In a 7-0 decision released November 22, 2013, the Supreme Court found that the DIDFA & ODBA regulations are valid and that companies controlled by pharmacies who sell “private label products” cannot have their products listed as interchangeable on the Ontario Formulary.
Background: To control drug pricing, the Ontario government introduced the Drug Interchangeability and Dispensing Fee Act (DIDFA) (requiring pharmacists to dispense interchangeable generic) and the Ontario Drug Benefit Act (ODBA) (reimbursing listed Formulary drug) in 1985. Prior to 2006, the price which manufacturers could apply to list generic drugs in the Formulary was capped at effectively 63% of the brand-name drug price. To be competitive, manufacturers would give pharmacies a substantial rebate to entice them to buy their products. The price that customers paid was thereby artificially increased. In 2006, the Ontario government amended the ODBA, the DIDFA and the Regulations under them and banned such rebates.
In 2010, the Ontario government amended the Regulations to the DIDFA and the ODBA and, inter alia, eliminated professional allowances and created a category designated as “private label products”. Manufacturers of “private label products” do not directly fabricate the products and do not have an arm’s length relationship with a company that owns, operates or franchises pharmacies. Under the 2010 Regulations “private label products” cannot be listed in the Formulary or designated as interchangeable. This would essentially ban the sale of private label products in the private and public markets in Ontario.
Sanis Health Inc., a subsidiary of Shoppers Drug Mart and incorporated for the purpose of buying generic drugs in order to sell them under the Sanis label to Shoppers Drug Mart stores, applied to have several drugs listed on the Formulary. This request was denied due to the restriction against private labels in the 2010 Regulations. Sanis brought an application for a declaration that the provisions were ultra vires the regulations as they were not consistent with the objectives of the 2010 Regulations. The Ontario Court of Appeal and Supreme Court of Canada refused the application holding the 2010 Regulations valid and proper.
The Supreme Court of Canada held that the 2010 Regulations were intra vires because they are consistent with the statutory purposes of transparent drug pricing and reducing drug costs. If pharmacies were permitted to create their own affiliated manufacturers whom they controlled, they would be directly involved in setting the Formulary prices and have strong incentives to keep these prices high.
The question of the vires of legislation is dependent upon whether the legislation is consistent with the object of the enabling statute. The intent of the two statutes and their regulations was to control prescription drug costs in Ontario without compromising safety. The purpose of the 2010 Regulation amendment was consistent with these goals of reducing generic drug prices and was but one step in the series of incremental amendments in this direction. Further, the legistlation did not go beyond its mandate, which was limited to private labels products which are held by companies related to pharmacies. If pharmacies were permitted to control their own manufacturers they would have strong incentives to keep prices high. The 2010 Regulations in respect of private label products prevent another possible way to circumvent the ban on rebates that had kept generic drug prices inflated.