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Pharmacists Losing “Kickbacks”

When Pharmacists Lose their “Kickbacks” will you lose some services?

If for some reason you have not been following the news, you may soon learn that your independent pharmacist has either shortened his hours, started charging for delivery or may close down altogether in the near future.

In April the Ontario Ministry of Health announced that it was going to reduce the price of generic prescription drugs from 50 percent of the brand name price down to 25 per cent of the brand name price. It will accomplish this by taking away the kickbacks that pharmacies receive from the generic manufacturers which are approximately 20 percent of their purchases.

For the majority of people out there who are shocked by this news you may wonder why the Ontario Government ever allowed pharmacies to receive kickbacks from the generic manufacturers in the first place.

It has everything to do with the prescription fees that pharmacist are legally allowed to charge. Although they can charge any fee they want, the Ontario Government will only pay a dispensing fee of $6.11 per prescription. When this was settled years ago, many insurance companies jumped in and also negotiated fees which ranged from as low as $2.00, some $5.00 and some a little bit more. If you had a business in which you bought a product for $100 and then sold it for $106.11 how would you pay all your overhead; salaries, rent, hydro, gas, prescription supplies such as labels, bottles and vials and still stay in business?

The answer has been the generic companies. Every pharmacy can choose to buy almost exclusively from one of two principal generic manufacturers in Ontario, Apotex or Novopharm. Each one will then reimburse the pharmacy for 20 percent of their purchases. This means that if during the month of April a pharmacy purchased $100,000 worth of drugs from Apotex they would receive a credit on their statement of approximately $20,000. This is where the money came from to pay all the overhead at the pharmacy and this is what the Ontario Government is planning to take away.

That 20 percent kickback also allowed the fees that the Ontario Drug Benefit Plan paid to pharmacies to remain fixed at $6.11 for years. It has been the same for almost 20 years but pharmacists did not complain because the low fee was in reality being subsidized by the kickback payments from the generic manufacturers.

The real truth behind all this is that the actual cost of generic drugs is really less than 1 percent of the brand name price. They do not do any research or marketing but are simply handed the manufacturing process in their laps and in return pay a 5 percent royalty on their sales to the original manufacturer. Both Apotex and Novopharm make billions of dollars in profits because they have always been allowed to overcharge for their products. In the United States generic drugs are less than 10 percent of the cost in Canada. They have for years been kicking back some of these profits to the pharmacies and this has kept the fees and prescription prices stable for the last 20 years. However, as drug costs escalate the Ontario Government has decided to break the status quo and make the political move of attempting to lower drug prices by withdrawing the payments to the pharmacies.

Although more than 50 percent of prescriptions are filled with generic drugs their total cost to the system accounts for only 25 percent of all prescription dollars dispensed in Ontario. The brand name drugs which account for less than 50 percent of prescription sales account for 75 percent of the drug dollars but I do not see any politician going after the brand name companies to lower their prices. The reason for this is that these huge multinational pharmaceutical companies have so much money and lobbying power that politicians are afraid to cross them in any way.

So what is going to happen? Simply put there will be fewer pharmacies in Ontario and that may not be such a bad thing. Do we really need a pharmacy in every supermarket, in every department store and a Shopper Drug Mart every 3 or 4 blocks? There are over 3300 pharmacies in Ontario, almost 300 more pharmacies than we have Tim Horton’s. Small towns that have two pharmacies may have to settle for one. Maybe only the new larger supermarkets will have pharmacies instead of every one. Some may choose to stop free delivery and others may competitively take up the slack. I doubt very much that the public will lose services because pharmacies are, after all, businesses that compete with each other. If one pharmacy or chain withdraws a service like their free blood pressure machine another pharmacy or chain may capitalize on that and promote the service. The only way you will suffer will be in the dispensing fee.

Once the kickbacks are taken away, the Ontario Government will have to allow a substantial increase in not only prescription fees but for other services as well. When your physician approves a repeat from your pharmacy the Ontario Ministry of Health pays your physician $11 for the fax or phone approval. Maybe they will have to also start paying pharmacies for their half of the work which involves speaking to the patient, finding the prescription and then getting in contact with the physician for the final approval. Pharmacists will be paid for doing patient consultations, a service that was free before. When all is said and done and the Ontario Drug Benefit plan is paying higher dispensing fees for all the prescriptions will there be any true savings? Probably not but politically it looks like the government is trying to lower health costs for the province.

This plan will be phased in over a three year period and as consumers you will be paying higher dispensing fees and you may be paying for other services that were free in the past. The provincial government of Ontario is simply replacing one bad system with another. There is a better solution.

The fact that only a licensed pharmacist can operate a pharmacy in the province of Ontario automatically represents a conflict of interest. An honest pharmacist may have to tell a patient or his physician that he should not be taking certain drugs but on the other hand if the pharmacist does this business is lost. Every practicing pharmacist knows the value of daily exercise and a good diet and how it can reduce or eliminate many prescription drugs but 30 minutes spent talking to a patient does not earn any money while on the other hand filling 3 or 4 prescriptions for elevated blood pressure and cholesterol can be done in about 5 minutes and produce good profits for the pharmacy. After all the education required to become  graduate licensed pharmacists, they should not be put into these positions. The provincial government should simply take over the pharmacies. Put the pharmacists on salary like any other civil servant and use their enormous buying power to purchase all the drugs for the province at the lowest possible price. They do this for hospitals already. Finally pharmacists would become the professionals that they aspired to be when they started school.

In 1994 The Provincial Tobacco Act forbid the sale of cigarettes and tobacco in pharmacies. The intention was to make pharmacies a more professional environment. Unfortunately pharmacies were still a place where you could buy chocolate bars, Coco-Cola and a large variety of unhealthy substances that were geometrically opposed to any image of health.

The time has come to stop the sale of gum, hair spray, greeting cards and candy and to start dispensing prescription drugs in a clean apothecary environment that speaks to the professionalism of the profession of pharmacy.

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One Response to Pharmacists Losing “Kickbacks”

  • Thanks a lot for posting this. It’s interesting to see someone break this story up.

    What are your thoughts about the government running their own generic drug companies. Wouldn’t that end up cutting costs? If that happened, then I think there would be more willingness to go after big pharma, especially when it comes to patents.

    I really don’t know much about this subject, so hearing your thoughts/reaction would be great!

    ~Jalex
    thinkcontroversial.wordpress.com

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