Costco being investigated by government over compliance with drug-selling rules

The sign outside of a Costco wholesale store. (THE CANADIAN PRESS IMAGES/Lars Hagberg)

TORONTO -- Costco is being investigated by Ontario's Ministry of Health for its compliance with the province's legislation on selling pharmaceutical and over-the-counter drugs.

The health ministry investigation comes after the Ontario College of Pharmacists announced it would hold disciplinary hearings for two Costco pharmacy directors because of allegations that they accepted kickbacks for stocking certain brands.

The ministry and college are both investigating the retail giant for violations of the Ontario Drug Benefit Act, which has a provision saying that operators of pharmacies, pharmacy management and staff cannot accept rebates for stocking drugs.

David Jensen, a ministry spokesman, said in an email that the college's investigations are separate from those of the ministry.

"In this case, the allegations made against Costco were first submitted to the OCP for investigation," he wrote in the email, but he said he couldn't comment on whether the ministry is also investigating Costco for alleged kickbacks.

Those kickbacks, referred to as "rebates" in the act, are defined as "currency, a discount, refund, trip, free goods or any other prescribed benefit" in exchange for putting specific drug brands on pharmacy shelves.

When asked about the ministry investigation, a Costo spokesman said the company stands by an earlier statement by its legal counsel, which said it was confident it had complied with the legislation and would co-operate with the probe.

Costo's legal counsel, Stuart Shamis, could not immediately be reached for comment.

The college, meanwhile, said it is holding disciplinary hearings for two Costco pharmacy directors, Joseph Hanna and Lawrence Varga, who it alleges accepted rebates -- either personally or on behalf of the company -- from up to five pharmaceutical companies between 2013 and 2015.

The college alleges Hanna and Varga may have accepted kickbacks from "any or all of" Ranbaxy Pharmaceuticals Canada -- which has since merged with SunPharma -- Teva Canada, Pharmascience Inc., Mylan Pharmaceuticals ULC and Actavis Inc., which has merged with Teva.

Representatives from the companies did not immediately respond to requests for comment.

The college is able to discipline individual pharmaceutical professionals by revoking or restricting their practice, whereas the ministry plays a different role.

"If the ministry were to conclude that a company paid or received rebates contrary to the legislation, the Executive Officer could issue a 'rebate penalty order' that requires the company to pay the amount of the illegal rebate to the government as a form of monetary penalty," Jensen said.