Big Pharma in Panic Mode as Canadian Government Threatening Control of Drug Prices

Facing crackdown in Canada, drugmakers

offered billions in price cuts

Delayed rules would change countries Canada compares its prices to, dropping U.S.

Thomson Reuters 

Global drugmakers have argued against a Canadian government proposal that would lower the price

Canadians pay for patented drugs. (Shutterstock/Tero Vesalainen)

Canadian pharmaceutical industry lobby groups, trying to head off a planned crackdown on prescription drug prices, offered to give up $8.6 billion ($6.6 billion US) in revenue over 10 years, freeze prices or reduce the cost of treating rare diseases, according to interviews and documents seen by Reuters.

Those industry offers did not impress federal officials last year, as Canada prepared to expand the powers of a little-known federal watchdog called the Patented Medicine Prices Review Board (PMPRB) to reduce the cost of prescription drugs.

The government proposals would change the countries Canada compares its prices to, dropping the United States where they are highest, and set a formula to assess cost-effectiveness of medicines.

Announced in 2017, the new rules were scheduled to come into effect last month but have been delayed as the government reviews feedback, which has some wondering if they will ever be implemented.

The delay is a setback for supporters of the changes. But documents detailing counter offers from lobby groups Innovative Medicines Canada and BIOTECanada show an industry struggling to win over federal officials.

Unlike other countries with universal health care, Canada's government-funded health-care system does not cover prescription drugs. Most Canadians rely on an expensive patchwork of public and private insurance plans for that. Among industrialized nations, only the United States and Switzerland spend more on prescriptions per capita.

I think it's a little early for people to panic

and lament the demise of this policy initiative.

- Douglas Clark

Declan Hamill, a vice-president at Innovative Medicines Canada, said the proposed regulations go too far and could hurt patient access to new drugs in Canada. But his group recognizes that the Canadian government wants to make drugs more affordable, he said.

"We'd like to help the government out with that, and we've been trying to have discussions with them," Hamill said.

Lower prices in Canada could eventually hit drugmakers in the most lucrative U.S. market, as Washington evaluates a proposal to base drug prices paid under the government's Medicare program on the cost of medicines in other developed nations, including Canada.

Global drugmakers, including Johnson & Johnson, Merck & Co, Amgen Inc and others, have argued against the Canadian proposal. They referred questions back to Innovative Medicines Canada.

'Would not achieve the goal'

With major drugmakers united in their condemnation of proposed regulations to rein in prices, Health Canada hired former Bank of Canada governor David Dodge and health economist Ake Blomqvist to assess the government proposal. Their review, completed in August 2018, broadly endorsed the government's plan, documents seen by Reuters showed.

Prime Minister Justin Trudeau's senior ministers will eventually decide how to proceed. PMPRB Executive Director Douglas Clark told Reuters the new regime could be running by early 2020.

I fear the consequences when you do something

without really working with industry.

- Andrew Casey

"People have a tendency to presume that the sky is falling," Clark said. "I think it's a little early for people to panic and lament the demise of this policy initiative."

Health Canada said the industry's offers do not address drug price problems created by outdated rules.

"The non-regulatory counter-proposals that Innovative Medicines Canada and BIOTECanada jointly submitted to the government would not achieve the goal of ensuring appropriate consumer protection in these circumstances," the ministry said in an emailed statement.

One offer was to "secure a price reduction target of C$8.6 billion" in net present value terms, according to a letter from officials seen by Reuters.

Hamill said the $8.6 billion Cdn figure was borrowed from a government estimate of how much the PMPRB reforms would reduce revenue and would have been spread over 10 years. He did not say exactly how it would have worked. Total patented medicine sales were $16.8 billion Cdn ($12.8 billion US) in 2017, according to the PMPRB.

Canada's government-funded health-care system does not cover prescription drugs. (CBC)

Health Canada also rejected an offer to freeze prescription drug prices, saying it would not meet its objective of lowering prices. Health Canada said the industry had also committed to improving access for patients with rare diseases, but that proposal would not help those who have drug plans.

Meanwhile, ahead of a fall election, Trudeau's government is preparing to announce a limited expansion of Canada's universal health-care system to cover part of the cost of prescription medicines, as drug plans grapple with the extremely high cost of newer specialty drugs.

'We don't want to shut that door'

The PMPRB caps prices of drugs still under patent protection. If new regulations are adopted, it would change the list of countries whose drug pricing it uses to decide whether costs are excessive, dropping the United States and adding countries with lower prices.

The regulator would also consider for the first time a type of value-based pricing, measuring how cost-effective drugs are in terms of quality-adjusted life years, and force drug companies to privately disclose some confidential discounts.

It is not entirely clear how the PMPRB would use its new powers. In documents posted online, the agency said it could apply new rules to drugs already on the market. But Health Canada said the regime would not apply to those.

Andrew Casey, president of BIOTECanada, would like "a more rigorous sit-down" with the government. "I fear the consequences when you do something without really working with industry," he said. "We don't want to shut that door." 

Corruption is Everywhere: Nissan, Huawei, Big Pharma

Ex-Nissan Chairman Carlos Ghosn indicted for breach of trust

By Allen Cone

(UPI) -- Former Nissan Motors Co. Chairman Carlos Ghosn was indicted on new financial charges Friday in a Tokyo court.

Ghosn, 64, was charged with aggravated breach of trust for allegedly transferring $17 million in personal investment losses to Nissan in 2008 as well understating his compensation by $37 million for three years through March 2018, the Nikkei Asian Review reported.

Last month, he was indicted for under-reporting his pay by around $46 million between 2010 and 2015.

Ghosn has been in jail since his arrest on Nov. 19 at Tokyo's Haneda airport. Nissan dismissed Ghosn as chairman shortly after his arrest, but he remains chairman and CEO of Renault, which is the largest shareholder and partner of Nissan. The French company has assigned his duties to other executives.

Prosecutors expected him to be detained until the trial begins, which could be as long as six months, The Wall Street Journal reported.

"Generally speaking, it's extremely rare for a court to grant bail before a trial begins," Motonari Otsuru told reporters. "That's our main concern, and I think Mr Ghosn is very troubled by this."

Ex-Nissan executive Greg Kelly, who was arrested at the same time for his alleged role in helping his boss understate his pay, was released on a bail $635,000 on Dec. 25.

On Tuesday, Ghosn appeared before a judge in a Tokyo court for the first time. He denied the allegations against him, saying he has been wrongfully accused, is innocent and the accusations are merit-less.

One day later, he came down with a 102-degree fever.

"I recently learned that my husband is suffering from a high fever at the detention center in Tokyo, but my information is limited to news reports as no one in his family has been allowed to contact him since 19 November," wife, Carole Ghosn, said in a statement. "We are fearful and very worried his recovery will be complicated while he continues to endure such harsh conditions and unfair treatment."

Poland arrests Chinese Huawei executive

on espionage charges

By Clyde Hughes

A Chinese man shops in a Huawei computer and smartphone showroom in Beijing on December 10. Photo by Stephen Shaver/UPI | License Photo

(UPI) -- Polish authorities charged a Chinese citizen Friday -- who's worked for smartphone giant Huawei Technologies -- with high-level espionage that could send him to prison for 10 years.

State-owned Telewizja Polska reported Polish counterintelligence officers from the Internal Security Agency arrested the citizen, who was sales director of Huawei's Poland office. Officials said the person charged is a graduate of one of China's top intelligence schools and a former employee of Beijing's consulate in Gdansk.

The suspect and a former Polish official were both charged with espionage against the republic, to which they both pleaded not guilty. The Polish suspect was the former deputy head of Warsaw's counterintelligence's IT security department.

The arrests come as Western countries, including the United States, increase surveillance of Huawei, which recently surpassed Apple as the world's second-largest smartphone manufacturer.

Friday's was the second high-profile arrest of a Huawei official in the past two months. Canadian officials detained Meng Wanzhou, Huawei's chief financial officer, in December at the request of the United States. She was accused of trying to get around Iranian trade sanctions.

U.S. politicians have expressed concern over the growth of Huawei because of the company's potential to spy for Beijing through its electronics, disable communications or conduct another kind of cyberattack.

Huawei has said it's employee-owned and has never conducted espionage or sabotage on behalf of China's government. The telecom giant said doing so would damage its trust as a global telecommunications leader.

Nevertheless, according to Chinese law (read Communist paranoia), every individual and company must be prepared to fully cooperate with the state, if and when the state requires it. It's not what they are doing that has western governments concerned, it's the potential for spectacular catastrophe.

Are illegal kickbacks in Ontario driving up

the cost of your generic drugs?

Canadians pay some of the highest generic drug prices

in the world

Timothy Sawa, Lisa Ellenwood, Mark Kelley · CBC News ·

A hidden camera investigation and confidential documents obtained by CBC's The Fifth Estate raise questions about whether Canada's largest pharmaceutical distributor is profiting from illegal kickbacks on sales of generic drugs in Ontario.

Studies have shown this practice drives up the cost of generic drugs for all Canadians.

McKesson Canada is a subsidiary of the U.S. McKesson Corporation, which is No. 6 on the Fortune 500 and the largest pharmaceutical distributor in North America. (John Badcock/CBC)

McKesson Canada, which distributes pharmaceutical drugs to more than 8,000 pharmacies in this country and recently purchased more than 400 Rexall pharmacies, denies the allegation.

The Canadian company is a subsidiary of the San Francisco-based McKesson Corporation, which is No. 6 on the Fortune 500 and the largest pharmaceutical distributor in North America, delivering one-third of all medications used every day, according to its website.

A Fifth Estate hidden camera investigation captured conversations with three independent pharmacists at two pharmacies who suggest McKesson is breaking the law in Ontario, where kickbacks on generic drugs are illegal.

"[McKesson] gives the numbers to [our buying group], they consolidate the numbers and give me 50 per cent back," one Ontario-based pharmacist told a generic drug salesperson working undercover for The Fifth Estate.

The conversation raises the question of whether this pharmacist is getting a 50 per cent kickback from McKesson Canada.

In other words, for every $10 in drugs this pharmacist sells, he would be able to put $5 in his pocket. In exchange, the pharmacist or his buying group would agree to stock the generic drugs McKesson distributes, giving the company sales ahead of a competitor.

It's a practice that studies have shown dramatically inflates the prices of generic drugs for Canadians, who pay some of the highest generic drug prices in the world.

"Greed is a powerful weapon," said Paul Bailey, president of the Police Pensioners Association of Ontario, a group with many members who live on tight budgets with small police pensions.

He reviewed hidden camera footage captured by The Fifth Estate that also showed several pharmacists in Ontario asking for kickbacks.

"Once again, the taxpayer takes it on the chin," he said.

Banned in 2013
The practice of paying or receiving rebates or kickbacks in exchange for stocking a particular brand of generic drug was regulated in Ontario starting in 2006 as part of efforts to reduce the price of generic drugs.

A full ban on rebates — direct or indirect — in the province came into effect in 2013. Quebec is the only other province or territory in the country that has restrictions on rebates.

Generic prices have come down since 2006, but Canadians are still paying the second-highest amount among OECD countries for their generic drugs, according to a recent government report.

Along with conducting the hidden camera investigation, The Fifth Estate obtained an internal McKesson presentation given to its employees, as well as a confidential document filed in a hearing at the Ontario College of Pharmacists.

Both documents raise the same question: Is McKesson Canada profiting from illegal kickbacks in Ontario?  

Are they giving kickbacks to independent pharmacists in Ontario in order to secure sales or collecting kickbacks from generic drugs manufacturers in exchange for stocking a particular brand in their own Ontario stores?

"People don't know they're getting ripped off and the reason they're paying the high drug costs," said Bailey.

McKesson Canada denies allegations
The Police Pensioners Association of Ontario first became interested in rebates in 2009 when several generic drug makers, wholesalers and a pharmacy were caught in a rebate scheme.

Bailey, a former police detective, called for a criminal investigation at the time. He's now more convinced than ever that drastic action is required.

Paul Bailey, a former police detective and current president of the Police Pensioners Association of Ontario, says a public inquiry is needed into pharmaceutical rebates.

(John Badcock/CBC)

"The only way we're ever going to get to the bottom of this is to have a public inquiry."

The Fifth Estate requested an interview with McKesson Canada president Paula Keays, but she would only provide a written statement.

Keays acknowledged the company makes payments to the pharmacies it supplies with generic drugs, but denied they are illegal kickbacks or rebates.

McKesson Canada president Paula Keays acknowledged in a written statement that the company makes payments to the pharmacies it supplies with generic drugs, but denied they are illegal kickbacks or rebates. (McKesson Canada)

"McKesson Canada does not pay rebates in Ontario and any assertion to the contrary is blatantly false," she said in the statement.

The payments its company makes, she said, are "fully in line with all current provincial regulations and [are] one of the ways independent pharmacies operate and improve services for patients, like installing blood pressure monitoring stations, introducing new technologies and automating services to allow for patient counselling. These are standard business agreements and are entirely appropriate."

Going undercover
A Fifth Estate investigation in March 2018 revealed that Costco was demanding millions of dollars in illegal rebates from a generic drug manufacturer.

After that story aired, The Fifth Estate received an email from someone with many years of experience in pharmaceutical sales suggesting the problem goes far beyond Costco:

"It's not just Costco…. Every single pharmacy across the country takes kickbacks in a monetary form still to this day. I am a former rep and can definitely say that this happens. It is still happening and will continue to happen."

In order to test whether pharmacists in Ontario would ask for illegal kickbacks or disclose if they are receiving kickbacks, the insider agreed to help The Fifth Estate and go undercover as a salesperson. Because he still works in the industry, The Fifth Estate agreed to protect his identity.

CBC's graphics department created a fake drug company website for The Fifth Estate's hidden camera investigation. (David Abrahams/CBC)

"The problem is, everyone's driving these rebates up. It's a competition," he told The Fifth Estate in an interview.

"Basically it's a race to the bottom, if you will. You know, I'll offer more points than the next guy that just came in before me. And that's driving the cost of the pills up. It's just not fair."

The Fifth Estate created a fake generic drug company called Dari Pharmaceuticals and made business cards, a product list and a website.

Over three days, The Fifth Estate visited 17 independent pharmacies in Kitchener, Cambridge and Hamilton and spoke to nine pharmacy owners who were interested in buying generic drugs. All but one asked if the fake company paid illegal rebates.

'Incentives to move their stuff'
Several pharmacists also openly discussed their current arrangement, claiming they received illegal kickbacks from large companies.

"Let's say if you buy 1,000, for example, there is a rebate of 50 per cent," one pharmacist told The Fifth Estate's undercover salesperson, referring to his current arrangement with McKesson Canada.

"[Other companies] go higher [than 50 per cent] to give incentives to move their stuff," said another pharmacist. "Some days they go to 60 [per cent], some days they go to 70 [per cent]."

Some pharmacists wanted to know how The Fifth Estate's fake company would deliver its kickbacks while others talked about technical wording that could be used to hide a kickback and get around the law in Ontario.

"So basically [a middle company] cuts us a cheque every month and it's … not technically a rebate, it's more ... for professional services and what have you, right," another pharmacist said. "That's how most people are wording it nowadays."   

Business cards and a product list were created for the fake generic drug company called Dari Pharmaceuticals. (CBC)

An internal McKesson Canada document obtained by The Fifth Estate suggests the company also uses a variety of terms to describe payments it makes to pharmacists.

The PowerPoint presentation from 2017 instructs employees to remove the word "rebate" from their "vocabularies," while other terms like "professional allowances" should be "used with caution."

The presentation does say rebates are illegal in Ontario but goes on to say the pharmacy brands McKesson owns, like Guardian or IDA, make payments to pharmacies under a variety of circumstances.

"All four main McKesson banners make payments to its pharmacies, but for different things, under different names and under different circumstances. Sometimes we use the same words to mean different things."

CBC asked McKesson about the presentation and the company denied the document suggests it's paying kickbacks or rebates that are illegal in Ontario.

"As could be expected, our various retail banners compensated their respective members for different things, under various names, prior to their acquisitions by McKesson Canada," the company said in a statement.

"Accordingly, a main driver of the project reflected in the presentation was to ensure McKesson Canada's rigorous corporate practices are mirrored across all McKesson Canada banner operations. The references to Ontario throughout the document reinforce the fact that rebates are illegal, and McKesson Canada does not pay them."

A senior pharmacy insider interviewed by The Fifth Estate doesn't buy it.

"You have to have so many terms because you want to complicate it," the former executive said. The Fifth Estate agreed to protect his identity because he still works in the industry.

"You don't want people to follow the money. No matter what you call it," he said, "money that is going from the manufacturer to the pharmacy at the end of the day is a rebate."

Rebates disguised as advertising?
When Costco was caught demanding kickbacks, a document filed at a hearing of the Ontario College of Pharmacists alleged that other pharmacy chains were also potentially breaking the law.

The Fifth Estate filed a motion to see exhibits filed at the hearing and after many months received most of the documents.

A letter from Costco's lawyer to the investigator for the college said: "It should be noted that advertising in the form challenged by the complainant are common for pharmacies in the industry generally."

The lawyer goes on to allege that four other large pharmacy chains that operate in Ontario pay potentially illegal rebates disguised as advertising fees, including Guardian and Rexall.

​Guardian is one of McKesson's independent retail pharmacy banners and Rexall is fully owned and operated by McKesson.

CBC was unable to confirm the allegations, so approached McKesson for an explanation. Again, McKesson Canada said it's not doing anything to break the law in Ontario.

"To be abundantly clear: McKesson Canada does not pay prohibited rebates in the province of Ontario," the company added in its statement. "Any reporting otherwise would be false and inaccurate."

So there is problem with paying kickbacks outside of Ontario and Quebec. The rest of Canada needs to wake up. One wonders why they haven't before now? Or, perhaps I should just follow the money?

Millions could be saved
Canadians have for decades paid some of the highest prices for generic drugs in the world. In the mid-2000s, the Competition Bureau of Canada was one of the first to take a detailed look at why.

"Lots of people had theories but we wanted to clarify how the generic market was working and functioning and how it was broken," said lead investigator Mark Ronayne.

Two reports, one in 2007 and another in 2008, determined the practice of paying kickbacks was widespread in Canada and was costing Canadians hundreds of millions of dollars every year.

"The rebates paid to the pharmacies have accounted for a large portion of payers' generic drug costs, 40 per cent or more of generic drug expenditures," the reports concluded. 

"Canadian taxpayers, consumers and businesses could save up to $800 million a year if changes are made to the way private plans and provinces pay for generic drugs. The potential savings could climb to over $1 billion per year in coming years, as several blockbuster brand name drugs lose patent protection."

Ronayne believes "powerful interests" blocked change in Canada, which is why the practice of paying kickbacks continues to this day.

"If there's money to be made by providing a lower price somehow to pharmacies to somehow get your product on the shelf, then companies will look for some way to do that," said Ronayne. 

"Maybe not necessarily consistent with legislation or could be consistent with legislation but they're going to try to do it. And they've been doing that for a long time and if they are continuing to do that, I wouldn't be terribly surprised."

I would be terribly surprised if they weren't!

Costco Under Investigation by Ontario Forensic Team Over Drug Company Payments

Corruption is Everywhere - But in Canada??? and Costco???

Rebates not allowed in Ontario in bid to drive down overall price of generics

By Timothy Sawa, Lisa Ellenwood, Mark Kelley, CBC News 

Retail giant Costco collected $1.2 million in potentially illegal payments from the generic drug company Ranbaxy. (CBC)

Costco is under investigation by an Ontario government forensic team that specializes in "allegations of wrongdoing against government" after the retail giant received $1.2 million in potentially illegal payments from a generic drug-maker, The Fifth Estate has learned.

The revelation follows guilty pleas of professional misconduct in front of the Ontario College of Pharmacists from two pharmacy executives with the company (Costco) known for its bulk deals and rock bottom pharmacy dispensing fees.

The college accused Joseph Hanna and Lawrence Varga of demanding illegal payments from the generic drug company Ranbaxy.

Hanna and Varga said the demands could "reasonably be regarded by members of the profession as unprofessional," according to statements from them that were included in the college's decision.

Each pharmacist was fined $20,000 and ordered to pay $30,000 in costs.

At the time of the fine, in January 2018, Costco had collected $1.2 million in potentially illegal payments from the drug company and so far has been allowed to keep that money.

Tony Gagliese was a salesman with Ranbaxy Pharmaceuticals. (CBC)

Tony Gagliese, a salesman with Ranbaxy Pharmaceuticals at the time, blew the whistle on the company by filing a complaint with the Ontario College of Pharmacists.

"I basically said: 'I don't understand what's going on,' " Gagliese told The Fifth Estate in an exclusive television interview.

"Costco always followed the law and suddenly you're breaking the law from my understanding and no one is here to help me."

'I prefer to call it a kickback'

The allegations stem from a questionable industry-wide practice that inflates the price of generic drugs, known as pharmacy rebates.

"You call it a rebate. I prefer to call it a kickback," says Amir Attaran, a professor of medicine and law at the University of Ottawa. Pharmacy chains sometimes demand a payment from a generic drug company to stock its brand of drugs.

Most provinces allow rebates, but Ontario made them entirely illegal in 2013 in an effort to drive down the overall price of generic drugs.

'Canadians are really seriously gouged

on the price of generic drugs.'

- Amir Attaran

If pharmacy chains stopped demanding rebates, the province argued, then generic drug companies could afford to lower the price of drugs for Canadians.

Canadians pay some of the highest generic drug prices in the world, with last year's spending estimated at nearly $6 billion. A large percentage of that — likely billions of dollars — went directly to pharmacy chains in the form of rebate payments.

"Canadians are really seriously gouged on the price of generic drugs," says Attaran. "That's largely because in the price of a drug in Canada there's not just the drug. There's a portion of the price that goes to the pharmacy in the form of a rebate or a kickback."

Law upheld

Various players in the industry launched challenges to Ontario's law.

In upholding the law in 2013, the Supreme Court of Canada called rebates a "tenacious problem" and said manufacturers have been "charging exceptionally high prices for generic drugs flowing not from the actual cost of the drugs, but from the manufacturers' cost in providing financial incentives to pharmacies to induce them to purchase their products."

The Fifth Estate has learned Ontario's Forensic Investigation Team, or FIT, launched its investigation into Costco in the fall of 2017.

Costco says its lower dispensing fees saved its customers in Ontario more than $16.4 million in 2014. (David Donnelly/CBC)

That came after Gagliese turned his evidence over to the province. Then the Forensic Investigation Team called him for a meeting.

"What I was told, and I quote: 'Help us Tony to put together a ... case against Costco,' " says Gagliese.

FIT is a provincial team independent of Ontario's Ministry of Health and Long-Term Care that investigates financial issues and "allegations of wrongdoing against government," according to the head of the team in a speech.

It conducts civil investigations and can pass its findings on to law enforcement for followup criminal investigations.

Practice stopped

The Fifth Estate has seen emails confirming FIT's involvement.

"The ministry has engaged the Forensic Investigation Team to conduct a second phase of investigation," wrote David Schachow, director for the Drug Programs Delivery Branch with Ontario's Ministry of Health.

When asked about FIT's involvement, the Health Ministry says it "is unable to provide further information about ongoing inspection or investigation activities."

Costco CEO Craig Jelinek and its top Canadian executive, Andrée Brien, both declined to be interviewed by The Fifth Estate.

In a statement, Brien says it didn't believe any of the payments were illegal at the time, that it stopped the practice after its own internal investigation and the payments it demanded were ultimately good for consumers because it could use the money to lower their prices.

And did that actually happen? Can you account for that money?

Secret tapes

At the heart of the Costco case is a phone call Gagliese secretly recorded between himself and Hanna, Costco's national director of drug buying. The Fifth Estate has obtained a copy of that recording.

Hanna began the conversation, recorded in February 2014, by telling Gagliese that Ranbaxy wasn't paying Costco enough money to keep his products on its shelves. He wants a higher percentage of Ranbaxy's generic drug sales in what would be considered a rebate.

"My analysis essentially shows that your support is approximately, and I might be off by a couple per cent or I might be off by a lot more if you tell me differently, around 46-ish per cent," Hanna said.

"Here's sort of what I'm going to kind of tell you, if you want to compete, it's going to have to be sort of 60 [per cent] plus," Hanna told Gagliese.

'It was obvious to me that they weren't interested in following the law.'

- Tony Gagliese

Gagliese says the request raised an alarm for him.

"They asked for a 60 per cent rebate retroactive to April [2013] and I pointed out to them it's illegal [in Ontario] what you're asking for," Gagliese told The Fifth Estate.

"It was obvious to me that they weren't interested in following the law."

Costco says Gagliese "used the recordings and the threat of proceedings as leverage to try and force Costco to purchase additional generic drugs from the company he represented."

The University of Ottawa's Amir Attaran calls Gagliese a hero. "I think he's behaved in a selfless and heroic way," he says. "He has shed light on one of the murkier sides of the pharmaceutical business. Costco has been caught with its hand in the till. Clearly."

'Marketing support'

Costco wanted Ranbaxy to pay $3.6 million in total, in exchange for $6 million in Canadian sales.

In Ontario, Costco wanted Ranbaxy to make the payments by investing in what Costco called its "advertising and customer education programs."

On the secret tapes, Hanna lays out how Ranbaxy can make the payments for its sales in the rest of Canada, where rebates are legal, versus Ontario, where they aren't.

In Ontario, instead of using the term rebate, Hanna says Ranbaxy can pay up to $1.3 million for what he calls "marketing support."

The remaining $2.3 million can be paid as a straight rebate. If Ranbaxy refused to pay, Costco's Hanna says the company could lose its business with the retail giant.

"This is what I would like to see and this is a minimum to ensure that, not ensure but a minimum to greatly reduce the likelihood of somebody eating your business," Hanna said.

No guidance, Costco says

Hanna also declined an interview request from The Fifth Estate.

In an email to The Fifth Estate, he says he had no idea the payments he was asking for would be considered an illegal rebate in Ontario and that neither the Ontario College of Pharmacists  nor the province had provided any guidance on the issue.

'Neither I, nor Costco, would ever knowingly

accept a payment that was prohibited.'

- Joseph Hanna

"I genuinely believed at the time Ranbaxy made the payments in question that they were permissible," he says. "Neither I, nor Costco, would ever knowingly accept a payment that was prohibited."

Hanna says that the secretly recorded phone call does not appear to be "complete" and that "a number of other conversations that provide context … have not been provided."

Amir Attaran, a professor of medicine and law at the University of Ottawa, says Gagliese has 'shed light on one of the murkier sides of the pharmaceutical business.' (CBC)

In one of those conversations, Hanna says he told Gagliese that he "did not believe the payment was a rebate."

Hanna also says he personally did not receive any of the funds in question.

In her email, Brien, Costco's top Canadian executive, says the company stopped the payment scheme in Ontario immediately after it did its own internal investigation and not because of any "finding of wrongdoing" on its part but because it wants "further clarification from the Ontario government."

Brien also points out that in its decision, the College of Pharmacists says the Costco executives were "operating in a legal environment that was not crystal clear" and that the payments were not "rebates on their face."

Funds not used to 'line our pockets'

"We acknowledge that the advertising payment received from Ranbaxy was considered to be a rebate by the college in the particular circumstances of the case," she says.

"However, where advertising fees are charged, we have not used these funds to 'line our pockets' while we continue to charge high fees. To the contrary, payments received for advertising are used to defray our operating costs to allow us to pass the savings on to our customers."

Costco says its lower dispensing fees saved its customers in Ontario more than $16.4 million in 2014.  

Both Costco pharmacy executives who pleaded guilty to professional misconduct continue to act in their senior roles with the company.

Consequently, they were clearly acting in company policy. The real question here is did the money genuinely go to reducing the price of the drugs, and can Costco prove it? 60% kick-back is an astonishing amount of money, and yet it's presumable that the pharmaceutical company would still be making a significant profit on the 40% left. Amazing!

Costco pharmacy executive Joseph Hanna says he 'genuinely believed' at the time Ranbaxy made the

payments that they were legal. (CBC)

Gagliese, on the other hand, has been unable to find work as a drug salesperson since going public.

Without the secretly record audio tape, he believes Costco would not be under scrutiny right now.

"I think without the tape, nothing would've happened. I think that the tape is the only reason why Costco decided to plead guilty," he says.

"You can't debate the tape. I didn't ask him, I didn't set him up, he told me how to pay him, so Costco's story is in that tape."