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Pills are measured out at a Shoppers Drug Mart in Toronto.

DEBORAH BAIC/THE GLOBE AND MAIL

Ontario can prohibit drugstore chains from offering their own house-brand generic drugs as it seeks to lower drug prices, the Supreme Court of Canada has ruled.

The court said its role is not to decide whether the ban was good or bad policy or whether the ban would actually work to keep prices down. The main issue was whether the ban fit the purpose of Ontario's drug-regulatory system.

It did, the court said in a 7-0 ruling that outlined in sympathetic terms the large task facing government. In 2007, generic drugs were three times more expensive in Ontario than in France, Germany and Britain, and five times more expensive than in the United States, the court said, citing an Ontario government report. And Canada spends more on prescription drugs per capita than most developed nations, the court said.

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The ruling, closely watched across the country, "means that other provincial governments facing challenges  in hidden drug costs can safely have resort to regulations" such as Ontario's, University of Montreal law professor Paul Daly said in an interview.

"And even though those regulations are not always effective at achieving their goals, the courts are not going to intervene to strike them down. The court was very conscious of the importance of the goal of reducing drug costs."

The government's resounding victory caps what the court called a "totemic struggle" between the province and drug companies over the price of generic drugs. In 2006, Ontario barred drugstore chains from receiving rebates from pharmaceutical manufacturers as an incentive to stock their products. Those rebates amounted to about $750-million, and helped to boost the price of generic drugs. The manufacturers then replaced those rebates with "professional allowances" worth about the same amount, and Ontario banned those in 2010. Shoppers Drug Mart then offered its own "private label" or house-brand generic drugs, but Ontario said this was merely an attempt to get around the ban on rebates and professional allowances.

Shoppers and another drugstore company, the Katz Group, which owns the Rexall and Pharma Plus chains, had argued that the ban on private labels was not in keeping with the purpose of provincial drug laws: to make safe and effective drugs available at low prices. They said there is no evidence that the house brands lead to higher prices.

They also said the case was about the rights of businesses to be free from undue government interference. "This is a classic case about the limits of executive power," Shoppers had told the court.

But Justice Rosalie Abella of Ontario, writing for the court, said the government had been responding "to what has proven to be a tenacious problem over the past 25 years: manufacturers 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 government has repeatedly tried to end these hidden benefits."

Justice Abella called the ban an attempt "to prevent another possible mechanism for circumventing the ban on the rebates that kept drug prices inflated."

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She gave the argument about business rights short shrift. "It seems to me somewhat ethereal to speak of a commercial 'right' to trade in a market as highly regulated as is the pharmaceutical market in Ontario."

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