The B.C. government’s plan to scrap its agreement with the BC Pharmacy Association (BCPA) and the Canadian Association of Chain Drug Stores (CACDS) will cut revenue for pharmacy owners unless they can negotiate new sales contracts with generic drug companies.
Pharmacies have historically made money from “professional allowances” – payments from generic drug companies that are based on a percentage of a pharmacy’s generic drug sales.
When a new B.C. law goes into effect April 1, those professional allowance contracts will become less valuable unless their terms are changed.
Victoria currently pays pharmacists 40% of a brand name drug’s price for its generic equivalent. That’s set to drop to 35% on April 2. The new government law will lower that rate to 25% as of April 1, 2013.
The lower percentage would reduce the professional allowances pharmacists receive from generic drug makers.
That, in turn, would eat into their overall revenue.
Pharmacists, however, are putting on a brave face.
“Historically, the professional allowances paid to commercial pharmacies across Canada have been connected to the price of generic drugs,” Pharmasave CEO Sue Paish told Business in Vancouver. “But that doesn’t necessarily mean that that’s the way it has to be.”
She said there are other options.
For example, generic drug companies could provide non-monetary compensation in addition to a cash reward to pharmacies that buy their drugs.
Paish said generic drug companies could give pharmacies:
•equipment to allow them to host high-blood pressure clinics or other health-related seminars;
•room rentals for those seminars;
•research and materials to promote generic drugs; and
•presentation material to hand out at clinics.
The perks could help pharmacies stay profitable even as their revenue declines with the price of generic drugs.
Most of the roughly $1.3 billion in system-wide sales generated by the 430 stores in Paish’s co-operative relate to prescription drug sales.
So the changes affect Pharmasave much more than either Shoppers Drug Mart or London Drugs, which both generate less than half of their revenue from pharmacy sales.
Health Minister Mike de Jong said the agreement with the BCPA and the CACDS, which previous Health Minister Kevin Falcon struck in July 2010, was supposed to generate about $70 million in provincial government savings in its first two years. But the savings reaped thus far have been only about $24 million.
“We do not have the confidence we will see the savings promised through an agreement with the BCPA and the CACDS,” de Jong said in a statement. “We need those savings now.”
B.C. opposition leader Adrian Dix told Business in Vancouver March 7 that Falcon should have followed the Ontario model and legislated that Victoria would pay a maximum of 25% of the price of a branded drug for its generic equivalent.
Dix added that any savings de Jong reaps from these changes will be more than swallowed up if Canada signs a free trade with the European Union (EU).
An E&B Data study, commissioned by the Canadian Generic Pharmaceutical Association, found that the proposed trade pact will add $249 million to B.C.’s health-care costs by extending protection for brand name drugs from generic competitors by an average of about 3.5 years.
Dix fears that if the proposed trade deal goes ahead, it will force the B.C. government to raise Medical Services Plan premiums to pay for more expensive brand-name drugs. That, in turn, would raise operating costs for employers, who often pay half of their employees’ premiums.
Minister of Jobs, Tourism and Innovation Pat Bell told BIV in January that provincial trade negotiators have told Ottawa that B.C. is concerned about the impact of the trade agreement on provincial health-care costs.
But Dix said the Liberals need to be more vocal.
“We have to be clear on this point that this is unacceptable for British Columbians, taxpayers and for businesses here.” •
