The Supreme Court of Canada Unanimously Upholds Ban on the Sale of Private Label Products by Ontario Pharmacies

On Friday November 22, 2013, the Supreme Court of Canada (SCC) unanimously affirmed a decision of the Ontario Court of Appeal, upholding Ontario legislation that bans the sale of private label prescription drug products by pharmacies.

Background

In 1985, Ontario enacted two statutes, the Drug Interchangeability and Dispensing Fee Act and the Ontario Drug Benefit Act, in an effort to control rising drug prices in the province. In Ontario, a generic drug may be designated as "interchangeable" with a brand-name drug and, if so designated, a pharmacist receiving a prescription for the brand-name product must provide the consumer with the generic version unless given specific orders to the contrary. The Ontario Drug Benefit Act further provides that a drug must be listed in the Formulary in order for the pharmacy to receive reimbursement for its distribution of the drug from the province. In 2010, further regulations were enacted to impose restrictions on the distribution of "private label" products—a private label product being one whose manufacturer does not deal at arm’s length with the pharmacy itself. Under these 2010 regulations, private label products cannot be listed in the Formulary and cannot be designated as interchangeable.

Decision

Sanis Health Inc., a subsidiary of Shoppers Drug Mart, applied to have several of its generic drugs designated as interchangeable by the Executive Officer of Ontario and listed in the Formulary. The Executive Officer rejected Sanis’ request on the grounds that the drugs at issue constituted private label products. Shoppers Drug Mart and another pharmacy group, Katz Group Canada Inc., challenged this decision on the grounds that the private label regulations were outside the Ontario government’s jurisdiction, as they are not consistent with the statutory purposes of both Acts. An original application to declare the regulations ultra vires was granted by Molloy J., but this decision at first instance was reversed by the Ontario Court of Appeal.

The SCC unanimously held that the regulations were within the object and purpose of the Acts. After noting that it was not relevant whether the private label regulations would actually be effective to achieve their purpose, the Court decided that both regulations were enacted with the same animating public policy objectives in mind—namely, to control drug prices and promote transparency in drug pricing. The Court held that the regulations pertaining to private label products were put in place to prevent other means of circumventing those objectives. It noted that if pharmacies were able to own and control generic drug manufacturers, they could play a major role in setting the Formulary prices and would have significant motivation to keep prices high. The Court held that the purpose of the regulations was to pass on savings to the end user and, as such, the regulations were consistent with and did not exceed the object of the Acts.

This decision is significant in that the regulations will have the effect of prohibiting pharmacies from selling private label drugs in both the private and public markets in Ontario.

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