ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
j. wilson, Lederman and aston jj.
B E T W E E N:
APOTEX INC.
Applicant
- and -
EXECUTIVE OFFICER FOR THE ONTARIO PUBLIC DRUG PROGRAMS and ATTORNEY GENERAL OF ONTARIO
Respondents
H.B. Radomski and Nando DeLuca, for the Applicant
Lise G. Favreau and Kristin Smith, for the Respondents
HEARD AT TORONTO: September 16, 2009
REASONS FOR JUDGMENT
The Application
1This application raises issues for the pricing of generic drugs for Ontario Drug Benefit Program customers in Ontario.
2Apotex Inc. seeks judicial review of the refusal by the Executive Officer (“EO”) of the Ontario Public Drug Programs to increase the reimbursable pricing of three of the applicant’s multiple source generic antibiotic drugs, as listed on the Formulary maintained under the Ontario Drug Benefit Act, R.S.O. 1990, c. 0.10 (the “ODBA”), in its amendments to the Formulary on January 15 and 17, 2008 (the “January 2008 Decisions”).
3The general regulation under the ODBA, O. Reg. 201/96 (the “ODBA Regulation”), was amended in October 2008 to allow generic drug manufacturers to apply for a price variation due to an increased cost of raw materials. Apotex accordingly requested a price increase for the three drugs in question in December 2008. The EO on January 19, 2009, granted a modest increase rather than the price increase requested by Apotex (the “January 2009 Decision”). The applicant also seeks judicial review of the January 2009 Decision.
4The applicant seeks a declaration that the January 2008 Decisions were unlawful, arbitrary, unreasonable, discriminatory and unfair. It seeks a mandatory order requiring the EO to list its products on the Formulary at the prices granted to its competitor Novopharm. The applicant also seeks a mandatory order that the price increases rejected in the January 2009 Decision be granted.
Issues Raised
5The following issues are raised by the parties in this application:
- What is the appropriate standard to review the decisions of the EO?
- Was the EO unreasonable in her conclusion that she had no authority to grant the price increases demanded? In particular, was she unreasonable in not applying the historic pricing exemption stipulated in the regulations?
- Was the EO unreasonable in her interpretation that the single source pricing exemption in the ODBA Regulation applied allowing her to grant a price increase to Novopharm, but not to the applicant? Were the January 2008 Decisions unlawful, arbitrary, unreasonable, discriminatory and unfair?
- Was the January 2009 Decision of the E.O. granting a more modest price increase than that requested by the applicant unreasonable?
- Does the October 2008 amendment to the ODBA Regulation render any issues raised by the applicant moot?
- Should Novopharm be a party to this application?
- Is the applicant precluded from seeking equitable relief from this court due to the respondent’s allegation that it was involved in “concerted action” with other members of the generic drug industry designed to put pressure on the government to grant increases in drug prices for multiple generic drugs in excess of amounts permitted by the legislation?
Factual Overview
6This application concerns the pricing of three interchangeable multisource antibiotic generic drugs provided to drug benefit customers in their various forms, including Amoxicillin, Cloxacillin and Penicillin V that were listed on the ODBA Formulary until January 2008.
7The EO is appointed by the Lieutenant Governor in Council pursuant to section 1.1(1) of the ODBA and is responsible for the administration of the Ontario Public Drug Programs. The Programs involve the interaction and application of complementary legislation to provide drugs at a reasonable public cost to eligible persons.
8Under the Ontario Drug Benefit Program, which is part of the broader Ontario Public Drug Programs, eligible persons in Ontario (“drug benefit customers”) are provided pharmaceuticals without cost to them by the Ontario Government in accordance with the ODBA.
9The Drug Interchangeability Dispensing Fee Act, R.S.O. 1990, c. P23 (the “DIDFA”) and its associated regulation, R.R.O. 1990, Reg. 935 (the “DIDFA Regulation”) enable the EO to designate drug products as interchangeable. The DIDFA applies to the dispensing and interchangeability of drugs in Ontario, regardless of whether the drugs are paid for privately or under the Ontario Drug Benefit program. The DIDFA Regulation establishes additional conditions for designating drugs as interchangeable that are proposed to be listed under the ODBA Formulary.
10Pursuant to section 6(1) of the ODBA, the reimbursement received by the pharmacist for drug benefit customers is limited to the lowest-priced listed product on the Formulary. This is usually a generic drug that has been listed as interchangeable with the originator of the drug in accordance with the DIDFA and the associated DIDFA Regulation.
11The statutory provision limiting reimbursement for pharmacists does not apply to the market in general. Its effect is limited to the reimbursable cost of drugs supplied to drug benefit customers only.
12In 2006, the Ontario Government passed a series of amendments to the ODBA and the ODBA Regulation, including the Transparent Drug System for Patients Act, 2006, S.O. 2006, c. 14 (the “TDSPA”). These amendments were part of a government effort to control the cost of generic drugs provided to drug benefit customers .
13One of the amendments to the ODBA Regulation reduced the amounts that generic drug manufacturers were allowed to charge for their multisource products. When there are multiple generic products available on the market, sections 11(1)(1) and 12.1(1)(5) of the ODBA Regulation now limit the reimbursable cost to no greater than 50% of the listed price of the originator drug. This pricing limitation was also incorporated into the DIDFA Regulation, section 7(2).
14The generic drug manufacturers were not content with these legislative changes, which had the effect of reducing the prices manufacturers could charge the Ontario Government for drugs provided to eligible drug benefit customers.
15Apotex unsuccessfully challenged aspects of the legislation in Apotex Inc. v. Ontario (Public Drug Programs) (2008), 2008 39429 (ON SCDC), 241 O.A.C. 47 (Div. Ct.).
16Two exemptions were enacted in 2006 to the 50% rule. The first exemption is if there is only a single generic drug available in the market, then the EO may negotiate a price for that generic drug in excess of the 50% rule (the “single source pricing exemption”). The second exemption is the “historic pricing exemption”, which allows the EO, at least in 2006, to negotiate a price with the generic manufacturers if the original drug has the same drug benefit price on the Formulary as the generic drug or has no drug benefit price on the Formulary.
17The interpretation and application of these two exemptions are central to this application for judicial review.
18The three drugs in question were subject to the historic pricing exemption, as the prices of the original drugs were not listed on the Formulary. In 2006, therefore, the EO negotiated a price for these products with the multisource generic drug manufacturers without being bound by the 50% rule.
19In 2007, the generic drug manufacturers were concerned about the pricing of the three drugs in question, given the increases in cost of production. The applicant’s factum confirms these concerns at paragraph 37:
Apotex is a member of an industry association known as the Canadian Generic Pharmaceutical Association (“CGPA”). Through meetings and discussions with counterparts at other [CGPA] member companies who also had their Antibiotics listed as interchangeable drug benefits, Apotex became aware that these pricing / economic issues were not exclusive to Apotex and that, in fact, all other manufacturers of the Antibiotics faced these same problems. This was not surprising as, for each of these products, there are very few sources of raw material so that each manufacturer purchases its raw material at the same cost, and, as the finished dosage manufacturing costs are expected to be virtually the same.
20On September 20, 2007, Apotex advised the EO that it would be increasing its prices for the three multiple generic drugs that are the subject of this application effective January 1, 2008, due to increases in raw material and manufacturing costs:
We are providing you with advance knowledge so we can establish a meaningful dialogue for a mechanism for price increases for multisource generic products.
We will be advising customers in Ontario and in the rest of Canada later this fall that our prices for these molecules will be adjusted on January 1, 2008.
21The applicant was the first of the five generic drug companies listed on the Formulary to advise that their drug prices would increase, and to seek delisting of these products if the E.O. did not approve the increases requested. The other manufacturers followed suit.
22The EO confirmed in a letter dated December 7, 2007 to Apotex that she had no authority to grant the price increase demanded by the applicant pursuant to the ODBA and DIDFA regulations, unless the single source pricing exemption applied:
As you are aware, the regulations under the Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA) require that interchangeable drug products must be priced at 50 percent of the original product price.
We refer you to clause 8(1)(4) of Reg. 935 under the DIDFA, which provides the following: “if the product is a listed drug product under the Ontario Drug Benefit Act, the drug benefit price of the product may not be more than the price that could be proposed to the executive officer under subsection 7(2)”. In other words, the listed interchangeable drug product may not be priced more than at 50 percent of the original product price.
The only exemption to the above 50 percent generic price rule are in cases where there is only one generic drug product designated as interchangeable with the listed comparator (brand name) product.
Accordingly, I am unable to accept your price proposals as these products are all multiple source drug products.
23The EO did not mention the historic pricing exemption, as it was understood by her, and by the industry, that the exemption applied only with respect to the pricing of interchangeable drugs on the 2006 Formulary.
24Apotex responded to the EO by letter dated December 14, 2007, reiterating its position that it could not manufacture the products at the current Formulary listing prices, and that if an increase was not allowed, it requested the delisting of all its products:
The original product prices to which you refer were set decades ago, and costs have increased enormously since then. It is absurd to state that our products cannot be priced at more than 50% of these irrelevant prices.
Jurisprudence provides that legislation and regulations cannot be interpreted to provide an absurd result. In this case, if you do not list our product at the increased prices, the product will be unavailable to fill ODB prescriptions. This will mean that patients will go without needed medications, or, alternatively, prescriptions will be changed to antibiotics that are much more expensive. Surely that cannot be the intent of the regulations.
Alternatively, if the regulations, in fact, mandates an absurd result, then you have a duty to seek an immediate amendment.
In any event, as aforesaid, we cannot and will not abandon the price increase.
We thus must insist that you either publish the increased prices effective January 1, 2008, or alternatively remove the products as benefits effective that date.
In any event, please ensure that these products will maintain their interchangeability status, so that the non ODB market can take advantage of the savings on these products.
(Emphasis added)
25The applicant does not assert in its December 7 or 14, 2007 letters to the EO that the historic pricing exemption applies on a go forward basis.
26By letter dated December 20, 2007, the EO confirmed acceptance of Apotex’s request to delist their product, while allowing Apotex to maintain the drug-interchangeability status:
Consequently, in response to your statement that Apotex Inc. is not prepared to agree to the current listed drug benefit price for the above-mentioned products, we are writing to confirm that we accept your request to the above-mentioned drug products will be removed as benefits from the Formulary but will remain interchangeable, that is, designated as “Not a Benefit” in the next Formulary update.
(Emphasis added)
27The EO was faced with a dilemma in the fall of 2007 and January 2008 as a result of the actions of the drug companies. All five generic drug manufacturers of the antibiotics in question had requested that their products be delisted from the Formulary if the price increases demanded were not allowed.
28Three of the five made specific demands for increased payment. The increased prices suggested by the applicant and Nu-Pharm for the various drugs in question were identical. The prices suggested by Novopharm were very similar to the prices stipulated by Apotex, but not identical.
29The EO sought advice from pharmacists on her staff and a medical consultant about the health consequences that would result if these drugs were delisted from the Formulary. As a result of these inquiries, she was satisfied that removal of these drugs from the Formulary would pose significant health and safety concerns for drug benefit customers, as these antibiotics are more effective than others listed on the Formulary for treating certain medical conditions.
30The EO therefore exercised her authority pursuant to section 19 of the ODBA and refused to delist the product of the last generic drug company to submit a request to be delisted from the Formulary.
31Section 19 of the ODBA provides:
- In deciding whether or not to designate a drug product as a listed drug product or to remove such a designation, the executive officer may consider anything he or she considers advisable in the public interest, including, without limiting the generality of the foregoing, the drug benefit price of the drug product or other drug products or the price charged to operators of pharmacies for the drug product or other drug products.
(Emphasis added)
32The EO then ensured that the last manufacturer requesting to delist could meet the supply required for drug benefit customers. If that manufacturer could not meet the supply, she contacted the second-last supplier requesting to delist its product. The EO then negotiated an increased price for the drug in question with the remaining listed manufacturer, relying on the single source pricing exemption.
33To effect this solution, the EO amended the Formulary on January 15, 2008, delisting all but one generic drug manufacturer for the three drugs in issue. The EO then published a further amendment to the Formulary on January 17, 2008, with the revised negotiated price for the drugs in question with the one remaining listed generic manufacturer, relying upon the single source pricing exemption.
34Novopharm was the single listed manufacturer listed on the Formulary for the drugs Amoxicillin, Cloxacillin and Penicillin V.
35Apotex was the last qualifying manufacturer seeking to be delisted for two other drugs-Cefaclor and Cephalexin Monohydrate-not challenged as part of this application. Therefore, the EO negotiated a price increase for these products with the applicant pursuant to the single source pricing exemption. Apotex is not questioning this aspect of the EO decision.
36The EO confirms in her affidavit that the January 2008 Decisions were made in response to the unilateral actions amongst generic drug manufacturers:
- The foregoing actions were necessary responses to the action taken by a number of generic manufacturers, including Apotex, who had antibiotic products listed on the Formulary. On January 1, 2008, the generic antibiotic manufacturers acted unilaterally to increase the prices of their antibiotic products in contravention to the pricing provisions under the Ontario Drug Benefit Act, R.S.O. 1990, c.O.10 (ODBA) Drug Interchangeability and Dispensing Fee Act, R.S.O. 1990, c.P.23 (DIDFA) and the regulations made respectively thereunder.
37The applicant seeks a mandatory order from this court that it be entitled to be relisted on the Formulary for the drugs Amoxicillin, Cloxacillin and Penicillin V at the same price as its competitor Novopharm. It should be noted that Apotex asked to be delisted from the Formulary and now seeks relief to redress the very act by the EO that it asked for.
Standard of Review
38The applicant makes two substantive arguments engaging two different approaches with respect to standard of review.
39First, it argues that the EO should have applied the historic pricing exemption in the ODBA Regulation, and that the appropriate standard of review for this aspect of the EO decision involving the interpretation of the meaning of a statute is correctness. The applicant also argues that the EO incorrectly interpreted the effect of the 50% rule, engaging the standard of correctness. The respondents argue that the interpretation of the legislation and regulation engages expertise and context, and the appropriate standard of review for this aspect of the application is reasonableness.
40Second, the applicant argues that if there is no valid issue with respect to the interpretation of the legislation or the regulation by the EO, her decision to rely upon the single source pricing exemption in allowing a price increase for the last listed generic product was arbitrary, in breach of fundamental justice, unlawful and procedurally unfair. Neither party addressed the standard of review with respect to this scenario.
41The law is clear that it is not necessary to engage in a standard of review analysis when the allegation is a denial of natural justice or procedural fairness: see London (City) v. Ayerswood Development Corp. (2002), 2002 3225 (ON CA), 167 O.A.C. 120 (C.A.), at para. 10. This court must determine whether the applicant has proved on a balance of probabilities that such a breach occurred, and then fashion an appropriate remedy.
42It is only necessary therefore to determine the appropriate standard of review for the issues with respect to the EO’s interpretation of the legislation and the exemptions in the ODBA Regulation.
43The Supreme Court confirms in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190, at para. 62 that the first question in determining the appropriate standard of review is to ascertain whether the appropriate standard has already been judicially determined for the particular category of question.
44The Divisional Court recently considered this issue. Molloy J. confirms in Apotex Inc. v. Ontario (Public Drug Programs) (2008), 2008 39429 (ON SCDC), 241 O.A.C. 47 (Div. Ct.), that the appropriate standard to be applied to decisions of the EO that involve interpreting provisions of the ODBA and its associated regulation is reasonableness. She states at paras. 10 and 19:
10 The parties agree that the standard of review is reasonableness. I find that to be the applicable standard bearing in mind the principles recently clarified by the Supreme Court of Canada in Dunsmuir v. New Brunswick, 2008 SCC 9.
19 However, on this point, it is not necessary that the EO be correct. This is an interpretation of the constituent legislation and has a broad policy component. The EO has special expertise in the purpose of the legislation and the policy underlying the Act and Regulations and in general, as well as this particular section of the applicable Regulation. As long as the EO's interpretation is reasonable, this Court should not interfere: Dunsmuir at paras. 54-56. In my view, the EO's interpretation is a reasonable one.
45The applicant relies upon the decision of Gans J. in Pharmascience Inc. v. Ontario (Minister of Health and Long-term Care) (2007), 2007 50602 (ON SCDC), 231 O.A.C. 181 (Div. Ct.). Gans J. concluded that correctness was the appropriate standard to apply to the EO’s interpretation of a section of the ODBA. I note that Pharmascience was decided before Dunsmuir, which clarifies the appropriate standard to be applied to decisions involving statutory interpretation.
46Dunsmuir provides at para. 60 that the standard of correctness applies to general questions of law “that [are] both of central importance to the legal system as a whole and outside the adjudicator’s specialized area of expertise.” Questions that are specific to a particular statutory or administrative regime, however, may attract a reasonableness standard where there is a privative clause and “a discrete and special administrative regime in which the decision maker has special expertise”: Dunsmuir, at para. 55.
47I conclude that the appropriate standard of review in this case is that of reasonableness in accordance with the principles outlined in Apotex Inc. v. Ontario (Public Drug Programs). Neither the ODBA nor the DIDFA provide for a right of appeal from decisions of the EO. Further, the decision in question involves the EO’s interpretation of a regulatory provision that is within her special expertise. Deference is owed when an administrative decision maker has interpreted statutory provisions that are closely connected to its function: Dunsmuir, at para. 54. See also C.C.-W. (Litigation Guardian of) v. Ontario (Health Insurance Plan, General Manager) (2009), 2009 712 (ON SCDC), 246 O.A.C. 115 (Div. Ct.), at para. 46.
Issue 1: Was the EO unreasonable in her conclusion that she had no authority to grant the price increases demanded? In particular, was she unreasonable in not applying the historic pricing exemption?
48The primary argument of the applicant, which was raised for the first time in their amended factum filed with the court one week before this application was scheduled to be heard, is that the historic pricing exemption applies on a go forward basis, and that the EO incorrectly limited the application of the ODBA Regulation and exemptions to the 2006 Formulary.
49The historic pricing exemption is found at paragraph 6 of subsection 12.1(1) of the ODBA Regulation and at paragraph 5 of subsection 8(1) of the DIDFA Regulation. It provides:
- Paragraph 5 [the 50% rule] does not apply with respect to a product that has been designated as interchangeable with an original product where the original product has the same drug benefit price on the Formulary as the interchangeable product or has no drug benefit price on the Formulary, but in no case can the interchangeable product be priced higher than the original product.
(Emphasis added)
50The drugs in question in this case - Amoxicillin, Cloxacillin and Penicillin V - were subject to the historic pricing exemption in 2006, as there was no drug benefit price on the Formulary for the original product. Therefore, in 2006, it was necessary for the EO to negotiate with the generic drug manufacturers to set a price for these three interchangeable multisource antibiotics, as there was no point of reference available to apply the 50% rule.
51The Formulary price in 2006 for these three products reflected the price negotiated by the EO and the generic drug manufacturers, relying on this exemption. The generic drug manufacturers, however, were not satisfied with this price.
52In September 2007, Apotex took the lead amongst the generic drug manufacturers to demand an increase from the prices stipulated in the 2006 Formulary.
53The question for this court is whether the historic pricing exemption was applicable to give one time discretion to the EO to negotiate a higher price than that stipulated at the time of the implementation of the 50% rule in 2006, or whether the historic pricing exemption applies on a go forward basis to allow negotiations for price increases at any time in the future.
54The respondents argue that, in accordance with the clear intention of the legislation, the exemption was a one time transition provision. The applicant argues that once the historic pricing exemption applies, the 50% generic rule has no application, and the EO is free to renegotiate higher prices at any time.
55The argument that the historic pricing exemption still applies was not suggested to the EO in the correspondences exchanged between September and December 2007. The applicant initiated judicial review proceedings on January 23, 2008. The allegation made at that time was that the decisions of the EO were unlawful and unreasonable, but there is no mention of the applicability of the historic pricing exemption. Similarly, there was no mention of this argument in the applicant’s initial factum filed with the court in April 2009. The first mention of this argument is found in the amended factum, which was filed one week before this judicial review application.
56The EO confirmed in her letter dated December 20, 2007, that she had no authority to grant the price increase requested.
57She confirmed her interpretation of the ODBA Regulation at paragraphs 18 – 21 of her affidavit, filed in this application. In her view, there were only two potential exemptions to allow for price increases, neither of which applied in this case. Therefore, the EO concluded that she had no authority to consider the demands for increases in drug prices for multiple interchangeable generic antibiotics. The following confirms the reasoning of the EO:
During the fall of 2007 and early 2008 when the antibiotic manufacturers were demanding increases to the drug benefit prices of their antibiotic products, the ODBA Regulations and DIDFA Regulation provided for only two exceptions to the 50% Generic Price Rule, neither of which permitted the antibiotic price increases at issue.
The first exception applied in cases where the generic product was the only product of its type that had been designated on the Formulary as interchangeable with an original product, it had been so designated for at least two years, and removing the product’s listing would result in either significant patient safety or access concerns or significant increased costs to the Government of Ontario (the “Single Source Generic Pricing Exception”). In other words, where there was only one generic version of a drug available as a benefit under the ODB Program, the Executive Officer was permitted to exercise discretion to approve a drug benefit price for that product that is higher than 50% of the original product price. The Single Source Generic Pricing Exception enabled the Executive Officer to avoid any threats to patient access and safety that could arise in a situation where the manufacturer of a “single source” generic drug was not willing to have the product listed at 50% of the original drug product price and thereby refused to supply the product on the public market. The Single Source Generic Pricing Exception, as set out in para.6.1 of subsection 12.1(1) of the ODBA Regulation and para.5.1 of subsection 8(1) of the DIDFA Regulation, confers authority on the Executive Officer to negotiate and approve a higher drug benefit price under the foregoing circumstances.
The second exception was intended to permit drugs that had been historically listed at prices higher than 50% of the original product to remain listed on the Formulary at that higher price level following the initial coming into force of the 50% Generic Price Rule (the “Historic Pricing Exception”). This exception applied only to the Formulary update that was issued by the Ministry on October 26, 2006 (Edition 39). When the 50% Generic Price Rule was first implemented in October 2006 to coincide with the proclamation of the TDSPA, there were some generic products listed on the Formulary where either: (i) the original product was no longer a benefit and had no associated drug benefit price; or (ii) the drug benefit price of the original product had previously been reduced to match the generic drug benefit price. The Historic Pricing Exception is set out in para. 6 of subsection 12.1(1) of the ODBA Regulation and para. 5 of subsection 8(1) of the DIDFA Regulation.
Prior to the events leading to this judicial review, the price levels of the antibiotic products manufactured by Apotex that are at issue in this judicial review –Amoxicillin, Cloxacillin and Penicillin V – had been maintained at higher prices under the Historic Pricing Exception. This is because the original products with which these products had been deemed interchangeable were no longer listed as benefits under the ODBA Program, and therefore did not have drug benefit prices published on the Formulary.
58Counsel for the applicant suggests that the words of the historic price exemption are clear, and not limited to apply to the 2006 Formulary. Even if the application of the section results in absurdity contrary to the intention of the legislation to control the price of generic drugs, counsel argues that the meaning of the plain words dictate. He relies upon R. v. McIntosh, 1995 124 (SCC), [1995] 1 S.C.R. 686 paras. 34 and 36 to assert that harshness or absurdity should only be considered when there is ambiguity in a statutory provision:
34 … where, by the use of clear and unequivocal language capable of only one meaning, anything is enacted by the legislature, it must be enforced however harsh or absurd or contrary to common sense the result may be …
36 Thus, only where a statutory provision is ambiguous, and therefore reasonably open to two interpretations, will the absurd results flowing from one of the available interpretations justify rejecting it in favour of the other. Absurdity is a factor to consider in the interpretation of ambiguous statutory provisions, but there is no distinct "absurdity approach".
59I conclude that the intended application of the historic pricing exemption is not clear and is open to alternative interpretations.
60It is not disputed that the EO’s interpretation with respect to the application of the historic pricing exemption reflected the understanding in the industry, the applicant, and other generic drug manufacturers. The historic pricing exemption applied only to determine an appropriate price in 2006 if the originator drug did not have a stipulated price on the Formulary, and therefore the 50% rule could not apply.
61The suggestion of the applicant that the historic pricing exemption provides a mechanism to allow future increases at any time defeats the intended purpose of the legislation to control the price of generic drugs. This suggested interpretation is contrary to the principle that statutes must be read in context and in light of the intended legislative purpose:
Today there is only one principle or approach, namely, the words of an Act are to be read in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.” (From Elmer Driedger in Construction of Statutes (2nd ed. 1983), cited at para. 21 of Rizzo & Rizzo Shoes Ltd. (Re), 1998 837 (SCC), [1998] 1 S.C.R. 27]
62The Supreme Court confirms in Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339, at para. 59 that reasonableness is dependant upon context, and requires an outcome that falls within the range of possible acceptable outcomes:
59 Reasonableness is a single standard that takes its colour from the context. One of the objectives of Dunsmuir was to liberate judicial review courts from what came to be seen as undue complexity and formalism. Where the reasonableness standard applies, it requires deference. Reviewing courts cannot substitute their own appreciation of the appropriate solution, but must rather determine if the outcome falls within "a range of possible, acceptable outcomes which are defensible in respect of the facts and law" (Dunsmuir, at para. 47). There might be more than one reasonable outcome. However, as long as the process and the outcome fit comfortably with the principles of justification, transparency and intelligibility, it is not open to a reviewing court to substitute its own view of a preferable outcome.
63I conclude that the interpretation of the EO that the historic pricing exemption in the ODBA Regulation had no application after publication of the 2006 Formulary was reasonable, and reflected the understanding of all involved, including the applicant at the time of the January 2008 Decisions. The interpretation was within the “range of possible, acceptable outcomes which are defensible in respect of the facts and the law.”
64In any event, in October 2008, amendments to the ODBA Regulation clarified that the historic pricing exemption applied only to the 2006 Formulary. That amendment provides:
… This paragraph applies only with respect to the version of the Formulary known as Edition No. 39, published on October 23, 2006.
Issue 2: Was the EO unreasonable in her interpretation that the single source pricing exemption in the ODBA Regulation applied allowing her to grant a price increase to Novopharm, but not to the applicant? Were the January 2008 Decisions unlawful, arbitrary, unreasonable, discriminatory and unfair?
65In the fall of 2007 continuing to January 2008, the EO was faced with a dilemma caused by the actions of the generic drug manufacturers with respect to the three drugs that are the subject of this application. She took steps in the January 2008 Decisions in accordance with her interpretation of the legislation to ensure the continued supply of these drugs to public benefit clients, without capitulating to the pressures exerted by the generic drug manufacturers.
66The E.O. exercised her discretion to disallow the delisting of the last generic drug on the Formulary, pursuant to section 19 of the ODBA. She then negotiated a price with the last available listed generic drug manufacturer pursuant to the single source pricing exemption.
67The following are the relevant statutory sections:
19 In deciding whether or not to designate a drug product as a listed drug product or to remove such a designation, the executive officer may consider anything he or she considers advisable in the public interest, including, without limiting the generality of the foregoing, the drug benefit price of the drug product or other drug products or the price charged to operators of pharmacies for the drug product or other drug products.
12.1(1)(6.1) Paragraph 5 does not apply with respect to a product that has been designated as interchangeable with an original product where there is evidence satisfactory to the executive officer that,
i. the product is the only drug product of its type that is designated as interchangeable with an original drug product, and has been so designated for at least two years, and
ii. removing the product’s listing would result in significant patient safety or access concerns, or significant increased costs to the Government of Ontario.
(Emphasis added)
68The applicant challenges the authority of the EO to invoke sections 19 and 12.(1)(6.1) to solve the problem of supply of generic drugs in the Ontario Drug Benefit Program.
69Section 11 outlines the rules applicable for the first listing of a drug on the Formulary, whereas section 12 applies to drugs already listed. These lengthy sections are attached as Schedule A to these reasons.
70The applicant argues that if the historic pricing exemption did not apply, it was not appropriate for the EO to utilize section 19 of the ODBA and section 12.1(1)(6.1) of the ODBA Regulation. It argues that the EO misinterpreted ODBA Regulation, section 12.1(1)(6.1) and that it should not apply in the circumstances. They argue that the words “drug product of its type” in section 12.1(1)(6.1) must be interpreted consistently when considering sections 11, 12 and 12.1 of the ODBA Regulation.
71I disagree. It was reasonable for the EO to interpret the meaning of the single source pricing exemption in section 12(1)(6.1) to imply or read in the condition of “the last listed”of a “drug product of its type” to allow the single source pricing exemption to apply to drugs that were already listed on the Formulary.
72This is a reasonable interpretation. To suggest otherwise would mean that the single source pricing exemption would not apply to previously listed multi-source drugs, if manufacturers choose to delist. The EO has the discretionary power to refuse a delisting in accordance with section 19 of the ODBA if issues of public health are engaged. Clearly public health issues arose for drug benefit customers, as there was no other drug listed on the Formulary that was equally effective for treating certain illnesses.
73The discretionary power granted in section 19 allowing the EO to refuse the request to delist a drug from the Formulary would be meaningless if the EO was not granted a corresponding discretion to negotiate a price with the last remaining generic manufacturer to ensure a continued supply of the drug.
74The applicant argues that the appropriate action to be taken by the EO if the historic pricing exemption did not apply, was for the EO to go directly to the Cabinet on an urgent basis to secure immediate legislative changes to allow for the manufacturers to increase their generic drug prices.
75It is not the EO’s role to secure immediate legislative changes in response to demands from the drug manufacturers. The responsibility of the EO is to administer the legislation in light of its intended purpose. Amendments to legislation follow a process, and the generic drug industry is well capable of making submissions in support of their request for legislative changes.
76In any event, in response to the submissions made by the drug manufacturers, steps were taken to address the concerns of the industry to take into account increased costs of raw materials. A third exemption from the 50% rule was enacted in October 2008 to recognize the problem identified by the generic drug industry.
77I conclude that the EO reasonably interpreted the applicable legislation in accordance with its intended purpose and the public interest, relying upon section 19 of the ODBA and the single source pricing exemption in section 12.1(1)(6.1) of the ODBA Regulation. She took appropriate measures in the January 2008 Decisions to ensure a continued supply of the three drugs in question to drug benefit customers.
78It is of note that by the application of the same statutory provisions, the applicant is the single generic drug manufacturer for two drugs which were previously multisource generic drugs listed on the Formulary-that is Cefaclor and Cephalexin Monohydrate. The applicant is not objecting to this aspect of the EO’s decision. The applicant’s allegations of unfairness and discrimination ring hollow, as it wishes to retain the benefit of being the sole generic supplier of these two drugs, while displacing its competitor Novapharm with respect to the drugs that are the subject matter of this application.
79I conclude that there is no merit to the applicant’s arguments questioning the January 2008 Decisions of the EO. These decisions were lawful, fair, impartial, reasonable and in the public interest. The EO responded reasonably in the difficult circumstances created by the generic drug manufacturers.
Issue 3: Was the January 2009 Decision of the E.O. granting a more modest price increase than that requested by the applicant unreasonable?
80A third exemption was introduced in October 2008 to section 12.1(1) of the ODBA Regulation in response to the industry submissions that the increase in the price of materials precluded production at prices listed on the Formulary. That exemption provides:
Paragraph 5 [the 50% rule] does not apply with respect to a product that has been designated as interchangeable with an original product where the manufacturer of the interchangeable product has submitted evidence satisfactory to the executive officer of substantial raw material cost increases, and the executive officer is satisfied that the criteria established under section 12.2 have been met establishing that it is in the public interest that the interchangeable product be listed at a higher drug benefit price, but in no case may the interchangeable product be priced higher than the original product.
(Emphasis added)
81In December 2008 the applicant applied to have its drug prices listed at the same price as its competitor Novopharm, relying on the new raw material exemption.
82In the January 2009 Decision, the EO declined the applicant’s request but allowed more modest price increases. The applicant did not agree with the proposed prices and declined to relist its products on the Formulary.
83The applicant made no submissions during argument with respect to why the January 2009 Decision should be challenged.
84Section 22 of the ODBA provides the EO with extensive discretionary powers to negotiate the price of drugs with manufacturers. There is no merit to the applicant’s argument raised in its factum challenging the January 2009 Decision. The January 2009 Decision falls squarely within the E.O.’s discretion and specialized expertise. The January 2009 Decision is reasonable in all of the circumstances. The challenge of the January 2009 Decision is dismissed.
Issue 4: Do the October 2008 amendments to the ODBA Regulation render any issues raised by the applicant moot?
85The respondents suggest that the effect of the amendments to the ODBA and ODBA Regulation passed in October 2008 referred to in paragraphs 65 and 81 of these reasons render the issues raised by the applicant moot.
86As I conclude that the EO’s interpretation of the historic pricing exemption was reasonable, the effect of the amendment to the historic pricing exemption and whether the issue is moot does not engage.
87The amendment creating a third exemption for increases in the price of raw materials enacted after the fact has no impact on the issues raised with respect to the January 2008 Decisions.
Issue 5: Should Novopharm be a party to this application?
88The respondents raised the issue in their factum that all affected parties were not before the court in this application for judicial review. As the applicant seeks to have their products listed on the Formulary at the same price as Novopharm, the respondents suggest that Novopharm should have had formal notice of this application, and an opportunity to intervene.
89Given my disposition of the application on its merits, this issue need not be addressed.
Issue 6: Is the applicant precluded from seeking equitable relief from this court due to its alleged involvement in “concerted action” with other members of the generic drug industry designed to put pressure on the government to grant increases in drug prices for multiple generic drugs in excess of amounts permitted by the legislation?
90The respondents argue that the applicant has not come to court with clean hands and cannot therefore seek equitable relief. Counsel argues that there was a concerted effort by the generic drug manufacturers to put pressure on the government to force a price increase in excess of that permitted by the relevant legislation.
91As the applicant has been unsuccessful on the substantive arguments raised, it is not necessary to canvass this issue.
Conclusions and Costs
92For these reasons the application for judicial review is denied.
93The parties agreed that the successful party was entitled to costs fixed in the amount of $11,426.00 plus GST. The suggestion of counsel is reasonable. The applicant shall pay this amount forthwith to the respondents.
jANET wilson J.
LEDERMAN J.
ASTON j.
RELEASED:
COURT FILE NO.: 40/08
DATE: 20091014
ONTARIO
SUPERIOR COURT OF JUSTICE
DIVISIONAL COURT
j. wilson, Lederman AND aston jj.
B E T W E E N:
APOTEX INC.
Applicant
- and -
EXECUTIVE OFFICER FOR THE ONTARIO PUBLIC DRUG PROGRAMS and ATTORNEY GENERAL OF ONTARIO
Respondents
REASONS FOR JUDGMENT
J. WILSON J.
RELEASED:
Schedule “A”
(Relevant Excerpts from O. Reg. 201/96)
Conditions for Designation of Listed Drug Products
11(1) A strength and dosage form of a product that has been submitted for designation as an interchangeable product under the Drug Interchangeability and Dispensing Fee Act shall not be designated as a listed drug product unless the manufacturer submits the information required under section 12 and the following conditions are met:
If the original product is a listed drug product, the drug benefit price of the product proposed to the executive officer under clause 12 (1) (d) must be less than or equal to 50 per cent of the drug benefit price of the original product as set out in the Formulary on the date the product is first proposed for designation as a listed drug product.
Subject to paragraph 3, if the original product was but is no longer a listed drug product, the drug benefit price of the product proposed to the executive officer under clause 12 (1) (d) must be less than or equal to 50 per cent of the drug benefit price of the original product that was set out in the Formulary immediately before its removal.
If the original product was removed from the Formulary, as it existed by regulation at the time, as a listed product before May 27, 1996, the drug benefit price of the product proposed to the executive officer under clause 12 (1) (d) must be less than or equal to 50 per cent of the best available price that was set out in the Formulary immediately before the removal of the original product.
In addition to the applicable conditions under paragraphs 1, 2 and 3, if applicable, and if required by the executive officer, the manufacturer of the product shall enter into an agreement with the executive officer that specifies any volume discount or other amount that may be payable by the manufacturer to the Minister of Finance, and shall agree that the executive officer may make public the following information, and that information only, with respect to the agreement:
i. The name of the manufacturer.
ii. The subject-matter of the agreement.
iii. The fact of entering into or terminating the agreement.
(2) Paragraphs 1, 2 and 3 of subsection (1) do not apply where there is evidence satisfactory to the executive officer that the product would be the only drug product of its type that has been proposed to be designated as interchangeable with an original drug product.
(3) Where the circumstances described in subsection (2) exist, the executive officer may, in the executive officer’s sole discretion, negotiate an agreement in respect of the product with the manufacturer for any drug benefit price, but in no case may the interchangeable product be priced higher than the original product.
(4) For greater certainty, where the executive officer and the manufacturer cannot agree as to a drug benefit price under subsection (3), the executive officer shall not list the drug product.
(5) Upon the application of the manufacturer, the executive officer may re-designate a drug product that was designated on the Formulary before December 31, 2007, and whose designation was removed by either of the amendments to the Formulary known as Update 8 to Edition 40, effective January 15, 2008, or Update 8A to Edition 40, effective January 17, 2008, subject to the following:
The submission requirements set out in subsection 12 (1) shall be deemed to have been met with respect to the product.
The conditions for continued listing set out in section 12.1 must be met with respect to the product.
The criteria established by the executive officer under section 12.2 must be met with respect to the product.
12(1) A strength and dosage form of a drug product shall not be designated as a listed drug product unless the manufacturer of the drug product submits to the executive officer,
(a) either,
(i) evidence that Health Canada has approved the product for sale in Canada, a copy of the product’s drug notification form issued by Health Canada and, subject to subsection (2), a copy of the product monograph approved by Health Canada, or
(ii) evidence that an application has been made to Health Canada to approve the product for sale in Canada, and evidence satisfactory to a panel of experts established for the purpose that the product meets at least one of the following criteria:
A. The product is a new chemical entity that is effective for the treatment of an immediately life-threatening disease or other serious disease for which it offers substantial improvements on significant outcomes, including improved efficacy, safety and tolerability and quality of life over other available drug therapies in Canada, or for which no treatment or no other effective drug therapy is currently available in Canada.
B. The product is a new chemical entity that would have, if designated as a listed drug product, the effect of saving or creating efficiencies for the Government of Ontario, an average of at least $2,500,000 per year for the first three years the product is marketed in Ontario.
C. The product is a new chemical entity that would have, if designated as a listed drug product, the effect of saving the Ontario Drug Benefit Program an average of at least $250,000 per year for the first three years the product is marketed in Ontario;
(b) a letter authorizing the executive officer to gain access to all information with respect to the product in the possession of Health Canada, the Patented Medicine Prices Review Board established under section 91 of the Patent Act (Canada), the government of any province or territory in Canada or the Canadian Agency for Drugs and Technologies in Health and authorizing the executive officer to disclose any information with respect to the product in the possession of the Ministry to Health Canada, the Patented Medicine Prices Review Board, the government of a province or territory in Canada or the Canadian Agency for Drugs and Technologies in Health;
(c) an estimate of the net costs to the Ontario Drug Benefit Program in a three-year period;
(d) the proposed drug benefit price of the product;
(e) evidence that the manufacturer is able to supply the product at the proposed drug benefit price in a quantity sufficient to meet the anticipated demand for the product;
(f) certification in writing that no rebate as defined in subsection 11.5 (18) of the Act has been provided to a person listed in subsection 11.5 (1) of the Act with respect to the product contrary to the Act since Health Canada approved the product for sale in Canada;
(g) Revoked: O. Reg. 27/97, s. 1 (3).
(h) clinical studies and, if available, other clinical evidence of the product’s therapeutic effectiveness or efficacy and of the product’s safety, including any information that relates to adverse drug reactions and any existing clinical studies comparing the product’s therapeutic effectiveness or efficacy and the product safety to that of other products or treatments; and
(i) evidence demonstrating the benefit of the product in relation to the cost of the product and to alternative products or treatments.
(2) If Health Canada has not approved a product monograph for a drug product, the manufacturer of the drug product may, instead of submitting a copy of the product monograph as required under clause (1) (a), submit to the executive officer the following information:
Pharmaceutical information.
Information with respect to the product’s clinical pharmacology.
Information as to the product’s indications and clinical use.
A list of any contra-indications, warnings or precautions in the use of the product and of possible adverse reactions to its use.
A list of symptoms of an overdose of the product and information as to the treatment of an overdose.
Information with respect to the dosage and administration of the product.
Information regarding the availability of dosage forms for each strength of the product marketed in Canada.
(3) A manufacturer may satisfy the condition set out in clause (1) (h) for a strength of a drug product by submitting the clinical evidence referred to in clause (1) (h) for another strength of the same dosage form of the drug product, if the evidence is sufficient for the purposes of evaluating the therapeutic effectiveness or efficacy and the safety of both the strengths of the dosage form of the product.
(3.1) A manufacturer may satisfy the condition set out in clause (1) (h) for a format of a drug product by submitting the clinical evidence referred to in clause (1) (h) for another format of the drug product, if the evidence is sufficient for the purposes of evaluating the therapeutic effectiveness or efficacy and safety of both the formats of the product.
(4) A manufacturer may satisfy the condition set out in clause (1) (h) for a drug product by submitting to the executive officer the clinical evidence referred to in clause (1) (h) with respect to another product and submitting evidence that satisfies the executive officer that the two products are bioequivalent.
(5) Subsection (4) does not apply if the drug product that the manufacturer seeks to have designated is the drug product of a drug for which there exists a listed drug product.
(6) Subsection (1) does not apply to a drug product that is proposed to be designated as an interchangeable product under the Drug Interchangeability and Dispensing Fee Act.
(7) If required by the executive officer, the manufacturer of the product shall enter into an agreement with the executive officer that specifies any volume discount or other amount that may be payable by the manufacturer to the Minister of Finance, and shall agree that the executive officer may make public the following information, and that information only, with respect to the agreement:
The name of the manufacturer.
The subject-matter of the agreement.
The fact of entering into or terminating the agreement.
(8) Despite subclause (1) (a) (ii), but subject to subsection (6), a product may not be designated as a listed drug product until evidence that satisfies subclause (1) (a) (i) is also received.
(8.1) It is a condition of being listed as a listed drug product that the manufacturer must not have provided a rebate as defined in subsection 11.5 (18) of the Act to a person listed in subsection 11.5 (1) of the Act with respect to the product contrary to the Act since Health Canada approved the product for sale in Canada.
(9) Anything submitted to the Minister under this section before October 1, 2006 shall be deemed to have been submitted to the executive officer, and any authorization given to the Minister shall be deemed to have been given to the executive officer, but where a decision on designation has not been made before October 1, 2006 and the estimate required by clause (1) (c) has not been submitted, a decision shall not be made until the estimate is submitted.
(10) In clause (1) (a),
“Government of Ontario” includes all ministries of the Government of Ontario, all programs and agencies funded by the Government of Ontario and all agencies that are established by Ontario statute or regulation but are not necessarily funded by the Government of Ontario.
12.0.1 An agreement that was entered into under this section as it existed before October 1, 2006 continues in force until it expires according to its terms.
Conditions to Continue to be a Designated Listed Drug Product
12.1(1) The following conditions must be met in order for a designated listed drug product to continue to be designated as a listed drug product:
The manufacturer of the product shall give the executive officer notice of any change made to the product, including a formulation change, and of any change in the ownership of the manufacturer.
The product must be authorized for sale under the Food and Drugs Act (Canada).
The manufacturer of the product must continue to be able to supply the product at the drug benefit price in a quantity that is sufficient to meet the demand for the product.
Where the manufacturer was a party to an agreement to which this paragraph, as it read before October 1, 2006, applied, the manufacturer shall continue to be a party to that agreement until it expires according to its terms.
Subject to paragraphs 6, 6.1 and 6.2, if the product has been designated as interchangeable under the Drug Interchangeability and Dispensing Fee Act the drug benefit price of the product may not be more than the price that could be proposed to the executive officer under section 11.
Paragraph 5 does not apply with respect to a product that has been designated as interchangeable with an original product where the original product has the same drug benefit price on the Formulary as the interchangeable product or has no drug benefit price on the Formulary, but in no case may the interchangeable product be priced higher than the original product. This paragraph applies only with respect to the version of the Formulary known as Edition No. 39, published on October 23, 2006.
6.1 Paragraph 5 does not apply with respect to a product that has been designated as interchangeable with an original product where there is evidence satisfactory to the executive officer that,
i. the product is the only drug product of its type that is designated as interchangeable with an original drug product, and has been so designated for at least two years, and
ii. removing the product’s listing would result in significant patient safety or access concerns, or significant increased costs to the Government of Ontario.
6.2 Paragraph 5 does not apply with respect to a product that has been designated as interchangeable with an original product where the manufacturer of the interchangeable product has submitted evidence satisfactory to the executive officer of substantial raw material cost increases, and the executive officer is satisfied that the criteria established under section 12.2 have been met establishing that it is in the public interest that the interchangeable product be listed at a higher drug benefit price, but in no case may the interchangeable product be priced higher than the original product.
- If required by the executive officer, the manufacturer of the product shall enter into and remain a party to an agreement with the executive officer that specifies any volume discount or other amount that may be payable by the manufacturer to the Minister of Finance, and shall agree that the executive officer may make public the following information, and that information only, with respect to the agreement:
i. The name of the manufacturer.
ii. The subject-matter of the agreement.
iii. The fact of entering into or terminating the agreement.
(2) For greater certainty, the conditions set out in subsection (1) apply whether the designation as a listed drug product or as an interchangeable product under the Drug Interchangeability and Dispensing Fee Act took place before, on or after October 1, 2006.
(3) Where the circumstances described in paragraph 6, 6.1 or 6.2 of subsection (1) exist, the executive officer may, in the executive officer’s sole discretion, negotiate an agreement with the manufacturer for any drug benefit price, but in no case may the interchangeable product be priced higher than the original product.
Establishing Criteria
12.2 Pursuant to subsection 1.1 (9) of the Act, it is provided that,
(a) the executive officer has the power to establish criteria that must be met for the purposes of paragraph 6.2 of subsection 12.1 (1) in order to establish that it is in the public interest to list a drug product at a higher drug benefit price; and
(b) the executive officer shall publish those criteria on the Ministry website.