Prescription Drugs : The Costco Kickbacks – The Fifth Estate

[ ♪♪ ] Mark:Canadians
love a bargain.
And no retailer does
bargains bigger than
the king of bulk itself,
Business is booming,
and generic prescription drugs
are no exception.But do deals at the
Costco pharmacy counter
have a shadier side?Secret audiotapes
heard for the first time
revealed demands
for illegal payments.
He’s basically saying,
“I want a minimum of 60% rebate on all your sales.” Well, you can
call it a rebate. I prefer to call it a kickback. Mark:A generic drug insider
goes public about his
fight with the retail giant.Well, I’m telling you
an American corporation is taking millions of dollars
out of the healthcare system, and you’re not
reacting, so I was– I was flabbergasted
to be honest with you. Mark:And outrage from those
hit the hardest by the system.
I call it greed,
a disgusting greed. Like, that’s obscene. Mark:On this edition
The Fifth Estate,we investigate hidden kickbacks
in the generic drug industry.
Are you getting ripped off?[ ♪♪ ] [ ♪♪ ] Mark:If you want to
understand the relationship
between Canadian
consumers and Costco,
just follow the money.Shoppers flock there looking
for the best deals on
everything from food, to
fashion, to pharmaceuticals.
And with rock-bottom
dispensing fees,
it’s no wonder Costco’s
pharmacies are attracting
the consumer crowd.But hidden drug industry
practices have been
padding the price of
generic drugs for years,
until the truth
started slowly seeping out.
It all started
with Tony Gagliese.
For years,
he sold generic drugs
for a company called Ranbaxy.One thing generics
do is sell to everyone, but Ranbaxy said, “No, we’ll sell to people who
are good people, that we have good relationships with only,”
and that’s what we did. Mark:One of Gagliese’s
biggest customers was Costco,
a multimillion-dollar-a-year
he said, that was
built on trust.
That changed when Costco put
new buyers in charge of their
drug business.Suddenly July 18th,
my daughter’s birthday, 2013, I get a one line e-mail… “From now on, Joseph Hanna and
Lawrence Varga are taking over.” [ ♪♪ ] Mark:The new Costco
buyers had new rules.
If Gagliese wanted to keep
his product in their stores in
Ontario, he had to pay
Costco for the privilege.
Costco said it was for
advertising and clinics fees,
fees they genuinely
believed were legal.
Gagliese didn’t see
it that way, so he decided
to secretly tape his phone
The voice you’ll hear
belongs to Joseph Hanna,
Costco’s National
Director of Drug Purchasing.
Mark:Hanna is telling
Gagliese his “support” meaning
his payments to Costco to carry
his product aren’t enough.
He’s basically saying, “I want a minimum of 60%
rebate on all your sales.” Mark:And what’s
wrong with that?
It’s against
the law in Ontario. Mark: Ontario made these
so-called rebates illegal in 2013 in an effort to drive
down the overall price of generic drugs. If pharmacy chains
stop demanding rebates, the province argued, then the
generic drug companies could afford to lower the price of
their drugs for Canadians. Sure, generic drug companies
have manufacturing costs, and pharmacies
have operating costs. But it seems when it
comes to the price of pills, there’s a whole lot
of fat in the middle.How much fat?Well, Gagliese says the new
buyers wanted Ranbaxy to pay
Costco $3.6 million in rebates
and advertising fees or their
drugs could be pulled
from Costco’s pharmacies.
No one has the money. You’re asking for money–
we’re now October– you’re asking me for
six months’ worth of money, which I don’t have.I always cared about
access to medicine.
Mark:Amir Attaran is a
professor in the Faculties of
Law and Medicine at the
University of Ottawa.
What’s wrong with a rebate? Well, you can
call it a rebate. I prefer to call it a kickback. Mark:He says rebates
are the drug industry’s
dirty little secret.Amir:Canada pays more
for generic drugs
than just about any other
place in the world.
Canadians are really
seriously gouged on the price of generic drugs. Billions of dollars a year
wasted that doesn’t need to be. Mark: Why is that? That’s largely because in
the price of a drug in Canada, there’s not just the drug. There’s a portion of the
price that goes to the pharmacy, in the form of a rebate,
or a kickback. [ ♪♪ ] Mark:And those high prices
are crippling for people
like Jim Poot.Last year,The Fifth Estate
interviewed him about his
struggle to pay for drugs after
he was diagnosed with
multiple brain tumours.Jim, when I look down here,
this looks like a forest of pills to me. Walk me through the forest. This little
bottle is about $75. That runs roughly $200. This one here is the most
expensive one on the table, somewhere in the $700 range. -Mark: Wow.
-Yeah, it’s wildly expensive. Mark: And how
important are these to you? Being able to function… manageably as compared
to being upstairs in bed and not being able to
function at all, there is that much
of a difference. Mark: So without these,
you and I aren’t having this conversation right now. No, I wouldn’t be
participating in this interview at all. I would be upstairs trying to
figure out how to get through the next few hours,
so it’s life altering. Serious numbers that
could be going into… Mark:After paying Costco
$1.2 million in rebates
and fees across the country,
Gagliese urged Ranbaxy
to stop the payments.Then, in an attempt to save
the business relationship with
Costco, Gagliese went
straight to the top.
So, did you flag Costco?Did you bring it to
Costco’s attention?
Every year, the CEO of
Costco Worldwide would send all suppliers an e-mail. He said, “If you ever run across
any of my employees asking for “anything under the table,
anything unethical, “not following the law, please
get in touch with me,” And I remembered that
e-mail, so I thought, I’m going to
write him an e-mail. Mark:Gagliese figured
he had nothing to lose.
Costco’s CEO, Craig Jelinek,
is known for being
down to earth.
He was voted America’s
most loved CEO in 2017.
So, who did Jelinek
put on the case?
The very same guy who was
demanding the payments,
Lawrence Varga, Costco’s
Director of Operations
in Canada.The thing that was
really concerned me is that they put Lawrence Varga in
charge of the investigation, so the person I’m claiming to
be breaking the law is now investigating it, and I have
e-mails to prove that. Mark:As you can
see from this e-mail,
Costco wanted Varga to talk
to the drug company Ranbaxy to
discuss Tony’s,
“serious allegations.”
In a statement toCBC,Costco’s
top Canadian Executive,
Andree Brien, said they
needed to involve Varga,
“So he could
provide his perspective.”
[ ♪♪ ] Mark:Though Gagliese
sees it differently.
I thought, “You know what,
this is getting out of hand,” and that’s when I
went to the college. Mark: And that’s when
your journey really started to accelerate?Yeah, absolutely,
in August of 2015.
So, that’s when I
decided to write… Mark:Gagliese began to
lose faith in Costco’s internal
investigation, so he took his
complaint to the next level.
Tony, in your journey,
you started at Costco,
you ended up here at the
Ontario College of Pharmacist.
Why here?
Why’d you come to them?
Well, the Ontario College
of Pharmacists is the regulatory body for pharmacists, so
if there is an issue within pharmacy and the
professionalism of pharmacy, I thought I should
come and talk to them, and let them know
what was going on. Mark:After a
year-long investigation,
Costco’s two executives
were now facing four
disciplinary charges
from the college.
In her statement to theCBC,
Brien said it voluntarily
stopped asking suppliers
in Ontario for any payments
“pending clarification”
from the province.
Costco’s initial defence was
they didn’t know these payments
for “advertising”
and “marketing”
were considered illegal.But remember,
Gagliese had that tape.
Mark:In January, Gagliese
was asked to testify as a
witness at the college’s
disciplinary hearing.
I was prepped the week prior,
went in that morning and the college lawyer asked me for a
brief two seconds’ meeting, went into an office,
and he said, “They’ve pleaded guilty and
we’re not gonna have the case, “And I said, “Okay.” He goes, “Here’s the bad news.” I said, “Okay,
what’s the bad news?” He said, “We’re only
gonna charge them “with unprofessional conduct.” I said, “What’s the fine?” He said, “$20,000 per
person and $30,000 for costs.” I said, “At least they’re
going to suspend their license?” “No.” “At least they’re going to
remove their accreditation for the pharmacies?”
“No.” I said, “That’s weak. That’s a bogus agreement.” [ ♪♪ ] Mark:The college
says it did its job.
By law, it can only impose
fines of up to $35,000.
But what about the $1.2 million
in payments Ranbaxy made to
Costco before Gagliese
blew the whistle on them?
Well, Costco kept that money.As my son said, “So I pay a $20,000 fine for
stealing $1.2 million. Where do I sign up?” I think the College of
Pharmacists of Ontario is an unreliable regulator in a
largely corrupt industry. I did a lot of
research on that… Mark:The University of
Ottawa’s Amir Attaran.
They have not taken this
close to seriously enough. If Costco has made
$1.2 million unlawfully, fining them $20,000? Is that the best the
College of Pharmacists can do? It’s pathetic. [ ♪♪ ] Mark:So, Tony
didn’t stop there.
As we’ll show you,he took his tapes
to the Ontario government,
pushing for stiffer
penalties for Costco.
Amir:Costco has been caught
with its hand in the till.
Clearly. Now the big question is, what
will the province do about it? [ ♪♪ ] Mark:Tony Gagliese,
generic drug salesman turned
whistleblower, was leading a
one-man stand against retail
Goliath, Costco.All because he says Costco’s
Executives asked him for
illegal paymentsto stock the drugs he sold to
their pharmacies.
He secretly taped a phone
conversation with a
Costco executive.This is what being
strong-armed sounds like.
He doesn’t care about me. He doesn’t care
about the suppliers. He just wants
what’s best for him, and he enriches the corporation. So if you don’t pay
him someone else will? Someone else will pay him. Mark:In it’s defence,
Costco says the rules around
the ad fees were not
crystal-clear, adding
Gagliese’s recordings were
incomplete, and not an accurate
of their discussions.
That said, the two Costco
Executives both pleaded guilty
to professional
misconduct before the
Ontario College of
I think that the tape is the
only reason why Costco decided to plead guilty on
January 15th at the hearing, and the tape, you
can’t debate the tape. I didn’t ask him,
I didn’t set him up, he told me how to pay him, so
Costco’s story is in that tape. Mark:Costco claims Gagliese
used the tapes as “leverage” to
get his business back after
Costco dropped his products.
As for Amir Attaran, he
considers Gagliese a hero.
I think– I think he’s
behaved in a selfless and heroic way. He has shed light on one
of the murkier sides of the pharmaceutical business. Costco has been caught
with its hand in the till. Clearly. Now the big question is, what
will the province do about it? [ ♪♪ ] Mark:That’s what
Gagliese wanted to know, too.
He took his tapes to
the Ontario government,
specifically the Executive
Officer who oversees
Ontario’s drug system.So, Tony,
you’ve gone to Costco.
You’ve gone to the
College of Pharmacists.
You end up here
with the province.
What brought you here?Gagliese:So, I kept hounding
the Executive Officer Inspector
to get back to me, and then
suddenly in October of 2017,
I get an e-mail from the
Forensic Investigator Team, or FIT, asking me to
come to a meeting, and I thought,
“Who are these guys?” Mark:FIT, the
Ontario government’s
Forensic Investigation Team,
specializes in cases involving
“wrongdoing against
the government”.
The team requested a meeting.And Gagliese began to feel like
his whistleblowing work was
finally paying off.Gagliese:
I went to a meeting
with the Forensic
Investigating Team,
and they were the ones putting
together the case for the
Minister of Health,
and what I was told,
and I quote,“Help us, Tony, to put together
the case against Costco.” I think the best hope is for
some criminal prosecutions to occur. Mark:Amir Attaran says legal
prosecutions could stop
industry kickbacks, and help
lower drug prices.
I’m a guy with a Ph.D. in the Biomedical Sciences
and a law degree. And Tony’s a highly
educated person, too. And we have gone down the rabbit
hole of how drugs are priced in Canada and come out horrified. Most people live lives
not down that rabbit hole, and they’re probably
happier for it. But if you do go down there,
you too will come out and be convinced that we’re
getting ripped off. [ ♪♪ ] Mark:After years of
selling drugs to pharmacies,
we wanted Gagliese to meet some
of the people struggling to pay
-those high prices.
-Hi. Mark: I’d like you to
meet Tony Gagliese. -Hi.
-Hi, Jim, nice to meet ‘ya. Mark:Like Brenda
and Jim Poot,
the man diagnosed with
multiple brain tumours.
Why don’t you give Tony an idea
of just what your monthly bills are like and what
you’re paying for? Well, we pay $437 a month
for this extended benefits, and over and above that, we’re
probably looking at after that, an additional 2,000-plus
dollars a month in additional pharmaceuticals. -Wow.
-Yeah. Mark: Given your
elevated pharmaceutical costs, you and Brenda have made a
recent decision to start buying your pharmaceuticals
at a new place. You’re going to Costco. Exactly, yeah. Any cost savings to us was some
light at the end of the tunnel. Mark:Gagliese told
the Poots how rebates work,
and if they were eliminated,
how they could cut their drug
costs, big time.They could, technically, the Minister of Health
could just lower that 30-dollar prescription to $12, and that’s
where Jim and Brenda would save a lot of money. Yes, so we could potentially
see 60% reduction in our, let’s say, $30,000
that we’re laying out, conceivably being
$18,000 back to us. Yes, if you’re using the
generic drugs, absolutely. Absolutely. Mark: What do
you think of that? That’s a lot of money. That would go a long
way towards making life a lot easier. Mark: And a lot longer. Hopefully, yes. Wow, that’s incredible. Mark:Perhaps even more
incredible is that during the
investigation by the
Ontario College of Pharmacists,
Costco claimed it wasn’t alone.Other pharmacy chains in
Ontario are demanding
these rebates, too.Mark: Ontario is the
only province to make rebates illegal. So imagine the savings if all
generic drug companies slashed their prices by as much as 60%
across the country instead of giving that money to pharmacies.Especially when you consider
Canadians spent almost $6
billion on generic
drugs in 2017. Just recently, there was
a study that said 3 million Canadians struggle to
fill their prescriptions. 2 million people don’t even
bother because they can’t afford it. But you’re speaking
to some of those people. I make that conscious choice
between paying bills and saying, “Can I do without
that drug this month?” And we do that. We have to do that. It’s just a matter of economics. Mark: A potential saving that
could be passed on to people like you, but right now,
that money is going for those corporate profits. For the–
we call it profits. I call it greed, a
disgusting greed. Like, that’s obscene. Well, I think that this is
a business where the various players have carved a piece
of the pie for themselves, and none of them want to
really upset the system, because that pie sure is tasty. This is a business in which
different stakeholders have big financial reasons not to
upset the way things are done. Mark: This may not
work for one consumer, but it’s certainly
working for the corporations. It’s working for
the drug companies. It’s working for
the pharmacists. Mark:We asked for an
interview with Costco’s CEO
Craig Jelinek or their
top executive in Canada,
Andree Brien.Both declined,
but in a statement,
Costco argues rebates
actually benefit consumers.
“We have not used these funds
to ‘line our pockets’ while we
continue to charge high fees.To the contrary, payments
received are used to defray
our operating costs to allow
us to pass the savings on
to our customers.”To the tune, Costco says, of
$16.4 million in 2014 alone.
Costco continues to grow
it’s operations in Canada,
with 98 stores and counting,
like this budding new store
in Toronto.Part of a worldwide success
story that saw the retailer
post profits last year
of almost $3 billion.
For the Costco pharmacists,
Lawrence Varga
and Joseph Hanna,
it’s business as usual.
Both continue to act as
senior executives at Costco.
[ ♪♪ ] Mark:But after blowing
the whistle on Costco,
and losing their
multimillion dollar account,
Gagliese is now out of a job.And he hasn’t been able to find
work in his industry since.
He considers it the price
he paid for going public.
[ ♪♪ ]