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Ontario’s Bill 102, The Sequel: Ontario Announces Proposed Amendments to Ontario Drug Reimbursement and Drug Interchangeability Legislation

Date

April 16, 2010

AUTHOR(s)

Vanessa Grant
Shanon O.N. Grauer
Anita Nador
Serge Tousignant


On April 8, 2010, the Ontario Ministry of Health and Long-Term Care published for comment proposed amendments to the regulations under the Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA) that would significantly impact the way pharmacies, drug manufacturers (primarily generic drug manufacturers) and wholesalers do business in Ontario. These proposed amendments reflect a further refinement of the Ontario government’s last major round of amendments in 2006 under Bill 102.

The ODBA governs reimbursement of drug fees for "eligible persons." This public drug reimbursement system constitutes a significant percentage of total drug sales in the Province. The DIDFA governs the sale of drugs that are "listed" as "interchangeable" by the government and permits pharmacists to fill a prescription for a drug (private or public sales) with an "interchangeable" one. Subject to a 30-day public consultation period, many of these amendments are intended to come into force on May 15, 2010, while others are to be phased in over a two- to four-year period.

The DIDFA and the ODBA require a 30-day consultation period from the date of the publication of the notice, during which the public may submit written comments on the proposed regulations. The Minister has requested written comments on the proposed regulations to amend the DIDFA Regulation and the ODBA Regulation before 5 p.m. on
May 8, 2010
.

The following are highlights of the proposed changes:

1. Changes to Professional Allowance Limits

For ODBA-reimbursed drugs, professional allowance limits have effectively been lowered by 15%. Under the proposed amendments, pharmacies would only be permitted to receive professional allowances in the amount of 5% of the value of drugs reimbursed under the ODBA, which is down from a previous 20% of such drug sales.

The proposed changes also introduce limits on professional allowances that pharmacies may receive for private sales of "interchangeable drugs" under the DIDFA. In the first year, professional allowances are limited to 50% of interchangeable product private sales (May 15, 2010), which is reduced to 35% in the second year (April 1, 2011), and 25% in the third year (April 1, 2012).

2. Changes to Prices for Generic Drugs

The price of interchangeable drugs under the ODBA has been reduced from the current limit of 50 to 25%. In effect, subject to the exemptions below, the proposed drug benefit price (DBP) must be less than or equal to 25% of the price of the original product (i.e., the innovator product).

This 25% rule would not apply in the following circumstances:

  1. the product is the only drug product of its type that is designated as interchangeable with an original product and has been so designated for at least two years, or where removing said drug product from the listing would pose significant patient safety or access concerns or significant increased costs to the government; 
  2. where substantial raw material cost increases have been shown; or
  3. when there has been more than one interchangeable product designated for more than 10 years or the original product was, but is no longer a listed drug product and has not been a listed drug product for more than five years.

Despite these pricing restrictions, under the ODBA the Executive Officer (EO) is permitted to negotiate any price for an interchangeable drug with a manufacturer, subject to the following restrictions:

  • For situations (1) and (2) (where (3) does not apply), the price of an interchangeable product cannot be higher than the original product.
  • For situation (1), when the conditions no longer exist, the price will revert back to the 25% rule.
  • For situation (3), the price can be higher than the original product only when it is in the public interest having regard to the matters set out in subsection 22(2) of the ODBA and anything else the EO considers relevant. Under subsection 22(2), the EO may consider any matter she considers advisable in the public interest, including, without limiting the generality of the foregoing, the DBP of other drug products or the price charged to operators of pharmacies for the drug product or other drug products.
  • For situations (1) and (3), the EO shall not increase the DBP more than once every five years.

Under the DIDFA, the proposed amendments introduce a requirement that the DBP for all interchangeable designated drugs that are also listed under the ODBA, whether sold in private or public markets, will be the same and that those interchangeable drugs sold on the private market cannot be sold at a price higher than the DBP. The provisions under the DIDFA are being phased in over three years. Effective May 15, 2010, the price of the drug under the DIDFA for "non-eligible" persons (i.e., private sales) must not be greater than 50% of the original product as set out in the Formulary. However, if the price is lower than the DBP, the interchangeable product can be sold at the DBP. The 50% level will go down to 35% on April 1, 2011. On April 1, 2012, the price of such private sale interchangeable drugs will not be higher than the DBP (i.e., shall not be higher than prices for eligible persons under the ODBA).

3. Changes to Reimbursed Mark-Ups and Dispensing Fees under the ODBA

Currently under the ODBA, the government will reimburse pharmacies a flat 8% mark-up of the DBP for drugs sold to eligible persons and a dispensing fee of $7.00. This applies to all pharmacies.

The proposed amendments introduce categories for pharmacies — 1, 2, 3, or 4 — which are based on pharmacy location, number of pharmacy services in geographic area, the distance between pharmacies and volume of claims submitted for payment under the ODBA. The definitions of these categories have not yet been set and the EO has specifically requested comments on these categories.

The proposed changes set different mark-ups and dispensing fee limits depending on pharmacy category. Categories 2, 3, and 4 are intended for pharmacies located in more rural and underserviced areas and are permitted higher mark-ups and dispensing fees.

The mark-up for category 1 pharmacies will remain at 8%, while the mark-up for categories 2 to 4 will be set at 10%. However, if the pharmacy has not purchased at least 75% of the products it supplies from a comprehensive wholesaler, the mark-up will be only 5%. In no event, will a mark-up of more than $125.00 per dispensed product be reimbursed by the government.

For dispensing fees, effective May 15, 2010, the reimbursed dispensing fee will be $8.00 for category 1 pharmacies, going up to $11.00 for category 4 pharmacies. These amounts are increased annually so that by April 1, 2014, they will be $8.83 and $12.14, respectively.

4. Revised Definition of Rebate under the ODBA and the DIDFA

Currently under the ODBA and the DIDFA, rebates, except for prompt payment discounts and professional allowances, are prohibited. The proposed changes clarify exclusions from the definition of rebate and provide that a rebate does not include the value of a benefit that is provided in accordance with ordinary commercial terms and meets all of the following conditions:

  • It is provided in the ordinary course of business in the supply chain system of listed drug products that are interchangeable under the DIDFA.
  • The value of the benefit is set out in a written agreement.
  • The benefit relates to a prompt payment discount, a volume discount or a distribution service fee.

A rebate also does not include the value of a benefit provided in accordance with ordinary commercial terms with respect to a product that is not interchangeable, as long as those commercial terms are a prompt payment discount.

5. Changes to Private Label Drug Status

"Private label" products will no longer be listed on the Formulary under the ODBA and will not be designated as interchangeable under the DIDFA. In essence, this means that private label drug products will not be reimbursed by the government under the public health plans.

A copy of the proposed amendments to the regulations can be found at: http://www.health.gov.on.ca/english/public/legislation/drugs/regulation_935.pdf.

A copy of the current ODBA and DIDFA legislation and regulations can be found at http://www.e-laws.gov.on.ca/navigation?file=home&lang=en.

The above briefly highlights the proposed changes. For a complete summary of the proposed regulations and potential impact on your business, please contact one of the authors.

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