The Ontario government says its new drug policy will reduce the price of generic drugs by 50 per cent. (CBC)

Pharmacists in Ontario appear to have lost their battle with the provincial government over the cost of generic drugs.

Health Minister Deb Matthews announced Monday the planned price cuts for generic prescriptions will start taking effect July 1 — despite loud protests from the pharmacy industry.

"This is about doing the right thing," Matthews said in a news release.

The key element — and the main point of dispute — is the banning of what are called professional allowances. Those are the fees that generic drug companies pay to pharmacists.

The government says those fees — estimated at about $750 million — inflate the cost of drugs.

So starting next month, the government estimates the price of generic drugs will be cut roughly in half for provincial drug plans. For private drug plans, the price cuts will be phased in over the next three years.

"We're getting Ontarians lower drug prices, cleaning up a system that was open to abuse and strengthening pharmacy services in this province," said Matthews. "All Ontarians are going to benefit from these changes."

The government is promising to pay pharmacists about $300 million per year in higher dispensing fees.

But pharmacists have been asking for much more than that to make up for the loss of income.

The government's $300-million offer is unchanged from what it initially offered.

In April, when the controversy erupted, some Shoppers Drug Marts in downtown Toronto stopped filling prescriptions for several hours. Later, Shoppers reduced store hours and even closed the pharmacy sections in others, but only at its stores in the London area, the health minister's home riding.

Matthews rejected an earlier proposal from pharmacists to substantially raise dispensing fees, saying that was merely asking taxpayers to replace the money paid by the drug companies as professional allowances.

Brampton pharmacist Ben Shenouda predicted 300 drugstores will close.

"Prices of generic medication to be lowered, is not wrong. It is good. But taking money out of the service we provide — the frontline — that's wrong." he said.

Ontario's Community Pharmacies Coalition proposed a new model similar to one used in Alberta, which would see direct funding of pharmacists, including a mixture of investment in professional fees and services.

Other provinces are keeping a close eye on the fight between the pharmacists and the Ontario government — the largest single purchaser of prescription medications in the country.

Quebec has said it would be in line for big savings if it followed Ontario's example to rein in drug costs.

Health Minister Yves Bolduc has resisted committing to a similar policy, but said recently that Quebec would benefit from Ontario's move because of its agreement with pharmaceutical companies to pay the lowest prices in Canada.

Matthews issued a letter to her federal, provincial and territorial counterparts in April warning that pharmacy chains could bulk purchase lower-cost generic drugs in Ontario and sell them to consumers in other provinces at regular prices.

"Not only would big chain pharmacies benefit from an increased profit margin, but they would also likely be able to collect professional allowances from the generic manufacturer," she wrote.

Matthews wants what she calls "new distinctions between jurisdictions" for prescription drugs discussed at the annual health ministers' meeting in September.

With files from The Canadian Press