By now we’ve all heard about the Ontario Government’s plan to lower prescription drug prices by banning professional allowances paid by generic drug manufacturers to pharmacies.

Drug companies provide these allowances or discounts to pharmacies in return for exclusively stocking their brand of generic drugs.  It is subsequently built into the price that is passed on to the consumer.

A significant portion of a pharmacy’s revenue comes from these allowances. This is particularly so for smaller independents then larger corporate chains who depend less on their prescription related revenue.

What is not being said however is that the generic drug companies also stand to lose as a result of the reforms.  Without the professional allowance arrangement they will lose their exclusivity with pharmacies.  Therefore the drug companies have a strong incentive to find a solution to the pharmacies’ perceived loss as a result of the Ontario Government’s reforms.

How will the generic drug manufacturers address this issue?  They might consider borrowing a trick or two from their name-brand cousins.

Brand name drug companies already deal with a similar situation vis a vis physicians, who are subject to OHIP regulations and the Canada Health Act.  In return for prescribing their name-brand drugs, physicians receive incentives including free samples, conferences and trips, and research funding.

I think in the months to come we will see the generic drug companies using some innovative pricing strategies to once again secure pharmacies’ allegiance.

One final though.  What is the Ontario Government doing to lower the price of name-brand drugs?