Druggists in revolt over handling of rebates

The legal dispute arises from the way Shoppers Drug Mart is organized. The retail chain is actually a network of franchisees. Stores are owned and operated by individual pharmacists, or as the company puts it, "licensed associate-owners."

Edmonton Journal
November 24, 2010

Druggists in revolt over handling of rebates
Drew Hasselback

Shoppers_Drug_Mart.jpg

A proposed class-action lawsuit alleges that Shoppers Drug Mart is flouting its obligation to tell store owners the value of rebates it collects from drugmakers. Photograph by: Chris Watt Ie, Reuters, Financial Post; Postmedia News

A proposed $1-billion class action lawsuit against Shoppers Drug Mart boils down to the way pharmacists are paid for selling generic drugs.

John Spina and Romeo Vandenburg, two pharmacists who own and run Shoppers Drug Mart franchises in the Toronto area, last Friday filed notice with the Ontario Superior Court of Justice that they intend to sue the company for breach of contract.

They allege Shoppers Drug Mart breached their franchise contract in the way the company handled so-called "professional allowances" from generic-drug manufacturers. These are rebates drugmakers pay pharmacies to guarantee shelf space for their products, and they're the main target of a controversial Ontario government policy that's designed to slash the cost of generic drugs.

In April, Ontario announced an overhaul of the province's drug system. The changes include a cap on the prices that pharmacies can charge for generic drugs and a ban on the rebates manufacturers can pay druggists for stocking their products.

The legal dispute arises from the way Shoppers Drug Mart is organized. The retail chain is actually a network of franchisees. Stores are owned and operated by individual pharmacists, or as the company puts it, "licensed associate-owners."

Spina opened his first Shoppers Drug Mart store in Whitby, Ont., in 1992, and now owns and operates a store in Ajax, Ont. Vandenburg opened his first location in Whitby in 1994 and now owns and operates a store in Toronto.

According to a notice of action filed in court, Shoppers Drug Mart collects generic drug rebates on behalf of store owners. Pharmacists are supposed to report the receipt of such payments to the province. The company takes care of this on behalf of all the individual store owners.

The court filing claims that Shoppers Drug Mart is obliged to tell store owners just how much the company collects in special allowances or rebates from drugmakers, but the plaintiffs say this isn't happening.

The allegations have not been proved in court. Shoppers Drug Mart has described the proposed suit as being without merit.

The document filed in court makes no specific reference to Ontario's drug policy, but Shoppers Drug Mart has been vocal in its opposition to the ban on rebates. The drug chain relies on those rebates to cover 25 to 30 per cent of its operating costs.

The court document is short on detail, but this is no surprise. A notice of action is a relatively simple document that puts the defendant on notice that a lawsuit is in the works. To proceed with an action, the plaintiffs would still need to file a more-detailed statement of claim.

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