Gross profits of Canadian pharmacies: A changing policy regime

Recently, both the Canadian and provincial governments have instituted policies to reduce manufacturers' prices for generic ($250 million sales annually) and brand name ($1,300 million sales annually) drugs. Both government groups made estimates of the financial magnitude of changes in drug prices, but neither has estimated the impact on retail pharmacies. We used a Cost-Volume-Profit model combined with operational data collected nationally to estimate the national impact of the pricing policy changes on pharmacy gross profits. Results show the average value of gross profits per pharmacy per year was approximately $440,000. It is estimated that the policy changes will lead to a 6.8% reduction in gross profits. Adding reductions in rebates for generic drugs, the pharmacies' reductions in gross profits will be 7.2%. In conclusion, policy-makers often ignore how their pricing changes influence the financial position of pharmacies, even though the impact can be substantial.