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Industry braces for generic drug changes

|Written By Daryl-Lynn Carlson

A series of amendments to Ontario’s pharmaceutical drug regulations under both the Ontario Drug Benefit Act and the Drug Interchangeability and Dispensing Fee Act have some serious implications for generic drug manufacturers, pharmacies, and their legal advisers.

Manufacturers will still be able to provide rebates in some circumstances, says Lisa Corrente.

The changes initially sparked an outcry by pharmacies in particular, which complained they could lose money as a result of them.

The changes, most of which took effect July 1, were ostensibly intended to lower prices for generic drug products in both the public and private sectors. They will also affect many of the commercial arrangements that were previously permitted between manufacturers and pharmacies to promote the retail distribution of generic drugs.

But for lawyers, the complex changes will require those representing pharmacies or manufacturers to undertake some significant reading time to absorb all of the nuances that will affect their clients.

“For lawyers, they’re going to have to be aware because to the extent that they represent manufacturers and pharmacies, they’re going to have know what this means so they can be in compliance with the legislation,” says Lisa Corrente, a partner at Torkin Manes LLP and chairwoman of the Ontario Bar Association’s health law section.

“I imagine many of their clients will be coming to them from a business perspective with concerns that lawyers will have to address from a legal and a practical perspective.”

For example, she cites the new legislation’s elimination of professional allowances that generic drug manufacturers have been able to pay pharmacies in order to encourage them to carry their products.

The legislation also limits rebates paid by manufacturers to wholesalers, pharmacies, and companies that own franchises largely because the government had no control over where the money went.

“What that means is they’ll be allowed to give a rebate subject to certain conditions,” says Corrente, who points out that it’s not necessarily all bad news as some of the finer points of the legal definitions haven’t been included in the amended legislation.

“The new regulations have excluded the actual definition of rebates and replaced that with the value of a benefit. What that means is they’ll be allowed to give a rebate subject to certain conditions.

So for the time being, this exemption might be an opportunity for manufacturers and pharmacies to revamp the way they do business and the way they provide services regarding supplies.”

Corrente also notes that professional allowances in the private sector will be phased out incrementally over three years before the full force of the law comes into effect in April 2013, thereby enabling the industry to adjust.

The amendments to both acts have been a work in progress for upwards of two years. Earlier this year, the province held public consultations as a result of negative feedback from generic drug makers and pharmacies and softened its approach.

In a paper about the changes, Ingrid VanderElst, a partner with Torys LLP’s intellectual property group, explains their implications in the firm’s food and drug regulatory newsletter.

“Under the final regulations, benefits provided in accordance with ‘ordinary commercial terms’ continue to be excluded from the prohibition against rebates, but further limitations have been placed on these benefits,” she notes.

VanderElst also points out that those benefits that are excluded from the rebate prohibition must meet certain terms to comply, including a written agreement between the generic drug manufacturer and retailer outlining a volume or prompt-payment discount in order to meet the criteria.

“If requested, the manufacturer and the person who receives the benefit must report the net selling price of the drug products to the executive officer of the Ontario drug programs,” VanderElst cautions.

Regarding private label products, she notes: “The final regulations still prohibit reimbursement for ‘private label products’ under Ontario drug programs and prohibit the designation of private label products as interchangeable” under the dispensing fee act.

VanderElst explains that the definition of private label products has been expanded to include more cordial arrangements with reciprocal benefits, including potentially a drug product whose manufacturer applies for a listing or interchangeability status and meets certain criteria.

She concludes with a summary about pharmacy compensation, which explains how the amendments have tried to simplify matters.

“The final regulations no longer contain the concept of different markups payable in respect of drugs sourced from comprehensive wholesalers versus self-distributors or different markups depending on pharmacy location,” she writes.

VanderElst notes the amendments include four categories of pharmacies, which depend on their location and distance between each other in one urban area, a provision enabling under-serviced locations to qualify for higher dispensing fees.

Therefore, it may take some time for lawyers and their generic drug manufacturing and pharmacy clients to determine whether the legislation will be beneficial or not.

The general consensus is there likely won’t be a determination or any proposed amendments to further alter the two legislative changes until the recent ones are in full effect in 2013.

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