The provinces outside Quebec are expecting to save as much as $3-billion over five years after generic-drug makers agreed to cut the prices of dozens of popular medications in exchange for a promise that no jurisdiction will move to a system of public tendering for its drugs.
The deal, announced on Monday by the pan-Canadian Pharmaceutical Alliance (pCPA) – the organization that negotiates group discounts on behalf of Canada's public drug plans – comes less than a year after Quebec threatened to upend the generic-pharmaceutical business by forcing companies to submit bids to become the sole supplier of particular medications.
Quebec's plan so alarmed generic-drug makers that they agreed last summer to make voluntary price cuts worth about $1.5-billion over five years; in return, Quebec Health Minister Gaétan Barrette promised to back off tendering for at least five years.
Under the new deal, the Canadian Generic Pharmaceutical Association, which represents 11 companies, extracted the same, five-year no-tendering vow from every other province and the federal government.
The companies agreed to drop the prices of nearly 70 of Canada's top-selling, off-patent drugs by between 25 per cent and 40 per cent as of April 1, depending on the medication.
The new deal sets the prices of the top-selling generic drugs in Canada at either 10 per cent or 18 per cent of the brand-name price.
The most widely used drugs on the list treat high cholesterol, high blood pressure and depression.
"This deal is good in some ways and bad in other ways," said Michael Law, a University of British Columbia professor who holds a Canada Research Chair in access to medicines.
While the agreement yields immediate savings provincial governments can plow back into their health-care systems, Dr. Law said the deal won't drive down prices as much as tendering would in the long run.
"You're not going to get firms to compete against one another to get the price down to the lowest point you could," he said.
Canada's generic-drug prices fell by an average of 48 per cent between 2010 and 2015, thanks to the provinces banding together through the pCPA and setting price caps.
However, Canadians still pay more for generics than most of the other well-off countries in the Organization for Economic Co-operation and Development, according to the Patented Medicine Prices Review board, the federal drug-pricing regulator.
Jim Keon, the president of the Canadian Generic Pharmaceutical Association, said the deal provides important stability and predictability for his member companies, which include such big players as Apotex Inc., Mylan NV and Sandoz Canada Inc.
"We've always argued that tendering is a second-best solution," Mr. Keon said. "It dramatically reduces the number of competitors and it increases the potential for drug shortages on particular products."
Right now, the provinces, through the pCPA, and the generic-drug industry, have an overarching pricing framework that pegs the maximum price of generic drugs to a percentage of the sticker price of the brand-name version.
Manufacturers then compete to convince pharmacies to stock their versions of a pill, often by paying rebates or "professional allowances" that some provinces have banned.
Under a tendering system, by contrast, provincial drug plans would ask companies to bid to become the sole supplier of a drug, effectively shutting the runners-up out of big slice of the market.
The industry association predicts that would drive some generic-drug makers out of the country, increasing the risk of drug shortages if the sole supplier runs into trouble.
But Steve Morgan, a health economist and drug-policy expert at the University of British Columbia, called it "fear-mongering" to suggest tendering would lead to shortages.
"We know tendering works," he said. "If you look at international evidence on the health systems with the lowest [drug] prices and, importantly, the most secure supplies of generic drugs, it's systems that use competitive processes to have firms make supply assurances."
Health ministers for Ontario, British Columbia and Saskatchewan, the three provinces that led the negotiations, all praised the deal for its big savings for taxpayers.
The arrangement is expected to save $385-million in its first year and $3-billion over five years through the price cuts and the industry's promise to bring more new, money-saving generics to market.
Those figures are above and beyond the $1.5-billion in approximate savings promised to Quebec under its own deal last year.