TORONTO - A more competitive generic drug market could save Canada's health-care system $800 million a year, the Competition Bureau says in a study released Tuesday.

Some of this money could be used to maintain or improve drug plans, reduce premiums or directly fund some pharmacist services, competition commissioner Sheridan Scott said in a Toronto speech.

"Progress is being made to get generic drugs at lower prices," Scott told the Economic Club in Toronto.

"We expect this amount (of savings) will climb significantly over the next three years, as some of the blockbuster brand-name drugs that came on to the market in the 1990s lose their patent protection and generic equivalents appear on the market."

The study, entitled Benefiting from Generic Drug Competition in Canada: The Way Forward, estimates the potential savings at more than $1 billion in coming years if changes are made to how generic drugs are paid for.

"Obtaining these savings, however, requires changes to allow the price Canadians pay for generic drugs to be based on the competitive price of the drug," Scott said.

Tuesday's report is a follow-up to a study released last year that was undertaken in response to concerns that the prices of generics were high in Canada compared with other countries.

Generics are copycat drugs that can be sold only after patents expire on brand-name products.

In 2007, Canadians spent $4.1 billion on generics, about one quarter of the $19 billion spent on prescription drugs during the same time period.

Last year's study found that intense competition among generic drug makers may have boosted the earnings of pharmacies that sell them to the public, but consumers reaped few benefits.

Nadine Saby, president and CEO of the Canadian Association of Chain Drug Stores, said Tuesday that "taxpayers, consumers and businesses are already benefiting from competition in the generic drug sector."

"They are doing that by lower prices for pharmacy services, that right now are priced below the cost of providing those services by pharmacies," Saby said.

That's made possible, she said, "by the competition which exists and the allowances that are paid by generic manufacturers to pharmacies."

The association doesn't "have any problem with the move toward a more transparent system in the future where payers know what they're paying," Saby said.

Jim Keon, president of the Canadian Generic Pharmaceutical Association, had a warning for the Competition Bureau over lower generic drug prices.

The "reimbursement prices paid for generic prescription medicines in Canada include significant support for community pharmacies," he said.

"If prices paid to pharmacies for generic prescription medicines are reduced, a key source of revenue for pharmacies will be removed and must be replaced if patient services are to be maintained."

The Competition Bureau study says public plans, which account for about 48 per cent of drug expenditures, could save up to $200 million annually to the health-care system.

Some ways this could be achieved include introducing measures to reimburse pharmacies for the true cost of their drugs, reimburse pharmacy services such as dispensing and patient counselling separately from drug costs, and getting rid of unnecessary restrictions to pharmacy competition.

However, businesses, employees and individuals, who account for 52 per cent of generic drug spending, stand to reap the biggest savings - about $600 million - in a more competitive market, says the study.

Some solutions include competitive tendering by provincial drug plans, effective price monitoring, private plans providing incentives to patients for using alternative approaches like preferred pharmacy networks, promoting greater use of mail-order pharmacies and providing patients with incentives to seek lower prices.

"Governments can assist private payers by ensuring there are no unnecessary regulatory or professional barriers to the development of innovative approaches by the private sector," said the report.

"Individual plan members and Canadians paying out-of-pocket can also play a role by becoming more savvy buyers and shopping for lower pharmacy prices."

Keon said the generic pharmaceutical industry is concerned about the consideration of tendering as an option in the bureau's report.

"Tendering actually inhibits competition by eliminating competitors from the market."