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
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
Torys' Food and Drug Regulatory Bulletin, June 17,
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
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