Canada: 2010 Ontario Drug System Reforms

Last Updated: June 25 2010

Article by Jeffrey S. Graham , Bonnie Freedman and Stephen Andrews

Effective July 1, 2010 important changes to the rules governing the sale of drugs in Ontario will come into force.


In June 2009 the Government of Ontario announced plans to update the rules governing the drug system in Ontario. At the time, the Government noted that the most recent reforms of the drug system, implemented in 2006, had resulted in savings of $1 billion, but that the rules defining the circumstances in which manufacturers can pay professional allowances (PAs) to pharmacies and operators of pharmacies had not worked well and that residents of Ontario were continuing to pay too much for generic drugs.

In its 2010 budget bill tabled in the Provincial Legislature on March 25, 2010, the Government announced plans to delete the PA exemption from the definition of the term "rebate" in the ODBA and the DIDFA (Schedules 5 and 21 of the Creating the Foundation For Jobs and Growth Act, 2010, (Budget Measures Act). Shortly thereafter, on April 8, 2010, the Government tabled for comment changes to the regulations under the ODBA and DIDFA that proposed important changes to a number of rules related to provincial regulation of the drug system in Ontario. (For a summary of the earlier proposed changes, see "Ontario Drug System Reforms" April 2010, BLG Life Sciences Advisory). Earlier this month, the Government published a revised and final version of the regulation changes.

Set out below is a summary of the key elements of the revised changes and some of the implications for key stakeholders.

Summary of the Changes

Limits on Generic Drug Prices

As of July 1, 2010, generally, the maximum Ontario Drug Benefit (ODB) price for generic drugs will be reduced from 50% to 25% of the brand name product price (except for drug products not in solid dosage form for which the reduction is to 35%). For sales in the private market (non-ODB sales covered by private insurance or the consumer), effective July 1, 2010, generally, the maximum price for generic drugs will be the higher of 50% of the brand price (as of date the product was first proposed for interchangeability) or the ODB price. The 50% drops to 35% effective April 1, 2011. Effective April 1, 2012, a manufacturer must not sell a generic drug at more than the ODB price, whether the product is dispensed in the public (ODB) or the private market, i.e., 25% of the brand name price.

The final regulations introduce special pricing rules with respect to Atorvastatin (Lipitor) that have retrospective impact and impose the post July 1 regime on generic manufacturers (25% of the brand name product price) that applied for listing prior to July 1, 2010.

Also there is a special pricing provision that will take effect on April 1, 2012 that may provide an incentive to generic manufacturers to challenge the drug product patents of brand name manufacturers. If such a challenge was successful, with the result that the generic product could be sold earlier than if the patent had expired or the challenge was not brought by the generic manufacturer, such manufacturer can recover up to 50% of the drug benefit price of the brand name product for a three month period following listing.

Elimination of Professional Allowances

PAs are being eliminated for the public market (ODB reimbursed sales) effective July 1, 2010. To facilitate transition from a model of pharmacy reimbursement dependent on the receipt of PAs, the Government will pay to operators of pharmacies an additional amount for every claim of payment submitted by operators to the Government - $1.00 from July 1, 2010 and ending March 31, 2010; $0.65 beginning April 1, 2011 and ending March 31, 2012 and $0.35 from April 1, 2012 and ending March 31, 2013. Provisions of the Budget Measures Act that take effect on July 1, 2010 will eliminate references to PAs in the ODBA.

Effective July 1, 2010, PAs for the private market will be capped at 50% of the total dollar amount of interchangeable products sold in the private market (calculated as the number of units multiplied by the ODB price). The cap on PAs on private market sales will be reduced to a maximum of 35% on April 1, 2011. On April 1, 2012, PAs on private market sales will be capped at 25%. On April 1, 2013, PAs will be eliminated for the private market. Provisions of the Budget Measures Act that take effect on April 1, 2013 will eliminate references to PAs in the DIDFA.

Effective July 1, 2010, pharmacists will no longer be required to report PAs (manufacturers will continue to be required to report).

Ordinary Commercial Terms

The definition of rebate (which will remain a prohibited payment) is being revised to exclude ordinary commercial terms from what is prohibited. Ordinary commercial terms is defined generally as a benefit provided in the ordinary course of business on the sale of interchangeable products between any of a manufacturer, a wholesaler, an operator of a pharmacy or a company that owns, operates or franchises pharmacies, the value of which is set out in a written agreement, and must relate to (i) a prompt payment discount, (ii) a volume discount, or (iii) a distribution service fee. The value of the benefit is capped at 10% of the value of listed drug products dispensed by a pharmacy and reimbursed under the ODBA.

If the drug product is not designated as interchangeable (e.g., brand name drug) then the benefit provided can not be other than a discount for prompt payment.

The Executive Officer (EO) will have new powers to require a recipient of a benefit to inform the EO of the net selling price of drug products representing the drug benefit price less the value of the benefits received. In addition, the EO will have the power to require a manufacturer of a product designated as interchangeable to inform the EO of the price the manufacturer receives net of the value of ordinary commercial terms.

Private Generic Labeling

Also effective July 1, 2010, private label generic drugs will not be eligible for listing on the Government's Formulary or for an interchangeability designation. Private label products are defined as including a drug product in respect of (a) a manufacturer applying for benefit designation or interchangeability designation does not directly fabricate the product, and (i) is not controlled by the fabricator or (ii) control the fabricator, and (b) either (i) a manufacturer does not have an arms length relationship with a wholesaler or one or more operators of pharmacies or companies that own, operate or franchise pharmacies; or (ii) a product is to be supplied under a marketing arrangement associating the product with such a party or parties.

Increased Dispensing Fees

Four categories will replace the current single permitted dispensing fee. The new fees are as follows: Category 1 - $8.00 (less than 5 kms. between more than 2 pharmacies), Category 2 - $9.00 (less than 5 kms. between 2 or less pharmacies, or no other pharmacies within 5 to 10 kms), Category 3 - $11.00 (no other pharmacies for 10 to 25 kms), Category 4 - $12.00 (no other pharmacies for more than 25 kms). Provision is made for annual increases starting in April 1, 2011 and continuing until April 1, 2014.

Mark-Up Limits

A series of complex restrictions had been proposed on permitted mark-ups for listed drug products. These limitations were abandoned in the final drafting of the regulations so that the mark-up on the drug benefit price of a listed drug product remains at 8% of the drug benefit price.

Professional Services

In addition to the changes proposed to legislation and regulations, the Government has also announced plans to increase funding for the successful MedsCheck Program by $50 million and to create a new $100 million professional services fund to pay pharmacists for additional services to be determined in discussions between the Government and the pharmacy sector.

Implications for Sector Participants

The changes in the rules with respect to PAs are going to require significant adjustment to the business model for pharmacy services in Ontario, although in a number of important respects the final changes moderate the impact of the earlier Government proposed changes. The clarification in the final regulations with regard to the potential to reach agreement with respect to distribution service fees will presumably moderate the impact of the PA changes for those parties able to insist on such fee-related agreements. Manufacturers of generic products will face adjustments, both in terms of their relationships with customers and with the Government. The impact on agreements with the Government of Ontario and the impact on the limitations on prices in other markets (where the Government is not the payor) will need to be carefully considered, particularly in jurisdictions where a best available price rule is in place. Manufacturers face a more complex environment with both some level of PAs continuing for some period and pressure to enter into agreements with respect to commercial terms and the payments that result from those agreements.

While the distribution of brand name products is not the focus of the changes, many of the changes have system-wide implications including, initially the changes to the definition of rebates and, over the longer term, the decision of the Government to directly impose limitations on prices in the private as well as the public market. Brand name companies will also be concerned with the new litigation incentive built into the ODBA regulations.

For the private market, including sponsors of employer-sponsored supplemental health plans, the proposed reduction in the prices of generic drugs will be welcomed.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions