk the government for as much money as possible per patient. if I were a business owner i would avoid going down this route because the government is (or should be) aware of some of the ridiculous things that go on in the blister packing world. the weekly billing and, most importantly, pressing customers to go for a blister pack when they don't really need one. i think there is some legislation or bylaw that does address this but I don't think it's really enforced??? note that methadone Rx's are also not really affected, so businesses with large methadone clientele may benefit from that stability.
-the third model is what a lot of ontario pharmacies resorted to doing, which is "increasing" prices. Now, they don't necessarily have to increase prices, but they could just not drop them. this strategy will take advantage of patients with third-party plans (ie. well-off patients). why? let's say that the drug costs have dropped for the pharmacy due to these changes, but the pharmacy keeps the price of the drug the same. pharmacare will pay less but the third party will end up paying more. this is not mutually exclusive from the increases in dispensing fees (to $12-15) and markups, but it really is the same thing. regardless of how the billing is set up, pharmacies are not obligated to lower their prices, it's just that they are getting less reimbursement from the government, so the remainder is either coming from the patients out-of-pocket or from third-party plans. contrast to ontario where they DO have a limitation on how much they can charge private payers. these will also be more likely to be the pharmacies who will try to take advantage of clinical services, such as providing vaccinations, providing medication management services, home care services, palliative care, breast pump and crutch rentals, etc. (oh, and probably lots of OTC and herbals). this is because these pharmacies will be more likely to actually have pharmacists on staff because otherwise how can they justify a $15 dispensing fee? so they will have pharmacists and the pharmacists will do what they can to try and earn the pharmacy back some revenue.