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Ontario Implements Changes to the Provincial Drug System

News Release

This communiqué concerns you if you have plan members residing in Ontario.

Following lengthy discussions with concerned provincial stakeholders, including the Ontario Pharmacists’ Association and the insurance industry, the Ontario Government implemented changes to the drug system on July 1, 2010.

The changes implemented by the Ontario Government are summarized below.

  1. Generic Drug Pricing
    • July 1, 2010: reduced to 50% of brand name price 
    • April 1, 2011: reduced to 35% of brand name price 
    • April 1, 2012: reduced to 25% of brand name price

    The Ontario Government is allowing a number of exceptions to the reduction in generic pricing.

    • Single source generics 
    • Non-solid dosage forms 
    • Generics of brand drugs that were de-listed from the Ontario Drug Benefit (ODB) Formulary 5 years ago or more 
    • Generics of brand drugs that have dropped their prices by 20% or more over the past 2 years

    In addition, the pricing change only applies to interchangeable drugs that are also designated as benefits under the ODB. Drugs that are designated on the ODB Formulary as interchangeable, but not as ODB benefits (i.e. off-formulary drugs) will not be subject to the new pricing rules.

  2. Professional Allowances
  3. Professional allowances which are received by pharmacists from generic drug manufacturers and which have been seen as a major cause of high generic drug prices in Ontario will be reduced over a 3 year period and eliminated in the 4th year.

    • July 1, 2010: reduced to 50% of the generic drug price 
    • April 1, 2011: reduced to 35% of the generic drug price 
    • April 1, 2012: reduced to 25% of the generic drug price 
    • April 1, 2013: eliminated
  4. Dispensing Fees
  5. Dispensing fees for ODB recipients will be increased from $7.00 to $8.00 and up to $12.00 for rural pharmacies based on certain criteria and distance between pharmacies.

    As dispensing fees in the private market are not regulated by the government, this change will not have a direct impact on the private market.

  6. Transitional Fees
  • The ODB has indicated that to soften the financial blow to pharmacies due to the changes being implemented, it will be offering a transitional allowance on all ODB claims over the next 3 years.

The transitional allowance will not apply to the private market.

Potential Impact of the Ontario Drug System Changes on the Private Market

It is estimated that currently generic drug prices range from about 60% to 70% of the brand name price. As a result, regulation of generic drug prices and professional allowances in the private market should have a positive impact on drug costs.

However, with no regulations concerning dispensing fees and price mark-ups in the private market, there is the possibility that the private payers could see price increases in both these areas. In addition, generic drug manufacturers may not apply to be listed on the ODB Formulary, consequently they will not be subject to the lower pricing regulations.

It is too early to predict or state what the possible level of cost savings to plan sponsors will be as a result of the reduction in generic pricing and the level of professional allowances.

For more information on the changes to the Ontario Drug System, go to the Ontario Government’s website at www.health.gov.on.ca/en/public/programs/drugreforms/default.aspx

If you have any questions about the changes to the Ontario Drug System and the impact on your group benefits plan, contact your benefits advisor or your Industrial Alliance group account executive