[ ♪♪ ]
Mark: Canadians
 love a bargain.
 And no retailer does
 bargains bigger than
 the king of bulk itself,
 Costco.
 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
 of 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
 relationship
 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
 conversations.
 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
 approachable,
 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 to CBC, 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 the CBC,
 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 payments
 to 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
 reflection
 of their discussions.
 That said, the two Costco
 Executives both pleaded guilty
 to professional
 misconduct before the
 Ontario College of
 Pharmacists.
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.
[ ♪♪ ]
