Ontario could save an additional $250-million a year if it changed the way it buys generic drugs, and nationally, that figure could hit $1-billion, according to a new study.
The research, published by the UBC Centre for Health Services and Policy Research, suggests switching to a tendering system under which generic manufacturers would bid to offer the best price to the drug plans that provide prescription medications to seniors and social assistance recipients.
The findings are timely, coming as the provincial and territorial health ministers meet on Friday in Halifax to discuss, among other things, reducing costs by adopting a centralized system of buying drugs.
"The pricing mechanism we use now makes absolutely no sense," Michael Law, an assistant professor at the CHSPR, said in an interview.
Currently, generic prices are set as a percentage of the equivalent brand name drug. Ontario, for example, sets the generic price at 25 per cent of the brand-name version. Before 2010, it was 50 per cent.
The change resulted in considerable savings for the provincial drug plans, but angered pharmacists, who bore the brunt of the price reduction.
Prof. Law said a better approach is that of New Zealand, which has a single agency that solicits tenders from drug companies.
In the study, Prof. Law examined prices for the top 100 generic drugs. He found that, had Ontario drug plans paid New Zealand prices, the overall cost would have been $245-million less.
Further, the researcher calculated that if the province created a pharmacare plan that covered all its residents and offered the drugs to patients at no cost, the treasury would still save $87-million.
"The message for the health ministers is that there's a better way," Prof. Law said. "They can expand coverage and save money."
Many other provinces pay even more for generics than Ontario does, so the savings from a national buying plan would be even more significant, he said.
Jeff Connell, vice-president of corporate affairs at the Canadian Generic Pharmaceutical Association, cautioned that trying to import models from other countries is simplistic, and, in the real world, savings would be elusive.
While New Zealand has used a competitive bidding system since 1996, he noted that the intellectual property regime is very different there, making entry of generics into the market easy and cheap.
Canada has much stronger patent protection for brand name drugs, meaning that generic drug companies routinely have to sue brand name manufacturers to get their products to market, which entails a considerable cost.
If Canada had a tendering system, Mr. Connell said, generic manufacturers would likely not engage in litigation for fear they would not win the bid to supply the drug plan and their legal effort and costs would have achieve little for them.
If Canada had a tendering system, Mr. Connell said, generic manufacturers would likely not engage in litigation for fear they would not win the bid to supply the drug plan and their legal effort and costs would achieve little for them.
The practical result, he said, would likely be generic drugs entering the market years later.
The bottom line with tendering, Mr. Connell said, would be "better per-unit price on generics, but higher drug costs due to later generic market entry… so no real savings."
Canadians spent $27.2-billion on prescription drugs last year, according to the Canadian Institute for Health Information.
About 60 per cent of all prescriptions are for generic drugs, but they account for only 25 per cent of total drug costs.