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Rajah Lehal

Shoppers Drug Mart Inc. v. Ontario (Minister of Health and Long-Term Care) (2011, Ont CA)

October 27, 2016

Discusssion: This was an appeal of two orders of the Divisional Court declaring that the provisions in the Drug Interchangeability and Dispensing Fee Act (the DIDFA) and the Ontario Drug Benefits Act (the ODBA) that attempted to ban pharmacies from selling private label generic drugs, were ultra vires and of no force and effect.

The economic implications of the impugned provisions were considered by the court in determining their judgment. The pharmacies’ commercial freedom and right to trade were considered against the long term affects on market dynamics and drug costs for consumers. Although the judgment highlights that the provisions are regulatory and not prohibitory, the regulations effectively prevent pharmacy private label generic drugs from being privately and/or publicly sold in Ontario. At the same time, however, the regulations have the effect of reducing the price that consumers pay for generic drugs. The Court of Appeal granted the appeal and upheld the regulations. Background: Pharmacies often use their own private label generic drugs instead of purchasing generic drugs from arm’s length third parties. Pharmacy private label generic drugs are considered identical to other generic drugs, and identical in formula to brand-name drugs. In Ontario, pharmacies who sold private label generic drugs would often earn rebates from drug manufacturers, but not pass these savings on to customers.

As a result, the price of generic drugs in Ontario was viewed as more expensive in comparison to other provinces and countries. In 2006 and 2010, amendments were made to the DIDFA and the OBDA that prevented pharmacy private label generic drugs from being designated as interchangeable or reimbursable under the Ontario Public Drug Programs.

Initially, the Division Court Judge struck down the regulations on three grounds:

1. They fell outside the regulation-making authority;

  1. They fell outside the regulation-making authority;
  2. They were not consistent with the purposes of ODBA and DIDFA; and
  3. They were an unwarranted interference with commercial freedom and the right to trade.

**Issue: **Whether the regulations under the OBDA and the DIDFA were ultra vires and of no force or effect. Decision: The legislation is intra vires and the ODBA and DIDFA, taken together, constitute a specialized legislative scheme in health and economics.

Although it was argued that the provisions were an unauthorized prohibition on the lawful activities of drug companies in Ontario, they were regulatory — not prohibitory. Pharmacies are not precluded from engaging in the purchase and sale of drugs in Ontario so long as they did so in accordance with the legislative and regulatory scheme. It was also found that the Divisional Court’s analysis was misplaced and too narrowly focused on the profits to be made by pharmacies, and not on the long term affects of market dynamics, incentives and drug costs.

Case Law

Written by Rajah. Rajah Lehal is Founder and CEO of Clausehound.com. Rajah is a legal technologist and technology lawyer who is, together with the Clausehound team, capturing and sharing lawyer expertise, building deal negotiation libraries, teaching negotiation in classrooms, and automating negotiation with software.