The Competition Bureau has released a new study of the generic
drug industry, Benefiting from Generic Drug Competition in
Canada: The Way Forward, that proposes a number of changes to
increase competition in the supply of generic drugs. The report is
a follow-up to the Generic Drug Sector Study released by the Bureau
in October 2007. In 2007, Canadians spent $4.1 billion on generic
drugs, an increase of more than 20% from the previous year; generic
drugs account for approximately 50% of all prescriptions filled in
The Bureau's reports were prompted by studies showing prices
for generic drugs to be higher in Canada than in other countries.
Although the use of rebates by generic manufacturers has been
widespread, it did not translate into lower prices for consumers.
The Bureau estimates that Canadians could save $800 million a year
if they paid competitive prices for generic drugs.
The report notes that in the last two years, a number of
provinces, notably Ontario and Quebec, have taken steps to lower
the prices they pay for generic drugs, but many private plans
continue to pay high prices. Following the introduction of the
price cap for generic drugs of 50% of the brand name price,
introduced by Ontario's public drug programs in late 2006, and
a subsequent reduction in Quebec, prices to those plans dropped 21%
but prices for generic drugs to private plans in Ontario and public
and private plans in other provinces except Quebec remained at
their previous levels and new generic products were introduced at
even higher prices than before, between 70% and 75% of the price of
the originator brand product.
While noting that some of the other provinces have begun to take
action, the Bureau estimates that provincial governments can do
more, including introducing measures to reimburse pharmacies for
the true cost of drugs and coordinating generic pricing and
reimbursement policies to promote effective generic drug
Specifically, the report identifies several approaches public
plans could take, including the use of competitive tendering for
generic drugs which has been employed by New Zealand and is common
in the Canadian hospital sector. While noting that competitive
tendering has the potential to provide substantial cost savings,
the Bureau also identified concerns that have been raised,
including the possibility of supply shortages and a reduction in
competition in the long run. It attempts to address these concerns
by suggesting ways of designing the tendering process.
Additional approaches include:
increased monitoring of actual prices either by requiring
pharmacies to report actual acquisition costs or requiring
manufacturers to report net prices;
"sequential formulary listing," i.e. the requirement
for subsequent generic entries to provide a lower price or other
separate remuneration for pharmacy services; and
abandoning or limiting the use of "most-favoured
nation" clauses, i.e. the requirement that the plan receive
the best price available to another plan.
Interestingly, the Bureau also recommends greater coordination
among public payers to minimize the negative impact on competition
that these policies could have. In particular, the report notes
that unless it is effectively coordinated, extensive use of
competitive tendering could lead "to fewer generic
manufacturers and a potential loss of competition in the generics
The Bureau finds that the private payer market has been slower
to address the problem of high generic drug prices. Private payers
account for 52% of all generic drug expenditures and the Bureau
estimates potential savings to this sector of $600 million per
year. With some exceptions, this sector has not acted to seek more
competitive practices in pricing and the Bureau recommends that
they consider approaches that are currently observed in the United
States. In particular, the report notes that strategies such as
preferred pharmacy networks, mail order pharmacies, and patient
incentives are widely used in the U.S. but rarely in Canada.
The Bureau concludes that if action were taken to implement
these measures, the savings could be redirected in many ways,
including towards paying for an expansion of drugs currently
covered under public drug programs.
For more information, including a link to the report, please
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