The city of Toronto has quietly accepted $4 million from Manulife Financial, the benefits administrator it replaced in 2016 after questionable city employee claims for Viagra, fentanyl and other health expenses were not flagged, the Star has learned.

City council approved the offer, preventing any future legal claim by the city, during a closed-door session in December, say two sources with knowledge of the concluded agreement who requested anonymity because they are not authorized to speak about it.

The terms include agreeing not to publicly disclose the settlement, following auditor general reports on fraudulent claims that saw some workers fired and others disciplined, the sources say.

Councillor Paul Ainslie, chair of the general government and licensing committee, refused to discuss details of the payment because the city code of conduct forbids councillors from revealing contents of meetings held in camera.

The December agenda said only that councillors would get a report about “potential litigation” relating to two auditor general reports about employee extended health and dental benefit claims from the city-funded plan before Green Shield Canada took over administration of it in late 2016.

However, Ainslie did confirm the existence of a settlement. He said he raised the issue of secrecy with city solicitor Wendy Walberg when he learned after the closed-door vote that, unlike many legal issues, this one was never to be revealed publicly, even after the deal was signed.

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“There was a concern from the (city legal) negotiating team that, if we didn’t keep the terms of the settlement confidential, that Manulife might not accept the settlement and they would walk away,” said Ainslie (Ward 24, Scarborough Guildwood) in an interview.

“As a city councillor, I’m here to look after the best interests of the taxpayers of the city of Toronto. We’re here to safeguard the interests of the residents and not the overall interests of a private corporation that’s there to make a profit.

“I expressed to the city solicitor that I hope it’s a one-time thing. I’ve never seen (such secrecy) before and I don’t want to again see this kind of arrangement where we can’t explain to the public what the terms of the settlement were and why it happened.”

Walberg directed the Star’s questions to city spokesperson Brad Ross, who said legal matters could remain confidential for reasons including “privacy, to protect against possible future litigation or to ensure any legal agreement the city enters into is not jeopardized.”

The company was also tight-lipped. “Manulife does not discuss confidential dealings with our customers. We obsess about our customers, and do everything in our power to satisfy them,” Manulife spokesperson Sean Pasternak said in an email.

“Manulife has ongoing dealings with the city of Toronto which, of course, are private and confidential. To comment could potentially put Manulife in breach of its legal and business obligations.”

The settlement does not affect an ongoing $5-million lawsuit launched by the TTC against Manulife in 2017. It alleges the company failed to put appropriate fraud management controls or systems in place to “detect and analyze unusual trends or patterns that might indicate fraud or abuse.”

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In 2016, Toronto auditor general Beverly Romeo-Beehler reported results of her probe into questionable employee and family member claims for drugs including erectile dysfunction pills and pain-control narcotics such as fentanyl and oxycodone.

“Red flags” included massive purchases that suggested drug addiction or resale for profit, she warned, with one claimant getting 6.7 years worth of fentanyl in one year and five others claiming more than $5,000 worth of sexual enhancement drugs in a single year.

In a 2017 update, Romeo-Beehler said she had found “clear signs” of patients getting prescriptions from multiple doctors, as well as some doctors over-prescribing medications to individuals.

Ross said the city investigated 88 reported allegations of benefits fraud involving 103 employees. Substantiated allegations have so far resulted in action against 39 employees, including firings, discipline and allowing some to resign. Nine cases remain open.

The TTC fraud centred on the discovery that employees were making claims for orthotics, braces and other medical devices through a Manulife-administered benefits plan, but were either not actually receiving the devices or paying inflated prices.

In 2017, the proprietor of medical device firm Healthy Fit pleaded guilty to two counts of fraud. Adam Smith of Mississauga was sentenced to two years in prison for the scheme, in which he would split the fraudulent benefit claim payments with TTC employees or family members in the plan.

One hundred and ninety-three TTC employees were fired, 58 resigned and 9 have been disciplined. Ten employees were charged criminally.

The auditor general told the Star she has followed the progress of Green Shield and the city in tightening controls.

Her review last year found “an average annual reduction of $5.45 million in health benefits costs when comparing the costs of drug and health claims adjudicated under the old and new benefits administrator.”

The TTC is reporting a multimillion-dollar decline in health-care claims between 2015 and 2018.

Correction — March 24, 2019: This story has been updated from an earlier version that included an incorrect number of TTC employees who have been disciplined.