A behind-the-scenes clash in Canada over generic competition has ensnared two Costco pharmacy directors, who were accused of professional misconduct in connection with an alleged scheme in which drug makers reportedly paid to have their medicines stocked by the retailer.
In notices posted on its website late last week, the Ontario College of Pharmacists alleged the employees “contravened a provincial law” by accepting a “rebate” and causing Costco to accept “rebates” between April 2013 and December 2015. The medicines and amount of money involved were not specified, although Ranbaxy Pharmaceuticals reportedly paid $1.3 million.
The employees — Joseph Hanna and Lawrence Varga — “engaged in conduct or performed an act relevant to the practice of pharmacy that … would reasonably be regarded by members of the profession as disgraceful, dishonorable or unprofessional,” the notices stated. The notices cited Ontario laws stating it is illegal for drug makers to pay rebates (see page 5 and page 10).
The companies named are all generic drug makers: Mylan Pharmaceuticals, Teva Pharmaceutical, Pharmascience, Actavis, which was recently sold by Allergan (AGN) to Teva, and Ranbaxy, which is owned by Sun Pharma. A Mylan spokeswoman wrote that the drug maker has cooperated with requests for information and maintained the company is not a subject of the probe, but has no further comment. We asked the other companies for comment and will pass along any reply.
A Costco spokesman declined to answer any specific questions, but wrote that “we confirm that there has been no finding that Costco’s pharmacies or any of its employees have acted in contravention of Ontario’s regulatory regime. We are confident that we have acted appropriately and in accordance with current Ontario guidelines and regulations.” He also noted that a disciplinary hearing must still be held.
The episode originated with a complaint filed last year by a former Ranbaxy sales rep, who secretly recorded a phone conversation. In that conversation, a Costco pharmacy director explained to the rep, Tony Gagliese, how much the drug maker would have to pay to remain competitive, according to the Toronto Star, which first reported about the complaint. Gagliese reportedly filed the complaint.
As the paper noted, generic drug makers regularly pay pharmacies a percentage of the cost of a drug for stocking the medicine elsewhere in Canada. But since such rebates are illegal in Ontario, the former rep alleged Costco required Ranbaxy to pay “renamed” rebates through “marketing initiatives,” according to the Star, which had reviewed a copy of the complaint.
In his complaint, Gagliese alleged that a Costco pharmacy director indicated that “the company that pays the most will win the most listings.” At the time the paper first reported the existence of the complaint last March, a Costco attorney maintained that any payments were “advertising fees” and were not made “in connection with the purchase and sale of any specific drug product.”
We asked Gagliese for comment, but he did not respond.
Such concerns may not cause similar controversy in the US, since drug makers can offer rebates directly to pharmacies, according to Pembroke Consulting’s Adam Fein, who tracks the pharmaceutical supply chain. He explained that, in general, most generic buying in the US is done by a handful of consortiums or companies that bid for positioning in a warehouse or store. “Offering rebates or discounts is common,” he told us. “That’s price competition.”