Ontario health ministry to probe alleged Costco pharmacy kickbacks

December 1, 2016 6:50 PM EST

Corporate logos are seen on the rear of a Costco membership card/American Express credit card in this photo illustration taken in Toronto, Ontario February 12, 2015. REUTERS/Hyungwon Kang


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(Reuters) - Costco Wholesale Corp (NASDAQ: COST) said on Thursday that Ontario's health ministry would launch a probe into allegations it got illegal kickbacks from drugmakers, becoming the Canadian province's second regulator to scrutinize the matter.

The retailer has been informed by the Ontario Ministry of Health and Long-Term Care that it would conduct an inspection into its compliance with the Ontario Drug Benefit Act (ODBA) and other regulations, a Costco executive told Reuters in an email.

"We are confident that Costco has complied with the legislation and the regulations and we intend to co-operate fully with the inspection," Corporate Counsel Stuart Shamis wrote in response to questions about the probe.

The move comes two weeks after investigators at the Ontario College of Pharmacists (OCP) said they found sufficient evidence to indicate that two Costco pharmacy directors had sought illegal kickbacks, sending a matter involving rebates to its disciplinary panel for the first time since Ontario completely banned rebates in 2013.

The provincial ministry's inspection will focus on whether Costco has been compliant with the ODBA, the law governing Ontario's drug benefit plan. It is separate from the OCP's probe, which determines matters of professional misconduct.

David Jensen, a health ministry spokesman, would not comment on Costco specifically. When asked about possible punishment, he said the ministry's executive officer had the power to make a company found to have received an illegal rebate pay the same amount to the government.

The regulatory scrutiny on Costco was first triggered by a former sales consultant for Ranbaxy Pharmaceuticals who submitted a complaint last year to the OCP alleging that two Costco executives sought illegal rebates of up to $1.3 million on drugs supplied to the retailer.

In addition to Ranbaxy, which was acquired by India's Sun Pharmaceutical Industries Ltd (NYSE: SUN) last year, units of Teva Pharmaceutical Industries Ltd (NYSE: TEVA), Mylan NV (NASDAQ: MYL) and Pharmascience Inc were also listed in the OCP's allegations as possibly having paid rebates to Costco between April 2013 and Dec. 31, 2015.

A Mylan spokeswoman told Reuters last month that the company was not a subject of the OCP's probe and had cooperated with requests for information. The other drugmakers did not respond to requests for comment.

(Reporting by Nathan Layne in New York and Solarina Ho in Toronto; Editing by Tom Brown)



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