Canada: Ontario Government Seeks Appeal Of Pharmacies' Successful Challenge On Private Label Restrictions

The regulation of private label drug products remains in flux with the recent decision of the Ontario Superior Court of Justice (Divisional Court) and potential appeal of that decision.

In the context of the Ontario Drug Benefit Act (ODBA) and the Drug Interchangeability and Dispensing Fee Act (DIDFA), private label drug products are essentially drug products for which the designated manufacturer is not at arm's length from a pharmacy. Specifically, the legislation defines private label products as including a drug product whose manufacturer (i.e., the entity that applies for a listing or interchangeability designation) neither directly fabricates the product nor controls or is controlled by the fabricator, and either (i) the manufacturer has no arm's-length relationship with a wholesaler, a pharmacy operator or a company that owns, operates or franchises pharmacies; or (ii) the product is to be supplied under a marketing arrangement associating the product with a wholesaler or one or more pharmacy operators or companies that own, operate or franchise pharmacies.

The Ontario Ministry of Health and Long Term Care recently amended the regulations made under the ODBA and DIDFA. These amendments lowered reimbursement levels for generic drugs and eliminated professional allowances paid to pharmacies under Ontario's public drug benefit scheme. The amendments also gradually reduced generic drug prices and phased out professional allowances in the private payor marketplace. However, in addition, since July 1, 2010, the regulations have prohibited reimbursement for private label products under the ODBA, as well as prevented the designation of private label products as interchangeable under the DIDFA.1

Shortly after the private label provisions came into force, they were challenged by Shoppers Drug Mart Inc. and the Katz Group Canada Inc. In the decision released on February 3, 2011, a three-judge panel of the Divisional Court unanimously declared the private label provisions ultra vires and of no force and effect on the basis that the regulations (i) are extraneous to the purposes of the ODBA and DIDFA, (ii) are beyond the scope of the regulation-making power of the parent statutes, and (iii) interfere with the right of trade and commercial freedom. While the ODBA and DIDFA permit the Ministry to enact regulations that prescribe conditions for reimbursement and interchangeability, the Court found that the private label provisions were direct prohibitions, rather than conditions to be met. Noting that the purpose of the ODBA/DIDFA regime was to control the cost of drugs in the province without compromising safety, the Court held that the ban relating to private label products was outside the scope of such purpose. In the Court's view, the private label provisions are inconsistent with the intent of the statutes in maintaining a low price for generic drugs for several reasons, including that such prohibitions would not lower the price of drugs paid by consumers, and therefore, controlling the profitability of certain companies would not be a legitimate purpose.

On February 18, the Ontario government filed a notice of motion for leave to appeal the decision to the Ontario Court of Appeal. As there is no appeal of right from the decision of the Divisional Court, it will be several months before it will be known whether the decision will be revisited by the Court of Appeal.


1 Other changes in the regulations included reducing the maximum price cap for generic drugs in both the public and the private sectors, and instituting restrictions on commercial arrangements between entities in the drug supply chain. For further details, see Torys' Food and Drug Regulatory Bulletin, June 17, 2010.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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