Ontario may lift ban preventing major pharmacies from selling private-label generic drugs

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Ontario Premier Doug Ford’s government is considering lifting a ban that prevents major pharmacy chains from selling in-house brands of prescription medications, five years after the highest court in the country upheld the prohibition as a legitimate way to help control drug costs.

In a unanimous 2013 ruling, the Supreme Court of Canada agreed with the province’s former Liberal government that letting pharmacy chains put their own trademarks on pills made by other companies – a practice known as private labelling – would help the chains to “circumvent” rules designed to reduce the price of generic drugs.

On Oct. 29 of last year, four months after the Progressive Conservatives were sworn in, a notice was posted to the province’s online regulatory registry that proposed amending two regulations to effectively kill the ban.

The Premier’s Office and the office of Health Minister Christine Elliott said this month that no final decision has been made about the fate of the ban.

But the independent pharmacists and drug distributors who oppose the change say that if it goes ahead, it would hand an unfair advantage to the owners of Shoppers Drug Mart and Rexall Pharmacy Group – the chains that fought the private-label prohibition to the Supreme Court and lost.

“There is no benefit to the patients of Ontario,” said Spiro Goussios, a pharmacist and the owner of Dunwin Pharmacy, an independent drugstore in Mississauga. “It only really helps out the two large players in the pharmacy field.”

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Loblaw Cos. Ltd. and McKesson Canada Corp., the respective owners of Shoppers and Rexall, disagreed, saying that lifting the ban would mitigate drug shortages, reduce the prices of generic drugs and bring Ontario’s rules in line with those of all other provinces, where pharmacies can already sell private-label generic drugs (with some restrictions in Quebec).

A copy of Mr. Ford’s schedule obtained through a request under the Freedom Of Information Act shows that Mr. Ford met with Galen G. Weston, executive chairman of Loblaw, in the Premier’s Office on Aug. 14. Neither Mr. Jefferies nor a spokeswoman for Loblaw would say what was discussed.

Ontario is different from the rest of Canada when it comes to the laws and regulations governing the pharmacy business, largely because of a bitter, years-long battle between the former Liberal government and pharmacy owners.

The Supreme Court described the province’s efforts to reduce generic drug prices as “an episodic and totemic tug of war” in which, “each time the government has introduced new measures, market participants have changed their business practices to obviate the restrictions and keep prices high.”

In every province but Ontario, generics makers are allowed to offer rebates on the regulated maximum price of a generic drug as an inducement for pharmacies to stock their versions over those of a competitor. Quebec has some restrictions on the practice.

A 2007 Competition Bureau of Canada study estimated the rebates were 40 per cent on average, or as high as 80 per cent in some cases.

In 2006, Ontario became the only province to ban rebates, arguing that if generic companies could reduce the prices of their products, then the savings should go to the patients, taxpayers and workplace insurance plans who ultimately pay for medications − not to pharmacy operators’ bottom lines.

However, the province allowed generic-drug makers to keep paying pharmacists “professional allowances” that were supposed to be for patient care, but which in fact supplanted the old rebates.

In 2010, the Liberal government banned professional allowances. At the same time, it banned private-label generics on the grounds that large pharmacy chains with the resources to launch their own brands could simply subcontract manufacturing to existing generics makers, which would be expected to offer their medications to the pharmacies at a discount in exchange for being re-labelled a pharmacy retailer’s private brand.

The province argued − and the court agreed − that the effect would be the same as the old rebate system, with pharmacies pocketing the fruits of the price competition instead of reducing generic prices for payers.

The Ford government has not signalled any intention to lift the bans on rebates or professional allowances.

“There’s a reason why private-label was prohibited in Ontario in the first place," said Matthew Frisch, executive vice-president of Kohl & Frisch, a national drug distribution company that opposes the Ontario government’s proposed regulatory changes. “Changing one existing restriction, but not changing the broader system, creates unique and I think very significant risk for the industry.”

In the years since the Supreme Court decision, the pan-Canadian Pharmaceutical Alliance (pCPA,) which negotiates group drug discounts on behalf of governments, has completed deals with generic-drug makers that have led to decreases in average generic prices to half of what they were a decade ago, although Canada still pays more for generic drugs than most other prosperous countries.

The framework is tiered: if three or more companies make a drug, the maximum price is much lower than if a drug is single-sourced.

Catherine Thomas, a spokeswoman for Loblaw, said that means that the addition of private-label products would help to reduce drug prices. For the purpose of the generic pricing deals, they count as additional manufacturers.

Ms. Thomas declined to say who makes most of the company’s private-label generics, called Sanis Health brand, which are sold everywhere but Ontario. Sanis Health also makes 24 drugs itself, which are allowed to be sold in Ontario under the current rules. Ontario only bans pharmacies from putting its trademark on drugs made by other generic-drug companies.

McKesson subcontracts manufacturing to Apotex Inc., Teva Pharmaceutical Industries Ltd., Sandoz Canada Inc. and Aurobindo Pharma Ltd. for its private brand, called Sivem, which is also sold outside Ontario.

McKesson Canada (which bought Rexall in 2016 and was not a party to the 2013 case) also said that permitting private-labelling would reduce generic prices and mitigate chronic drug shortages, which have become worse as the price-reduction agreements with the pCPA have led some generics makers to discontinue drugs that are no longer profitable.

McKesson makes a point of working with multiple manufacturers to maintain the supply for its Sivem products, Darius Kuras, a spokesman the company said by e-mail. Right now, Sivem is supplying the entire Canadian market outside of Ontario for three generic drugs that are in shortage, Mr. Kuras added.

Rita Winn, the chief operating officer of Lovell Drugs, a family owned chain of a dozen pharmacies in Eastern Ontario, predicted that allowing private-label drugs would make the shortages worse, not better.

“All of a sudden, if 70 per cent of the business goes to one manufacturer, the other nine manufacturers that didn’t get the private-label deal with the largest player, how are they going to split that business? How is that going to be profitable for them? It won’t be," she said. If producing a generic drug becomes unprofitable, companies are more likely to stop making it, exacerbating shortages.

The Ministry of Health and Long-Term Care has completed a regulatory impact assessment that could shed light on which side is right, but the ministry has refused to release it without a freedom-of-information act request.

Seven Canadian generic drug companies contacted by The Globe and Mail either ignored requests for comment or referred questions to their industry group, The Canadian Generic Pharmaceutical Association, which also declined to comment.