CITATION: 1671183 Ontario Inc. o/a Pharma Stop v. Ontario (Ministry of Health and Long-Term Care), 2015 ONSC 6779

DIVISIONAL COURT FILE NO.: 503/12 DATE: 20151120

ONTARIO SUPERIOR COURT OF JUSTICE DIVISIONAL COURT

Molloy, Swinton and D. Corbett JJ.

BETWEEN:

1671183 ONTARIO INC. O/A PHARMA STOP Applicant

– and –

HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO (MINISTRY OF HEALTH AND LONG-TERM CARE), DIANE MCARTHUR, EXECUTIVE OFFICER OF THE MINISTRY OF HEALTH AND LONG-TERM CARE (ONTARIO) and HELEN STEVENSON, EXECUTIVE OFFICER OF THE MINISTRY OF HEALTH AND LONG-TERM CARE (ONTARIO) Respondents

Kurt Pearson, for the Applicant Lise Favreau and Judith Parker, for the Respondents

HEARD at Toronto: October 7, 2015

Swinton J.:

Overview

[1] 1671183 Ontario Inc. o/a Pharma Stop ("the Applicant") seeks judicial review of a Varied Rebate Order dated August 31, 2011 made by the Executive Officer of Ontario Public Drug Programs. The Order imposed a financial penalty of $2,936,591.00 because of the Applicant's receipt of unlawful rebates from generic drug manufacturers.

[2] The Applicant's arguments fall into two broad categories. First, it denies that it received unlawful rebates. Second, it argues that the process that led to the orders against it was unfair and flawed to such an extent that the Order ought to be set aside and further proceedings stayed. For the reasons that follow, I would dismiss the application for judicial review.

The Legislative Context

Prohibition of Rebates

[3] The Ontario Drug Benefit Act, R.S.O. 1990, c. O.10 ("ODBA") creates the Ontario Drug Benefit Program ("ODB") through which the Ministry of Health and Long-Term Care ("the Ministry") provides coverage for most of the costs of about 3,300 prescription drug products for eligible persons in the province. The price of drugs dispensed under the Program is set by the ODBA and regulations. Under the ODBA, the Ministry reimburses pharmacies and dispensing physicians when they dispense listed drug products to eligible patients. The Executive Officer determines which drugs are listed products and publishes them on the ODBA Drug Formulary.

[4] The Drug Interchangeability and Dispensing Fee Act, R.S.O. 1990, c. P.23 ("DIDFA") creates a mechanism by which a generic drug may be found "interchangeable" so that it can be dispensed in place of an equivalent brand drug. It applies to drugs dispensed under both the ODB Program and in the private market.

[5] In 2006, Ontario enacted the Transparent Drug System for Patients Act, which introduced anti-rebate provisions in the ODBA and the DIDFA, aimed at preventing drug manufacturers from paying rebates in return for pharmacies dispensing the manufacturers' generic drug products. Pursuant to s. 12.1(1) of the DIDFA, a manufacturer may not provide a rebate to wholesalers or pharmacy operators in respect of interchangeable drug products. Pursuant to s. 12.1(3), wholesalers and pharmacy operators may not accept a rebate from a manufacturer in respect of an interchangeable drug product. The ODBA contains similar anti-rebate provisions, but they apply to all drug products reimbursed under the ODB Program, whether or not they are interchangeable (see ss.11.5(1) and 11.5(3)).

Definition of "Rebate"

[6] At the relevant time"rebate" was defined in both Acts as follows:

"rebate", subject to the regulations, includes, without being limited to, currency, a discount, refund, trip, free goods or any other prescribed benefit, but does not include

(a) a discount for prompt payment offered in the ordinary course of business, or

(b) a professional allowance.

(See s. 11.5(15) of the ODBA and s. 12.1(14) of the DIDFA prior to amendments made in 2010).

Definition of "Professional Allowance"

[7] At the relevant time, a "professional allowance" was defined in the regulations under both Acts as "a benefit, in the form of currency, services or educational materials that are provided by a manufacturer" to a wholesaler or pharmacy operator "for the purposes of direct patient care", as set out in the eight paragraphs of the subsection (see O. Reg. 201/96, s. 1(8); R.R.O 1990, Regulation 935, s. 2(1)). In addition, a Code of Conduct was prescribed under both Acts setting out a list of activities for which professional allowances could not be used, such as advertising and entertainment.

Enforcement by the Executive Officer

[8] The Executive Officer of the ODB Program is given broad authority under s. 1.1(2) of the ODBA to administer the Program, as well as to perform functions under the DIDFA. The Executive Officer is also responsible for enforcing the anti-rebate provisions in the two Acts.

[9] The Acts set out a number of mechanisms to allow the Executive Officer to carry out this enforcement role. At the relevant time, manufacturers and pharmacy operators were required to report payment and acceptance of professional allowances to the Executive Officer. Pursuant to s. 13.1 of the ODBA, the Executive Officer can compel information from manufacturers, wholesalers and pharmacy operators for the purpose of determining compliance with both the ODBA and the DIDFA and the regulations. As well, pursuant to s. 14 of the ODBA, the Executive Officer has the power to appoint inspectors to examine records in the possession or under the control of pharmacy operators, wholesalers and manufacturers of drugs listed as benefits under the ODBA to determine compliance with the ODBA and its regulations.

[10] Where the Executive Officer has reasonable grounds to believe that rebates have been paid and accepted, the Executive Officer has the power to make orders requiring manufacturers, wholesalers and pharmacy operators to pay an amount equal to the difference between the drug benefit price and the actual price paid for the drug products, subtracting any rebate (see ss. 11.5(4) and (12) of the ODBA and ss. 12.1(4) and (11) of the DIDFA). In effect, the Executive Officer may order the payor and/or the payee of a prohibited rebate to pay the amount of the rebate to the Province ("rebate order").

[11] Pursuant to s. 11.5(7) of the ODBA and s. 12.1(6) of the DIDFA, within 14 days of being served with an order, a manufacturer, wholesaler or pharmacy operator may submit evidence to the Executive Officer respecting its compliance with the rebate provisions or the calculation of the amount to be paid, and the Executive Officer may affirm, vary or rescind the order.

Factual Background

[12] In 2008, the Ministry appointed certain staff of Grant Thornton LLP as inspectors under s. 14 of the ODBA. Through the inspection and information obtained, it was discovered that certain manufacturers reported paying professional allowances to the Applicant, a wholesaler of pharmaceuticals. The Applicant had not provided any report to the Ministry regarding its receipt of professional allowances.

[13] In a report prepared for the Ministry, Grant Thornton LLP stated that Amerisource Bergen bought drugs from manufacturers and sold them to the Applicant, who would be paid professional allowances by the manufacturers. The Applicant would then resell the product to Amerisource Bergen or others, instead of dispensing the product to patients. The Applicant would also buy product directly from the manufacturer and be paid a professional allowance by the manufacturer.

[14] Executive Officer Helen Stevenson issued a Rebate Order dated April 27, 2009 requiring the Applicant to make the following payments:

Part A. $1,708 that the Applicant received as professional allowance payments in respect of ODB sales over the 20% cap permitted, making them illegal rebates in contravention of s. 11.5(3) of the ODBA;

Part B. $2,938,268 that the Applicant received as professional allowance payments from manufacturers in respect of non-ODB sales that were not used for prescribed purposes, making them illegal rebates in contravention of s. 12.1(3) of the DIDFA; and

Part C. $5,797,422 paid to Amerisource by applying professional allowances received from manufacturers as a discount on the Applicant's sales to Amerisource in contravention of s.12.1(1) of the DIDFA.

[15] The Applicant sought reconsideration of the order. It did not contest that it had received professional allowances and did not use those payments for direct patient care, or that it used professional allowance payments to discount drug products sold to Amerisource Bergen. It did challenge the process leading to the order, the jurisdiction of the Executive Officer, and the calculation of the amounts owing.

[16] The new Executive Officer, Diane McArthur, varied the Rebate Order in a decision dated August 31, 2011. She lowered the amounts owing under Parts A and B of the order to $1,550 and $2,935,041 respectively and rescinded Part C. She also gave detailed reasons for the decision. The Applicant now seeks judicial review of the Varied Rebate Order.

The Issues

[17] At the start of oral submissions, counsel for the Applicant acknowledged that the Applicant had received the impugned payments, which were described as "professional allowances" on the invoices and other material documents related to these payments. The Applicant also conceded that the professional allowances were not used for patient services. It also accepted that the quantum of the impugned payments is calculated accurately in the Varied Rebate Order, and it did not challenge the service of the Order.

[18] The Applicant raised the following issues in the argument of the application:

1. The Executive Officer did not have the jurisdiction to use the investigator's report for purposes of enforcement of the DIDFA.

2. The Executive Officer did not have authority to regulate wholesalers.

3. There was a denial of procedural fairness because of bias arising particularly from the overlapping functions of the Executive Officer in the administrative process.

4. There was a denial of procedural fairness because of delay, the lack of full disclosure and the lack of notice about the treatment of wholesalers' fees.

The Standard of Review

[19] To the extent that the Applicant challenges the merits of the Executive Officer's decision to issue the Varied Rebate Order, the standard of review is reasonableness. Although the Applicant invokes the language of "jurisdiction", the challenges brought are to decisions of the Executive Officer interpreting and applying her home statute - that is, the power to regulate wholesalers and her authority for the enforcement of the DIDFA. In respect of such decisions, the standard of review is presumed to be reasonableness (Alberta (Information and Privacy Commissioner) v. Alberta Teachers' Federation, 2011 SCC 61 at paras. 34, 39). The Applicant has not made any effort to rebut this presumption.

[20] With respect to procedural fairness, the Court must determine whether a common law duty of fairness exists and, if so, whether the duty has been met (Canada (Citizenship and Immigration) v. Khosa, 2009 SCC 12, [2009] 1 S.C.R. 339 at para. 43; London (City) v. Ayerswood Development Corp. (2002), 2002 3225 (ON CA), 167 O.A.C. 120 (C.A.) at para. 10).

Jurisdictional Arguments

The Varied Rebate Order

[21] There is no question that the Executive Officer has the jurisdiction to regulate pharmaceutical wholesalers like the Applicant. Section 12.1(1) of the DIDFA prohibits a manufacturer from paying a rebate to a wholesaler, while s. 12.1(3) prohibits a wholesaler from directly or indirectly accepting a rebate from a manufacturer. Sections 11.5(1) and 11.5(3) of the ODBA contain similar prohibitions.

[22] The Applicant, a wholesaler, received "professional allowances" from manufacturers. Those payments fall within the definition of a rebate in both Acts because they were not professional allowances as defined in the legislation. To qualify as professional allowances, the payments must be "for the purpose of direct patient care", as required by the regulatory scheme. Accordingly, the Applicant received prohibited rebates, and the Executive Officer had the jurisdiction to impose a rebate order.

[23] The Applicant argued that there was unfairness in making the rebate order against it, because it was unaware of a letter sent in 2007 by the Ministry to the Canadian Association for Pharmacy Distribution Management dealing with wholesaler fees for service. Those fees are in the range of 5-8% of product distributed. The Ministry advised the Association that this fee would not be captured by the anti-rebate provisions and communicated this information to the members of the Association. The Applicant was not on the list of Association members and so did not receive the letter.

[24] I see no unfairness here. First, if the Applicant, as a wholesaler, was providing wholesaler services to manufacturers, then it might have an issue with the manufacturers with respect to payment of such fees. However, the payments made to it were titled "professional allowances", not fees for services. As such they were prohibited rebates because they were not used for direct patient care. Second, the impugned payments to the Applicant were in the range of 40% of the product price, not 5-8%. Third, the Applicant did not make its own inquiries about wholesaler fees for service. Instead, it chose to accept illegal rebates that were misnamed "professional allowances."

The Jurisdiction to Carry Out the Investigation

[25] The Applicant argues that the Executive Officer did not have jurisdiction to use the report of an inspector appointed under s. 14 of the ODBA to enforce the DIDFA. The Applicant argues that the Ontario College of Pharmacists is responsible for the enforcement of the DIDFA in respect of pharmacies pursuant to s. 11 of the DIDFA, and the College is given the power to appoint inspectors under s. 12(1) for the purpose of enforcing the DIDFA. Therefore, the Applicant argues, the Executive Officer could not use the report of an inspector appointed under the ODBA as a basis for an order under the DIDFA. Here, the Executive Officer improperly used Amerisource information obtained pursuant to an inspection under s. 14 of the ODBA to find against the Applicant under the DIDFA.

[26] There is no merit to this argument. First, the power of the College to inspect pharmacies and dispensers in pharmacies under the DIDFA does not preclude enforcement by the Executive Officer against wholesalers. The Executive Officer is responsible for enforcing the anti-rebate prohibitions in both the ODBA and the DIDFA against all actors in the pharmaceutical supply chain, including wholesalers. Subsection 1.1(2) of the ODBA provides:

Subject to this Act and the regulations, it is the function of the executive officer, and he or she has the power, to perform any functions or duties that he or she may have under this Act and the regulations, under the Drug Interchangeability and Dispensing Fee Act and its regulations and under any other Act or regulation, and without in any way restricting the generality of the foregoing ....

[27] In carrying out her enforcement role, the Executive Officer has a number of specific powers. She has a broad power to compel specified parties, including manufacturers and wholesalers, to provide information. This is set out in s. 13.1 of the ODBA, which expressly states that for the purposes of enforcing both the ODBA and the DIDFA, she may require a wholesaler, among other actors, to provide information. There is nothing improper in the Executive Officer delegating the gathering of information to an agent or employee. In this case, she delegated that power to the inspector.

[28] The Executive Officer also has the power to appoint inspectors under s. 14 of the ODBA to conduct inspections at a place of business. The legislation does not prohibit the Executive Officer from using information, wherever obtained, for purposes of enforcing the Act. The fact that information about the Applicant may have been obtained from Amerisource did not preclude the Executive Officer from considering that information in order to determine whether the Applicant was in compliance with the legislation.

The Allegations of a Denial of Procedural Fairness

Reasonable Apprehension of Bias

[29] The Applicant argued that there was a reasonable apprehension of bias arising from the overlapping functions of the Executive Officer in the administrative process, as the Executive Officer is involved in the investigation process, the determination of compliance and the imposition of a penalty. In particular, the Applicant alleged that the Executive Officer had a conflict of interest when the rebate orders were made because the Executive Officer is also charged with the administration of the public drug plan.

[30] The Applicant also took issue with a press release issued by the Executive Officer after the original rebate order was made that named the Applicant, before the Applicant had any opportunity to seek reconsideration. This, it suggests, indicates that the Executive Officer had made up her mind prior to the reconsideration sought by the Applicant.

[31] In this case, the Applicant has not shown any reasonable apprehension of bias by the Executive Officer. To the extent that the Executive Officer may have several roles in the administration of the public drug plan and the regulatory scheme, those roles are specified by legislation. When legislation gives the authority to a decision-maker to participate at various stages of regulatory proceedings, there can be no claim that the decision-maker is biased because of these roles, absent a constitutional challenge (see Ocean Port Hotel Ltd. v. British Columbia (General Manager, Liquor Control and Licensing Branch), 2001 SCC 52, [2001] 2 S.C.R. 781 at paras. 40-43).

[32] The Executive Officer exercises broad regulatory powers under the ODBA and the DIDFA. Her tasks are not similar to an adjudicative decision-maker deciding a dispute between parties. Accordingly, given the nature of her statutory duties and the administrative and policy-making tasks she carries out, the level of impartiality required of her is that of an "open mind" (Imperial Oil Ltd. v. Quebec (Minister of the Environment), 2003 SCC 58, [2003] 2 S.C.R. 624 at para. 39).

[33] In this case, the publication of the press release does not indicate a closed mind on the reconsideration. The Executive Officer is authorized by statute to publish information about orders (see the ODBA, s. 11.6(2) and the DIDFA, s. 12.2(2)). There is nothing in the tone of the press release which suggests animus towards the Applicant.

[34] Most importantly, the reconsideration decision, issued by the new Executive Officer, resulted in a significant reduction - $5,800,807 - in the penalty originally ordered. Her decision was also explained in detailed and careful reasons that responded to the Applicant's position. There is no basis here to find that she acted with a closed mind. Therefore, the bias claim must fail.

Delay

[35] The Applicant claimed that the delay of 27 months before the Varied Rebate Order was issued resulted in unfairness.

[36] Delay alone is not a denial of procedural fairness. To prove procedural unfairness because of delay, a party must show that the delay was inordinate and the party has suffered significant prejudice, either in an interference with the party's ability to make its case or actual prejudice, for example in the form of stress or stigma, that would amount to an abuse of process. (Blencoe v. British Columbia (Human Rights Commission), 2000 SCC 44, [2000] 2 S.C.R. 307 at para. 133).

[37] There was considerable delay in this case, despite the fact that s. 12.1(7) of the DIDFA requires the Executive Officer to serve the manufacturer promptly with notice of the decision. The respondents provided an explanation for the delay, which resulted in part from the appointment of a new Executive Officer, the complexity of the issues and discussions with affected parties.

[38] However, the argument of a denial of procedural fairness based on delay must fail because the Applicant has not shown any evidence of actual prejudice.

The Ability to Respond

[39] In its factum, the Applicant raised a concern about the lack of information provided to it in the reconsideration process. In particular, it complained that it was provided with a redacted copy of the inspection report.

[40] The Applicant has not provided any information to show how it was prejudiced because it had only a redacted report. Moreover, it raised no objection with the Ministry as to the information provided. In the circumstances, I see no denial of procedural fairness.

Conclusion

[41] For these reasons, the application for judicial review is dismissed. Costs to the respondents are fixed at $15,000.00 all inclusive, an amount agreed upon by the parties.

Swinton J.

Molloy J.

D. Corbett J.

Released: November 20, 2015