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A pharmacist counts pills in a pharmacy in Toronto in this January 2008 file photoMARK BLINCH/Reuters

Several Canadian provinces and territories have reached a deal to team up when purchasing certain generic drugs, a cost-saving step for governments looking to rein in soaring healthcare costs but one pharmacists warn could hurt patient care.

The deal, announced Friday, stems from a premiers' working group led by Prince Edward Island's Robert Ghiz and Saskatchewan's Brad Wall. It includes all territories and nine Canadian provinces – Quebec isn't participating – and covers six widely used generic drugs.

Those six drugs account for roughly one-fifth of all public spending on generic drugs in Canada, and will now be priced at 18 per cent of the equivalent brand-name drug. Provinces previously paid between 25 and 40 per cent.

The spending cuts could trickle down the complex funding model for pharmacists in Canada, cutting into pharmacies' bottom lines by reducing drug company profit margins and, therefore, subsidies those companies give to pharmacies. But the provinces nonetheless hope to eventually save $100-million annually.

"We understand the importance of realizing better value for the important drugs people rely on," Mr. Ghiz said in a statement. "This is just a starting point."

In an interview, Mr. Ghiz suggested provinces should have done this ages ago but leaders "have to go through a lot of layers" to strike a deal. They initially sought a deal on three to five drugs, but were able to find agreement on a sixth.

"I think it's a good sign groups like this work ... we are making a difference," Mr. Ghiz told The Globe.

Mr. Wall said the deal comes as provinces face soaring healthcare costs and shaky fiscal outlooks – cheaper generic drugs will "ensure more dollars for provincial health care systems across Canada," he said in a statement.

The changes are a good first step, but Canada still pays far more than many countries for generic drugs because of its archaic drug buying system, said Michael Law, a University of British Columbia professor who researches pharmaceutical policy.

"To be honest, I think the only thing that stood in the way of getting the prices lower was political will. I think we'd developed a system where we were systematically overpaying for generic drugs," Prof. Law said in an interview. Governments still don't put drug contracts out to tender, he said. For example, even at the new rate of 18 per cent, Canada still pays 10 times as much money for 20 mg of Atorvastatin – one of six drugs included in the new deal – as New Zealand.

"In the next round, they should really look at fundamentally changing the way we purchase, and really use competition to get those prices lower," Prof. Law said.

Governments save money by agreeing to lower prices because, in 2011, about 44 per cent of all pharmaceuticals in Canada were covered by public health plans, Prof. Law said – governments set a lower price, then pay it themselves.

The drugs include Atorvastatin, which treats high cholesterol; Ramipril, which treats high blood pressure; Venlafaxine, an anti-depressant; Amlodipine, which treats high blood pressure and angina; Omeprazole, a gastrointestinal medication; and Rabeprazole, another gastrointestinal medication. The new prices take effect April 1.

The prices are set after talks with drug companies, pharmacies, insurance companies and others, according to a statement from the premiers' Council of the Federation. Governments walk a fine line, because generic drug pricing is tied closely to pharmacy funding – drug companies send "rebates," or kickbacks, to pharmacists when a particular generic drug is sold. Those rebates form a major pillar of pharmacy funding, and are dialed back or cancelled altogether when governments lower the price paid for generic drugs. For instance, Alberta unilaterally lowered the price for some drugs it buys last year, and faced a backlash from pharmacy owners, who feared a reduction in rebates that would mean reduced hours and service.

Jody Shkrobot, past-president of the Canadian Pharmacists Association, said lower generic drug prices takes money out of pharmacy owner's pockets, leading to reduced hours and poorer service – but it's too early to tell what the impact will be.

"The more you compress those prices, the more impact it will have on pharmacies' ability to provide care to patients," Mr. Shkrobot said, adding he's pleased the government avoided simply tendering the drug purchasing contract. Doing so would have substantially cut into pharmacies' bottoms lines, he warned.

Mr. Shkrobot urged provinces and territories to consider reinvesting some of the $100-million in savings back into pharmacies directly to soften the blow. "I certainly am more concerned with what's going to happen to my patients," he said.

Prof. Law said Canada's pharmaceutical industry, and drug buying plans, are still far from ideal, and urged Mr. Wall and Mr. Ghiz to keep pushing for reforms. He supports tendering out drug purchasing deals, saying it saves governments money.

"I don't want to diminish this announcement. I think this is a positive move and a move in the right direction, and it's great to see they have nine provinces participating in this," he said, later adding: "It's not addressing the underlying issue, which I hope will be reflected in the future changes."

Quebec was never part of discussions, as the province automatically takes the lowest generic cost, Mr. Ghiz said. Quebec also has the lowest rate of generic drug use in Canada, as compared to name brand pharmaceutical use.

With files from Jane Taber in Halifax