In December 2011, the Court of Appeal for Ontario reversed the Divisional Court decision in Shoppers Drug Mart Inc. v. Ontario (Health and Long-Term Care) and ruled that certain provisions of the Regulations made under the Ontario Drug Benefits Act and the Drug Interchangeability and Dispensing Fee Act (collectively, the Regulations) preventing the listing of "private label" generic drug products on the Ontario Drug Benefit Formulary were within the power of the Minister under the parent statutes. Private label generic drug products are products that pharmacy retailers, in this case the Shoppers Drug Mart and Katz group of companies (the Pharmacies), market under their own trade names.
The Divisional Court had previously declared the prohibition on listing private label generic drug products on the formulary to be of no force and effect as, among other reasons, the provisions in the Regulations prohibited rather than regulated private label generic drug products and were extraneous to the purpose of the Regulations. The Government of Ontario appealed this decision.
In allowing the appeal, the Court of Appeal concluded that the provisions of the Regulations were not prohibitive, but merely imposed conditions on generic drugs. In this regard, the Pharmacies were not precluded from engaging in the purchase and sale of drugs in Ontario, as long as they did so in accordance with the legislative and regulatory scheme. Specifically, even with the limitations imposed on private label generic drug products, the Pharmacies were still entitled to participate in many (but not all) stages along the "fabricator / manufacturer / wholesaler / pharmacy / patient continuum of the Ontario drug supply chain."
The Court of Appeal went on to state that a core purpose of the parent statutes is to achieve low prices for generic drugs and that it is open to the Ontario Government to craft a legislative scheme that attains this goal by directly regulating drug prices (e.g., banning rebates) and indirectly regulating the compensation model for some participants, such as pharmacies (e.g., prohibiting the listing of private label generic drug products). While the Court of Appeal conceded that the actual effect of private labels on the market is hard to predict, it nonetheless concluded that it would be reasonable to find that the existence of private label generics could reduce competition in ways that would adversely affect long-term generic drug prices.
Notwithstanding the impact that this decision may have on pharmacy retailers, it is notable that the Court of Appeal partly framed its decision by recognizing that the parent statutes constitute "'a specialized legislative scheme' in a highly important and complex domain of public policy, namely, health and economics." This complexity, coupled with the "several billion dollars of public funds" required to deliver drug products in Ontario, led the Court of Appeal to conclude that courts, in general, must be careful in evaluating government decisions in the area of pharmacy sales and reimbursements for generic prescription drugs in Ontario.
In early February 2012, the Pharmacies filed applications for leave to appeal to the Supreme Court of Canada. These applications are currently pending.