Ontario fines Costco $7 million for accepting illegal kickbacks from drug manufacturers

TORONTO — Ontario’s government has fined Costco more than $7 million after finding that the company accepted illegal kickbacks at 29 pharmacies in warehouses across the province from 2013 to 2015.

The Ontario Ministry of Health announced Friday it would penalize CWC Pharmacies (Ontario) Ltd., a wholly owned subsidiary of Costco Wholesale Canada Ltd., after it found the company received illegal advertising payments before August 2015.

Costco says it approached the ministry in 2015 for confirmation on the legality of the payments, which it had been receiving from generic drug manufacturers for advertising services.

A statement from the ministry says Costco voluntarily stopped receiving the payments until the completion of a government review.

That investigation has revealed that the company received $7.25 million for services that the ministry says violated its terms for accepting rebates. The payments were used to reduce dispensing fees and drug markups, according to Costco.

The government’s statement says Costco has “fully co-operated” with its review, and has agreed to pay the fine.

The Ontario government prohibits the operator of a pharmacy from accepting rebates from a drug manufacturer that has a product listed on the province’s drug database, according to the ministry.

The ministry defines rebates as “currency, a discount, refund, trip, free goods or any other prescribed benefit,” in exchange for putting specific drug brands on pharmacy shelves.

The ministry inspectors found that CWC received “proceeds from fee-for-service arrangements entered into with certain generic manufacturers.”