Should B.C. follow or lead on generic drug prices?

Ontario's pricing method is not the way to go

Earlier this month, B.C.’s provincial government cancelled the current generic drug pricing agreement and announced they will be legislating lower prices this spring. In describing the planned legislation, Michael de Jong, the Minister of Health, said B.C. would follow Ontario’s lead and set prices at 25 per cent of the equivalent brand name drug price instead of the current 35 per cent.
This is a commendable move. Substantial evidence indicates Canadians are paying the highest generic drug prices in the world and this change will save millions of dollars for government, employers, and residents.
However, before this legislation is introduced we should ask whether simply following Ontario is the best way forward.
Instead of following, B.C. could carve its own path and become a national leader in generic drug pricing.
The problem is that basing generic prices on a percentage of the brand name price is completely arbitrary.
When you use arbitrary percentages, the resulting prices do not reflect the actual cost of manufacturing and distribution.
This means you are going to randomly overpay for some drugs and underpay for others.
You also get caught in the complicated game of granting exemptions when manufacturers claim you are underpaying. The end result is a mess of complex bureaucracy and missed savings.
Even at 25 per cent of the brand name cost, we will still pay more for most generic drugs than other countries.
For example, at 25 per cent Ontario pays 62 cents for a 20-mg tablet of the cholesterol-lowering drug simvastatin. In the U.S. and New Zealand, the price averages just three cents. Consider that British Columbians spent about $25 million on simvastatin in 2009 and it is easy to see how the savings could add up. Simvastatin is not alone – the vast majority of widely used generic drugs are cheaper in other countries.
There is a much simpler alternative to the proposed legislation: use competition to set prices. This is how public drug programs in New Zealand, the U.S., and a number of other countries buy generic drugs.
Most generic drugs are available from multiple manufacturers. By having them compete to supply our province — granting them exclusive access to a market of several million people — we could drive down prices. Rather than arbitrary percentages, this competitive process would result in prices that truly reflect actual production and distribution costs.
Pharmacies would likely raise concerns about this plan, as it might reduce their revenues from generic drug sales.
But this loss could be at least partly offset with more sensible public policies. For instance, the government might pay a higher dispensing fee to support rural pharmacies or allocate additional funds for pharmacists to perform services like medication reviews.
Perhaps the most exciting part of getting better prices would be what we could do with the savings. UBC’s Centre for Health Services and Policy Research published research earlier this year that shows that B.C. residents have more trouble affording their prescription drugs than other Canadians.
For many generics, the government could save enough to universally cover these drugs for every person in the province free of charge. For other drugs, they could provide them at a much lower cost.
This strategy would save money and improve health — a very rare combination.
So, when it comes to legislating the future of generic prices in B.C. this spring, let’s not follow. Let’s expand access to medicines, improve health, and cut costs. Let’s become Canadian leaders.
Michael Law is an assistant professor at the Centre for Health Services and Policy Research, School of Population and Public Health at the University of British Columbia.
Vancouver Sun
March 15, 2012