Ontario (Minister of Health) v. Apotex Inc.

Ontario (Minister of Health) v. Apotex Inc. Collection Decisions of the Court of Appeal Date 2002-06-17 Docket numbers C36334 Judges Goudge, Stephen Thomas; Sharpe, Robert J.; Cronk, Eleanore Ann Subject Civil Decision Content DATE: 20020617 DOCKET:C36334 COURT OF APPEAL FOR ONTARIO GOUDGE, SHARPE AND CRONK JJ.A. BETWEEN: ) ) MINISTER OF HEALTH, LIEUTENANT GOVERNOR IN COUNCIL and ATTORNEY GENERAL OF ONTARIO ) ) ) ) J. P. Zarudny and J. Kendik for the appellants ) Appellants ) ) - and - ) ) ) H. B. Radomski APOTEX INC. ) ) ) and J. M. Perrin for the respondent Respondent ) ) ) Heard: February 1, 2002 On appeal from the order of the Divisional Court (Justices Dennis F. O’Leary, Michael R. Meehan and Paul J. Cosgrove) dated February 2, 2001. GOUDGE J.A.: [1] This dispute arises from the administration of the publicly funded drug plan in Ontario by the appellant Minister of Health. That plan provides drug products at public expense to certain classes of persons such as senior citizens. The prices paid by the Minister of Health for each drug product are fixed by regulation and are listed in a public document called the Formulary, which is both authorized and amended from time to time by regulation. [2] The dispute arises because, for three sizes of a drug manufactured by the respondent Apotex Inc., the Minister has refused to recommend that the listed prices in the Formulary be increased to the higher prices asserted by Apotex to be correct. [3] The question is whether the Minister’s refusal can be successfully challenged on judicial review. By majority, the Divisional Court answered that question in the affirmative. It declared that the Minister acted unlawfully in refusing to permit the listing at the higher prices and further declared that Formulary prices for these drug products are the higher prices asserted by the respondent. [4] For the reasons that follow, I have come to the opposite conclusion. Whether scrutinized for unlawfulness or patent unreasonableness, I think that the Minister’s refusal to recommend raising the listed prices in the Formulary successfully withstands judicial review. I would therefore allow the appeal. THE LEGISLATIVE CONTEXT [5] Ontario’s publicly funded drug benefit regime is regulated by two pieces of legislation, the Ontario Drug Benefit Act, R.S.O. 1990, c.O. 10 (the “ODBA”) and the Drug Interchangeability and Dispensing Fee Act, R.S.O. 1990, c.P. 23 (the “DIDFA”). [6] The broad scheme provides that pharmacists are reimbursed by the Minister of Health when they supply certain specified drugs known as listed drug products to members of the eligible classes of persons. The reimbursement for each drug product includes an amount known as the drug benefit price which is to compensate the pharmacist for his payment to the manufacturer of that drug product. It also includes a mark-up on that price and a dispensing fee. [7] The ODBA gives the Lieutenant Governor in Council the power to make regulations designating drugs as listed drug products. That provision is found in s. 18(1)(c): 18. (1) The Lieutenant Governor in Council may make regulations, … (c) designating a product as a listed drug product where the Lieutenant Governor in Council considers it advisable in the public interest to do so, but a product shall not be so designated if it or its manufacturer has not met the conditions described in clause (b); [8] Section 18(1)(b) gives the Lieutenant Governor in Council the power to prescribe by regulation the conditions to be met for listing. It has done this by way of the general regulation under the ODBA Ontario, Regulation 201/96, which requires that the manufacturer provide to the Minister a large quantity of specified information about the drug to be listed, including the drug benefit price which the manufacturer proposes. The Minister then, as a matter of practice, provides a recommendation to the Lieutenant Governor in Council on the proposed designation of the drug as a listed drug product. [9] The schedule of all listed drug products is approved by regulation and is published by the Minister in the document known as the Formulary. Because of the evolving nature of pharmacology, the Formulary is updated by regulation several times a year. [10] The Formulary also lists the drug benefit price for each listed drug product. The ODBA gives the Lieutenant Governor in Council the power to prescribe by regulation the drug benefit price for each drug product listed. Section 22(1) of the ODBA requires that that price be the amount submitted by the manufacturer and agreed to by the Minister (after considering any matter which she thinks is advisable in the public interest). However, the OBDA also specifies (in s. 6(1)), that if there are listed drug products which, pursuant to the DIDFA, are deemed to be interchangeable with the particular drug product, then the drug benefit price will be equal to the lowest drug benefit price of the interchangeable drugs. Then, s. 22(3) of the ODBA provides that the drug benefit price of a listed drug product may be raised or lowered by regulation if the manufacturer agrees and the Lieutenant Governor in Council considers it advisable in the public interest. Finally, s. 21 of the ODBA provides inter alia that the Minister, in advising the Lieutenant Governor in Council, may consider anything that the latter may consider. [11] The DIDFA provides for the regulation of interchangeable drugs. Broadly speaking, its purpose is to permit market access to manufacturers of generic drug products which are therapeutically equivalent to the original brand of the same drug products and to ensure that this market access be at a lower price than the original brand. The DIDFA gives the Lieutenant Governor in Council the power to make regulations designating a product as interchangeable with one or more other products where the Lieutenant Governor in Council considers it advisable in the public interest to do so. The general regulation under DIDFA, Regulation 935 R.R.O 1990, specifies the information to be supplied to the Minister as a precondition to the designation of interchangeability. This information includes the drug benefit price proposed by the manufacturer, which must be a certain percentage below that of the original brand of the drug product. The Minister thereafter makes a recommendation to the Lieutenant Governor in Council which then determines whether the drug product will be designated by regulation as interchangeable. All drug products approved in this way are designated as interchangeable in the Formulary as it is updated from time to time. [12] Thus, the Formulary sets out those drugs which have been approved as listed drug products under the ODBA and groups them by drug category. For any given drug category, there may be listed one or more interchangeable brands approved as such under DIDFA. For each drug category, and for each interchangeable brand within that category, a listed drug benefit price will appear in the Formulary. THE FACTS [13] The drug in issue in this proceeding is the CD slow-release capsule form of the medicine known as diltiazem hydrochloride. The respondent’s brand of this form of diltiazem hydrochloride is Apo-Diltiaz CD. Its capsule sizes of 120, 180 and 240 mg of this drug have been listed as three drug products in the Formulary since 1997. [14] In September 1998, No-Pharm, a generic drug manufacturer, applied to have three drug products, its Nu-Diltiazco capsule sizes of 120, 180 and 240 mg, designated as listed drug products under the ODBA and as interchangeable drug products under the DIDFA. As required, its proposed drug benefit prices for these three drug products were lower than those listed for the Apotex counterparts. The three sizes of Nu-Diltiaz CD capsule were approved for listing at those lower prices in the next Formulary. [15] To meet this sort of eventuality, Apotex had previously written a letter to the Ministry of Health dated February 1, 1999, authorizing the Ministry to adjust downward Apotex’s listed prices published in the Formulary to meet the listed prices of a competitor within the same drug category. The body of that letter is as follows: This letter is to authorize the Ontario Ministry to adjust Apotex’s submitted or published product prices, to that of a competitors price, within the same drug category. If you have any questions or concerns, please do not hesitate to ask. [16] The Formulary which listed the three Nu-Pharm drug products for the first time was approved by regulations made under the ODBA and the DIDFA on February 24, 1999 and filed on February 25, 1999. These regulations declared that the new Formulary would come into force on April 15, 1999. [17] Pursuant to the respondent’s standing authorization and as a result of these three new Nu-Pharm products, the same regulations reduced the prices of the three comparable Apotex drug products in the April 15, 1999 Formulary from those appearing in the November 20, 1998 Formulary in order to match the Nu‑Pharm prices. [18] On April 8, 1999, Nu-Pharm wrote to the Ministry to advise that it would not be able to supply the three new drug products and to ask that they be deleted from the Formulary. That letter reached the Ministry on April 19, 1999. [19] Apotex immediately took the position that since Nu-Pharm had never in fact produced the three drug products, it did not have to meet the lower prices of any competing drug products. It argued that the prices for its three counterpart drug products should remain as they were in the November 20, 1998 Formulary. [20] The Ministry’s response was that the respondent’s prices had been properly lowered in the April 15, 1999 Formulary and that it had learned of the information about the Nu-Pharm drug products too late to alter the April 15, 1999 Formulary given that it was already in effect and that the processes for obtaining the necessary regulations and for producing the Formulary took several weeks and had to be undertaken well in advance of its effective date. [21] Moreover, although the three Nu-Pharm drug products were thereafter removed from the next Formulary (which was effective September 15, 1999), the Minister refused to recommend that the listed prices in the September 15, 1999 Formulary for the three counterpart Apotex drug products be returned to those of the November 20, 1998 Formulary. [22] In doing so, the Minister relied on the Ministry’s policy not to consider any increase in drug benefit prices listed in the Formulary unless these increases remained cost neutral to the Ministry because of an equivalent price reduction in the drug benefit prices currently listed for other drug products of the same manufacturer. [23] While not questioning the Ministry’s right to have this cost neutral policy, the respondent has maintained that this policy does not apply here because Apotex is not seeking an increase in its selling price but only of the erroneously listed prices of its three products. It argues that it is simply seeking to return to the correct prices, namely those at which the three drug products were listed before they were reduced in error in the April 15, 1999 Formulary, and it declined to comply with the policy of cost neutrality. [24] The Ministry has declined to accept the respondent’s position. The Minister has refused to recommend that the Lieutenant Governor in Council make a regulation changing drug benefit prices for the three Apotex drug products. As a result, those prices have remained unchanged from those in the April 15, 1999 Formulary. THE DECISION APPEALED FROM [25] The respondent sought judicial review of the Minister’s refusal to recommend that the three Apotex drug products be listed at the prices they had been listed at, prior to the erroneous reduction contained in the April 15, 1999 Formulary. [26] The majority of the Divisional Court (Cosgrove and Meehan JJ.) allowed the application. They considered that the Minister’s refusal constituted the exercise of a statutory power under s. 1 of the Judicial Review Procedure Act, R.S.O. 1990 c. J-1. They then applied Padfield v. Minister of Agriculture, Fisheries and Food, [1968] 1 All E.R. 694 and determined that while the Minister’s action could be reviewed only against a standard of unlawfulness, the Minister had indeed acted unlawfully in two respects: a) by taking into account an irrelevant consideration, namely the publication of listed prices for the three Nu-Pharm products which the majority said created a fiction irrelevant or extraneous to the correction sought by the respondent; and b) by wholly omitting to take into account a relevant consideration which the majority described this way: because Nu-Pharm had advised that it was in error and had none of the three new drug products to market, there was no new competitor’s price to trigger the Ministry’s cost neutrality policy or to engage the respondent’s authorization to the Ministry to adjust its published product prices. [27] In dissent, O’Leary J. concluded that the Minister had not acted unlawfully but had simply acted according to a bargain made with Apotex to meet the listed prices of a competitor. Having done that, O’Leary J. determined that the Ministry had simply and properly applied its cost neutrality policy. [28] In the result, the application for judicial review succeeded and the declarations I have described above were issued. ANALYSIS [29] In my view, there are three issues that must be addressed in deciding this appeal. First, some analysis is required of the administrative action sought to be judicially reviewed. Second, the appropriate standard of judicial review must be determined. Third, that standard must be applied to the administrative action to determine the outcome of this proceeding. I will deal with each of these in turn. First Issue: The Nature of the Administrative Action [30] The essence of the respondent’s complaint is that the error in the April 15, 1999 Formulary, namely the erroneous drug benefit prices for three of the respondent’s listed drug products, is not being corrected by replacing them with the higher drug benefit prices for the same products listed in the predecessor Formulary. It is the Minister’s refusal to recommend such a change to the Lieutenant Governor in Council that is attacked. [31] In the Divisional Court, the majority proceeded on the basis that the Minister’s refusal to recommend was the exercise of a statutory power and thus open to judicial review. [32] From one perspective, this is somewhat problematic. There is no statutory provision in either the ODBA or the DIDFA requiring the Minister to make a recommendation about possible changes in the drug benefit prices listed in the Formulary or explicitly providing legislative directions for the making of any such recommendation. Moreover, s. 18(1)(g) of the ODBA provides that it is the Lieutenant Governor in Council which prescribes by regulation the drug benefit prices that appear in the Formulary. In addition, while s. 22(3) of the ODBA provides that listed drug benefit prices can be raised or lowered, it is the Lieutenant Governor in Council which does this by regulation when it considers it advisable to do so in the public interest. [33] However, in the circumstances of this case, I am prepared to proceed on the same basis as the Divisional Court. I do so for three reasons. [34] First, in a general sense, the Minister clearly plays a central and critical role in this complex statutory scheme. For most matters, the legislation makes the Minister the point of contact with those involved in the scheme and it is her Ministry that administers the scheme on a daily basis. For example, in this case, the respondent directed its standing authorization to reduce its listed prices to match its competitors to the Ministry rather than to the Lieutenant Governor in Council. Moreover, where the listed drug benefit price is set by agreement with the manufacturer, it is the Minister who does so on behalf of the Crown. And, where the Lieutenant Governor in Council is to act, s. 21 of the ODBA contemplates that it will be advised by the Minister who, in doing so, may consider the same things that the Lieutenant Governor in Council may consider. Thus, it is contemplated that the Minister will advise on whether or not to make a regulation changing particular listed drug prices and undoubtedly will be guided by what she considers advisable in the public interest. In short, as a matter of reality, the ODBA puts the Minister at the centre of decisions made about listed drug prices under Ontario’s statutory drug benefit plan, and provides some guidance to her in playing that role. [35] Second, in the particular context of this case, while the change sought by the respondent would be effected by the Lieutenant Governor in Council making a regulation on the advice of the Minister, the Minister’s refusal to recommend such a change is the effective decision determining that there will be no such regulation changing specific listed prices for a particular drug manufacturer. Moreover, it is an effective decision about individual rights rather than broad policy. Indeed, I would take the Minister’s refusal to be the advice to the Lieutenant Governor in Council contemplated by the legislation and, since it effectively determines the respondent’s rights, it may arguably be said to effectively constitute the exercise of a statutory power. [36] Third, both parties to this appeal have proceeded on the basis that the Minister’s refusal to recommend can be subjected to judicial review. This may reflect an acceptance by those who work with the statutory drug benefit scheme of several first instance decisions holding that the Minister’s decision to recommend or not is a statutory power of decision. See Re Apotex Inc. and Attorney General for Ontario et al. (1984), 47 O.R (2d) 176 and Re Apotex Inc. and Minister of Health of Ontario (1989), 71 O.R. (2d) 525. However, we received no argument on this issue. [37] In light of these considerations, I am prepared to proceed on the assumption that the Minister’s refusal to recommend is subject to judicial review. Second Issue: The Appropriate Standard of Review [38] If the Minister’s refusal to recommend the change sought by the respondent is the subject of judicial review, the next question is the appropriate standard of review to be used by the court in supervising that administrative action. [39] The majority of the Divisional Court proceeded on the basis that this refusal to recommend, as an exercise of ministerial discretion, can be subjected to control by judicial review only if the Minister acted unlawfully as described in Padfield, supra. There, Lord Upjohn set out four ways in which a Minister might act unlawfully: a) by an outright refusal to consider the relevant matter; b) by misdirecting himself in point of law; c) by taking into account some wholly irrelevant or extraneous consideration; or d) by wholly omitting to take into account a relevant consideration. [40] As I have indicated, the majority of the Divisional Court went on to find that the Minister acted unlawfully in the latter two respects. [41] In this court, both parties accepted the Padfield basis for judicial review of the Minister’s refusal to recommend a change in the respondent’s listed prices. [42] In my view, since Baker v. Canada (Minister of Citizenship and Immigration), [1999] 2 S.C.R. 817, we are required to proceed on a somewhat different basis. [43] In that case, L’Heureux-Dubé J., writing for the Court, laid out a new approach to the judicial review of discretionary decision-making. She acknowledged that historically the exercise of ministerial discretion could be judicially reviewed only on limited grounds such as those recited in Padfield or bad faith or improper purpose. However, she clearly felt that the time has come to determine the standard of review of the substantive aspect of discretionary decisions by utilizing the same framework as is employed in the judicial review of administrative decisions which are more legally constrained such as those of quasi-judicial tribunals. That framework is the pragmatic and functional approach to the determination of the appropriate standard of review which is most fully elaborated in Pushpanathan v. Canada (Minister of Citizenship and Immigration), [1998] 1 S.C.R. 982. [44] L’Heureux-Dubé J. made clear that the adoption of the pragmatic and functional approach should not be seen as reducing the level of curial deference given to decisions of a highly discretionary nature but as a recognition that administrative decisions vary widely in the degree of discretion left to the administrative actor. A single overarching approach to determining the degree of scrutiny to be given by courts to administrative actions can accommodate this range of discretion. As she said in Baker, supra, at para. 56: The pragmatic and functional approach can take into account the fact that the more discretion that is left to a decision‑maker, the more reluctant courts should be to interfere with the manner in which the decision-makers have made choices among various options. [45] I take the Minister’s refusal to recommend to be an exercise of ministerial discretion constrained by no more than what she considers advisable in the public interest. What then does the pragmatic and functional approach suggest to be the appropriate standard of review of this administrative action? [46] This approach calls for the consideration of a number of factors which must be weighed together. See Pushpanathan, supra. [47] First, there is no privative clause applicable to the Minister’s action. This favours a lower level of curial deference. [48] Second and, in my view, most important, the fact that the administrative actor here is the Minister with expertise in the administration of this specialized legislative scheme suggests the need for very significant deference. As Binnie J. said in Mount Sinai Hospital Center v. Quebec (Minister of Health and Social Services), [2001] 2 S.C.R. 281 at para. 58: Decisions of Ministers of the Crown in the exercise of discretionary powers in the administrative context should generally receive the highest standard of deference, namely patent unreasonableness. This case shows why. The broad regulatory purpose of the ministerial permit is to regulate the provision of health services “in the public interest”. This favours a high degree of deference, as does the expertise of the Minister and his advisors, not to mention the position of the Minister in the upper echelon of decision makers under statutory and prerogative powers. The exercise of the power turns on the Minister’s appreciation of the public interest, which is a function of public policy in its fullest sense. [49] Third, while the Minister’s refusal relates directly to the rights of a single party, the respondent, it involves a very broad discretion engaging legal principles no more precise than the open-textured notion of what the Minister considers to be advisable in the public interest. This too favours greater curial deference. [50] Finally, the nature of the problem facing the Minister requires an appreciation of specific facts rather than an interpretation of definitive legal rules. The highly discretionary and fact-based nature of the Minister’s refusal also points in the direction of greater deference. [51] Weighing those considerations together, I conclude that the appropriate standard of review is that of greatest deference, namely, patent unreasonableness. Third Issue: Whether the Minister’s Refusal is Patently Unreasonable [52] In Canada (A.G.) v. Public Service Alliance of Canada, [1993] 1 S.C.R. 941 at pp. 963-64, Cory J. reminds us that patent unreasonableness is a very strict test and an administrative decision receiving the significant deference it calls for will be protected from judicial intervention if it is not clearly irrational. [53] In my view, the Minister’s refusal is not clearly irrational. Indeed, it seems to me to be quite rational. The Minister had in hand the respondent’s standing authorization to reduce its listed prices to match its competitors. A new competitor with lower prices received approval for listing in the Formulary. Pursuant to the standing authorization, the listed prices of the respondent’s counterpart drug products were reduced to match. The regulation approving the Formulary with those listed prices was filed on February 25, 1999, to be effective April 15, 1999. After the effective date, the Minister learned of the new competitor’s failure to produce and the respondent’s request for a change in its listed prices. The Minister quite reasonably took the position that it was too late to change the Formulary which had been approved in February and was already in effect. [54] The Minister further took the position that the respondent was asking for an increase in its listed prices which could be done only by the respondent complying with the Ministry’s cost-neutral price increase policy. Since the respondent would not comply, the Minister refused to recommend an increase in its listed prices. This too seems quite reasonable. Since the April 15, 1999 Formulary had already been published and was lawfully in effect, the respondent was indeed asking for an increase in the listed prices of its three drug products. That the premise upon which the respondent had authorized these new listed prices to be fixed subsequently proved wrong was surely a risk for the respondent’s account. It was not something which made the Minister’s refusal patently unreasonable. [55] Patent unreasonableness could, I think, also be found if the Minister’s refusal was the result of wholly omitting to take into account a relevant consideration (see Suresh v. Canada (Minister of Citizenship and Immigration), [2002] S.C.C. 1 at para. 29) or if it was the result of taking into account some wholly irrelevant or extraneous consideration. In other words, in a proper case, those two circumstances as recited in Padfield, supra, could lead to a finding of patent unreasonableness. [56] While it did not do so in the context of patent unreasonableness, the majority of the Divisional Court applied both factors in determining that the Minister’s refusal warranted judicial intervention, as I have already described. [57] With respect, I think the majority erred in each case. [58] The Minister did not fail to take into consideration the fact that Nu-Pharm had no new product for market. The Minister simply put that fact together with the timing of when it was discovered to determine that the April 15, 1999 Formulary was already lawfully in effect and that the respondent was seeking an increase in its prices as listed in that Formulary, thus engaging the Ministry’s cost neutrality policy. [59] Equally, it was not an irrelevant consideration for the Minister to take into account the fact that Nu-Pharm’s prices were published in the April 15, 1999 Formulary. It explained why the respondent’s listed prices appeared at the same level in the same Formulary. The respondent’s standing authorization was to lower its published prices to match those of its competitor. The lower published prices of Nu-Pharm was a very relevant consideration. [60] Thus, in my view, in neither respect can the Minister’s refusal be said to be patently unreasonable. [61] The respondent also attacked the Minister’s refusal as unfair and discriminatory. Even if that characterization could make the Minister’s actions per se patently unreasonable (which I doubt), it is not a characterization which applies here. The respondent noted one other circumstance where the Minister had recommended a price increase without applying its cost neutrality policy. However there, the lower listed price originally supplied by the manufacturer was simply mistakenly submitted in the beginning. Here, the problem arose because Nu-Pharm submitted listed prices which were properly approved and published in the Formulary and, thereafter, declared itself unable to make the product. The two circumstances are simply not comparable. [62] In summary, while the Minister’s refusal is challenged on a number of fronts, I cannot find that any of those challenges render that refusal patently unreasonable. [63] I would therefore allow the appeal, set aside the judgment below, and dismiss the application for judicial review. [64] Counsel for the appellant shall deliver brief written submissions on costs here and below and any proposed bill of costs within 10 days from the date of this judgment. Counsel for the respondent may deliver a response, if any, within 10 days thereafter. Released: June 17, 2002 “STG” “S.T. Goudge J.A." SHARPE J.A. (Concurring) [65] I agree with Goudge J.A. that the appeal should be allowed and the application for judicial review dismissed. As noted by my colleague, the parties have proceeded on the assumption that the Minister's refusal to recommend to the Lieutenant Governor in Council that a duly enacted regulation be amended is a statutory power of decision that is subject to judicial review. As the point was not argued, I prefer to leave to another day the basic question of the extent to which the Minister's refusal to make such a recommendation is subject to judicial review, absent grounds for finding that the limits of the statute or the constitution have been exceeded. Assuming, without deciding, that judicial review is available, the most favourable standard of review the appellants could expect in the circumstances would be patent unreasonableness. I agree with Goudge J.A. that the respondent has failed to establish that this decision was patently unreasonable. “Robert J. Sharpe J.A.” “I agree E. A. Cronk J.A.”