INDY Committee Meeting

STANDING COMMITTEE ON INDUSTRY

COMITÉ PERMANENT DE L'INDUSTRIE

EVIDENCE

[Recorded by Electronic Apparatus]

Wednesday, September 30, 1998

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[English]

The Chair (Ms. Susan Whelan (Essex, Lib.)): Order, please, pursuant to Standing Order 108(2), consideration of Chapter 17, the Patented Medicine Prices Review Board, of the September 1998 report of the Auditor General of Canada.

We're very pleased to welcome the Auditor General and two of his associates today.

My understanding is that the Auditor General, Mr. Denis Desautels, will begin with an opening statement, and after that, both of his colleagues, Maria Barrados and Ronnie Campbell, will be here to answer questions.

We welcome your statement.

Just to inform members, as we discussed at steering committee last week, we had asked that the Auditor General undertake an audit, and if you've had a chance to review chapter 17, you'll see that he's done a much more thorough audit and has looked at everything. There are a couple issues that belong with health and some that are ours, so we are very pleased to have him here with us today.

Mr. L. Denis Desautels (Auditor General of Canada, Office of the Auditor General of Canada): Madam Chair, thank you very much for this opportunity to present the results of our audit of the Patented Medicine Prices Review Board, as reported in chapter 17 of the report we tabled yesterday.

The industry committee's fifth report, issued in April 1997, recommended, as you said, that the Office of the Auditor General perform an audit of the Patented Medicine Prices Review Board to provide Parliament with information on performance and efficiency.

We undertook a preliminary review and then decided to proceed with a full value-for-money audit of the board. The PMPRB is a small board, as we all know, with a staff of about 35 people and an annual budget of approximately $3 million. However, it has a large potential impact. In 1997, Canadian sales of patented drugs by manufacturers amounted to approximately $3.7 billion.

The PMPRB has a mandate to protect consumer interests and contribute to Canadian health care by ensuring that prices charged by manufacturers of patented medicines are not excessive. In fact, the board's mandate is quite limited.

For example, the board regulates only the price at which the patentee sells the medicine. This is usually the price charged by the manufacturer to a wholesaler or directly to a hospital or pharmacy. This does not include retail markups, distribution costs, or other factors which affect the eventual price paid by consumers.

In addition, the board does not have jurisdiction to regulate the prices of non-patented drugs. However, this is not always well understood by the public. The result is a considerable expectation gap.

[Translation]

Nearly 70% of the Board's spending is absorbed in salary costs. We tried to determine if it manages its financial and human resources efficiently. Given its size and financial complexity, the Board meets our expectations with respect to financial controls. Its financial management capacity is aimed primarily at meeting central agency requirements.

The Board has adopted a voluntary compliance undertaking policy to settle cases where it suspects prices of being excessive. The Board has thereby achieved efficiency gains in the use of its resources.

However, other efficiency gains are possible. For example, the Board would have opportunities to better coordinate its work with Health Canada in doing scientific assessments of new patented drugs to determine their category.

The Board could also work more closely with Statistics Canada to improve its reporting on price trends and to minimize possible overlap.

In our review of the Board's performance in regulating drug prices, we found that the prices of most patented drugs sold in Canada met the requirements of the Board's guidelines. Generally speaking, the Board's guidelines were applied rigorously.

However, the Board counts mainly on the companies themselves to provide it with the pricing data used in regulating the prices of their drugs. We expected that the Board to do more to ensure a reasonable level of confidence in the accuracy of this data. The Board must find reasonable ways of checking the accuracy of the pricing information provided by manufacturers.

[English]

We identified areas where the board needs to be more transparent in the work that it does and needs to improve its reporting on the effectiveness of its work. I'm concerned that its current estimate of health care savings as reported to Parliament is overstated.

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Finally, the audit identified areas in the legislative framework that are difficult to apply or may no longer be relevant.

Madam Chair, I am not raising concerns about the broader aspects of the Patent Act or the regulations. Rather, my concerns are in the context of some of the more detailed provisions.

For example, in determining whether a price is excessive, the legislation requires the consideration of prices of drugs in the same therapeutic classes in other countries. Board staff felt that they could not meet this requirement because valid data are not always available.

Further, the regulations require the comparison of prices in specified foreign countries. However, meaningful comparisons are often not possible to make. In 20% of the cases, the only foreign country selling the same drug was the United States, which has the highest drug prices overall.

In addition, the legislation is silent on two important areas. First, the Patent Act does not address the use of voluntary compliance undertakings. It thus makes no provision for the distribution of money collected from these undertakings. Second, the legislation is also silent on the dedication of patents for public use and on the board's jurisdiction over those patented medicines.

Finally, given that the brand name pharmaceutical industry has met its commitment to increase annual research and development spending to 10% of sales by 1996, there is a question about the continued relevance of the requirement for the board to report this information.

Madam Chair, that concludes my opening statement. My colleagues and I would be very pleased to answer your committee's questions.

The Chair: Thank you very much, Mr. Desautels.

To begin, Mr. Pankiw, do you have any questions?

Mr. Jim Pankiw (Saskatoon—Humboldt, Ref.): Yes.

From what you're saying, I gather that it isn't a far stretch to say that the PMPRB is largely irrelevant. Do you agree with that? Do you think the board is having any impact? Or if the PMPRB hadn't existed for the past five years, say, would there have been any substantive change in what the prices of drugs actually were?

Ms. Maria Barrados (Assistant Auditor General, Office of the Auditor General of Canada): When we took a look at the reporting of the performance that the PMPRB did itself, we concluded that the board does have an impact. It does have an impact on the pricing of drugs, but we also concluded that its assessment of its own impact was overstated.

Mr. Jim Pankiw: Okay. Based on its assessment, you're saying it has an impact, but do you have anything other than its own assessment of itself to base that on?

Ms. Maria Barrados: We came to that conclusion by taking a look at the evaluation study the board did. We looked at the methodology, at how it was done, at the factors that were taken into account, and then we made a judgment on whether that study was well done. Based on that analysis, we concluded that there were important factors the board should have taken into account. In particular, the board should have taken into account the impact on prices of drug plans in the provinces and the impact on drug prices of the kinds of measures that private insurance companies are taking to try to control the cost of drugs.

As well, there are a lot of questions being asked about the impact on the market, the change in the market. We felt that the board should have taken these factors into account. To show that it is possible to do, we found another study that was done. There are technical ways to do it. Our conclusion is that the impact of the board was overstated, but it does have an effect.

Mr. Jim Pankiw: I have two more questions. Firstly, then, are you recommending that a more independent and effective method of analysis be undertaken in the future?

Ms. Maria Barrados: As in the case of program evaluations and reviews within government, it is quite satisfactory for the agencies and departments to do them themselves, but we expect them to be done rigorously, taking all the important factors into account. We would expect an analytic study that would attempt to include these other factors as well.

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Mr. Jim Pankiw: I'm not sure it's a reasonable expectation that they would be done rigorously if they're done by the departments themselves.

Anyway, in regard to my second question, considering the very many different factors of the business climate in different countries, the tax levels of government, the regulations, the rules, and all kinds of factors, how is it relevant to examine or compare drug prices in each country?

Ms. Maria Barrados: We didn't go into making a judgment about why the legislation was set up the way it was in asking that this be done. There was a judgment made when this legislation was put in place that there was some other form of comparison, and it was a comparison with foreign countries. Then the regulations specified the countries. The obvious problem that is faced when you're making a judgment about a price is how you judge that price as being reasonable. And the legislation, when it was framed, identified that as the way to do it.

Our comments and our observations as a result of our audit are that some of the requirements are just extremely hard to meet. It's just technically not possible for them to get the kind of information that is specified.

Mr. Jim Pankiw: So as far as the validity of their method of comparison is concerned...?

Ms. Maria Barrados: They, for example, are asked to make a comparison of the median price of these seven countries. Often there isn't price information available for the seven countries. There's only one country that the price information is available for. It happens to be the United States, which tends to have the highest drug prices.

So it's not a choice of the board to do it that way, but that's all it could find. There are also requirements that the same therapeutic class prices be used and that information isn't available to the board. It's an example of where the requirements are there to do it one way and the board cannot technically meet them.

Mr. Jim Pankiw: But in your assessment, the requirements that are in place are not adequate.

Ms. Maria Barrados: There are a number of requirements that should be reviewed and there are places where they are silent.

Mr. Jim Pankiw: Thank you.

The Chair: Thank you very much, Mr. Pankiw.

Mr. Bellemare, please.

[Translation]

Mr. Eugène Bellemare (Carleton—Gloucester, Lib.): Mr. Desautels, you say that you are afraid that the Board may have overestimated the amount that it is saving the Canadian health system. Has the Board misled the country in doing so?

Mr. Denis Desautels: In our report, we indicate that there has been some control over patented drug prices and that some objectives have been met. We say that the factors involved in meeting those objectives arise not only from the Board's actions, but also from those of other agencies and other levels of government that have exercised pressure to have the plans maintained.

We are therefore saying that the Board should be a little more careful in assessing its performance and should try in the future to pinpoint the performance it is responsible for, since that performance is also attributable to other factors.

Mr. Eugène Bellemare: In 17.42, you say:

...it is not within its jurisdiction to regulate the prices of generic drugs, drugs that have never been patented, and drugs whose patent has expired.

Should all those aspects not be included as part of the responsibility of the Board?

Mr. Denis Desautels: That is an interesting question. As Ms. Barrados said earlier, we based ourselves on the legislation as it is written. The Act deals only with patented drugs. There is a reason for that.

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The Board was set up when the Patent Act was amended, in order to ensure that the changes would not lead to skyrocketing prices for drugs that had been covered by patents previously. There is logic to that. I think that the argument for it is still valid. However, if one wanted to expand the Board's mandate, one could.

Mr. Eugène Bellemare: Do you believe that should be done?

Mr. Denis Desautels: That might be of some value, as we said earlier in our presentation. The public may have a false perception of the Board's role, since it controls only one aspect of drug prices, that is only patented drugs and only for the prices charged by the manufacturer.

So, the Board's role is rather limited, and everyone may not understand that. If parliamentarians think that people expect more and want to follow up, well, the Act can be amended.

Mr. Eugène Bellemare: Later on in your report, you mention something that bothers many people who purchase prescription drugs. I'm talking about dispensing fees. Let me give you an example. Occasionally I buy pills that cost, let's say, $10 each. The pill itself only costs $2, but the dispensing fee is $8. I find that out of proportion. There is something wrong there.

Secondly, often the pharmacy wants to sell us a 30-day supply of medication. Let's say that you have a prescription for a heart problem, and you have to take the medication for the rest of your life. It's as if the pharmacy likes to sell you just a 30-day supply, and often they have to call the doctor back to get another 30-day supply. That's when the dispensing fees become annoying. So do you think that dispensing fees should be controlled by the federal government, or should they be controlled by the provincial government?

Mr. Denis Desautels: I can't answer that question. That's something that clearly lies outside of the Board's mandate. Who should control dispensing fees? It's an issue that requires a great deal of discussion. Both the federal government and the provinces have jurisdiction in this area. If we want to control dispensing fees, I think that there have to be other discussions at the political level.

Mr. Eugène Bellemare: I'm going to move on to 17.56, where you say that the United States have higher drug prices than Canada does. How do you explain that? Is there an explanation? Is it just because of the exchange rate?

Ms. Maria Barrados: It's because there are no controls in the United States. The other countries have controls, not like ours, but they do have controls, whereas there aren't any in the United States.

Mr. Eugène Bellemare: Finally, should the guidelines on prescription prices be included in legislation? After a while you can just ignore the guidelines. After all, they are just a guide.

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Do you think that we should have regulations rather than a guideline?

[English]

Ms. Maria Barrados: In the case of these regulatory programs, you have the legislation, the regulations and the guidelines, and that's a satisfactory way to proceed in managing regulatory programs.

What we do expect, however, is a consistency among the legislation, the regulations and the guidelines. In the chapter we raise one point where we say the application ends up being not consistent. But it's a satisfactory way to proceed. You wouldn't want to make all the guidelines into regulations.

The Chair: Thank you very much, Mr. Bellemare. Mr. Dubé.

[Translation]

Mr. Antoine Dubé (Lévis-et-Chutes-de-la-Chaudière, BQ): Good afternoon, Ms. Barrados and Mr. Campbell. I too am interested in paragraph 17.35, which Mr. Bellemare mentioned, but perhaps I'm approaching it from a different angle. You state that when you tried to measure the effectiveness of its activities, you "did not assess the possible effects of provincial measures." The Board, according to its own analyses, could have saved the Canadian health care system somewhere between $2.9 billion and $4.2 billion. Bearing in mind the effects of provincial policy, how much do you think the Board really could have saved the system?

Mr. Denis Desautels: I think that's almost impossible to determine. In fact, according to the information that is currently available, each province deserves praise for its efforts—the provinces may not necessarily be doing the same kind of thing—to negotiate prices with the manufacturers. This has kept prices down. So, many stakeholders may have something to say about all that. As far as I know, we don't have any information that would allow us to really put a figure on each stakeholder's efforts. Perhaps Ms. Barrados has something to add.

Ms. Maria Barrados: We could get that result for you, but we haven't done that minor analysis. It's a good piece of work. We have to carry out a technical analysis, which takes time, because we have to find all the information to do the analysis, but it is possible.

Mr. Antoine Dubé: Quebec has had its own drug plan for two years now. Has that made your analysis any easier, or has it not had any effect?

Ms. Maria Barrados: That's a technical question. We have to have the necessary information to carry out the analysis, and it becomes a technical analysis. We haven't done this analysis, but we could.

Mr. Antoine Dubé: Fine. The Board's policy has been to use what it calls voluntary compliance undertakings to deal with excessive prices instead of holding public hearings. However, the Patent Act is silent on such recourse, and it does not allow the Minister of Health to give the provinces the money recovered by means of these undertakings.

You said that Health Canada had to seek approval for a grant so that this money could be distributed to the provinces and territories.

Could you explain these procedures to us and tell us what guarantees there are that all the money recovered this way is actually redistributed?

Ms. Maria Barrados: I'll have to answer in English.

Mr. Antoine Dubé: That's fine, I have the interpretation.

[English]

Ms. Maria Barrados: Because there is no mechanism in the legislation whereby there is a possibility for the board to distribute the money directly, it had to find another way to distribute the money, and the way that was chosen was providing grants to the provinces.

There are a number of questions you could ask about whether that is the appropriate way to redistribute the money, because it is not necessarily the provinces that pay the money—there are individuals who paid for these things—but it was the only way that could readily be found to redistribute the money.

One of the conditions that Treasury Board did put on approving that grant was to make sure that this was regularized and that there would be some better way to do it.

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The Chair: Last question, Monsieur Dubé.

[Translation]

Mr. Antoine Dubé: I have a question about patent dedications. Between 1989 and 1995, patentees dedicated more than 130 products for public use and reported this to the Commissioner of Patents. Given that we know that the Board does not review drugs anymore once the patent has been dedicated to public use, is this a way of getting around the Board's control?

[English]

Ms. Maria Barrados: This is another one of these areas where the legislation is silent. And in our view it is an area that should be clarified. The board decided, when it did its own analysis, that it should actually be controlling these patented medicines. Then there was a court judgment that suggested the board should get that clarified, because there was a question raised. It's an area where, again, some corrective action is required to make sure it is regularized so that there is no question about what the mandate is.

In addition, that leaves the board in a bit of a position, because it can respond to complaints, but how does it go back? The board needs a systematic way of dealing with that situation.

The Chair: Thank you very much, Mr. Dubé.

Mr. Lastewka, please.

Mr. Walt Lastewka (St. Catharines, Lib.): Further to the patent dedication, it's been a while since we had the Bill C-91 discussion, but I thought Bill C-91 did clarify that a bit. Maybe it wasn't good enough. Could you respond to that?

Ms. Maria Barrados: It was our understanding that the board was still in the situation where it didn't have the clarification that was necessary. The board looked at its previous position and felt it had a mandate to proceed by controlling the dedicated patents. But when we reviewed all the material, particularly with that court judgment, it was our view that this wasn't clear enough and that it still left them with a difficulty.

Mr. Walt Lastewka: Okay. In 17.104, under the reference to StatsCan, could you give us more information on what you intended there? As far as I'm concerned, the board's response wasn't good enough for me to be able to understand what message you had given them and what was expected. Could you just expand on what you meant by recommendation 17.104?

Ms. Maria Barrados: The board is required to report on drug price trends and the board does make that kind of report. We looked at what it was doing in making those reports. There are a number of different indices that it prepares, reports on and does its analysis on. When we looked at that and at the additional question that was posed to us about the efficiencies of the board, this struck us as an area where it was really not clear why the board is generating all this material when you have a statistical agency that generates the material.

When we did some comparisons between the material from Statistics Canada and the series from the board there were some inconsistencies. They were not major in terms of trend, but the numbers weren't quite the same. The board suggested to us that it felt the numbers coming from Statistics Canada weren't sufficiently reliable, but those same series that it didn't feel were reliable it was using in other ways. So we felt there could be increased efficiencies by working with Statistics Canada and not having any duplication.

Mr. Walt Lastewka: If I remember correctly, they said they formed a task force with Statistics Canada in order to be able to resolve this. Was that was the intent of the board's answer? Was the intent to work with Statistics Canada and to ask the right questions first in order to get the data needed?

Ms. Maria Barrados: The intention there is to work out the methodology questions, like what you put in a series—

Mr. Walt Lastewka: Sure.

Ms. Maria Barrados: —what the base is in a series and what can be used from Statistics Canada. After that, there may be some things they have to do themselves.

Mr. Walt Lastewka: Okay. I want to go back to my earlier discussion about the mandate. During your audit, did you find that the mandate restricted the board from doing any of its work? Did you find that the mandate should be changed in any way?

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Ms. Maria Barrados: During the course of the audit, we took as given the broad framework, which was that the board was looking at patented medicine. We didn't look at that other debate about broadening the mandate and we didn't look at the debate between the generics and the patented medicines.

But in the case of the mandate, we did have a question that had results for the board's ability to do its work: how could the board get some kind of assurance on the price? The information on price comes from the companies and there isn't that much other information available.

We felt there should be some other way for the board to get some assurance on price. And it could be something such as the suggestion we make: having the auditors of the company give an independent assurance on price. But there should be some other way to get assurance on price. This may or may not be a mandate question, depending upon what the full options are.

The Chair: Thank you very much, Mr. Lastewka. Ms. Lill.

Ms. Wendy Lill (Dartmouth, NDP): Thank you.

I would like to ask you a couple of questions about pricing. In your report, you look at the validity of the current practice of international price comparison. I'm wondering if we wouldn't get a more realistic picture of the PMPRB if it looked at drug prices in every other OECD country. That information is available. Shouldn't we be broadening that comparison instead of narrowing it?

Ms. Maria Barrados: We didn't really draw any conclusions about the countries that should be in there. I don't think that's really our role. However, the practicality of the set of countries that are there is up for question, because the result of that particular set and that particular methodology means there are some things the board can't do very well.

So in our view, it warrants looking at again, just to make sure that we are asking the board to do things it can reasonably do. We don't really have an opinion on the countries that should be in that set.

Ms. Wendy Lill: The National Forum on Health recommended that a pharmacare program would actually lower overall drug costs, because we would have a single buyer who would negotiate better prices. Do you think that would be a good cost-saving measure?

Ms. Maria Barrados: I can't really give you any opinion on pharmacare. The only thing I could add on that topic is that we in our audit had difficulty always getting our hands on a good sense of what the prices were because there are so many different kinds of prices. From my own experience, I know that large hospitals, for example, can negotiate prices, and they do bulk buying. But as for the result of the audit and the work that we saw, I'm afraid we can't add anything to that.

Ms. Wendy Lill: You raised some concerns about the board's reliance on pharmaceutical companies to supply information on drug prices and on research and development. Do you think the board is fulfilling its mandate to protect consumer interests and to contribute to Canadian health care by ensuring the prices are not excessive if we're relying only on the data of the pharmaceutical companies?

Ms. Maria Barrados: We feel that the board does have an impact in dampening the prices of drugs. But we also feel that the impact is more limited than the board itself has claimed. So that's part of your question. The board does have an impact, but a more limited one.

In terms of the R and D, we raised the issue of the R and D and the reporting of the it in the report as well, in regard to whether this really is something that warrants continuation, given that the original objectives were met and now there is a situation where R and D figures are being reported that go back to a previous tax regime. That again raises all kinds of questions about how you can verify or have confidence that these numbers are correct.

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We do have the general question of finding some other way of getting some further assurance on the information that is provided by the drug companies on prices as well as on R and D.

Ms. Wendy Lill: Thank you.

The Chair: Thank you very much, Ms. Lill.

Mr. Shepherd, do you have any questions?

Mr. Alex Shepherd (Durham, Lib.): No.

The Chair: Ms. Jennings?

Ms. Marlene Jennings (Notre-Dame-de-Grâce—Lachine, Lib.): No.

The Chair: Mr. Pankiw.

Mr. Jim Pankiw: The PMPRB was established in 1988, but it's clear that it didn't have an effect on the price of drugs. If anything, there's a year-by-year increase, from 1989 to 1990 and 1990 to 1991, as I can see by looking at exhibit 17.3 on page 17-10. That suggests to me that, at least in the initial five years, the effect of the PMPRB on drug prices is questionable. But in 1993, there is an instant drop on your graph, and that coincides with the year the legislation affecting patent medicines changed. Did that have any consequences? How do you explain the 1993 factor?

Ms. Maria Barrados: The point of putting the graph in the report was to demonstrate what was happening overall with drug prices. There is some caution with regard to the macro numbers, in that the macro numbers don't give you the variances that individuals might experience with particular drugs.

But clearly what we see here is that in terms of the rate of growth and the rate of change, with the CPI as the ceiling, the CPI has continued to stay up and the prices of the drugs have gone down. In regard to the coincidence of 1993, I think you can make an attribution and a link between the policy changes, because they very much set the environment in which this activity takes place, and the results you are seeing in this graph.

Mr. Jim Pankiw: What you're telling me is that the government policies and the regulatory framework that the patented drug manufacturers work in has a much greater—if not total—effect on the overall price of drugs than the PMPRB does.

Ms. Maria Barrados: The PMPRB is an arm of government policy and the PMPRB's role is to implement the policy.

Mr. Jim Pankiw: First of all, I think it's a stretch to say that's part of government policy. When you look at exhibit 17.1, which lists the factors that they use to determine the price, these are all just relative things. There are no real economic factors here. You're comparing it to the price of medicines in other countries which use the same.... Everybody is comparing everything to each other and there are no true economic factors involved in the determination of these prices.

Furthermore, if in fact the prices have typically been far below the PMPRB's established levels, then I would suggest that the savings to the consumer, which they state were between $2.9 billion and $4.2 billion, were overstated to that exact sum. The PMPRB doesn't seem to be having any effect. If something that sets the price ceilings isn't being met, what effect is the board having?

Ms. Maria Barrados: The phenomenon we see is that there is a ceiling and the prices are not hitting the ceiling. When the prices are not hitting the ceiling, what that tells me is that other things are controlling the prices.

Mr. Jim Pankiw: Right.

Ms. Maria Barrados: And these other things, we are suggesting, are a lot of the initiatives being taken by the provincial drug plans and the private drug plans, along with other market forces that may be at play.

That's not to say that the PMPRB doesn't have a role, because we believe it does. Other analysis carried out does show a role for PMPRB. It's just not as large as they've stated.

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Mr. Jim Pankiw: But if, in your own words, these factors are actually what's determining the price—and not the ceiling established by the PMPRB—I can't see how you reached the conclusion that the PMPRB does play a role.

Ms. Maria Barrados: It's a multifactorial environment. It's not a “one thing” environment. There are many things going on here.

And from the analysis we have seen that looked only at the PMPRB and the analysis that looked at the PMPRB and other factors, there is an impact of the PMPRB, but it's a multifactorial thing. There is an interrelationship between things. Statistically, you would have to build yourself some very complicated models, but you could sort it out. And that's what we're suggesting the PMPRB do, because it would better inform the discussion and the debate.

Mr. Jim Pankiw: Let me ask you this, then: if the PMPRB does have some impact, but there are many other factors, you said, that are actually much greater, I think—

Ms. Maria Barrados: No. Other factors.

Mr. Jim Pankiw: Okay. Then what percentage is the PMPRB factor in determining the price of drugs?

Ms. Maria Barrados: I wish I could give you a number.

Mr. Jim Pankiw: So you're saying the PMPRB does have an effect, but to what extent, you don't know.

Ms. Maria Barrados: I'm not sure of the facts.

Mr. Jim Pankiw: It could be very minimal.

Ms. Maria Barrados: I would not guess that it's very minimal. It's not as great as PMPRB says.

Mr. Jim Pankiw: Okay. I guess I can't get you to be any more specific, so we'll have to let it go at that.

Some hon. members: Oh, oh.

Ms. Maria Barrados: Madam Chairman, it might be a good question for PMPRB to redo its analysis on.

The Chair: Thank you, Mr. Pankiw.

Mr. Dubé, do you have any more questions?

[Translation]

Mr. Antoine Dubé: I realize that this a bit delicate, and that you don't want to make decisions on the government's behalf. Your mandate is to audit, but in the final analysis, we see that this role is not as large. I don't have the figures with me, and I would like to know how many employees the Board has and what its budget is.

Mr. Denis Desautels: As I was saying earlier, it's a rather small organization, with a budget of slightly more than $3 million and 35 employees. So, it's not a big organization.

In response to your question, I'm reminded somewhat of Ms. Lill's question and Mr. Bellemare's. Initially, the idea was to have a relatively small organization. So, if you want to tinker with the organization's mandate, you have to realize that it will have an impact on the size of the bureaucracy that you would like to create.

Mr. Antoine Dubé: The Board could have more of an impact, but it would be more expensive.

Mr. Denis Desautels: A cost-benefit analysis would have to be done to make sure that what you were adding would give you the results that you wanted.

Mr. Antoine Dubé: This has been pretty technical for us. Do the seven countries used as references have a similar board?

Mr. Denis Desautels: As we explained in the chapter, most of these countries have some kind of control mechanism, but each one is slightly different. On the other hand, as Ms. Barrados was saying, the United States does not have any such control mechanism. It's a totally free market. That's why the prices in the United States are usually higher. The other countries all have some kind of mechanism that allow them to exert greater control than what we have here in Canada. In some cases, they can control retail prices.

Mr. Antoine Dubé: Now that your audit is over, can you tell us whether the Board's activities have decreased the lifespan of patents before they are dedicated? That's very important. You have pointed out that between 1989 and 1995, the patents for 130 products were dedicated to public use before they expired. I would like to know why a drug company would do that. At first glance, it's just not clear.

[English]

Ms. Maria Barrados: The issue here with a patent dedication is whether the medication, the drug, falls under the price control of the board. With regard to a dedicated patent, the initial thinking was that it was no longer falling under the control of the board. And there was an advantage, then, in doing that, because there was no control on price.

One of the studies the board did showed that there was a creeping up of these prices and that in fact the prices were higher than if they would have been controlled by the board. On that basis, they reconsidered it and concluded that they should in fact be under the control of the board.

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[Translation]

Mr. Antoine Dubé: So you're saying that there was a rather large increase. How large was it?

[English]

Ms. Maria Barrados: Their estimate was $40 million for the period of January 1989 to July 1995.

[Translation]

Mr. Antoine Dubé: Thank you.

[English]

The Chair: Thank you very much, Mr. Dubé.

Ms. Lill, do you have more questions?

Ms. Wendy Lill: I just want to ask you a question about what I could tell people in the seniors' home that I'm going to be visiting tomorrow, where they are all using many different kinds of drugs. What's the importance of this document to the average citizen out there, the consumer of medications?

Ms. Maria Barrados: There are a couple of messages in here that are important to the consumer. The first one is that there is an effort at some control on the part of the federal government, but it's a fairly limited control. It's limited in the sense that it looks only at patented medicines, it's limited in terms of that scope, and it's limited in terms of looking only at the price from the factory. There is some effort to control prices, but it's a limited kind of control.

The second message to the consumer is that it's a very technical business, and because it's a very technical business there are a lot of details. And a little of the devil is in some of the details. We feel some of that should be fixed up. If you accept that type of mandate, there are details here that should be fixed up.

And third, we would like a better story in terms of what the real impacts are, because, I think, people really deserve to know. What Canadians spend on drugs and medication is one of the highest growth areas in health expenditures, so it's an important area.

Ms. Wendy Lill: So you would like to have a better handle on the impact of the cost of drugs.

Ms. Maria Barrados: The impact of the controls.

Ms. Wendy Lill: Okay.

Ms. Maria Barrados: I think we know the impact of the cost of drugs.

The Chair: Is that it, Ms. Lill?

Ms. Wendy Lill: Yes, thank you.

The Chair: Mr. Shepherd.

Mr. Alex Shepherd: I have one question. You're citing an instance of non-compliance here. The normal method of the board is to seek voluntary compliance. Is that correct? How do they seek voluntary compliance? Do they write a letter? Are the companies asked to adjust their prices accordingly when the board finds a drug price out of sync with what it thinks the parameters should be?

Ms. Maria Barrados: The drug companies are required to submit information to the board. The board does a first-look analysis and then decides whether something is going to be looked at in greater detail in terms of an investigation.

When they do a further analysis in terms of this investigation, there will be discussion with the drug companies and they will either reach a decision on going to one of these voluntary compliance undertakings where there is a change in the price on the part of the drug company or they will go to a full inquiry. There has been only one full inquiry.

Mr. Alex Shepherd: You make reference in 17.79 to a case in which the cumulative excess at that time was $52,000, and you say the board did nothing. This thing just kept getting worse and got up to $157,000. Why didn't they just ask for voluntary compliance? Why didn't they proceed on that basis?

Ms. Maria Barrados: One of the issues we raised—there's a relationship with that earlier paragraph—is that the board sets a margin of tolerance as to whether something is in compliance or not. It will sometimes look at a price and say the amount is really not very large compared to the overall price of this thing and the board's effort, and it won't proceed on a fairly small difference between what the ceiling price is—what the board's limits are—and what the drug companies put forward.

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We make the observation that we would expect that to be reported as an area where there was not compliance, but it was a small difference, and these are reported as compliance. This is one of these examples where it was very small to start, but then, when nothing was done about it, the amount grew. Our comment here is not so much in the order of second-guessing what the board has done, but more in terms of the fact that when you are doing these voluntary compliance undertakings it's extremely important to be transparent and clear in what you've done. You must report what you've done and make that clear, and then it's a satisfactory way to proceed.

Mr. Alex Shepherd: So is the non-compliance and the fact that it's a small quantum, and presumably it relates to volumes.... Do you relate that fact to the selling price of the drug itself, that it's a only a variance of 2%? Obviously the volume is a factor in terms of how excessive the overrun is.

Ms. Maria Barrados: It's a calculation on the price, based on the comparisons with CPI, and they use a moving index. As well, there is a view that when the differences are very small these things may self-correct because this bounces around, but it is a calculation on the price of the medication.

Mr. Alex Shepherd: You talk about some pretty significant cases, like the $1.755 million in 17.81.

Ms. Maria Barrados: Yes. That's one in particular. The amounts of money involved can be quite large. The case in 17.81 is one where we really feel there should have been much greater transparency in the basis for the decision, instead of doing a voluntary compliance undertaking, coming to a conclusion on how much money should be paid, and not explaining how this occurred.

Mr. Alex Shepherd: I suppose the argument is that it's pretty hard to get a rollback or get that money back in the pockets of consumers, so we give it to the crown. Is that it?

Ms. Maria Barrados: Give it to the crown and then give it to the provinces.

Mr. Alex Shepherd: Yes.

The Chair: Thank you, Mr. Shepherd.

Mr. Jaffer, did you have any questions?

Mr. Rahim Jaffer (Edmonton—Strathcona, Ref.): Yes, thank you, Madam Chair.

I'd just like to take the opportunity, if I may, to address the PMPRB and at the same time introduce a motion.

According to the Auditor General's report, the board is taking undue credit for saving the consumer between $2.9 billion and $4.2 billion from 1988 to 1995 as a result of lower drug prices.

The Auditor General's report states:

If federal price regulation were the sole factor in price containment, then the prices of patented medicines could be expected to grow to the maximum permitted under the Board's guidelines on excessive prices. That they have not done so implies that factors other than the Board's activities also need to be taken into account.

The report goes on and identifies the following as contributing factors to lower drug prices: one, provincial cost containment measures; two, the increased market penetration of patented drug manufacturers; and three, private health insurance.

This leads me to believe that the PMPRB is not only taking credit where little credit is deserved, but it may also be becoming largely irrelevant to consumers.

The PMPRB has an annual budget of $3.1 million. This may not seem like a substantial amount of money, but I would argue that we owe it to Canadian taxpayers to eliminate any program that fails to demonstrate its usefulness, no matter what the size of the program is.

Madam Chair, I think it's wrong to demand that the taxpayer prove that a program is irrelevant and in need of reform. I believe the onus should be on the government to clearly demonstrate the usefulness of a program, and until such time as the government does that, a program's primary activities should be suspended. This is particularly relevant when those activities may be causing more harm than good. In this case, it is not clear, according to the Auditor General, that this program can demonstrate its usefulness.

Madame Chair, I have concerns with the PMPRB. For instance, countries with fair pricing for pharmaceuticals have pharmaceutical manufacturing companies that are more innovative. It is also clear that more innovation leads to more life-saving drugs. We cannot ignore the risk that the PMPRB may be leading to a less innovative pharmaceutical industry. Countries with freer pricing for pharmaceuticals have companies that spend more money on R and D. We cannot ignore the possibility that the PMPRB is limiting the science and technology sectors of our economy and the jobs created by this sector.

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There's also a very strong argument that should be examined which suggests that if a pharmaceutical company is prevented from increasing prices beyond the price level set by the board, that company will simply raise the price of another drug that is below the ceiling in order to recoup costs or it will raise the price on a product that does not fall within the regulatory framework of the board.

On another matter, there are an almost infinite number of variables that must be considered in determining or understanding prices and those variables are subjective. But can the PMPRB really determine optimum prices?

Because of this uncertainty, I would like the committee's support for the following motion: that the Standing Committee on Industry study and report back to the House on the effectiveness of the Patented Medicine Prices Review Board and recommend that the House suspend the board's investigations into alleged excessive pricing until further recommended by this committee.

The Chair: Thank you, Mr. Jaffer.

With all due respect to your statement and your motion, let me in particular point out 17.13 of the Auditor General's report, which specifies that:

The Patent Act falls under the jurisdiction of the Minister of Industry, but sections pertaining to the work of the Board are under the jurisdiction of the Minister of Health.

For that reason, as you are discussing the work of the board, I rule the motion out of order at this committee.

In fact, as we were reviewing the Patent Act at the time, we asked the Auditor General to do an audit—I was not chair of the committee—and he has done that. He has done a full-scale audit, we appreciate it, and we've asked him to report the results of that audit to the committee. However, that being said, we do believe that from here on in, based on the way the legislation is set, it is the role of the health committee to look at the work of the board.

Mr. Rahim Jaffer: Can we make this recommendation to the House committee then?

The Chair: Not to my knowledge. My understanding is that you would be best to bring it up at the health committee. Part of the difficulty I've had, and the reason we moved quickly on this, is that the health committee has not been constituted yet and does not have a chair at present.

Mr. Rahim Jaffer: I see.

The Chair: There will be committees constituted as of next week, and my understanding is that once that happens it will come up before the health committee.

Are there any other questions for the witnesses?

Mr. Jim Pankiw: I have a suggestion.

The Chair: We have witnesses before us and I would appreciate questions for the witnesses.

Mr. Pankiw, do you have questions for the witnesses?

Mr. Jim Pankiw: I'll frame it as a question. What do you think of the suggestion that the PMPRB just lower its price ceilings of drugs to the level of the patented medicine price index? Then their claim that they're affecting the price of drugs in Canada might be believable.

Ms. Maria Barrados: As the auditor, we look at the legislation and the regulations. We look to see whether they're being applied efficiently and whether an organization is reporting properly on what it achieves and what results it achieves. It's not really our job to start making recommendations on regulations that would fundamentally change how something would work.

Mr. Jim Pankiw: That was just a facetious comment, but I have a question, though.

The Chair: Mr. Pankiw, do you have any serious questions for the witnesses?

Mr. Jim Pankiw: If this is not under the purview of the industry committee, really—

The Chair: The Patent Act is under the jurisdiction of the industry committee. The work of the board is under the jurisdiction of the health committee. We asked the Auditor General to do the report and I felt it was proper to have him come back and report on what we asked him to do.

He went very much further in the scale of his audit than what the committee asked him to do. It's written in his report that we asked him to look at two things. I appreciate that and I think it's a very good report and needs to be dealt with. However, I do believe it is under the purview of the health committee. We don't have jurisdiction for the workings of the board itself.

I'm not saying that it shouldn't be done. I'm just saying that I don't believe this is the place to do it. I ruled on that and—

Mr. Jim Pankiw: I accept your ruling.

So the only significance that this really has for us is the degree to which this affects the patents that affect it.

The Chair: It's a combination. You're going to find this in many pieces of legislation; they will deal with more than one committee. However, there are certainly workings of legislation that are directed to one ministry. In particular, the workings of the board have been directed to the Minister of Health, and we do try not to duplicate the work of other committees.

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That being said, we did ask the Auditor General to do the audit, and I felt it was important that he have the opportunity to come back and report on what he had done. I felt it was important that we take a look at it.

I haven't had the opportunity to speak with the chair of the health committee yet. As I explained, there is no chair at the present. However, I'm optimistic that the health committee will do its work and will want to do an investigation or take a look at the audit as well. I would like to leave it to that committee's jurisdiction for the time being because it is the proper place for it. If you accept my ruling, then we would—

Mr. Jim Pankiw: I accept your ruling. I'm not sure the health committee is as efficient as the industry committee, but I accept your ruling.

The Chair: I anticipate they will be.

Do you have any questions?

Mr. Dubé, do you have questions for the witnesses? We do have witnesses here today.

[Translation]

Mr. Antoine Dubé: I think that the report was done well, as usual, but Madam Chair, your response leaves me somewhat confused. If the Standing Committee on Industry asked the Auditor General to conduct an audit... By the way, I certainly don't agree with the proposal from the member from the Reform Party, because it would mean absolutely no regulation, as is the case to some extent in the United States. We can't ask the Auditor General to do something and specify that he just carry out an audit, no more than that. We absolutely have to look at the follow-up to this report, which I think is a very important one, and we have to make sure that in the meantime, the Standing Committee on Health or another committee follows up on this report so that some kind of results are achieved. Audits shouldn't be done for nothing. Could you tell us what we could do to send this not just to the Standing Committee on Health but also to someone who will make sure some changes take place?

[English]

Mr. Walt Lastewka: Madam Chair—

The Chair: Just a second, Mr. Lastewka.

Mr. Dubé, I stated very clearly that I will be speaking with the chair of the health committee. I intend to do that as soon as there is a chair of the health committee. I fully expect that the health committee will be looking at this. I have had preliminary discussions with others involved in the health department, and it is my understanding that they will be reviewing this.

We asked the Auditor General to provide Parliament with information on performance and efficiency, but we did not say that this committee would be doing more work on it. We did ask for it and we appreciate the fact that he's done it. As a committee, we wanted to know what the results were. We raised this at the steering committee, where we said that we would have a preliminary meeting with the Auditor General.

And I apologize, Mr. Jaffer, because I don't believe you were there at the time it was discussed.

That being said, I am not saying there will be no follow-up. I'm saying that I will talk to the chair of the health committee, and for the time being, the jurisdiction is clearly theirs.

I would really prefer questions for the witnesses. The Auditor General's time is very valuable.

Do you have a question, Mr. Dubé?

[Translation]

Mr. Antoine Dubé: Mr. Desautels, when you prepare a report, I would imagine that you keep all the material on file. Do you have some kind of mechanism to make sure that one year down the road you can report that nothing has been done in response to the report even though you had suggested a particular change, do you do that kind of thing?

Mr. Denis Desautels: We do have follow-up mechanisms. About two years after we table a report, we do a follow-up. That will be the case for the report that you just looked at today. The only other thing I can add is that the Board itself is currently assessing its role and holding public consultations. I believe it wants to finish that work this fall or this winter.

I would think that at that time, the Board's recommendations could be submitted to your committee or the Standing Committee on Health, and then we could take the discussion somewhat further. So, a major exercise is about to end, and it could have an impact on your committee and other committees.

Mr. Antoine Dubé: Do you think that the committee's request for an audit and your audit itself led the Board to take a look at its activities?

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Mr. Denis Desautels: At the time, when your committee looked at this issue, it asked us to do an audit. This in and of itself sparked a certain level of activity, and the fact that we then looked at the issue helped move some discussions and reviews along.

That's all a very healthy thing, and we hope that the report or analysis that will be coming out will bear in mind both our own recommendations and comments from parliamentarians. We hope that our main recommendations will be found in the Board's own review, and that action will be taken. In any event, we will revisit the issue in two years.

Mr. Antoine Dubé: Fine. Thank you.

[English]

The Chair: Do you have a question, Mr. Lastewka?

Mr. Walt Lastewka: I have no further questions for the witnesses.

The Chair: Mr. Desautels, we do appreciate you being with us today, and we do appreciate the report. Once the health committee has been constituted, I will definitely be speaking with the chair of the committee in order to determine what the next follow-up will be.

I thank you very much. We look forward to meeting with you again.

Mr. Denis Desautels: Thank you.

The Chair: The meeting's adjourned. Thank you.