Major Changes Proposed for Ontario’s Drug Benefits System

On April 8, 2010 the Ontario Government released its highly anticipated proposed amendments to the Ontario Drug Benefits Act (ODBA) and Drug Interchangeability and Dispensing Fee Act (DIDFA). The amendments, which will significantly affect the reimbursement of generic prescription drugs in Ontario in both the public and private sector, are broader in scope and more fundamental than many stakeholders had anticipated (for a summary of stakeholder expectations, see “Downward Pressures on Generic Drug Costs Heighten” E-TIPS®, Vol 8, No 19, March 24, 2010). As expected, the proposed changes to the ODBA will reduce the quantum of professional allowances manufactures pay to pharmacies for drugs reimbursed by the public sector. Effective May 15, 2010, the allowable amount of professional allowances will be reduced from 20% to 5% of the cost of the drugs. Amendments to the DIDFA will cap previously uncapped professional allowances in the private sector as well. The private sector caps will be introduced in a graduated manner, with an initial cap of 50% on May 15, 2010, which will be lowered to 35% on April 1, 2011 and to 25% on April 1, 2012. In addition to the reduction of professional allowances, the proposed amendments to the ODBA will limit the drug benefit price for interchangeable drugs. The government will now pay pharmacies only 25% of the price of the brand name product, instead of 50%, for drugs supplied to beneficiaries under the Ontario Drug Benefits Program. This 50% reduction follows a nearly 30% reduction introduced in 2006 (See: “Generic Manufacturers Call for Review of Ontario Regulations Reducing Drug Prices” E-TIPS®, Vol 5, No 9, October 25, 2006). The proposed Amendments to the DIDFA will also cap prices in the private sector for drugs listed as interchangeable on the public sector Ontario Drug Benefits Formulary. As with professional allowances, the price reductions will be introduced on a graduated basis, with an initial cap of 50% of the drug benefit price of the branded drug on May 15, 2010, which will be lowered to 35% on April 1, 2011 and to 25% on April 1, 2012. As noted previously in E-TIPS®, in anticipation of these proposed changes Shoppers Drug Mart Inc announced that it would be introducing private label generic drug lines, likely in an attempt to maintain its margins on its generic drug sales. The amendments to the ODBA and DIDFA will respectively prohibit reimbursement for “private label products” and prohibit their designation as interchangeable, effective May 15, 2010. According to the amended Acts, a “private label product” is one in respect of which:

1. the manufacturer applying for interchangeability does not directly fabricate the product itself;
2. the manufacturer does not have an arm’s length relationship with an operator of a pharmacy or a company that owns, operates or franchises pharmacies; and
3. the product is to be supplied under a marketing arrangement associating the product with one or more operators of pharmacies or companies that own, operate or franchise pharmacies.

Although these amendments will reduce pharmacy income, other amendments will either provide additional sources of revenue or will increase revenue from existing sources. One such example is the revision of the definition of “rebates” under the ODBA and DIDFA, to exclude “ordinary commercial terms” from the prohibition on rebates. Ordinary commercial terms include benefits that are:

1. provided in the ordinary course of business;
2. for which the value is set out in a written agreement; and
3. relate to an ordinary commercial relationship that is any of the following:
   1. a prompt payment discount;
   2. a volume discount; or
   3. a distribution fee.

Dispensing fees will be increased under the ODBA to help offset the above reductions in professional allowances. Four new categories of pharmacies will be created with pharmacies to be grouped based on,

1. the rurality of the pharmacy;
2. the number of pharmacies within the geographical area served by the pharmacy;
3. the distance between the pharmacy and other pharmacies; and
4. the number of claims submitted by the pharmacy for payment under the ODBA.

The increase in dispensing fee will be dependent on the category of pharmacy and will range from $1.00 to $4.00 depending on categorization. The amendments further provide annual increases in dispensing fee rates of approximately 2.5% across each category. The permitted mark-up a pharmacy may charge will also be dependent on its categorization, with rural pharmacies qualifying for payment of higher mark-ups. The proposed amendments to the ODBA and DIDFA are open to comment until May 8, 2010. However, the extensive stakeholder consultations held prior to the release of the proposed amendments, taken with recent statements from the Ontario Government, suggest that it is unlikely that further changes will be made. For the Notice of Proposed Amendments, see: http://www.health.gov.on.ca/english/public/legislation/drugs/regulation_935.pdf Article by: Michael Migus