Many of the largest players in Canada's generic drug industry have been implicated in an illegal scheme that involved wholesalers and pharmacies collecting inflated rebates by selling the same product over and over.

The Ontario government yesterday ordered seven of Canada's largest generic drug makers, four wholesalers and a retail pharmacy to reimburse the province a total of $33.8-million - the amount it alleges that patients were overcharged for generic prescription drugs.

"It's a multimillion-dollar abuse of the system," assistant deputy health minister Helen Stevenson said at a news conference yesterday.

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The government alleges that wholesalers and retailers bought more drugs than they needed and resold the excess among themselves, collecting a rebate or "professional allowance" from the manufacturer on each transaction.

"We call that drug recycling," Ms. Stevenson said.

The full extent of the problem will not be known until the government completes forensic audits of other industry players, including retail pharmacies, she said.

But audits done to date have uncovered enough information to prompt the government to lay charges yesterday under the Provincial Offences Act. Generic drug maker Ratiopharm Inc., Toronto wholesaler A.O.C. Company Ltd., and Kohler's Drug Store of Hamilton are accused of providing false or misleading information or obstructing an inspection in connection with the audits. The three individuals charged are Andrew van der Gugten at Ratiopharm, Andrew Chabursky at AOC and Harvey Organ at Kohler's.

"Some of the people and organizations who use and profit from the drug system we have in place have been frankly abusing it," Ms. Stevenson said. "And we're taking steps to end that abuse."

As part of a sweeping overhaul of the province's drug system in 2006, the government banned generic drug makers from paying hidden rebates to pharmacies in return for stocking their products. Rebates totalled between $600-million and $800-million a year before the changes, inflating generic drug prices by as much as 40 per cent.

Under new rules, drug companies can pay no more than 20 per cent to pharmacies in professional allowances for the Ontario Drug Benefit plan market. But last year, generic drug companies still paid out $680-million in professional allowances.

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The Canadian Generic Pharmaceutical Association said in a statement it welcomes the crackdown.

"It is not in the interest of consumers, taxpayers or Canada's generic pharmaceutical industry for payments of professional allowances to be inflated," president Jim Keon said. "Generic pharmaceutical manufacturers are not complicit in any alleged product recycling schemes, do not endorse such schemes, and are harmed by such schemes."

Officials at the wholesalers cited by the ministry, including multinationals Amerisource Bergen Corporation Canada and Kohl & Frisch Ltd., did not return phone messages. Harvey Organ, the head of Kohler's Drug, also did not return phone messages.

The drug makers facing fines are Novopharm Ltd., Canada's second-largest generic company, Taro Pharmaceuticals Inc., Cobalt Pharmaceuticals Inc., Genpharm Inc., Pharmascience Inc., Sandoz Canada Inc. and Ratiopharm.

The government also yesterday put three pharmacies on notice that their licences to work within the province's public drug programs may be terminated. It also filed complaints with the Ontario College of Pharmacists against the three pharmacies, asking the industry's self-regulatory body to launch its own investigation.