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Quebec expects to save millions with overhaul of generic-drug purchasing process

Under the old system, hospitals and pharmacists bought generic drugs approved by Ottawa and the province from wholesalers. Pharmacists were often rebated up to 45 per cent of the price from the drug companies – fees that are illegal in most provinces.

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Quebec is launching an attempt to save millions in drug costs through an overhaul of the province's generic pharmaceutical purchasing system.

The province will seek competitive bids from companies for exclusive supply contracts for generic prescription drugs, moving from a piecemeal system to a centralized tendering process. It means pharmacists will no longer be able to offer a range of brands for generic drugs and instead will be supplied by the generic drug maker chosen by the province.

Quebec's move could have ripples across Canada as governments look for ways to control increasing health costs pushed by aging populations. The provinces have been working together to bring down prescription drug costs and several have experimented with tendering but Quebec is the first province to dive into a bidding system on such a scale. Ottawa is also reviewing its regulatory regime in the hope of bringing down prices.

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The provincial Health Ministry sent a letter warning the federal Competition Bureau of the move on Tuesday because of the large-scale impact it may have on a market that includes $800-million in annual spending from the Quebec public purse.

The letter from the deputy health minister obtained by The Globe and Mail says the government is in the process of informing companies and anticipates major price drops "in the coming months." A government source said the first calls for tender are expected this week.

Tendering generic drug contracts has driven down prices in parts of Europe and in countries such as Australia and New Zealand, but have not yet been tried on such a large scale in Canada.

"A number of measures have been put in place to reduce the price of generic drugs in recent years but … there remains a large difference between Canadian prices and those in other comparable countries," said the letter to the Competition Bureau signed by Quebec deputy health minister Michel Fontaine.

Under the old system, hospitals and pharmacists bought generic drugs approved by Ottawa and the province from wholesalers. Pharmacists were often rebated up to 45 per cent of the price from the drug companies – fees that are illegal in most provinces.

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In the new system, the government has capped rebates pharmacists can receive at 15 per cent. Drug purchases will now be centralized under one competitive bid for any generic drug that has at least three competitive manufacturers. Contracts will run up to three years. Brand-name drugs are not part of the new plan.

Industry players, such as Quebec-based Jean Coutu Group Inc., a pharmacy chain that also has a generic manufacturing subsidiary, have protested the plan and engaged in last-minute negotiations this spring to avoid the dramatic change in the system. The talks were close to a deal that would have saved more than $100-million but fell apart in recent days, according to a government source.

Quebec had threatened the move for years, passing enabling legislation last June.

Pharmacists objected, saying it would take away patient choice and the security of having multiple suppliers for the same drug. Their criticism diminished when the government struck a deal to replace some of the fees they had been collecting on their wholesale drug purchases.

Jean Coutu, the prominent Quebec businessman and founder of the Jean Coutu pharmacy chain, and his son François, criticized the province's plans in January and warned the company might leave Quebec. A spokesperson for the company declined to comment on Tuesday.

Business analysts anticipate the province could save 25 per cent to 35 per cent on its $800-million generic-drug bill if the system was implemented and proved effective. The pharmaceutical companies, however, have made no secret of their objections and the government's letter to the Competition Bureau is a clear attempt to put the companies on notice.

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During a pilot project in Ontario nine years ago, the province put four generic contracts up for tender. A brand-name provider ended up winning one contract and no generic made a successful bid. In Saskatchewan, companies bid on drug contracts but the participation of generics is limited, according to a paper published in 2013 by University of British Columbia professor Michael Law in the Canadian Medical Association Journal. B.C. has also experimented with tendering.

Keith Howlett, a pharmaceutical-industry analyst with Desjardins Capital Markets, anticipated in a recent analysis that a new system would result in cost savings for the province and a hit to the companies' bottom line – even if the new purchasing system was negotiated rather than imposed.

"We expect other provinces to mimic whatever gains Quebec achieves," he said. "The provinces have achieved a surprising level of co-ordination in pursuing lower drug costs, both generic and branded."

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