Special thank you to Graeme Moffat for supporting a lot of this thinking re: drug pricing and policy via late-night and early-morning text messaging. 🙏
If pharmacies are platforms that “recommend” (prescribe) a particular brand of drug, then their behaviour can be anti-competitive if they preferentially prescribe their own in-house generics or other [generic] drugs with which they have agreements.
Remember: some of the current antitrust cases filed against Amazon and Google make the claim that the platforms abused their power and market dominance by (in the case of Amazon) engaging in anti-competitive conduct with third-party sellers, or (in the case of Google), using its dominant search ad marketing tool to thwart competitors in its marketplace. It has been alleged that Amazon uses its platform to privilege Prime-eligible products and gather information from competitors to inform its own products and prices. Google may be able to “engage in anti-competitive behaviour to create and maintain its monopoly power in digital ad markets.” Basically, when you both own and operate in a digital marketplace it can get murky, fast.
Doctors typically don’t prescribe the brand of a drug, that tends to be left to the discretion of the pharmacist. In this way, the pharmacist is a curator or sort of recommendation engine for the individual. And the most powerful recommendation engine in the pharmaceutical space in Canada is Loblaw Companies Ltd.
I draw this parallel in particular because Canada has an important provision preventing large drugstore chains from acquiring or granting exclusivity or preference to a generic drug maker. While Ontario recently considered lifting that ban, our competition regime does not consider the same behaviour to be anticompetitive in a digital context.
“In every province but Ontario, generics makers are allowed to offer rebates on the regulated maximum price of a generic drug as an inducement for pharmacies to stock their versions over those of a competitor. Quebec has some restrictions on the practice.
A 2007 Competition Bureau of Canada study estimated the rebates were 40 per cent on average, or as high as 80 per cent in some cases.
In 2006, Ontario became the only province to ban rebates, arguing that if generic companies could reduce the prices of their products, then the savings should go to the patients, taxpayers and workplace insurance plans who ultimately pay for medications − not to pharmacy operators’ bottom lines.”
So, any drug that is out of patent and thus “generic” has the potential to be the object of collusion between a pharmacy like Shoppers Drug Mart and a firm like Apotex. A similar relationship exists between Sobeys and Rexall drug stores through their integration with ClaimSecure. You can check out the Competition Bureau’s 2016 statement regarding McKesson’s acquisition of Katz Group’s health care business (which includes Rexall) here. It’s informative in terms of how the Bureau views the relationship between a retailer and a supplier - skeptically.
With these tensions in mind, the question becomes whether Loblaw says to their individual pharmacists at Shoppers Drug Mart, Real Canadian Superstore, or PharmaPrix, “oh yeah just pick/prescribe whatever brand,” if the company is making more money on one drug over another.
The provinces and the federal government - which is itself one of the largest pharmaceutical purchasers in Canada (for public employees, the military, Indigenous people, and retirees from the public service) - have a strong incentive to keep costs down. So it’s natural that they should want to prevent collusion between any one manufacturer and a retail seller.
The Canadian state really needs competition at the level of drug selection and pricing within pharmacies.
If we don’t, the cost of market failure is billions of dollars per year, every year.
Here’s what I think is especially interesting and relevant to add to the mix: Loblaw also manufactures Life Brand, which is a private label brand for over-the-counter medications, vitamins, first aid and oral care items. The company can reward people for purchasing this brand line and incentivize this purchasing through the promise of loyalty points and prime shelf placement.
Should there be a law that specifies that store brands (like Life Brand, President’s Choice, or No Name) cannot be featured more prominently than other brands on retail shelves or on digital platforms like PC Express, PC Optimum, or PC Health?
Further, it may be a little more obvious when the Amazon platform recommends an “Amazon Essentials” product that it is doing so in self-interest; I think the consumer can generally recognize that. However, the range of interlocking and self-reinforcing brands that Loblaw Inc. owns, like President’s Choice, No Name, Joe Fresh, T&T (an Asian food chain), Exact, Life (over the counter medicinal accessories), Seaquest, Azami, Theodre & Pringle (Optometrists) and Teddy’s Choice (children's items) make that recognition a lot more difficult.
Perhaps there are some avenues to dominance that just aren’t valid.
From the PC Optimum Terms + Conditions:
The laws applicable to the earning and redeeming of PC Optimum points on prescription, medication and other pharmacy or health care-related products and services vary in each province. Other limitations may be imposed by prescription plans.
Canada’s competition legislation doesn’t comprehend how loyalty incentives, online recommendations, and/or shelf placement can create market power, but it should.
The Competition Act contains five provisions dealing specifically with price representations: four under the civil regime (false or misleading ordinary selling price representations, bait and switch selling, sale above advertised price) and one under the criminal regime (double ticketing). Price representations may also be addressed under the general provisions against false or misleading representations [section 52 or paragraph 74.01(1)(a)]. In addition to enforcing these provisions, the Bureau has endorsed the Scanner Price Accuracy Voluntary Code which provides a mechanism to provide redress to consumers when there is a scanner error.
In order to make the case that Loblaw’s incentives, recommendations, and/or shelving of its own brands is exclusionary or contributing to platform dominance, it would have to be true that there are barriers to entry that contribute to inherently less competition and fewer actors. While slotting fees are definitely legal, one could argue that they are a barrier to entry in either the pharmacy or grocery markets.
Implicit in the guidelines of the Competition Act is what firms can do with their own assets. For the purposes of this discussion, we have to remember that the “assets” that Loblaw holds span across banking, grocery, pharmacy, mobile and more - making it difficult to categorize as a traditional firm.
There’s more: since August of 2020, Loblaw has an agreement with the Canada Health Infoway (“Infoway”) to advance e-prescribing in Canada with QHR Technologies. This means the firm will contribute to the lifecycle of a prescription by making it paperless. The company will know which pharmacists are prescribing what drugs and when, providing that the script is redeemed at one of their pharmacies.
Another intriguing parallel: both the House antitrust subcommittee and an EU investigation have raised questions about third-party sellers’ ability to reach Amazon prime users. Loblaw’s PC Insiders program is a “subscription service that unlocks perks & benefits.” The program is priced somewhat similarly to Amazon Prime’s program ($119 to Amazon’s $80) and rewards members with 10% back in PC Optimum points on all PC products. Non-PC products aren’t a part of this member's program, making it deliberately exclusionary. This is the loyalty loop as a moat.
I have no idea whether Loblaw-owned pharmacies are actively stifling competition in the pharmaceutical space or whether their loyalty incentives, recommendations, and/or shelving placement constitutes exclusionary conduct. My intention is merely to describe how the relationships across the firm’s digital and retail empire *can* be abused through the growing market power of their various platforms and ask whether our current legislative frameworks contemplate this power. To my mind, Loblaw-owned pharmacies are emblematic of this anticompetitive potential in Canada. The questions are: how long are we going to be cool with it? and:
should we trust a company that admitted to fixing the price of bread to set prices for drugs?
There are antitrust investigations exploring the business behaviours of companies that both own and operate in a digital marketplace, like Amazon;
Offline, the province of Ontario does not permit pharmacies to prescribe their “own” drugs for patients;
Online, nearly identical activity takes place whereby the Loblaw media platform or associated apps rewards people for purchasing PC-owned brands and privileges these properties in online search;
Canadian competition policy isn’t blinking when it comes to contemplating platforms.What is a platform? How should we govern its use? Read "The Next Wave of Platform Governance" — the latest article by CIGI's : cigionline.org/articles/next-…
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Read more about the Life brand private label brand positioning
Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.