A rock and a hard place: Why funding models for pharmacy must change—for patients' sake

If the term “eternal optimist” could be applied to a profession, community pharmacy would fill the bill.But it’s getting harder for pharmacy teams to see the glass as perpetually half full. And patients stand to lose the most.Decades of hard-fought gains in scopes for professional practice—with growing acceptance by governments, other healthcare providers and patients—are increasingly overshadowed by decades of underfunding characterized by cutbacks, out-of-step funding mechanisms and stagnant (or absent) fees.On the one hand, community pharmacists have never been in a better position to care for Canadians in ways proven to improve efficiencies and health outcomes. On the other hand, the financial future of community pharmacies has never been more precarious.“Margins are shrinking, and costs are going up. At the same time there are increased expectations from the public and payors. Some pharmacies are really struggling right now,” says Michael Nashat, board member of OnPharm United.The challenges of operating a pharmacy have become “tremendously worse” in the past decade, agrees Bruce Winston, a pharmacy owner for more than 35 years before joining Neighbourly Pharmacy as Senior Director, Advocacy & Professional Affairs in 2021.“We’re at a very critical juncture,” stresses Winston. “I see the risk of Canadians losing the ability to just walk into a pharmacy and see a pharmacist.”As someone who has long advocated for pharmacy, Winston knows the challenges faced by those who pay for services—governments, private health plans and patients. “We understand that. But pharmacists simply cannot continue to do things for free.”“All stakeholders are reaching the point where difficult choices need to be made. The only way forward is to make those decisions together,” says Sandra Hanna, CEO of Neighbourhood Pharmacies.No one wants decisions that compromise healthcare, she continues. Yet that is unavoidable without a course correction. “Pharmacy funding models must evolve and coalesce around our sector’s capacity to serve as healthcare destinations central to primary care, public health, drug access and health equity—especially in underserved communities,” states Hanna.How did pharmacy get here?To move forward we must first step back, continues Hanna, by ensuring decision-makers understand how pharmacy services are funded. “Politicians and policymakers are often surprised by what they learn,” she adds.Unlike any other healthcare profession, funding for services largely revolves around products (medications and medical devices) in the form of markups and dispensing fees. And more than in any other healthcare profession, payors (except in Quebec) can unilaterally set payments.“We lack any kind of negotiating agreement with our payors. We may be able to set our dispensing fee or our markup, but they can ignore them. Any business that has no control of its margins is doomed to fail eventually,” warns Nashat.“Reimbursement has tightened,” agrees Paul Grootendorst, an economist and professor at the Leslie Dan Faculty of Pharmacy, University of Toronto. “There are no easy ways for payors and pharmacy groups to negotiate over pharmacy services reimbursement.”Adds Hanna: “As a regulated healthcare professional, we can’t just pass new costs or lost revenues on to patients. Nor do we want to compromise care.”Over the years, pain points have emerged across all funding mechanisms.Dispensing feesProvincial and territorial governments have long capped dispensing fees—and most are stagnant.Ontario’s capped fee of $8.83 is one of the lowest in the country and has not increased in more than 10 years. In most jurisdictions, fees have increased only once or not at all in a decade, and none have kept up with inflation.“The dispensing fee compensates pharmacists for ensuring patients are taking the right medications properly,” says Hanna. “The fact that they are capped is problematic enough, but not indexing them to inflation is unconscionable.”On the private side, 38 per cent of prescription claims go through drug plans with capped dispensing fees, according to Express Scripts Canada 2025 Drug Trend Report. Pharmacies can charge patients the difference, but competitive pressures come into play. “Private insurers encourage plan members to ‘shop around’ for the lowest dispensing fee,” notes Hanna.MarkupsAny sector that sells products uses markups to cover the costs of staff, customer service, inventory and operations. Market forces normally determine the product prices and markup percentages.Not so in pharmacy. Drug prices are strictly regulated in Canada and markups on drugs covered by public payors—42 per cent of prescriptions, according to the Canadian Institute for Health Information—are capped at levels below market-driven markups in the private sector. Manitoba and Quebec do not pay markups at all.A huge blow occurred in 2014 when the pan-Canadian Pharmaceutical Alliance (pCPA) implemented the Generic Tiered Pricing Framework to reduce the prices of generic drugs, which account for 78 per cent of prescriptions (source: IQVIA Canada). “Overnight, the pharmacy sector lost millions,” says Hanna.To rub salt in the wound, pharmacy teams have had to carve out more time to deal with drug shortages. “As a result of price compression we’ve also seen a compression in the number of manufacturers that traditionally made certain generic medications. If one manufacturer has an issue, it’s everybody’s issue because there is not enough supply capacity in the system,” explains Winston.Price compression is also happening on brand-name drugs through the Patented Medicine Prices Review Board, adds Hanna. “We support efforts to keep drugs affordable, but the downstream impacts on markup revenue must be addressed. Markups and dispensing fees have been squeezed and neglected to the point that they can no longer sustain operations. That represents a potential harm to patients.”The specialty situationThe traditional core funding mechanisms of dispensing fees and markups are even more misaligned when it comes to services associated with specialty medications.High-cost, high-value specialty drugs account for half—$19 billion—of all prescription dollars and only two per cent of volume, reports IQVIA Canada.These drugs are much higher in cost due to their complexity in manufacturing, distribution, storage, drug administration, patient support services and/or the coordination of coverage by public and private payors. Pharmacies specializing in the delivery of these services also make significant investments in upfront and ongoing infrastructure (for example, for infusion clinics).Neighbourhood Pharmacies’ landmark 2023 report with IQVIA Canada, The Value of Specialty Pharmacy Services to the Healthcare System, estimated that pharmacy-led specialty-drug services invest and offset $1 billion annually for the two million patients who would otherwise be unsupported by the public health system.Yet no additional funding mechanisms exist. “On the whole, the dispensing fee is relatively insignificant,” says Chris Dalseg, Vice-President, Strategy and Growth, BioScript Solutions. “Likely more than any other pharmacy business model, specialty pharmacies rely almost entirely on markups to fund the distribution of the drug and clinical services.”Over the past decade, payors have steadily tiered or capped the markups. Some caps from public payors are so low that, like dispensing fees, they essentially contribute nothing to cost recovery (for example, Saskatchewan’s cap is $20, regardless of the cost or complexity of the drug and associated services).Biosimilar switching policies have further reduced markup revenue, even though the lower-cost biosimilars require the same patient-support services as the originator biologic.While reimbursement complexities are not unexpected given the high cost of specialty medications, the growing concern is that controls on markups will lose sight of the growing complexity—and value—of the services and infrastructure associated with specialty drugs.“We need to better align on the value of these services in order to ensure sustainability for years to come,” says Dalseg.“Absent a formal funding mechanism for these services, adequate reimbursement via markups is critical to ensure that pharmacies can provide the services that in turn ensure patients have timely access to medications that are often their last hope,” adds Hanna.Primary care servicesFor over 10 years, provincial and territorial governments have expanded pharmacists’ scope of practice to improve access to selected primary care services and reduce pressures on physicians and hospitals. Yet public funding is piecemeal, observes Hanna. While recent years have increased the likelihood of funding for new services from the get-go, fees and criteria vary widely across jurisdictions. They may also be lower than fees paid to physicians for the same service.For example, Canadians in all 10 provinces can now go to their pharmacist for assessments and prescribing services for common ailments and conditions. But the number of eligible conditions ranges from a low of 13 in Manitoba to 35 in Quebec and Prince Edward Island; only five provinces fund all eligible conditions; and fees range from $15 (for virtual assessments in Ontario) to $25 depending on the province.Moreover, in Alberta and Saskatchewan, pharmacies can submit a claim only when assessments result in a prescription. And in some provinces, pharmacists are not only limited to certain conditions but also to certain medications.Similar stories can be told in prescribing services such as renewals, adaptations and therapeutic substitutions.“We need to break down provincial barriers and standardize pharmacy scope and remuneration across Canada. The current differences fight against us, and hinder our effectiveness in collaborations with governments,” says Natasha Mohammed, Senior Director, Professional Affairs, Atlantic Canada for McKesson Canada.The private sector poses even more fundamental challenges. Despite pharmacists’ new authorities to provide services, very few private health benefits plans offer to pay for them—or are even set up to do so.“Private insurers’ agreements oftentimes don’t include pharmacists in their formal definition of a primary care provider,” explains Mohammed. “They pay for a service by a doctor or nurse practitioner, but they won’t pay a pharmacist for the exact same service.”A two-tiered system is emerging that goes against the spirit of the Canada Health Act, continues Mohammed. “Patients with access to a so-called ‘recognized provider’ such as a physician or nurse can receive services through public or private benefits, while those without a recognized provider, but with access to a pharmacist, must pay out of pocket for the same services. This is an issue of disparity.”Busting mythsMisconceptions also persist around pharmacy sustainability. For example, some still believe that pharmacies can offset shrinking revenues from payors with rebates from generic drug manufacturers.“This misconception greatly undermines the integrity of pharmacy practice,” says Hanna.The generic pharmaceutical industry in Canada grew rapidly in the 1970s and 80s, encouraged by government policy to promote competition in the drug industry. By the 90s, commercial terms commonly included rebates from the manufacturer to secure market share. These rebates became an important contributor to pharmacy margins and indirectly funded a growing number of professional services.In the early 2000s, provinces curtailed or banned these types of commercial terms. In 2014, the pCPA implemented the Generic Tiered Pricing Framework. Prices of high-volume drugs dropped from approximately 70 per cent of the brand-name drug to less than 10 per cent in many cases. Pharmacy revenue from markups plummeted due to the lower generic prices and commercial terms became even more limited in scope as generic manufacturers shored up their own losses.“The generic pricing framework really started to change the dynamic of margins,” notes Winston. “We had to become very efficient, which is a good thing, but that wasn’t enough to offset the losses in revenue. And dispensing fees and professional fees have not risen with inflation.”An unfortunate ripple effect is that more pharmacy owners and managers today are having to return to work behind the pharmacy counter, to address labour costs, rather than strategizing and investing for the future, says Winston. And when they do launch new programs or services, there is little room for error. “When I was a new owner, I could learn from my mistakes. Now margins are so tight that an error in strategy could be terminal to the business.”A funding model that recognizes the value of services, and not just products dispensed, has become paramount. “In the old world, I could subsidize services off margins. That’s impossible now,” says Winston.“Pharmacists and pharmacies should be paid fairly for the activities they complete,” he continues. “We continue to do too much for free and I have yet to see a suitable fee for complex care.”In Alberta, fees have even declined—from $125 for comprehensive annual care plans (CACPs) in 2012 to $70 in 2024, with fewer billable follow-ups allowed. “The government acknowledges that we are making a difference in primary care, then cuts us off at the knees,” says Winston, who lives in Alberta. “These cutbacks mean we’re having to either refer patients back to other primary care providers, where wait times are long, or provide the service for free.”The sole stated reason for the cutbacks: to prevent cost overruns in the budget for pharmacy services. Which leads Winston to point out the “fundamental flaw” in healthcare spending, in Alberta and across most of Canada: budgets are siloed between healthcare providers. “We need pharmacy to be recognized as part of primary care so that we can become part of the primary care budget for our professional services,” concludes Winston.Crying wolf?Another common misconception is that the number of pharmacies in Canada belies the sector’s concerns about sustainability.Pharmacy growth is at or below increases in population. Last year’s pharmacy growth of 1.9 per cent, according to IQVIA Canada, aligns with the 1.8-per-cent population gain reported by Statistics Canada. In 2023 and 2022, pharmacy growth lagged population growth due to record-high immigration levels (Neighbourhood Pharmacy Fall 2025 Gazette, page 17).Moreover, pharmacies that remain open despite all the challenges are not necessarily thriving, emphasize Mohammed and Winston. “When you see three or four pharmacies on any given corner in downtown Toronto or downtown Calgary, the myth is that they’re all doing well,” says Winston.Independent pharmacies—60 per cent of pharmacies (IQVIA Canada)—often stay open at personal sacrifice. “The owners I know would go back to eating Kraft Dinner before they’d close their doors,” says Winston.Yet sentiments have begun to shift, he continues. “Acquiring organizations, including Neighbourly Pharmacy, are getting more calls from owners of really low-volume pharmacies asking if there’s interest in buying their stores. They’re tired and need to get out. That’s a drastic change—we never used to see pharmacies close or any type of liquidation within a pharmacy.”An analysis of pharmacy numbers in Canada’s biggest province reveals that the rate of closures has closed in on the rate of openings. In 2016, there was one closure for every four pharmacy openings in Ontario. In 2023 and 2024, one pharmacy closed for every two openings, according to reports from the Ontario College of Pharmacists.As more pharmacies struggle to stay open, reductions in services, staffing or hours of operation to manage increasing costs could have major health-related and economic consequences, particularly in rural areas. “Many of our pharmacies are in towns without family physicians or public-health services. Rural pharmacies have always been a cornerstone business in the community,” says Winston.“Health inequities and patient access will worsen,” agrees Mohammed. “And governments will miss opportunities for system-wide cost savings in primary healthcare.” The volume panaceaA third misconception is that pharmacies make up lower margins with prescription volumes.At a surface level, this supposition is partly accurate: the annual average prescription volume per pharmacy grew from 67,600 as of December 2022 to 69,400 by March 2025, reports IQVIA Canada. Baby boomers, now aged 59 and 79 years old, drive this growth due to their increased use of medications for chronic conditions.But the crux of the matter is that “even though volume is increasing, because of price compression, the margins are decreasing,” says Winston.While pill-counting equipment or central-fill pharmacies can alleviate much of the labour costs associated with the technical dispensing of refill medications, the initial capital outlay—and in the case of central fill, regulatory barriers (see the Summer issue of Neighbourhood Pharmacies)—can be daunting for pharmacies that increasingly need to manage cash flow.“Payors are causing margins to shrink and at the same time labour costs are going up. Technology costs are going up. Safety costs are up. Eventually those expenses will catch up to margins, and that’s when pharmacies start closing. Some pharmacies are getting there,” says Nashat. The contention that pharmacies can rely on volume to make up for the unintended downstream impacts of drug pricing reform puts all stakeholders into “dangerous territory,” adds Mohammed, because it works against the shift to primary care that’s finally unfolding in pharmacy.“So many demonstration projects are showing governments the value of pharmacies that shift the focus away from dispensing to delivering primary care services. Are we chasing volume in this model? Absolutely not,” says Mohammed.“The distribution of product and the provision of clinical services are two separate work streams that can and should be funded accordingly,” summarizes Hanna.Impact on workforceWell before the COVID-19 pandemic, levels of self-reported burnout were disconcertingly high among pharmacists. In 2024, pharmacy regulatory bodies in British Columbia, Ontario, New Brunswick and Nova Scotia conducted research and developed strategies to address growing concerns that workplace conditions, including understaffing and performance targets, put patient safety at risk.Insufficient funding for pharmacy services is certainly a contributing factor to burnout and attrition within the profession. Simply put, “pharmacists are being asked to do more with less,” says Mohammed.Such workforce pressures can exist in any industry, adds Nashat, but are exacerbated in regulated professions that have few, if any, levers to pull to offset reductions in revenue. “A consequence is we are losing practitioners who are choosing to leave, or not enter, community practice. That puts even more pressure on those that remain. It becomes a vicious cycle.”While regulatory bodies seek to take corrective action on workplace conditions, solutions go beyond staffing levels. “Let’s come together to enable operators to innovate and invest in resources to support their teams. It’s not only about funding, but also about regulatory change to maximize agility and efficiency in the business of pharmacy,” says Hanna.Vision for the futureThe members of Neighbourhood Pharmacies interviewed for this article are unanimously positive about the future of the profession of pharmacy and applaud provincial and territorial governments’ ongoing commitment to expansions in scope of practice.“Pharmacists entering practice today are so much better clinically trained than I was. They’re so well prepared to deliver care to patients,” says Winston. Adds Mohammed: “Pharmacies can be the cornerstone for new models of integrated care. We have the reach in every community and can rapidly scale innovative technologies.”Yet Winston, Mohammed and their colleagues in pharmacy organizations across Canada fear that much of the profession’s promise will die on the vine without a parallel commitment from payors to modernize funding models.To put it simply, “we are asking for consistency and fairness across all healthcare professionals,” says Nashat.“Neighbourhood Pharmacies and its members are here to work with governments, payors and regulators to modernize how we think about funding and regulation. With true collaboration and a shared goal, pharmacies can maximize their potential and do even more to deliver the care that our communities rely on,” says Hanna. Karen Welds is a healthcare journalist and has written about community pharmacy for more than 30 years.This article originally appeared in the Fall 2025 Neighbourhood Pharmacy Gazette.Following an 18-month pilot project, in September 2024 Nova Scotia’s Conservative government announced permanent funding for 45 Community Pharmacy Primary Care Clinics throughout the province.The clinics provide services not available or funded in pharmacies in the rest of the province, including assessments, testing and prescribing for strep throat, services for chronic disease management and the ordering of lab tests. Work is also underway to integrate the clinics into the healthcare system’s referral pathways.Data collected and analysed by the government found that the clinics reduced emergency visits to hospitals and earned high satisfaction scores from patients. Demand was high for renewals, strep assessments, chronic disease management services and assessments for minor ailments.The data also captured the length of time required for services—information that is being used to inform decisions around long-term government funding not only for the clinics, but also for services available in all pharmacies.Nova Scotia’s Pharmacy Service Agreement—one of only three nationwide that fund pharmacy services under a separate contractual agreement—expired in September 2024. Nova Scotia now also has a separate funding agreement for the primary care clinics. At the time of writing this article in early September, negotiations between the government and the Pharmacy Association of Nova Scotia to renew both agreements were ongoing.

A rock and a hard place: Why funding models for pharmacy must change—for patients' sake

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