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Generic drug competition: Canadians pay more

The Competition Bureau of Canada published the Canadian Generic Drug Sector Study in October 2007. The study was necessary because of concerns that the prices paid for generic drugs in Canada were higher than the prices paid in other countries. The report confirmed those concerns, finding that while there is healthy competition for many generic drugs, the benefit of that competition has not resulted in lower prices for drug plans or individual consumers.

A year later, the Bureau released Benefiting from Generic Drug Competition in Canada: The Way Forward. The latest report contains the Bureau’s recommended action plan for private payers and provincial health plans that are seeking greater savings from generic drug competition in Canada.

What is a generic drug?

‘Generic’ is the term used to describe a drug product that is the equivalent (has the same active ingredients) to a ‘name brand’ drug but which is sold at a lower price. Laws prevent generic drugs from being manufactured until the name brand drug’s patent protection has expired. Generics had often entered the market at about 63 per cent of the name brand’s cost, although that percentage has increased recently due to changes in the Canadian marketplace.

Why should I care?

Plan sponsors should be concerned about the price of generic drugs because private payers (benefits plans, individuals) pay for 35 per cent of all

prescription drugs and 52 per cent of all the generics used by Canadians. Total sales of generic drugs increased by 20 percent between 2006 and 2007 surpassing $4 billion per year. By missing out on potential savings, public and private drug plans are both losing an opportunity to protect or extend their current coverage or reduce plan costs.

The generic experience in the United States

In the United States, generic drugs provide competition for name brand drugs and have proven to be an effective way to control costs. American private plans have been able to obtain generic drug rebates or discounts from drug manufacturers and pharmacies, resulting in savings that reach benefits plans and consumers. But generics haven’t had the same effect in Canada. Instead, the Competition Bureau says the savings opportunities have been focused at the pharmacy level, taking the form of off-list price rebates and professional allowances. These are paid to pharmacies by generic drug

manufacturers in return for the pharmacy stocking their products, but the rebates and allowances don’t always trickle down to individual consumers and drug plans. Although rebates are banned in Ontario and Quebec, subsequent to Bill 102 (The Transparent Drug System for Patients Act), pharmacies in Ontario are permitted to accept professional allowances from the generic manufacturers which are expected to be used for services such as education days and patient counselling.

Ontario: changing the generic landscape for public plans

In 2006, Ontario brought in the Transparent Drug System for Patients Act. This legislation changed the amount that the province’s public drug program would pay for generic drugs. Under the Act, the prices the Ontario public plan pays for generics were reduced from 70 per cent (for the first entrant) and 63 per cent (for subsequent entrants) of the equivalent brand name drug’s price to only 50 per cent. Disappointingly, the

You can find the full report on generic drug competition by going to the Competition Bureau’s website:


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