Drugs, Loyalty Schemes and Administrative Law: Keeping Katz in a Small Bag

Here is an interesting case about judicial review of regulations with, in the background, a hint that regulatory power was used to hinder an emerging business model Sobeys West Inc. v. College of Pharmacists of British Columbia, 2014 BCSC 1414.

Using its broad statutory powers, the College prohibited pharmacy loyalty schemes, the practice of giving reward points to customers. Prior to the adoption of the regulation, a report was commissioned and public participation solicited. Concerned about a number of potential harms, the College decided to exercise its authority:

a) The use of “bonus days” where on certain days, a multiple of the usual reward would be given for purchases was thought to potentially cause an unmanageable increase in workload for on-duty pharmacists which could increase the likelihood for them to make errors in filling prescriptions;

b) Bonus days might encourage a customer to defer filling a needed prescription until the next bonus day;

c) Incentive programs could cause customers to repeatedly transfer their prescriptions from one pharmacy to another, thus undermining their continuity of care;

d) Incentive programs could encourage customers to procure more drugs than required in order to obtain the incentive reward; and

e) The need for a pharmacist to explain the incentive program reduces the time available for pharmacists to counsel customers on medication therapy.

Given the scope of the College’s authority to regulate pharmacies, the applicants did not attack the legality of the ban on incentive schemes. Instead, they attacked the substance of the regulation, arguing that the regulations were unreasonable:

[33] While the respondent is under no obligation to adduce evidence of actual harms in order to justify its passage of the Impugned Bylaws, the reasonableness of those bylaws must be assessed in light of the fact that the respondent can point to only the possibility of harm to customers. Given the competing public interests I have identified above, and the standard of reasonableness that is to be applied in this case, the concerns put forward by the respondent must be carefully examined.

Notably, the applicants agreed not to have “Bonus Days”, thereby “eliminating concerns related to the first two harms listed above” (at para. 35). But Hinkson C.J. agreed that the balance of the ban was unreasonable because of overbreadth.

First, there was no corroboration of the College’s fears that loyalty schemes would be harmful (at paras. 45-46). Indeed, the affidavit evidence provided by board members of the College “also defies common sense with respect to customer purchasing of drugs and devices whose prices will far exceed the value of the incentives offered, particularly for what are described as members of a vulnerable population” (at para. 47). Second, other provinces had regulated in much more limited ways.

The heart of the matter, however, was whether “customer incentive programs will influence the choice of customers as to where they fill their prescriptions and acquire their medical devices” (at para. 50). Given how small the incentives are relative to the price of pharmaceutical products, Hinkson C.J. was unpersuaded:

[54] Nonetheless, it is my view that the third concern of the respondent can be addressed by a bylaw that eliminates incentives for the transfer of prescriptions or acquisition of a device from one pharmacy to another, limiting the incentives to simply the request for the filling of such a prescription or the acquisition of such a device. The broader approach adopted by the respondent is thus unnecessary to meet this concern, and contrary to the public interest in obtaining drugs and devices at the lowest cost. In the result, I conclude that the breadth of the Impugned Bylaws, insofar as they are intended to meet this concern, is unreasonable.

[55] With respect to the fourth concern identified by the respondent, it is my view that those customers who pay for their own prescriptions are unlikely to purchase drugs or volumes of drugs that they do not need in order to obtain the modest rewards offered by the petitioners. The concern that customers will overspend on their drug and device needs in order to collect the rewards offered is illogical. The cost of the drugs or devices to customers will invariably exceed the value of the rewards offered.

[56] Even those customers whose drugs are paid for under employment benefit plans must first obtain a prescription from a physician before they can seek to have it filled by a pharmacist. The prescriptions are for a specific drug in a specific dosage and amount, subject to renewal if the physician is prepared to permit it. The concerns of the respondent ignore this reality as well as the fact that a customer’s entire medication history is available through the PharmaNet system each time a prescription is filled or re-filled. Standard 7(i) of the respondent’s Code of Ethics, set out above, obliges a pharmacist to take appropriate steps to prevent and report the misuse or abuse of substances by customers. The PharmaNet system provides the means by which a pharmacist can ascertain whether a customer is seeking drugs more often or in greater amounts than reasonably required, in order to fulfill his or her ethical responsibilities.

This is interesting for at least two reasons. First, there is no mention of the Supreme Court of Canada decision in Katz v Ontario, 2013 SCC 64 (blogged here). Katz suggested that substantive review of regulations is impermissible: if courts can intervene only in “egregious cases” of mismatch between purpose and practical effect, it is difficult to see how they could strike down regulations as unreasonably broad. Much to my satisfaction, Katz was subsequently confined to regulations adopted in a “legislative capacity“, leading me to suggest in my paper “The Scope and Meaning of Reasonableness Review” that Katz now applies only to general regulations adopted by an elected body (and at that, probably only a cabinet). Hinkson C.J.’s analysis seems to bear this out: the regulator here was not the cabinet — and not politically accountable at all save perhaps to pharmacists — and should not benefit from the protection of the Katz test; it was more analogous to the municipality subjected to substantive review in Catalyst Paper, the case on which Hinkson C.J. relied.

Second, striking down regulations as unreasonable for overbreadth is interesting. The absence of concrete evidence plainly counted against the regulator here (see similarly the 2001 SCC decision in Trinity Western). I wonder whether in the background there was a struggle between ‘big box’ pharmacies and more traditional operators: this news report suggests that the ‘big boxes’ are in a minority in B.C. A cynic would wonder whether, under the banner of the public interest, traditional operators were trying to protect their business model against large corporations. The absence of political accountability in most regulators provides a reason for keeping Katz in as small a bag as possible.

This content has been updated on August 19, 2014 at 10:46.