Analysis: Provincial cuts put squeeze on Canadian pharmacies

Fri Sep 7, 2012 11:36am EDT
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By Allison Martell

TORONTO (Reuters) - Country-wide budget cuts could squeeze margins at Canadian pharmacies for years to come as austerity-focused provincial governments seek to rein in spending on prescription drugs.

New rules and price caps for generic drugs mean the pain has already started. But more restrictions are on the way, and things will get tougher if smaller provinces match the low payments enforced by Ontario and Quebec.

"This is going to be ongoing, I think, probably for the next half decade or more," said Duncan Sinclair, a health policy expert and former dean of medicine at Queen's University in Kingston, Ontario.

Under Canada's taxpayer-funded medical system, provincial governments spend billions of dollars a year on drug programs for the elderly and people with low incomes or particularly high costs.

Cutting drug costs will help governments tackle deficits, and top chain Shoppers Drug Mart Corp and Quebec rival Jean Coutu Group Inc say the changes are already weighing on sales and margins, though they have not given precise figures.

Shoppers' same-store prescription sales rose just 0.6 percent last year, after climbing more than 5 percent, at times more than 10 percent, every year from the company's 2001 initial public offering to 2009.

Ontario and Quebec now cap prices for most generic drugs at 25 percent of their branded equivalent, while Ontario is phasing in a ban on some payments from drug companies to pharmacies.

British Columbia wants to match Ontario's 25 percent cap next year, and others may follow. Some regulations link prices in the private market to those paid by the public sector.   Continued...