Former pharmacist watchdog received questionable payments
On a cloudy June day, Mark Scanlon sat in the hearing room at the Ontario College of Pharmacists, taking notes.
He was one of three judges hearing a motion by pharmacists accused of collecting unlawful kickbacks from drug companies wanting to get their medications on pharmacy shelves.
Scanlon is a long-time committee member with the college, a self-regulating professional body responsible for making sure pharmacists follow the rules.
He is also one of two former presidents of the college who have received questionable payments from a drug company.
The money comes from McKesson Canada, a massive pharmaceutical wholesaler that supplies prescription drugs to Canadian pharmacies, including stores owned by Scanlon and Esmail Merani, his successor as college president.
Both men are still on the college’s committee that handles disciplinary matters.
It’s illegal in Ontario for drug companies to give cash or incentives to induce a pharmacy to stock their products. These unlawful payments are known as rebates and critics say they compromise pharmacists’ professional independence and can artificially inflate the price of generic prescriptions.
The money from McKesson to some of the college’s prominent members is no different than rebates, alleged a pharmacist in a recent email to the regulatory body.
McKesson said its payments to pharmacies are legal and the money is not tied to the sale of drugs. Rather, the “market-value payments” reimburse pharmacy owners for “professional goodwill and services,” the company said in a statement.
From his Mather and Bell Pharmacy in Peterborough’s south end, Scanlon said he uses the money from McKesson to improve the services he offers his patients. He said he inherited whatever deal the pharmacy’s previous owner had with McKesson.
“I am not someone who dives deep into where does the money come from, how do we get it, who’s paying it, and things of that nature,” Scanlon said. “I am a pharmacist first and a business owner second.”
Merani, who co-owns four pharmacies in the Ottawa area, said in an interview that everything he does is above board and directed any questions about the payments to McKesson. Neither he nor Scanlon would say how these payments differ from those that are prohibited by the government.
McKesson has agreements with groups of independent pharmacies, known as banners, guaranteeing that the wholesaler will supply at least 95 per cent of the stores’ brand and generic drugs, according to internal McKesson documents.
Under these agreements, McKesson provides “support” to the stores. Internal company documents show McKesson pays Ontario-based pharmacies for a variety of things, such as advertising, data sharing and something called a banner standards allowance.
The payments are given to pharmacies that are part of I.D.A., Guardian and Remedy’s Rx chains. Scanlon’s and Merani’s pharmacies are I.D.A. stores.
“The relationship between a banner pharmacy and McKesson Canada is mutually beneficial,” a McKesson spokesperson said.
Details of the payments described in the McKesson documents were shared for this story with several people who research the pharmacy industry, including Paul Grootendorst, an associate professor at the University of Toronto’s school of pharmacy.
The payments are questionable under Ontario’s rebate regulations, Grootendorst said, adding that it’s hard to know if the services provided by the pharmacies were commensurate with the amount the drug supplier paid.
“It’s all part of an attempt to not violate any of the rules but at the same time give a pharmacy a rebate,” he said.
McKesson’s relationship with pharmacists has come under scrutiny in another part of Canada. In 2013, the wholesaler agreed to pay $40 million to Quebec’s health insurance board after an investigation into a “compliance program” in which pharmacists stocked certain brands of generic medications in exchange for unspecified benefits. McKesson admitted no liability and has said participation in the nowdefunct program was voluntary.
A McKesson slideshow shows the company is encouraging its employees to drop the term “rebate” from its corporate vocabulary.
The records do not show the specific dollar amounts paid to pharmacies.
As an upfront incentive to sign a long-term contract and join the Guardian or I.D.A. pharmacy chains, McKesson offers stores a lump-sum payment of up to 18 per cent of their total annual sales of generic medications, according to a McKesson source familiar with the agreements. A cheque could range from a couple hundred thousand dollars to more than $1 million, the source said.
A McKesson spokesperson would not answer questions about signing incentives.
Scanlon, a third-generation pharmacist, bought his Peterborough pharmacy in 2013 and said he does not dig into details about the payments from McKesson.
“I don’t need to know what (the payments) are, I don’t need to know exactly how they come about. What I want to know is that someone doing a similar business is not getting a better deal than I am. And I ask for assurances on that,” he said.
“I entered into this agreement with them with the assumption and the belief that they are not doing anything they’re not supposed to be doing.”
Scanlon served as president of the Ontario College of Pharmacists from September 2014 to September 2015. He was succeeded by Esmail Merani, who manages a pharmacy in Carleton Place, near Ottawa, which he bought with a partner in the early 1990s.
Merani refused to discuss the money he receives from the company that supplies his pharmacies with prescription drugs.
“Talk to McKesson . . . They know what the payments are for. I don’t know that,” he said. “If there are rules and you think we are breaking the rules, then find out. Everything I do is kosher — 100 per cent.”
Across the country, enormous amounts of money pass from generic drug companies to the pharmacies that stock their drugs.
Recent Revenue Canada audits found roughly $84 million in unreported income stemming from rebates and other “incentive-based inducements” to pharmacists and their businesses since 2010.
Rebates are allowed in most provinces. Ontario banned the payments in 2006, stating that pharmaceutical companies were incorporating the cost of rebates into their medications’ regulated price and the province’s public drug plan was paying inflated amounts for drugs.
The government eventually cracked down on “professional allowances,” which are payments that drug companies give to fund specific patient services such as home deliveries to seniors. The government said the money was being misused and put toward bonuses and general overhead. The then health minister denounced the payments as a part of a “scheme to enrich pharmacies.”
Pharmacists railed against the moves, saying the drug companies’ money was keeping community pharmacies afloat and funding many services performed by pharmacists that the government was unwilling to pay for. Without the money, pharmacists said, patients will ultimately suffer.
As the professional regulator, the college is in charge of holding accountable any pharmacist who accepts prohibited payments.
The college was alerted to the relationship between McKesson and some of its committee members in April 2017 by pharmacist Tony Gagliese.
Gagliese warned in emails that “past presidents” and “current council members” who own I.D.A. pharmacies were participating in what he alleged to be “illegal behaviour.”
Gagliese, who was working as a sales rep for generic drug manufacturer Ranbaxy, filed a complaint to the college in 2015 accusing the heads of Costco’s pharmacies of squeezing out nearly $1.3 million in unlawful rebates.
At the heart of Gagliese’s allegations was a secretly recorded phone conversation of a Costco pharmacy director, Joseph Hanna, explaining how much Gagliese’s drug company would have to pay to “greatly reduce the likelihood of somebody eating your business.” Gagliese no longer works for Ranbaxy.
Costco has said the contentious payments were for “advertising fees” and were not connected to its decision to buy specific medications from the drug company.
In November 2016, two Costco pharmacy directors — pharmacists Hanna and Lawrence Varga — were charged with professional misconduct for allegedly accepting unlawful rebates from as many as five generic drug companies. Hanna was previously an elected council member with the college who worked on the discipline and professional practice committees.
Disciplinary proceedings against the two men are scheduled to begin on Jan. 15. The Ontario government is also investigating the payments to Costco from drug companies.
As far as Gagliese is concerned, some of the top dogs at the pharmacists’ regulatory body had committed the same alleged misconduct.
“It is inappropriate for those empowered by the government to enforce the rebate law to then violate that same law by receiving rebates,” he said in a statement to the Star.
“It undermines the public’s confidence in the government, the pharmaceutical industry, the law and the impartial administration of justice.”
A college spokesperson said it would be inappropriate to speculate on whether a payment was offside.
“Determining whether an activity a member has engaged in is an act of professional misconduct, such as the acceptance of a rebate, requires a comprehensive investigation that considers all of the circumstances behind each individual case and an analysis of evidence presented to the college,” a spokesperson said in a statement.
The college would not say if it is looking into the payments from McKesson to its past presidents as all investigations are confidential, the spokesperson said.
“We hold every registrant and pharmacy to the same standard and expect all pharmacy professionals to comply with . . . applicable laws no matter what role they may or may not have with our college.”
In Quebec, where McKesson paid $40 million over concerns with its “compliance program,” the professional regulator went after 326 pharmacists who allegedly received improper benefits from the wholesaler for stocking preferred generic drugs.
The pharmacists agreed to pay a combined $1.6 million to the Ordre des pharmaciens, Quebec’s version of the college.
Pharmacists taking part in these kinds of programs that dictate what medications they can buy are compromising their professional independence, said Paul Fernet, a former president of Quebec’s Order of Pharmacists and now a lawyer who specializes in pharmacy issues.
“From the moment you commit yourself to an exchange of money, or rebates or advantages, to put on the table your professional judgment and your independence, to me that’s a big problem. Professionally, that’s unacceptable,” he said.
With professional allowances banned, Ontario pharmacists must find different ways to offset the cost of services the government does not cover, such as the time taken putting medications into blister packs or answering questions about nonprescription drugs.
At Mark Scanlon’s pharmacy in Peterborough, his main pharmacist works 40 hours a week. He employs 14 people, including two young women he met while doing mission work at an orphanage in Honduras. All of this is to improve the service he provides to his community, he said.
“If I didn’t have additional funds provided to us, my bottom line would be much tighter,” he said. “I do things because it helps people not because I get paid to do it.”