The retail giant is being investigated for demanding supposedly illegal payments for stocking generic drugs
Retail giant Costco is being investigated by Ontario’s Forensic Investigation Team (FIT) for taking $1.2 million in potentially illegal payments from a generic drug manufacturer.
The investigation was launched after two Costco pharmacy executives, Joseph Hanna and Lawrence Varga, admitted to professional misconduct in front of the Ontario College of Pharmacists, reported CBC News. The charges were levelled against them by Tony Gagliese, a former pharmaceutical salesman with Ranbaxy Pharmaceuticals.
Gagliese presented secret recordings of conversations he had with Hanna in 2014, which was reported by CBC News. In one of the recordings, Hanna said Ranbaxy needed to give Costco a 60% share of its generic-drug sales — $3.6 million out of $6 million in Canadian sales.
The arrangement Hanna was referring to is known in the industry as a pharmacy rebate, wherein a pharmacy chain asks a generic drug company for payment to stock its brand of drugs. Most provinces allow the practice, but Ontario outlawed it in 2013 so that generic drugmakers could afford to lower their prices.
“You call it a rebate. I prefer to call it a kickback,” Amir Attaran, a professor of medicine and law at the University of Ottawa, told CBC News. “Canadians are really seriously gouged on the price of generic drugs.”
In their taped conversations, Gagliese pointed out to Hanna that what he wanted was illegal in Ontario. But Hanna explained that Ranbaxy could pay $2.3 million as a straight rebate for sales in provinces outside Ontario; in Ontario, Ranbaxy would pay $1.3 million in what he referred to as “marketing support.”
“[T]his is a minimum … to greatly reduce the likelihood of somebody eating your business," Hanna said.
Following the revelations, Hanna told CBC News that he was unaware that the payments he was asking for would be regarded as an illegal rebate in Ontario. He added that neither the Ontario College of Pharmacists nor the province had given any guidance on the issue.
“Neither I, nor Costco, would ever knowingly accept a payment that was prohibited,” he said.
Costco top Canadian executive, Andrée Brien, echoed Hanna’s claims. She added that Costco stopped the practice following its own internal investigation — not because of any “finding of wrongdoing” — and that the payments demanded were used to defray operating costs and ultimately lower prices for consumers.
Costco has accused Gagliese of using the recordings and the threat of proceedings to try and force the retailer to buy more generic drugs from Ranbaxy. Meanwhile, Ontario’s Ministry of Health and Long-Term Care has asked the FIT to conduct a second phase of the investigation.
