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Drugs - History. Spina v. Shoppers Drug Mart Inc.
In Spina v. Shoppers Drug Mart Inc. (Ont CA, 2024) the Ontario Court of Appeal considered class action franchise appeals (direct and cross) from summary judgment decisions.
Here the court explains some recent history of public drug funding in Ontario:[6] In 2006, the Ontario government introduced amendments to the Ontario Drug Benefit Act, R.S.O. 1990, c. O.10 and the Drug Interchangeability and Dispensing Fee Act, R.S.O. 1990, c. P.23, and their associated regulations, O. Reg 201/96 (the “ODBA Regulation”) and R.R.O. 1990, Reg. 935 (the “DIDFA Regulation”), collectively “the Legislation”, to ban rebates for products from generic drug manufacturers, such as those that Shoppers had been collecting. The Legislation did, however, allow payment for “Professional Allowances”.
[7] Professional Allowances were defined in the Legislation as “a benefit, in the form of currency, services or educational materials that are provided by a manufacturer … for the purposes of direct patient care [as set out in the subsection]”: ODBA Regulation, at s. 1(8); DIDFA Regulation, at s. 2(1), as they appeared October 1, 2006.[1] Attached as Appendix 1 to these reasons are the relevant excerpts from the statutory and regulatory framework as they appeared when they came into force on October 1, 2006.[2]
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(3) Changes to the Legislation
[30] Prior to October 1, 2006, Shoppers was permitted to receive rebates for merchandise purchased from generic drug manufacturers. On October 1, 2006, the Ontario government introduced amendments to the Legislation, which created what I will refer to as the “Professional Allowance Regime”. The Legislation was amended periodically throughout the Class Period but the Professional Allowance Regime remained in force until March 31, 2013.
[31] As of October 1, 2006, the Legislation was amended to provide that “[a] manufacturer shall not provide a rebate to wholesalers, operators of pharmacies, or companies that own, operate or franchise pharmacies”. The Legislation prohibited rebates in order to stop the inflationary effect on generic drug prices: Katz Group Canada Inc. v. Ontario (Health and Long-Term Care), 2013 SCC 64, [2013] 3 S.C.R. 810, at para. 11. Shoppers and others lobbied against this policy change, arguing that the ban on rebates would reduce the level of patient care provided by pharmacies. Ultimately, the amendments to the Legislation terminated one major source of revenue for pharmacies and replaced it with a type of reimbursement for specifically enumerated direct patient care services: Professional Allowances: Katz, at paras. 12-13.
[32] “Professional allowance” was defined in the regulations as “a benefit, in the form of currency, services or educational materials that are provided by a manufacturer to [wholesalers, operators of pharmacies, or companies that own, operate or franchise pharmacies, or to their directors, officers, employees or agents] for the purposes of direct patient care”: ODBA Regulation, at s. 1(8); DIDFA Regulation, at s. 2(1), as they appeared October 1, 2006.
[33] The Legislation also contained a Code of Conduct which was “intended to establish system-wide guidance governing the use of professional allowances to be paid by manufacturers to operators of pharmacies, or companies that own, operate or franchise pharmacies”. ODBA Regulation, at Schedule 3; DIDFA Regulation, at Schedule 1, as they appeared October 1, 2006.
[34] These regulations provided that “[a] benefit is not a professional allowance if the contents of the Code of Conduct … are not complied with”: ODBA Regulation, at s. 1(10); DIDFA Regulation, at s. 2(2), as they appeared October 1, 2006. The Code of Conduct provided that “professional allowance[s] must be used only for any or all of the activities” set out in the definition of “professional allowance” which included direct patient care services in the form of education programs, clinic days provided by pharmacists to disseminate disease or drug-related information, and private counselling areas within a pharmacy. All payments were subject to audit by the Ministry or a third party.
[35] The key provisions of the ODBA Regulation and the within Code of Conduct as it appeared on October 1, 2006, are set out below:1(8) For the purposes of section 11.5 of the Act,
“professional allowance”, in the definition of “rebate”, means, subject to subsections (9) and (10), a benefit, in the form of currency, services or educational materials that are provided by a manufacturer to persons listed in subsection 11.5 (1) of the Act for the purposes of direct patient care as set out in paragraphs 1 to 8 of this subsection:
1. Continuing education programs that enhance the scientific knowledge or professional skills of pharmacists, if held in Ontario.
2. Continuing education programs for specialized pharmacy services or specialized certifications, if held in North America.
3. Clinic days provided by pharmacists to disseminate disease or drug-related information targeted to the general public including flu shot clinics, asthma clinics, diabetes management clinics, and similar clinics. For this purpose, a “clinic day” includes any additional staff to support the clinic day or the regular pharmacy business while the pharmacist is hosting a clinic day, during that day.
4. Education days provided by pharmacists that are targeted to the general public for health protection and promotion activities. Such education days must be held in the pharmacy, or a school, long-term care home, community centre, place of worship, shopping mall, or a place that is generally similar to any of these. For this purpose, an “education day” includes any additional staff to support the education day or the regular pharmacy business while the pharmacist is hosting an education day, during that day.
5. Compliance packaging that assists their patients with complicated medication regimes.
6. Disease management and prevention initiatives such as patient information material and services, blood pressure monitoring, blood glucose meter training, asthma management and smoking cessation, used in their pharmacy. For this purpose, “disease management and prevention initiatives” includes any additional staff required to support these initiatives or the regular pharmacy business while the pharmacist is hosting a disease management and prevention initiative, during the time it is being held.
7. Private counselling areas within their pharmacy.
8. Hospital in-patient or long-term care home resident clinical pharmacy services, such as medication reconciliation initiatives or other hospital or long-term care home-identified clinical pharmacy priorities. For this purpose, “clinical pharmacy services” includes the costs of any additional staff required to support these services or the regular pharmacy business while the pharmacist is hosting a clinical pharmacy service, during the time it is being held.
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(10) A benefit is not a professional allowance if the contents of the Code of Conduct established under subsection 11.5 (15) of the Act, and as set out in Schedule 3, are not complied with.
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CODE OF CONDUCT
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Fundamental Principles
1. Payments from manufacturers to operators of pharmacies, or companies that own, operate or franchise pharmacies, including their directors, officers, employees or agents, in the form of a professional allowance must be used only for any or all of the activities set out in the definition of “professional allowance” in subsection 1 (8) of the regulation.
2. All persons involved in the drug distribution system must operate transparently. To act transparently, manufacturers, operators of pharmacies, or companies that own, operate or franchise pharmacies, including their directors, officers, employees or agents must make the executive officer and other stakeholders knowledgeable of, and fully understand, the flow of funds in the drug products supply chain. This includes recording and reporting all such payments as required by the executive officer, and being subject to audit by the Ministry or a third party.
3. All suppliers of drug products as well as operators of pharmacies, or companies that own, operate or franchise pharmacies, including their directors, officers, employees or agents, must commit to abide by this Code of Conduct. Any breach of the Code will be subject to enforcement as set out in the Ontario Drug Benefit Act and the Drug Interchangeability and Dispensing Fee Act.
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Professional allowances are to be calculated based on the following criteria:
1. Reasonable costs to provide direct patient care as set out in paragraphs 1 to 8 of the definition of “professional allowance” in subsection 1 (8) of the regulation.
2. Reasonable frequency of providing direct patient care as set out in paragraphs 1 to 8 of the definition of “professional allowance” in subsection 1 (8) of the regulation.
3. A reasonable number of patients per pharmacy. [36] The DIDFA Regulation contained substantially identical provisions as of October 1, 2006, the only differences being the section numbers. All key provisions in the Legislation are set out in Appendix 1.
[37] At times there were legislated caps on Professional Allowance amounts and any excess amounts were deemed rebates, not Professional Allowances.
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[75] As noted above, Professional Allowances are defined in the Legislation as “a benefit in the form of currency, services, or educational materials that are provided by a manufacturer …for the purposes of direct patient care”: ODBA Regulation, at s. 1(8); DIDFA Regulation, at s. 2(1), as they appeared October 1, 2006. The Code of Conduct provides that Professional Allowances were “to be calculated based on … [r]easonable costs to provide direct patient care,” “[r]easonable frequency of providing direct patient care,” and “a reasonable number of patients.” In other words, Professional Allowances are directly tied to direct patient care services, which were largely provided by the Associates at store-level. They are not just a percentage discount on the price of drugs to be negotiated between Shoppers and generic drug manufacturers.
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[154] In 2006, the Legislation was amended to prohibit rebates but allow Professional Allowances. Rebates continued to be allowed in many other provinces and territories in Canada.
[155] Shoppers was prohibited from collecting rebates from generic drug manufacturers in Ontario due to the inflationary effect on the price of generic drugs: Katz, at para. 11. However, Professional Allowances were introduced after Shoppers and others lobbied Ontario legislators, submitting that without rebates, direct patient care services provided by pharmacies would become unsustainable and patient care would suffer.
[156] As I concluded above, Professional Allowances were revenue generated for providing the enumerated direct patient care services. As such, the Associates’ right to share in all revenue from the franchised business includes the right to their share of this new revenue in the form of Professional Allowances for providing enumerated direct patient services.
[157] During the period when reporting was required, Shoppers reported the Professional Allowances it received to the Ontario government on behalf of the Associates.
[158] The Code of Conduct provided “guidance governing the use of professional allowances to be paid by manufacturers to operators of pharmacies, or companies that own, operate or franchise pharmacies, or to their directors, officers, employees or agents.”
[159] For part of the Class Period, the Code of Conduct provided a reporting process to enable the Ontario government to verify and confirm the amount of Professional Allowances that operators of pharmacies, or companies that own, operate or franchise pharmacies, received from drug manufacturers in as much detail as required by the executive officer.
[160] In accordance with the Code of Conduct, Shoppers collected and reported the Professional Allowances received from drug manufacturers, and the monies spent on enumerated direct patient care services.
[161] After Shoppers collected the monies from manufacturers, it submitted the accounting report to the Ontario government. Shoppers was required to certify: (a) the total amount of Professional Allowances received, and (b) the corresponding total amount of direct patient care expenditures for which the Professional Allowances had been used or were to be used. Shoppers represented that the reports consisted of “all costs and expenses for eligible activities for patient care initiatives” incurred during the relevant period. The total store-level direct patient care services provided was $1.44 billion. However, taking into account the legislated caps, the maximum allowable amount of Professional Allowances Shoppers could have accepted under the Legislation was $1.084 billion.
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