Canada: Ontario Announces Amendments to Drug Reimbursement and Drug Interchangeability Regulations Effective July 1, 2010

Last Updated: June 14 2010
Article by Vanessa Grant and Anita Nador

Most Read Contributor in Canada, September 2018

On June 7, 2010, the Ontario Ministry of Health and Long-Term Care announced that amendments to the regulations under the Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA) will come into force on July 1, 2010. Although the government has made certain amendments to the regulations proposed on April 8, 2010, the amended regulations will still have a significant impact on the way pharmacies, drug manufacturers (primarily generic drug manufacturers) and wholesalers do business in Ontario. These amendments reflect a further refinement of the Ontario government's last major round of amendments in 2006 under Bill 102.

The ODBA governs reimbursement of drug fees for "eligible persons." This public drug reimbursement system constitutes a significant percentage of total drug sales in the province. The DIDFA governs the sale of drugs that are "listed" as "interchangeable" by the government and permits pharmacists to fill a prescription for a drug (private or public sales) with an "interchangeable" one. The amendments to the applicable regulations are intended to come into force on July 1, 2010, with certain provisions to be phased in over a two- to four-year period.

The following are highlights of the changes:

1. Changes to Professional Allowance Limits

For ODBA-reimbursed drugs, professional allowance limits have been eliminated effective July 1, 2010. Under the current ODBA regulations pharmacies are permitted to receive professional allowances in an amount equal to 20% of the value of drugs reimbursed under the ODBA. To compensate for this loss of revenue, the government will pay $1.00 for each claim1 submitted by a pharmacy from July 1, 2010 to March 31, 2011. This amount is reduced to $0.65 from April 1, 2011 to March 31, 2012 and to $0.35 from April 1, 2012 to March 31, 2013, after which these transition payments will cease. Benefits received in the form of a professional allowance prior to July 1, 2010 will be treated as such, if the person receiving it reports them as a professional allowance in accordance with the provisions of the prior regulations.

The changes to the DIDFA regulations also phase out professional allowance payments that pharmacies may receive for private sales of "interchangeable drugs". These amounts, which were previously unregulated, will now be limited in the first year to 50% of interchangeable product private sales (July 1, 2010), 35% in the second year (April 1, 2011), and 25% in the third year (April 1, 2012). As of April 1, 2013, no professional allowance payments will be permitted.

2. Changes to Prices for Generic Drugs

The price of interchangeable drugs under the ODBA has been reduced from the current limit of 50 to 25%. In effect, subject to the exemptions below, the proposed drug benefit price (DBP) must be less than or equal to 25% of the price of the original product (i.e., the innovator product) at the date the product is first proposed for designation as a listed drug product, or if the price of the original product was reduced more than 20% in the 24-month period before the date on which the product is proposed for designation, then the proposed DBP must be less than or equal to 25% of the original drug product prior to the time the price of the original product was first reduced. There are some exceptions to this, specifically:

  • Non-solid generic drug products are permitted to be priced up to 35% of the original brand name drug in recognition of the higher manufacturing costs.
  • With regard to products comprising "atorvastatin" (sold by Pfizer under the brand name Lipitor®), any generic versions will need to be less than or equal to 25% of the price of the original product on the day the generic was first proposed for listing, as opposed to the price prior to any price reduction in the last 24-month period. However, under the DIDFA, the generic version can be sold at up to 50% of the original product price if sold on the private market.
  • Commencing with products proposed for listing on or after April 1, 2012, and subject to certain conditions, first-to-market generics can be sold for the first three months at up to 50% of the DBP of the original product on the date the product is first proposed for listing.

Further, the 25% rule would not apply in the following circumstances:

  1. Where the product is the only drug product of its type that is designated as interchangeable with an original product and has been so designated for at least two years, or where removing said drug product from the listing would pose significant patient safety or access concerns or significant increased costs to the government; or
  2. Where substantial raw material or manufacturing cost increases have been shown and it is in the public interest to list the drug at a higher price.

If conditions 1 or 2 exist, under the ODBA the Executive Officer (EO) is permitted to negotiate any price for an interchangeable drug with a manufacturer, subject to the following restrictions:

  • For situations 1 and 2, the price of an interchangeable product cannot be higher than the original product unless the manufacturer has submitted detailed information as to why the product should be priced higher and the EO considers such a price to be in the public interest having regard to the matters set out in subsection 22(2) of the ODBA and anything else the EO considers relevant. Under subsection 22(2), the EO may consider any matter she considers advisable in the public interest, including the DBP of other drug products or the price charged to operators of pharmacies for the drug product or other drug products.
  • With respect to a product where only situation 1 exists, when the situation no longer exists (i.e., the product is no longer the only drug product of its type that is designated as interchangeable with an original product), the price is subject to the 25% rule.

Under the DIDFA, the amendments introduce a requirement that the DBP for all interchangeable designated drugs that are also listed under the ODBA, whether sold in private or public markets, will be the same, and that those interchangeable drugs sold on the private market cannot be sold at a price higher than the DBP. The provisions under the DIDFA are being phased in over three years. Effective July 1, 2010, the price of the drug under the DIDFA for "non-eligible" persons (i.e., private sales) must not be greater than 50% of the original product as set out in the Formulary. However, if the price is lower than the DBP, the interchangeable product can be sold at the DBP. The 50% level will go down to 35% on April 1, 2011. On April 1, 2012, the price of such private sale interchangeable drugs will not be higher than the DBP (i.e., it shall not be higher than prices for eligible persons under the ODBA). Again, as noted above, a specific exception has been made for interchangeable products comprising atorvastatin sold on the private market, where it cannot be more than 50% of the price of the original product for non-eligible persons.

3. Changes to Reimbursed Mark-Ups and Dispensing Fees under the ODBA

Currently under the ODBA, the government will reimburse pharmacies a flat 8% mark-up of the DBP for drugs sold to eligible persons and a dispensing fee of $7.00. This applies to all pharmacies.

The amendments introduce changes to the dispensing fees reimbursed under the ODBA. The current regulations create four categories of pharmacies that are based on pharmacy location, number of pharmacy services in geographic area, and the distance between pharmacies. The definitions of these categories are set out in a table to the regulations that also lists different dispensing fee limits, depending on pharmacy category. Pharmacies located in more rural or underserviced areas will receive higher dispensing fees from the province for claims submitted for eligible patients.

For dispensing fees, effective July 1, 2010, the reimbursed dispensing fee for claims made for eligible patients under the ODBA will be $8.00 for pharmacies in the least rural areas, going up to $12.00 for pharmacies in the most remote or underserviced locations. These amounts are increased annually so that by April 1, 2014, they will be $8.83 and $13.25, respectively.

The previous proposed changes to mark-ups were removed from the current regulations. Consequently, the mark-up provisions remain unchanged and will remain at a flat 8%.

4. Revised Definition of Rebate under the ODBA and the DIDFA

Currently under the ODBA and the DIDFA, rebates, except for prompt payment discounts and professional allowances, are prohibited. The changes clarify exclusions from the definition of rebate. They also provide that a rebate does not include the value of a benefit that is provided in accordance with ordinary commercial terms and meets all of the following conditions:

  • It is provided in the ordinary course of business in the supply chain system of listed drug products that are interchangeable under the DIDFA.
  • The value of the benefit is set out in a written agreement.
  • The benefit relates to a prompt payment discount, a volume discount, or a distribution service fee.

The final regulations further introduce a 10% limit on the receipt of any such benefits and are required to be reported to the EO upon the officer's request.

Under the DIDFA, a rebate also does not include the value of a benefit provided in accordance with ordinary commercial terms with respect to a listed drug product that is not interchangeable, as long as those commercial terms are a prompt payment discount.

5. Changes to Private Label Drug Status

"Private label" products will no longer be listed on the Formulary under the ODBA and will not be designated as interchangeable under the DIDFA. In essence, this means that private label drug products will not be reimbursed by the government under the public health plan.2

6. McCarthy Tétrault LLP Comments
Despite a public comment period that ended in mid-May, these amendments are similar to those originally announced by the Ontario government in April of this year. Of particular note is that in the final regulations the government has not amended the mark-up provisions under the ODBA regulations and has added a 10% limitation on benefits, such as volume and prompt payment discounts and service fees. The Ontario government has on a number of occasions indicated that it needs to contain healthcare spending and that it is looking for more transparency in the drug supply chain. A number of participants in the drug supply chain have indicated their concerns with these amendments. It remains to be seen whether these amendments will, indeed, achieve the government's objectives in providing transparency and lower drug prices for Ontario citizens.

A copy of the amendments to the regulations can be found at: http://www.health.gov.on.ca/en/public/programs/drugreforms/legislation.aspx .

A copy of the current ODBA and DIDFA legislation and regulations can be found at http://www.e-laws.gov.on.ca/navigation?file=home&lang=en .

Footnotes

1. These 'transition" dispensing fee payments do not apply to claims with respect to methadone or to claims for an eligible person referred to in clause 18(8)(b) of the ODBA regulations (e.g.,eligible person resident of a nursing home; or any other residential facility funded by the Government of Ontario that is designated by the executive officer and published on the Ministry website).

2. Private label products are defined as: a drug product in respect of which,

  1. the manufacturer applying for the designation of the product as a listed drug product does not directly fabricate the product itself, and
    1. is not controlled by a person that directly fabricates the product, or
    2. does not control the person that directly fabricates the product, and
  2. either
    1. the manufacturer does not have an arm's-length relationship with a wholesaler, an operator of a pharmacy or a company that owns, operates or franchises pharmacies, or
    2. the product is to be supplied under a marketing arrangement associating the product with a wholesaler or one or more operators of pharmacies or companies that own, operate or franchise pharmacies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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