Two pharmacies (the “Pharmacies”) were unsuccessful in their appeal from a decision of the Supreme Court of British Columbia refusing to grant an Order prohibiting the Duputy Minister of Health (the “Minister”) from relying on allegedly irrelvant considerations when reconsidering whether to terminate the Pharmacy Participation Agreements under which the Pharmacies had been permitted to dispense prescription drugs to customers through a government subsidy scheme known as PharmaCare

Administrative law – Decisions of administrative tribunals – Ministerial – Pharmacy Participation Agreements – Public interest – Pharmacists – Billing matters – Termination of contracts – Judicial review – Compliance with legislation – Procedural requirements and fairness – Evidence – Admissibility – Criminal conviction

Delivery Drugs Ltd. (c.o.b. Gastown Pharmacy) v. British Columbia (Deputy Minister of Health), [2007] B.C.J. 2424, British Columbia Court of Appeal, November 14, 2007, C.A. Ryan, I.T. Donald and K.J. Smith JJ.A.

Under the PharmaCare program, participating pharmacies dispense prescription drugs to eligible British Columbia residents and are reimbursed for the cost of those drugs by the Province. The Pharmacies were nearly 100% dependent on PharmaCare revenue for their income.

In 2002, an audit by the Minister revealed billing overpayments exceeding $1.5 million dollars. The Crown brought an action to recover that amount but the matter was settled for just over $500,000.00. A criminal investigation followed and was resolved via a guilty plea by one of the pharmacy owners. That pharmacy owner remained a partial shareholder in the Pharmacies. An audit in 2003 showed no billing irregularities or overpayments.

In July 2005, the Minister terminated the Pharmacy Participation Agreements (the “Agreements”) with both of the Pharmacies. The Pharmacies applied for judicial review of the decision; the reviewing judge quashed the decision and remitted the matter back to the Deputy Minister to be reconsidered. However, in so doing, the Court dismissed the Pharmacies claim for an Order prohibiting the Deputy Minister from relying upon “allegedly irrelevant considerations”. These allegedly irrelevant considerations included the past criminal conviction of one of the owners and the previous audit results.

On that judicial review, the Court found that the Pharmacies had been denied procedural fairness because they were not provided with notice of the intention to terminate the Agreements and they were not given an opportunity to be heard on that issue. However, the prohibition order in respect of what evidence could be considered in determining whether the Agreements should be reinstated was denied. The Pharmacies appealed the refusal to order the prohibition. The Deputy Minister cross-appealed the decision to quash the initial determination that the Pharmacy Participation Agreements were terminated.

The Court reviewed the legislative framework under which the Agreements are implemented. The Continuing Care Act forms the comprehensive regulatory scheme for the delivery of continuing care services to eligible recipients through contractors engaged by the Minister. The PharmaCare programs are considered to be continuing care under that Act pursuant to the Continuing Care Programs Regulation. Among those PharmacCare programs is the Methadone Maintenance Payment Program. A large proportion of the prescriptions filled at the Pharmacies were for Methadone pursuant to the Methadone Maintenance Payment Program. The Agreements specified the amount that PharmaCare would pay the Pharmacies for the Methadone and its dispensing fees. The overpayments that were discovered in the June 2000 PharmaCare audit pertained to Methadone prescriptions. In June 2002, the Ministry demanded the Pharmacies for overpayments in respect of anti-retro viral medication which was dispensed between April 2001 and July 2002. Settlements were reached in respect of those overpayments.

In June 2004, fraud charges were laid against the pharmacy owners. One owner pled guilty and the second owner was acquitted following a Provincial Court trial. The Crown appealed the acquittal and the matter was outstanding at the time of this decision.

In 2005, the Deputy Minister advised the Pharmacies that the Pharmacy Participation Agreements with them would be terminated for a variety of reasons including the fact that the owners had been charged with a criminal offence relating to pharmaceutical practice, that one of the owners had entered a guilty plea in respect of that offence and that there was wrongful submission of claims for compounding of retro-viral drugs to PharmaCare previously.

At that stage, the Pharmacies’ petitioned for judicial review of the decision to terminate the agreements.

The reviewing judge found that the Pharmacies were obliged to comply with the Agreements and other standards set by the Minister and that their contracts could be terminated for non-compliance. The reviewing judge held that the Crown’s common-law powers in respect of contractors participating in PharmaCare had been displaced by the Continuing Care Act and its regulation and so the decision to terminate the Agreements was made pursuant to Section 4(5) of the Continuing Care Act.

The Court also found that the decision to terminate the Agreements was an exercise of statutory power of decision and therefore reviewable under the Judicial Review Procedure Act.

The reviewing judge also found that the decision was an administrative one that affected the Pharmacies and that therefore the Ministry owed them a duty of procedural fairness. Her Ladyship quashed the decision to terminate the Agreements and remitted it to the Minister for reconsideration on the basis that procedural fairness had not been afforded to the Pharmacies because they had no notice of the intention to terminate the Agreements and were not given an opportunity to be heard.

The reviewing judge also found that the conviction of one of the pharmacy owners for fraud was a relevant consideration to the decision to terminate the agreements because it “related to conduct in the course of a publically funded business” and therefore was clearly relevant to the question of whether the business should be permitted to continue to operate within the legislative objectives of the Continuing Care Act.

The Court of Appeal first dealt with the Minister’s cross-appeal wherein it contended that the reviewing judge erred in concluding that Her Ladyship was exercising a statutory power when the Agreements were terminated. The Minister contended that since the Court was also exercising a common-law power there was no duty of procedural fairness owed to the Pharmacies.

The Court held that the reviewing judge applied an appropriate test when considering whether there had been a statutory displacement by the Continuing Care Act of the prerogative power of the Court to uphold the termination of the Agreements.

The Court rejected the Minister’s submission that because section 4(5)(a) of the Act authorizes the Minister to terminate in accordance with the terms of the Agreements, the decision to terminate was an exercise of the Crown’s common-law powers and not subject to judicial review. Rather, the decision to terminate the Agreement was made pursuant to contractual provision.

The Court concluded that since the Minister was exercising a statutory decision when the Agreements were terminated, the decision to terminate the Agreements was subject to judicial review for procedural fairness and the reviewing judge had jurisdiction under the Judicial Review Procedure Act to quash the decision of the Minister.

The Court considered the Pharmacies’ contention that the reviewing judge had erred in deciding that the criminal conviction of one of the owners and his ongoing association with the Pharmacy were relevant factors for the Minister to consider in deciding to terminate the Agreements. The Court noted that this was an appeal from the Reasons for Judgment rather than from the Order of the Supreme Court Justice. As such, this was not a proper basis for appeal and was rejected.

The issue of whether the decision of the reviewing judge that the Minister’s decision to terminate the Agreements was not unreasonable went to the merits of her order to quash the Respondent’s decision and was therefore not a proper ground of appeal.

The third ground of appeal was whether the reviewing judge erred in not granting an Order prohibiting the Minister from considering the criminal charges, the termination guidelines for the Agreements, the overpayments by the Pharmacies that were the subject of civil litigation and the wrongful claims for the compounding of the anti-retro viral drugs.

The Court of Appeal determined that the analysis of whether a conviction for fraud in these circumstances can be considered must acknowledge the public aspects of the Agreements, including the fact that they are a part of regulatory scheme to provide healthcare and are funded with public monies. Because there is a public interest in insuring the integrity of the PharmaCare program, the criminal conviction is relevant to whether there was cause to terminate the Agreements.

The Court held that the overbillings which were previously resolved were not the basis of the terminations, but that the terminations were founded on the fraud conviction. The appeal and cross-appeal were both dismissed. C.A. Ryan J.A. wrote dissenting Reasons. Her Ladyship would have determined that judicial review was not available to the Pharmacies. Her Ladyship would have dismissed the appeal and allowed the cross-appeal, setting aside the Order of the reviewing judge reconsider the decision to terminate the Pharmacy Participation Agreements with the Pharmacies.

To stay current with the new case law and emerging legal issues in this area, subscribe here.