The country's largest drugstore chains are going to war with the Ontario government over the price of generic drugs, saying the province's move to slash prescription costs in half will cut deep into profits, forcing layoffs and store closings.
In a fight that threatens to spread to pharmacies across the country, Shoppers Drug Mart and the company behind the Rexall and Pharma Plus chains say they will have to restructure dramatically under the plan.
Ontario is cutting the price of generic medications to 25 per cent of the equivalent brand-name drug, from 50 per cent. The move will lighten the cost for consumers, but has thrown the drugstores into turmoil.
"This is not about saving money - this is about getting better value," Ontario Health Minister Deb Matthews insisted.
Even so, the Ontario government estimates it will save more than $500-million annually on prescriptions as a result, since it will have to pay less into the Ontario Drug Benefit Program. But the decision has united pharmacies against the province.
Andy Giancamilli, chief executive officer of the Katz Group, which operates Rexall and Pharma Plus, said the government's move verges on "reckless action in health care" and could force his company to slash $100-million in costs.
He warned that these cuts could mean that customers will have to go to hospital emergency departments because drugstores can no longer afford to keep enough pharmacists on staff to deal with all their questions.
"I don't believe the McGuinty Liberal government fully understands the ramifications of their decisions," Mr. Giancamilli said.
Pharmacies expected the price reductions to be introduced for prescriptions covered by public health plans, which cover patients such as the elderly and the disabled, but Ontario is implementing the changes across the board. Cash-paying customers and those covered by private health plans - from whom pharmacies make much of their profits - will also pay less.
Ontario will achieve those savings by eliminating professional allowances - payments from generic manufacturers to pharmacies in return for selling their products. While the drugstores say those fees allow them to offer extra services such as deliveries, the government sees them as driving up the price of generic prescriptions.
It's not just the money they will lose in Ontario that's put fear into the pharmacies. Canada's largest province tends to set the pace for the rest of the country on pharmaceuticals policy. If Ontario succeeds, other provinces will likely demand similar deals. That's especially the case in Quebec, which requires all drug manufacturers to sign a "best available price" policy in return for doing business.
"There's no doubt about it that other provinces are going to say, look what Ontario's doing," said Donnie Edwards, owner of Boggio & Edwards I.D.A. in Ridgeway, Ont. "This is going to add fuel to the fire, with other provinces saying, look what Ontario's done."
Shoppers Drug Mart said it is developing "contingency plans" to deal with the changes, including reworking its business model to ensure "a fair and adequate return" at its stores.
"The company is strongly opposed to the changes announced today and believes that they will have a direct negative impact on pharmacy services and patient care," Shoppers Drug Mart said in a statement.
Mr. Edwards figures that some small pharmacies like his outside cities will have to scale back on service. "There may be one pharmacist, and the pharmacist will be too busy to be able to speak to the public," he said.
At present, there's no fixed price for generic drugs bought by private plans or cash-paying customers. Nor is there a limit on professional allowances, which are already capped at 20 per cent for public sales. As a result, the allowances on private sales often exceed 50 per cent of the sale price.
Now, convinced by generic manufacturers that they can't lower prices for the public plan without more regulation on the private side, the government plans to legislate the same price for everyone. Within four years, it intends to have all Ontarians paying only a quarter of the brand price for generics, with allowances wiped out entirely.
The government is planning to reinvest only a relatively small amount in pharmacies - including an extra $1 per prescription in dispensing fees, an additional $100-million for the delivery of new services, and a premium to help keep rural pharmacies viable.
It appears willing to accept its fight to rein in soaring health costs, a central component of the Liberals' deficit-fighting plan, could force some businesses to close.