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The deal comes after generic-drug manufacturers had publicly warned that government health plans were seeking to push prices too low for the generic drugs to be economically viable, especially with inflation leading to much higher production costs.Mehmet Dilsiz/Getty Images/iStockphoto

Government negotiators have reached a deal with the country’s pharmaceutical industry on pricing for generic drugs, which fill three-quarters of all prescriptions in Canada.

The pan-Canadian Pharmaceutical Alliance, which represents provincial and federal health insurance plans, made the announcement Tuesday, along with the Canadian Generic Pharmaceutical Association, which represents makers of off-patent drugs.

The deal sets pricing for generic drugs based on a percentage of the list price for the patented version of the medicine. These prices are also used by private insurers. It is the third such agreement, following earlier pricing deals in 2014 and 2018, and runs three years, with an optional extension of two more.

The biggest change in the latest deal is that generic drugs that are only made by a single company will now be priced at 55 per cent of the patented price. Previously, the drug maker could charge 75 or 85 per cent of the patented price. Only new drugs will be covered by the lower price.

Generic drugs made by multiple manufacturers are priced between 25 to 50 per cent of the patented price, depending on the number of competitors and type of medicine, and those categories remain unchanged.

Jim Keon, president of the generic pharmaceutical group, said drug makers were happy with the deal.

“What our companies like about it is the predictability and certainty of the pricing,” he said.

Generic-drug manufacturers had publicly warned earlier in the negotiations that the government health plans were seeking to push prices too low for the drugs to be economically viable, especially with inflation leading to much higher production costs.

Mr. Keon said the government backed off on some of the price reductions it was pushing for, but would not agree to allow prices to rise with inflation. “In the end, it’s a compromise agreement,” he said.

Canadians spent a total of $39-billion on prescription drugs in 2022, according to the Canadian Institute for Health Information. Public health plans covered about 44 per cent of those costs, while 36 per cent were covered by private insurance and the rest paid by patients out of pocket.

The pCPA said that previous agreements have saved public health plans $4-billion over the past decade.

“At a time when inflation and the rising cost of living are affecting many Canadians, this agreement maintains the current pricing and savings achieved in previous negotiated agreements and provides additional savings for future new generics,” spokesperson Genevieve Gagnon said in an e-mail.

This week was also the pCPA’s first as a standalone entity, after years of being part of the Ontario public service.

Government attempts to control the rising cost of drugs has been a source of controversy in recent years.

The federal Liberal government attempted to set new rules that would lower the price of patented drugs – and, by extension, the cost of generics. But those new rules faced strong pushback by the pharmaceutical industry and much of the reform was struck down by the courts.

Transparency over pricing is a key difference between generic drugs and patented medications. Generic drug prices are publicly available and all insurance providers pay the same price. However, manufacturers of patented medications negotiate special discounts for different health providers, and the prices actually paid are a closely guarded secret.

In certain cases involving drugs made by only one generic company, special discounts could actually make the patented versions cheaper than the generics, Mr. Keon said.

“The provinces were saying to us, well, we’re now getting steeper discounts so in some cases, bringing the generic to market was actually going to cost us more money, so we’re not going to list the generic” on the provincial formularies, he said. “That was becoming an issue under the old agreement.”

That is no longer a problem now that the generic drug makers have agreed to lower the price of sole-source medications to 55 per cent of the list price, down from 75 per cent, he said.

The agreement signed in 2018 was set to expire March 31, but was extended as negotiations continued this year. The new deal takes effect Oct. 1.

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