Get ready for the great pharmacy war
Lessons from Greece and Ontario

 

DRUG BUST by Alan Cassels

If you’ve been paying attention to the news, you’ll have some inkling that Greece is in big trouble. Saddled with an enormous public debt, an economy in the tank and a culture attuned to institutionalized tax evasion, poor little Greece is getting the screws put to it by the world’s bankers, forcing it to embark on making major changes to how it runs and funds its public services.

Leaders of European Union countries, urged on by the US, have been trying to prevent a Greek tragedy of mammoth proportions, namely the scenario where Greece slides into bankruptcy and takes most of the EU, and for that matter, the world, with it.

As a bystander to this unfolding Greek drama, I find myself wondering which lessons the rest of the planet might take away from watching Greece face imminent bankruptcy and take desperate measures to rescue itself. The drastic cuts to public expenditures, clawbacks on pensions, cuts to wages and forcing citizens to pay their taxes – which, currently, only about 50 percent of Greeks do – are massively unpopular and have led to near insurrections and violent civil disorder in Athens.

In terms of healthcare, the Greek government announced last month it was slashing the amount it would subsequently pay for more than 1,500 medicines. What will the drug companies do – stop selling drugs to Greece? I doubt it; they’ll just have to sell their drugs on terms that are favourable to the buyers.

With the introduction of competitive drug pricing and cuts averaging 30 percent, Greek pharmaceutical companies will take a major hit to their profitability, but the savings on medications will be a huge boon to the citizens of Greece who have seen their collective drug spending grow by more than 60 percent between 2005 and 2009. These new cuts will reduce that growth to about 1.5 percent per year.

Closer to home, in Canada’s biggest province, we are witnessing the troops massing as the provincial government in Ontario’s takes on retail pharmacy in an attempt to reduce the amount government and private payers will pay for generic drugs. Seeking lower prices, as is being done in Greece and Ontario, is all about trying to get better value for dollar for healthcare spending, which we expect all governments to do. And the target this time is not the drug companies, per se, but retail pharmacy.

Not only are there high profits from selling drugs in Canada, but basic generic drugs, which are often of much greater value compared to their branded counterparts, are also more costly in Canada than in other parts of the world. Ontario pays between 25 to 75 percent more for generic drugs than many other countries, including the US and the UK.

In fact, most people won’t know that Canadian patients and drug plans pay some of the highest prices in the world for off-brand drugs. An average month’s worth of a generic drug in Canada sells for about $50, yet Walmart in the US can sell the same drug – often from the same manufacturer – for $4 and still make a profit. If that’s the case, why are Canadians paying more than 10 times than they should?

That’s a good question, but, in my opinion, the easy analysis rests on the fact that a lot of money can be saved when the buyer starts questioning the value they are getting. Do you pay full cost for brand name drugs when generics are available for 30 to 50 percent less? Of course not. Do you allow drug companies to bribe pharmacies to carry their products? Maybe not.

At least, that’s the answer from the Ontario government, which is recognizing that “generic drug rebates” – a fancy name for bribes – by generic drug companies to pharmacies are very costly; the practice costs Ontario taxpayers about $750 million per year.

What are “rebates,” you ask?

Well, in the good old days, if you were a generic manufacturer, the way you got the pharmacy to stock your product – as opposed to the product of the five other generic companies hovering nearby – was to make it more attractive than the next guy’s. A friend who works in generic sales told me how things go down:

“You go in and tell the manager that if he shifted to your generic version of heartburn medication, you would give him some loyalty rewards you’ve got in the trunk of your car. Maybe a new television set or a video camera or VCR to sweeten the deal? Basically, our job [as salespeople] was to encourage the pharmacy owners to use our product. Did we use expensive gifts to get the pharmacy to stock our drug? Of course we did. We did this all the time and it was, in fact, the way we did business.”

Because hauling around gifts for pharmacy owners became too much of a hassle, the “rebate” system soon replaced it. Here, instead of selling a generic bottle of pills to the pharmacy for $100, which, for example, was what the payer would pay, you sell one bottle for $100 and then give the pharmacy four additional bottles at no cost. Sort of a “buy one, get four free” type of deal. Since the pharmacy pays for only 100 out of 500 pills, the pharmacy makes some serious coin.

Even if the generic company is making a sacrifice by giving bottles of pills away at no cost, it could still be making a healthy profit. Savvy pharmacy owners have become very skilled at extracting the best kind of rebate from the generic drug maker that they can. Some sources tell me that rebates – or kickbacks as you might call them – can be as high as 90 percent, even higher if you are a bigger pharmacy with serious buying power. Which is to say the $100 per month you might pay for that generic heartburn pill may have cost the pharmacy owner $10. Not bad work if you can get it.

A clever pharmacy manager will work one generic manufacturer against another to try and get the best “rebate” possible. The bigger the pharmacy, the more likely it will get a better deal. Right now, the biggest drug store chains, like Shoppers Drug Mart – with about a third of Canada’s pharmacy business – can bully generic companies with impunity. Who is going to risk losing their business? This is called being competitive and considered an honest virtue in the world of business.

Generic drug company “rebates,” which often go under the name “professional allowances,” constitute the kind of legal bribery the government in Ontario is trying to stop.

Since truth is the first casualty in any kind of war, you can imagine the threat to profits by the pharmaceutical retailers is being dressed up as a national scandal, an affront to the dignity of the pharmacy profession, as well as a threat to patient health, with seniors dying in the streets, unable to get their prescriptions filled.

Yeah, right.

By the way, haven’t you noticed that whenever any industry, company or profession related to healthcare has its profitability threatened by government action, the tired old “threat to patient safety” meme gets repeated ad nauseam, in an attempt to extract some sympathy from the masses? We Canadians shouldn’t be fooled.

Retail pharmacy in Canada is one of the most lucrative businesses going and if you don’t believe me, ask yourself why you continue to see – in almost every city – a pharmacy being built on every corner. Since 2006, 140 new pharmacies have been built in Ontario alone. In 2009, Ontario paid $750 million for rebates and these rebates are widely considered to be the main reason generic drug costs are rising so fast in Canada.

Ontario hopes that going to war with retail pharmacy will save millions through lower costs for generic drugs, yet the real fear in the industry is whether this noxious government strategy will soon spread to the rest of the country. If you are going to war, you start looking for allies. Last month, the Ontario Minister of Health sent a letter to other Canadian health ministers asking them to coordinate around similar cost-saving schemes. This kind of thing needs to be supported and applauded.

Let’s be clear; pharmacists are highly valued and key members of the healthcare team. They do a fantastic job of informing consumers about how to use drugs appropriately. Most pharmacists are honest, upstanding citizens, keen to make a positive difference in people’s health. But retail pharmacy is a business and an increasingly lucrative one. Governments know this and a sincere government that wants to build a sustainable healthcare system will strive to get the best value for its money out of its drug budget.

Speaking of value for money, on May 20, the world’s biggest selling drug, Lipitor, (atorvastatin) which is used to lower cholesterol, became generically available in Canada.

The Ontario government will likely pay 50 percent of the brand price for atorvastatin. Quebec will follow. With over $1.4 billion in annual sales in Canada, the generic version of this drug could save Canadians more than $700 million. That’s a serious amount of savings with no loss of any health benefit. Will other provinces get in on the deal? That depends on how much they want to save for their constituents, but one thing is fairly obvious; a lot of money can be saved for consumers and taxpayers if governments want to play hardball, like they are doing in Ontario and Greece.

When there is so much fat to be trimmed from public drug plans, cutting social programs and other essential government services seems cruel and nonsensical.

It doesn’t have to be that way. Bravo to Greece and Ontario, for showing us that going to war to get the best drug prices for consumers and taxpayers is a conflict worth engaging in.

Alan Cassels is a modern-day Jonathan Swift wannabe, as well as a drug policy researcher at the University of Victoria and the author of The ABCs of Disease Mongering. Read his other writings at www.alancassels.com