In the past few months, there has not been a day where you could pick up the newspaper or watch TV news and not hear some report that somehow didn’t touch the topic of drug pricing, whether you focused upon brand name product, generic products or how reimbursement is affected through new legislation in provinces like Ontario, Quebec or Alberta.
What a quagmire for the pharmaceutical marketer to be involved in or for that matter anyone with an interest in the delivery of health care in Canada.
The title above is not meant to belittle the marketers and their attempts to refine strategies and tactics designed to deal with the issues and opportunities available through effective Promotion, Distribution (Place), Product or all the segmentation strategies and tactics and differentiation strategies that marketers and their agencies create to hone and deliver the appropriate message to the right target audience (People).
In the “old” days, probably well before many of the current product managers in Canada were born, pharmaceutical pricing was not terribly complicated. We would launch our products at prices that seemed appropriate based upon the conventional wisdom within our multi national companies, adjust our prices twice a year, January 1st and July 1st and the biggest struggle was worrying about whether a 2 or a 3% price increase was acceptable internally to our head offices. The formularies accepted these increases readily and there was no price review board that we needed to deal with or a common drug review process that dealt with our new product offerings post launch.
Whether born through the pursuit of government budgeting, or budget management, it seems that the generic drug industry has been the recipient of a large amount of pressure based upon their pricing of their drugs, their business practices and any number of other issues related to the volume of business going their way through the mandatory substitution policies of each Canadian Provincial Drug Plan (public coverage) and extending to private coverage for prescriptions being filled at the pharmacy.
The large number of patent expirations of major drugs (i.e. often referred to in the literature as the “patent cliff”) gives the generic companies huge increases in available large volume products to sell. In this way, the generic drug companies are often the fastest growing drug companies in Canada.
As such, provinces like Ontario have tried to find ways to force the generic drug companies to lower their prices or at least the costs to the health care system of prescriptions being filled at pharmacy for these drugs. Ontario tried to impose a competitive bidding scenario but this failed miserably largely due to the way it was introduced by the Ministry of Health and the ability of the generic companies to find a way to cooperatively avoid participation in the plan.
In April 2010, the Ontario Ministry of Health announced its new plan to achieve $750 million in monetary savings for the health budget through the lowing of generic drug prices and the elimination of the drug rebates the generic companies were providing to the retail pharmacists or the drug store chains for carrying their drugs. I find it rather amusing that many retail chain store pharmacists are complaining about these reductions in payments from generic drug companies when the reality is that these never got to the pocket of these pharmacists. These payments stayed in the vaults of organizations like Shoppers Drug Mart (and others). It is interesting that SDM reported its largest annual profit ever in May 2010. I believe it was around 2 billion dollars.
According to the Ontario Ministry of Health, Ontario has more pharmacies for our population than any other place in North America. The underlying question is “why should Ontario tax payers support an excess number of pharmacies or over paid pharmacists”. The pharmacists and the retail chains like SDM have their priorities all mixed up. They threaten layoffs, reductions in services and reductions in store hours and charging for delivery to the older patients. They forget that competition exists and that we, the consumers, are very capable of moving our prescriptions to stores who provide the services we need, when we need them. The customer is in control not the retail outlet.
The Health Ministry of the Province of Quebec has initiated lawsuits seeking to reclaim excess prices from companies who provided Ontario drug purchasers with better prices than they did in Quebec. These were largely achieved through refunds and kickbacks also known as PLA’s (price listing agreements). This cat in the bag was inadvertently let out by accident by people from the Ontario Ministry of Health. What we also are seeing is a two price system being endorsed by provincial government health departments yielding different prices for the same product whether it is consumed on a public or private basis.
In Europe, the similar challenges to healthcare budgets exist. Some countries like Greece, Italy, France, Germany and Spain are starting to require all Pharma companies to lower their prices by as much as 25%. In Greece two companies, NovoNordisk and Leo have refused and removed a few of their products from the Greece marketplace. These companies and others like them continue to report very high profit levels even though we are in a world depression or recession. It seems that governments and private enterprises like Pharma companies who rely on government coverage or reimbursement for their products are heading into a collision.
The point of all this is:
I think it is quite conceivable that this step of enforced price reductions could cross the Atlantic and arrive in our markets sooner than many of us think.
I also believe that all of our North American Drug Companies are not planning for this eventuality.
The purpose of this blog article is to highlight this potential issue and try to motivate our drug company leaders to put together a task force or team to design a business response to the threat that such a strategy brings to your marketing and business plans in the event that a mandatory price reduction is imposed suddenly with little warning.
As a manager who has occupied the corner office, I’d rather have a plan ready in case this event happens and never use the plan rather than be caught flat footed and not even dream that such an event could ever happen.
What do you think?
Tags: Drugs, European drug prices, marketing, Ontraio Ministry of Health, price, promotion, Shopper Drug Mart
