The federal government is investigating Canadian pharmacists who received millions of dollars in gifts and payments from major pharmaceutical companies in return for stocking their drugs.
The payments, denounced by a judge in one case as “kickbacks,” include money, prepaid credit cards, concert tickets and trips.
The Canada Revenue Agency is probing whether drugstore owners reported the gifts as income, and has taken nearly 20 drug companies to court to try to get records of the payments.
So far, the agency has flagged more than $18 million in unreported drug company gifts and payments.
Generic drug companies commonly give rebates, professional allowances or incentive payments to Canadian pharmacies to induce them to sell their products instead of those of their rivals.
In court documents obtained by the Toronto Star over the past month, the government has homed in on major players in the generic drug industry, including Teva, the world’s largest generic maker, and Canadian juggernaut Apotex, as well as brand-name firms such as Pfizer Canada.
“The information and documents are sought to verify compliance by the pharmacies and pharmacists located in Canada with their duties and obligations under the Income Tax Act,” said the government’s court applications, which were filed in two batches this fall.
Most of the companies ignored or refused to answer questions from the Star.
In a statement, the president of the Canadian Generic Pharmaceutical Association emphasized that the government’s court applications are “not an investigation” of its members.
“Member companies are complying with the request,” said Jim Keon. “The minister of revenue has the legal authority to compel the information requested of pharmaceutical manufacturers doing business in Canada.”
The payments are simply the cost of doing business, said the president of one drug manufacturer in Quebec, where rebates are heavily restricted and monitored by the province.
“Everyone is giving it,” said Olivier St-Denis of Laboratoire Riva, one of the companies asked by the taxman for its payment records.
“I have the choice to give or not give that 15-per-cent discount, but it’s kind of a thin line,” said St-Denis. “If you decide not to pay the pharmacist, there are a lot of other players that are going to pay it.”
The taxman’s investigation is just the latest in a series of regulatory and court actions concerning the murky practice of money and gifts for space on pharmacy shelves — and pharmacists who try to keep the payments secret.
In 2002, two Ontario pharmacists had their licences suspended for three weeks after their company was convicted of tax evasion for not reporting nearly $50,000 in rebates from Apotex and Novopharm, now owned by Teva.
In another case, two Montreal pharmacists were reassessed after the tax agency unearthed roughly $100,000 in money and gifts given by drug companies in 2003, including payments to contractors doing renovations on a pharmacist’s house.
A federal judge, in a 2011 decision dismissing an appeal by the pharmacists, noted, “Neither the receipt of such kickbacks nor the fact that such benefits are taxable is being denied.”
Reached at his pharmacy in a Montreal suburb, one of the pharmacists, Maher Mahrouse, said his company no longer accepts rebates from drug companies.
“That’s all past and finished. I really don’t want to revisit all this,” Mahrouse said.
Patchwork legislation means a practice that has been restricted and even prohibited in some provinces is left largely unchecked in other parts of the country.
Pharmacists have said the money, often given with no transparency, is a necessary source of revenue to keep pharmacies open.
Experts say that while there is no health risk in swapping one generic version of a drug for another, the payments speak to a worrisome intimacy between the drug industry and the health-care system.
“There should be complete separation between industry’s interests and health professionals’ behaviour,” said Jillian Kohler, a professor at the University of Toronto’s faculty of pharmacy.
“If you’re switching (the generic) for the wrong reasons, that’s troubling. Because it means you’re getting undue influence from industry.”
The government’s current investigation can be traced to a 2011 audit of a Canadian drug maker that doled out gift cards, traveller’s cheques and bank drafts to pharmacists in Atlantic Canada, according to court documents obtained by the Star.
Based on information it gleaned from the company, the government identified more than $18 million in unreported income and reassessed numerous pharmacists and pharmacies.
Then, in February 2014, the agency widened the scope of its probe to include payments to pharmacists across Canada from 2010 to 2013.
The government is also asking for details of payments “provided by businesses working in association with, subcontracted by or as agents of” the drug companies, court records say.
The government is contacting retail pharmacies to remind them that all payments from drug companies are taxable income, providing “the pharmacies with an opportunity to review and ensure any required corrections are made,” said Revenue Canada spokesman Philippe Brideau.
No pharmacists or pharmacies have been charged in relation to the agency’s current investigation, he said.
In 1997, the Ontario pharmacy company owned by John Davies and Peter Rissi was convicted of income tax evasion for not reporting nearly $50,000 in drug company rebates from the early 1990s. The Ontario College of Pharmacists suspended their licences for three weeks.
“At the time, our corporation received bad advice from our accountant,” said Davies, who still runs a pharmacy in Markdale.
Rissi, who now chairs a fundraising campaign for the Owen Sound Regional Hospital Foundation, did not respond to emailed questions from the Star.
“He does a wonderful job for us. He’s well known in the community and well respected,” said Paul Weitendorf, the foundation’s executive director.
In 2006, Ontario banned rebates, instead letting pharmacists collect professional allowance payments from companies that would be put towards specific activities, such as prescription counselling.
A provincial investigation found drug makers, wholesalers and pharmacists were skirting the rules, and in 2013 the government banned professional allowances.
One of those pharmacists was Andrew Chabursky, whose company collected more than $1 million in improper rebates, according to a College of Pharmacists disciplinary ruling.
The Star has no evidence that Chabursky did not declare the money as income and he did not respond to questions.
Last year, the college suspended his licence until January 2015 and ordered him to pay a $30,000 fine.
“He engaged in conduct and performed acts that would reasonably be regarded by members of the profession as disgraceful, dishonourable and unprofessional with respect to the illegal rebates,” the college found.
The payments, it added, “served to undermine in the public’s eye the credibility of an honest and honourable profession.”