Ontario’s Bitter Pill

April 17th, 2010 by Potato

The Globe and Mail has an article today on Ontario’s Bitter Pill to Swallow, the recent changes to generic drug pricing that has pharmacies up in arms.

Once again, I think I’ve got to side with the public good on this: it’s a kick in the nards for pharmacies, but the government isn’t exactly bankrupting or socializing them. From the article:

At Lovell, Ms. Winn estimates each of her stores gets about $300-million [sic] annually from generic drug makers, in exchange for exclusively stocking their products. Like it or not, she says, without that money there are no funds to keep operating, since the margin on the drugs is minuscule; dispensing fees – the $10 to $12 that she collects on each prescription of which $7 is covered by Ontario for its public plan – have not been increased in years.


Before the day is done, they will fill 300 prescriptions, about one every two and a half minutes. There are three pharmacists on duty, along with three pharmacy technicians to help fill bottles and blister packs with drugs, and a cashier to ring through the purchases.


The province requires that the allowances are used for activities that directly benefit patients, and pharmacies must submit their spending to be audited each year. But the Ontario government figures that almost 70 per cent gets used for salaries, bonuses and fringe benefits.

Yes, the new rules are definitely going to pinch profits — but this article neglected to point out the offsets that the government is bringing in. Those kick-backs were supposed to be used to improve patient care, but many were simply used for salaries/profits. So now there is a direct payment for counselling and some other new services (flu shots). Those pharmacies that fully serve their patients should come out pretty close to how they did before according to the government*; those that are just bottle-filling robots will see a profit cut.

Speaking of bottle-filling robots, look at the numbers given in the article: 300 prescriptions a day, at $11 per just for the filling fee (i.e., on top of the markup on the drugs themselves – and that’s assuming just one fee per script; I know Wayfare generally has four or more dispensing fees every time she hits the pharmacy). $3300 per day, $16500 per (5-day) week, over $800k per year. I don’t know how much overhead the store has, but there is some mark-up on the drugs (even under the new rules), so let’s assume that covers the overhead**. That $800k split between 3 pharmacists and 3 technicians looks pretty healthy to me — and those dispensing fees will be going up a bit under the new rules (~14+%), despite their lament that they haven’t gone up in the past few years.

All this gnashing of teeth and fighting and threats to cut services or go out of business coming from the pharmacies rings false with me. I know it sucks to have this great profit orgy and have the government come in and smash it up, but I don’t think any pharmacists are going to go hungry under the new rules (except perhaps the students Shoppers and Pharma Plus decided not to hire this summer as part of their temper tantrum with the government). If any pharmacies do have to close, it’s probably because there were too many pharmacies to begin with. Near my old house in London there were three pharmacies within 500 m of each other on one street, and it wasn’t even all that densely populated an area (with people or doctors’ offices). Within the ~4 km2 area of downtown London, there are nine pharmacies that I know about, and quite possibly more.

* – sorry, lost the source where I read that one. If anyone finds the article where that was mentioned, I’d appreciate being able to reference it!
** – again, using the reported numbers of $0.50 per script for mark-up under the new stricter rules, that’s $3.3k/mo — I don’t know what the lease and other overhead is on a store that “could fit inside the cosmetics department of a Shoppers Drug Mart” but that sounds like it’s in the ballpark to me.

This week, Ms. Winn and her staff began drawing up a list of services they now provide free, which they may need to charge for in the future. Everything from faxing prescriptions to calling doctors offices comes at a cost, and may need to carry a fee at some point in the future.

It’s a model similar to a law office, where every hour of the day is accounted for, with a value attached to it. Ms. Winn says she isn’t sure what services to charge for though, but feels the pressure to cover costs without the allowances.

Last week, a teenager came in to get a prescription filled and, as Ms. Winn puts it, “was overmedicated.”

The 19-year-old was on six other prescriptions.

“When he came to the counter, I could just tell by looking at him, he didn’t understand a word I was saying.”

The pharmacy spent about 20 minutes to a half hour on the phone with the doctor and talking to the man about how to manage his medications properly. Ms. Winn admits she’s not sure what that time is worth.

In that case, I’ll tell you exactly what that time is worth: $50 (damn, another case for capital numbers). Yes, that is pretty much exactly the definition of a 30-minute consult under the MedsCheck program. A pharmacist reviews a patient’s medications, and bills OHIP for providing the service (and of course, they have to actually account and bill for those services, instead of just handwave and rake in the cash like under the old system).

I’m going to conclude by stealing the thunder from another article I’ve been working on: health care costs are going to be perhaps the defining issue of the coming decades, due to population demographics as much as anything else. I completely support the government’s effort to start getting prescription costs under control now, even if it pisses off a few druggists.

4 Responses to “Ontario’s Bitter Pill”

  1. Potato Says:

    And I’ll comment on my own post with a post from another forum:

    KSMorris: “how is the cost of a generic drug getting inflated?”

    Here’s how it works as I understand it:

    The government says it’ll pay 50% of the cost of a name brand for the generic. Say you have a drug that sells for $10 name-brand, the government then sets the price at $5 for the generic.

    But, generics are a competitive business: they’re a commodity. So say one generic company is willing to cut their margins and sell for $2.50. The government still pays $5, but $2.50 of that gets kicked back to the pharmacy. The government isn’t getting the benefit of the competition, the pharmacy is.

    Up until now, the government has allowed this practice, with the understanding that the money would be used to provide services to the patients, and not just to pad the bottom line of the pharmacies. But, the audits show that something like 70% of this money disappeared into a black hole.

    Now the government is changing things so that they’ll only pay the $2.50 for the generics to begin with, and the pharmacy won’t get any kickbacks. If the pharmacy does actually provide services to the community, OHIP will reimburse them directly (and of course, they have to actually account and bill for those services, instead of just handwave and rake in the cash like under the old system). So these cuts aren’t coming out of nowhere, for a while the government has been building up the idea that pharmacists are health professionals, and adding services that they can bill for.

  2. Michael James Says:

    Your comment used the right word: “kickbacks”. I hadn’t been paying much attention to this debate until now, and unless I’m missing something, the government is doing the obviously correct thing.

    On another point, I fail to see the logic of having pharmacies filling bottles for most drugs. Why don’t they arrive from the manufacturer in sealed bottles? I understand that there have to be some exceptions, but in the vast majority of cases the pharmacist should be just sticking a label on a sealed bottle and offering some quick advice. This would have the side benefit of sending me on my way in a minute or two instead of leaving me to cool my heels for 20 minutes perusing some high-margin items.

  3. Jenn Says:

    Wow – I couldn’t agree more with all of this. Kyle and I were talking the other day about how there were 4 GIANT pharmacies within 5 minutes of our house, not counting the pharmacy in Walmart and another in Zellers (about 10 mins away). I don’t mind seeing this restructured at all. And why does Shoppers charge like 6 bucks for milk?!

  4. Potato Says:

    Michael – yes, I wondered that myself. The liquid suspensions arrive as a powder and have to be prepared, but a very large number of prescriptions come in pill form, and most people could get by just fine with prepackaged bottles instead of having the pharmacist (or their robot) count out a certain number of pills from a larger bottle.

    It may also reduce the room for human error.

    edit: oh, pretty much any comment with anything related to pharmacies or drugs gets flagged by the spam filter, so be patient if your comment doesn’t show up right away!