Insights (Essays)

Insights (Essays) September 2010

Ontario Generic Drug Wars, Part 4: Lessons for Medicare

Steven Lewis

In the first three parts of this series, I recounted the recent history of the generic drug policy in Ontario, explored the economics of retail pharmacy and discussed the ethical implications of the previous policy for the pharmacy profession. In this final instalment, I discuss the wider implications of the Ontario story for the system as a whole.

As an artifact of the timing of medicare’s introduction and as a consequence of the Canada Health Act, Canadians are conditioned to think of hospitals and doctors as the bedrock of publicly financed healthcare and everything else as optional. As a result, drug policy has been highly variable over time and among jurisdictions. There are multiple payers (government, employers that offer drug benefits, individuals out of pocket), and the policy pendulum has swung back and forth between public and private options. Saskatchewan had a universal, tax-funded program for nearly a decade beginning in the 1970s; patients paid only a modest dispensing fee. Today only low-income people and designated groups with special high-cost drug needs have extensive public coverage. Some provincial drug plans, like Ontario’s, cover all of their seniors; most do not.

The disparate policy approaches are united by one empirical experience: costs have risen rapidly under all of them. From this, one might infer that it is impossible to contain drug costs without compromising appropriate and effective drug therapy that improves the lot of patients and, in some cases, helps avoid more costly healthcare use (e.g., hospital use). Even if one (correctly) disputes this account, one might alternatively infer that in the end, “pharma” is powerful and clever enough to find a way to increase revenues regardless of attempts to curtail its less admirable practices.

These inferences are plausible but not inevitable. Some countries do much better than we do at controlling costs, notably New Zealand. Ontario knew that it could halve generic drug prices because New Zealand had negotiated rock-bottom prices in a much smaller market. Canadian prices are high partly because Canada covers a much smaller percentage of total prescription costs than almost all Organisation for Economic Co-operation and Development (OECD) countries. This fragments purchasing power and erodes governments’ resolve to stand firm.

Even more fundamentally, we are ambivalent about the role of drugs in the overall scheme of healthcare. Obviously many drugs are “medically necessary,” but they are not defined as such by the Canada Health Act. The law thus implies that they are not-quite-fundamentally-core services, hybrid varietals with free market notes. Incessant advertising piped in from the United States fuels further commodification. Pharma spends a quarter of its revenues on marketing (Gagnon and Lexchin 2008), the goal of which is not enlightenment, but sales. (To be precise, we the people spend these enormous sums for the privilege of having drug companies hawk their wares to doctors and pharmacists, and indirectly us [direct-to-consumer advertising is illegal in Canada]. The costs fall to us because [1] they are tax deductible expenses for pharma, costing the government 30 cents in lost revenue for every dollar spent; and [2] the net marketing costs are passed on to consumers in the form of higher prices.) How would you feel if your local hospital spent 25% of its budget on advertising? How horrified would you be if it worked, and hospital admissions of questionable value skyrocketed? And if you were seeking advice on which car to buy from a trusted independent professional, would you want him to base his judgments on Consumer Reports or the car companies’ glossy brochures?

Canadian drug policy is designed primarily not to ruffle feathers, taking its cue from how the Incas dealt with the conquistador Pizarro: pay tribute and hope for peace. We haven’t brought drugs fully into the medicare fold, so pharma has multiple sources of revenue and profits from the plurality of options. We do little to narrow the wide variations in practice. We applaud ourselves for maintaining a research-and-development presence in Canada without calculating what it costs in terms of higher-than-necessary drug prices and contemplating whether Canadian research matters much in the agendas of multi-nationals headquartered overseas. We leave billions of dollars on the table by not instituting reference-based pricing on a wide scale. We let others set the price of so-called breakthrough new drugs (ours is the median price among seven comparator countries). No one fully owns the issues, and the buck never seems to stop anywhere. The Common Drug Review and provincial drug formulary committees do their best to promote evidence and rationality, but there remains a vast gulf between ideal and actual drug use.

In this context, Ontario’s generic policy skirmish should be viewed as symptom relief rather than a breakthrough intervention. Pharma continues to expand its therapeutic terrain as relentlessly as the Sahara desertifies Africa. It is still far more lucrative for pharmacists and pharmacies to acquiesce rather than challenge a questionable prescription. No one is proposing to cap the tax deductibility of marketing expenses or act forcefully to curtail off-label use. No one is convening a summit to recover the $2 billion or so worth of statins uselessly consumed by Canadians without established heart disease to lower their cholesterol levels (Cassels 2010, July 26). Legislating cheaper generic drug prices without comprehensive strategies to improve prescribing merely creates an incentive to crank up utilization. There are no grand plans for improving stewardship of resources, particularly among physicians.

One lesson is clear: wherever a health service is wholly or partly defined as a market rather than a public good, providers will generate demand, costs will rise, practices will vary greatly and people will be harmed. Depending on financing and policy mechanisms, health services defined as public goods are vulnerable to some of the same risks. However, wholly public sector services are far less prone to chaotic and unceasing expansion; the overhead is lower, and both price and cost containment have historically been more effective. Moreover, the drug sector reveals the perils of assuming that the public interest is inevitably served by solutions brokered among diverse public interests.

But, hey, Ontario’s made a start. A tawdry regime of sham prices and mandated rebates has been overthrown. Retail pharmacists are less governed by perverse incentives, and their interests are not so closely aligned with those of the manufacturers. There is new funding for value-added professional activity. Patients will get cheaper drugs. Pharmacists in rural and remote areas will get higher dispensing fees. It’s not a revolution, but it is an improvement. And if Ontarians are lucky, it will be just the beginning.


This essay is from a four part series. Please see the links below for Parts 1, 2, and 3.

Steven Lewis: the Generic Drug Wars:

Part 1: How It All Began
Part 2: Did Retail Pharmacy Need Rebates?
Part 3: The Soul of the Pharmacy Profession

About the Author(s)

Steven Lewis is president of Access Consulting Ltd., in Saskatoon, Saskatchewan, and is an adjunct professor of health policy at the University of Calgary and Simon Fraser University.


I gratefully acknowledge the information and insights supplied by three pharmacy professors who wish to remain anonymous. I alone am responsible for the content and opinions expressed in this series.


Cassels, A. 2010, July 26. “Cholesterol Drugs Don’t Help the Healthy.” The Vancouver Sun. Retrieved September 9, 2010.
Gagnon, M.-A. and J. Lexchin. 2008. “The Cost of Pushing Pills: A New Estimate of Pharmaceutical Promotion Expenditures in the United States.” PLoS Med 5(1): e1. doi:10.1371/journal.pmed.0050001. Retrieved September 9, 2010.


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