Thank you, Madam Chair.
We thank you for this opportunity to present the results of two of our audits in our November 2006 report: chapter 8, allocating funds to regulatory programs at Health Canada; and chapter 10, award and management of a health benefits contract.
With me today are Ronnie Campbell, assistant auditor general, and Louise Dubé, the principal responsible for the audits of Health Canada.
Chapter 8, “Allocating Funds to Regulatory Programs”, focuses on one of Health Canada's core roles, that of regulator. Regulatory programs for which Health Canada has primary responsibility play an important part in furthering public health and safety. The audit examined three programs that regulate the safety and use of products commonly used by Canadians. Those are, consumer products such as cribs, medical devices such as pacemakers, and drug products such as prescription drugs.
The audit found that Health Canada does not know if it is fully meeting its regulatory responsibilities as the regulator of product safety, medical devices, and drug products. The department needs to determine the activities that must be carried out in the three programs audited in order to meet the department's regulatory responsibilities. Program managers have indicated to management that some core compliance and enforcement activities are insufficient to protect the health and safety of Canadians. At the present time, the department does not know whether it is above or below the minimum level of activity required in the three programs.
Health Canada also needs to determine performance targets for these activities. The audit found that performance indicators have been developed for the three programs, but few have measurable targets. Without targets, it is difficult to determine what a program has achieved compared with what it was intended to achieve.
Health Canada needs to determine the level of resources required to carry out the activities necessary to meet its regulatory responsibilities. We found that Health Canada's system of allocating its resources among various branches and programs is based on the previous year's funding, rather than on plans and sound financial and performance information.
The audit found that the budget for core funding for the three programs audited has significantly decreased over three years: 10% for the Products Safety Program, 32% for the Drugs Program, and 50% for the Medical Devices Program. Furthermore, the total funding allocated to two of these three programs has remained constant, but the demands on the programs are increasing. This makes it difficult for program managers to fully meet the Department's regulatory responsibilities.
These three elements together—the required activities, the defined performance targets for these activities, and the necessary resources to do this work—would provide the Department with the information needed to demonstrate whether it is meeting its regulatory responsibilities and whether adequate financial resources are being allocated to regulatory programs.
We are pleased that Health Canada has agreed with our recommendations and that it has already undertaken steps to improve its process for allocating resources. The Department has redesigned the operational planning process, which at the time of the audit, was scheduled to be implemented in 2006-07.
Madam Chair, because this area is so critically important to Canadians, your Committee may wish to ask Health Canada to provide you with a detailed action plan and a timetable for its implementation, and to provide the Committee with regular progress reports.
Let me now turn to chapter 10, “Award and Management of a Health Benefits Contract”.
The audit raised concerns about a contract at Public Works and Government Services Canada that was awarded to First Canadian Health Management Corporation in 1997 to provide claim processing services for Health Canada's non-insured health benefits program. The contract was valued at $45.7 million for the first five years, with two, two-year renewable options valued at $14.8 million and $14.4 million respectively.
The non-insured health benefits program provides medically necessary health-related goods and services not covered by other provincial, territorial, or third-party insurance plans to eligible first nations people and Inuit. Goods and services provided under the program include drugs and dental and medical supplies and equipment.
We raised two important observations in the report. The first observation relates to Public Works awarding the contract to a company that did not meet one of the mandatory requirements related to financial stability. One of these requirements was that bidding companies were to provide evidence of their financial stability and current financial position through their sources of working capital. However, the department's files did not contain evidence of any of the bidder's sources of working capital. We therefore concluded that Public Works should not have awarded the contract to any of the bidders.
The second observation relates to Health Canada's management of the contract. The audit found that Health Canada did not comply with provisions of the Financial Administration Act when making payments to the contractor to reimburse the service providers for the costs of the drugs and dental and medical supplies that have been provided to eligible First Nations and Inuit people. From the beginning of the contract to January 2006, Health Canada made payments of about $2.6 billion out of the Consolidated Revenue Fund without certifying that value had been received. I am happy to report that the Department is now properly authorizing payments.
Madam Chair, this concludes my opening statement. We would be pleased to answer your Committee's questions.
Thank you, Madam Chair.
I am pleased to be here today to speak to Health Canada's part of the Auditor General's report from last November.
We thank the Auditor General for her report. We are pleased that she has recognized the progress we have already made in the areas we're here to talk about today: the regulatory programs and first nations health benefits.
First I'd like to introduce my colleagues. They will be able to provide the committee with more specific details of these programs. With me today is Richard Charlebois, who represents the Chief Financial Officer Branch,
Susan Fletcher who is the Assistant Deputy Minister for Healthy Environments and Consumer Safety Branch, Neil Yeates the Assistant Deputy Minister of Health Products and Food Branch, and Ian Potter the Assistant Deputy Minister of First Nations and Inuit Health Branch.
Let me say first that overall we agree with the Auditor General's recommendations in both chapters. In fact, the department has already started work to address some of the very issues that were raised, and in light of the report, we've prepared action plans to guide the department as we respond to each of the chapters.
Health Canada's top priority is protecting the health and safety of Canadians. Every day, our dedicated staff work to safeguard our citizens' health and safety through robust regulatory programs. I can tell you that our safety record in this regard is one of the best, according to international standards. In fact, Canada was recognized in 2002 by the Organization for Economic Cooperation and Development as a world leader in good regulatory practice and as a pioneer in the field of regulatory reform. Health Canada's role in protecting health and safety is well recognized and supported by Canadians.
That's not to say we don't face any challenges, but we continue to make progress. We appreciate the opportunity to discuss our work with you here today.
Our regulatory responsibilities are significant and broad. Just to give you an idea of the diversity, some of the areas of Health Canada's regulatory responsibilities include: drugs, medical devices, and other health products; food; pesticides; consumer products and hazardous substances in the workplace; air and water quality; and toxic substances in the environment.
Regarding drugs and medical devices, as I mentioned before, our regulatory performance measures up well. Let me give you some specific examples.
Through investments made in Budget 2003, Health Canada has substantially improved the timeliness of product reviews for drugs and medical devices while maintaining our high safety standards. We have cleared the backlog of reviews and are now meeting internationally benchmarked performance standards for reviews on an ongoing basis. This means that Canadians have earlier access to the products they need.
Another example is the strengthening of Health Canada's post-market surveillance of safety and effectiveness, as well as our compliance and enforcement capacity for drugs and medical devices. This was possible as a result of investments announced in Budget 2005.
A final example is Health Canada's commitment to improving our transparency and openness. We are making more information available to the public about the basis on which decisions are taken, adverse drug reactions and product risks, as well as increasing public involvement in the regulatory decision-making process. We've also consulted with Canadians on a new policy on public input to the health products review process, which we will be implementing next month.
Along with our progress, Health Canada is facing a number of key challenges to its regulatory programs. I might add that those challenges are ones that we share with most of our OECD colleagues.
To name a few of these, the department must respond to rapidly advancing science and technology; respond to expected and unexpected public health challenges; we must meet public and stakeholder expectations in terms of access, safety, and transparency; and there are increasing demands for faster product approvals and increased intellectual property protection. And our work is broadening in scope, requiring multi-departmental and multi-jurisdictional action.
As I mentioned earlier Health Canada is working to strengthen our regulatory systems in order to better safeguard the health and safety of Canadians.
In describing some of what we are doing, l'II note some of the key actions that address the Auditor General's recommendations on improving program management and delivery. l'm going to group some of the recommendations together into four main areas of action: program review, cost recovery, operational planning and resource allocation, and finally, performance management and reporting.
The review of our regulatory programs is where I'd like to start. We are currently undertaking comprehensive reviews of all of our regulatory programs and activities in order to define the level of activities, performance, and resources required to meet our regulatory and other responsibilities, based on the full cost of these activities. In the Health Products and Food Branch, this review is complemented by a policy review and renewal exercise for the health products and food system. Together, these reviews will help us to further strengthen the regulatory system and meet the needs of Canadians in the future.
In the Healthy Environments and Consumer Safety Branch, a comprehensive review and an assessment of our regulatory responsibilities are also under way. They also include compliance and enforcement capacities.
Secondly, we are updating our cost-recovery regime in HPFB to ensure that the department recovers a reasonable portion of its costs for regulatory programs, including overhead costs. Fees were originally set in the 1990s and have not been adjusted since. Integral to this process will be consideration of the appropriate proportion of resource levels that should come from cost recovery.
Third, as part of the strengthening of our Financial Management Control Framework, we are improving our operational planning and resource allocation process. We are also implementing a Budget Management Framework. This means that, once funding is allocated to regulatory programs, the department has adequate tools to compare the program objectives and expected results.
These expected results and our performance against them will, in turn, help us to make prudent future funding and resource allocation and reallocation decisions. We are incorporating directives to ensure that the department complies with the conditions and decisions of Treasury Board, and builds on improvements at the branch and departmental level over the past several years.
We are pleased that the Auditor General has noted the department's steps toward improvement in this area.
Fourth, we are strengthening our performance measurement and reporting. HPFB is revising its entire performance measurement framework, including performance indicators and targets for all of its regulatory programs. This new framework will be in place by April of this year.
One further but very important note is that HECSB's product safety program has also been investing the resources to develop and implement an effective planning and performance measurement framework. There will be further work carried out as part of a branch-wide effort to enhance and/or establish appropriate indicators, baselines, and measurable targets towards tangible results.
We accept the Auditor General's recommendations on chapter 8, and actions are under way to implement them.
On chapter 10, “Award and Management of a Health Benefits Contract”, this contract is Health Canada's largest. It provides access for eligible first nations and Inuit to needed pharmacy, dental, and medical supplies and equipment health benefits. Approximately 80% of our clients are low-income Canadians, and our clients experience a higher disease burden than the national average. For most of our clients this is their only supplemental health benefits program.
Last year, this contract processed 15.5 million claim lines, over 500,000 different individuals received pharmacy benefits, and over 286,000 received dental services. This contract remains an extremely important delivery mechanism for the department's health program and for 780,000 first nations and Inuit clients.
The Auditor General's Report points to a number of shortcomings in the way Health Canada handled this contract over the years but has acknowledged the progress that the department has made. While there is no excuse for not being compliant with the Financial Administration Act, the department acted quickly to respond to the contract management issues found in 2003 and conducted various internal audits and audits of the contractor's books, and took corrective measures.
The department implemented stronger financial controls and contract management and, working with Public Works and Government Services, strengthened the contract provisions that had been determined to be weak.
There has never been any indication of fraud or overpayment related to the payments Health Canada has made to the contractor for the payments to health providers.
At the outset of this contract there were a number of service risks that the department was managing. First of all, every transition to a new contract has risks of service interruption, and this contract was no exception. The contractor was unable to commence service on schedule, and temporary arrangements with the previous supplier had to be put in place.
Secondly, the experienced claims processor subcontractor decided early in the contract to leave the business, and the prime contractor had to find a replacement. This meant that the department had another period of adjustment in managing service continuity to its clients.
Health Canada had begun implementing improvements as a result of our internal reviews when the Office of the Auditor General began its audit of the HICPS contract. We worked closely with the Office of the Auditor General, and further improvements were implemented in advance of the tabling of the November report. We are pleased that the Auditor General acknowledged in her November report that we had resolved the contract management issues identified in the report.
My colleagues and I will be happy to answer any questions relating to chapters 8 and 10 of the Auditor General's report.
Thank you, Madam Chair.
I think it's worth noting at the outset that it very clearly states that there has never been any indication of fraud or overpayment related to the payments Health Canada has made, etc. We accept that.
As a matter of policy, at least from our party, the NDP, we believe first nations organizations, to the greatest extent possible, should be awarded the contracts for the delivery of services to their own population.
Having said that, the Auditor General's comments today were clearly that they therefore concluded that Public Works should not have awarded the contract to any of the bidders in relation to the non-insured health benefits program.
But we hear from Mr. Potter that everything was really—I don't want to put words in his mouth.
It seems there's an uneasiness on the part of the Auditor General that's not necessarily shared by Health Canada on the delivery of this.
To finish the point I was making when I ran out of time last time, in Manitoba, we're very sensitive to the delivery of health services to first nations after the horrific scandal at the Virginia Fontaine treatment centre. Committee members would benefit from knowing that it was a Health Canada official who told first nations that the way to get the contract was to buy him a Jeep Cherokee, then buy his son another Jeep Cherokee, and then give him $50,000. It was the Health Canada official who went to jail, not first nations individuals, who were misled.
I guess I'm still not comfortable with paragraph 13 of the Auditor General's comments today that clearly says, “We concluded that PWGSC should not have awarded the contract to any of the four bidders”.
What was the reasoning at the time it was in fact awarded to First Canadian?
Thank you, Madam Chair.
I'm still doing the math on some of the claims where no documentation was provided. The Auditor General looked at 154 invoices, I think.
Was it randomly? Is that how the audit was conducted?
And 22 of those had no documentation to support the volume of claims processed. It's actually a pretty high percentage. I don't know what it is, but it's about 15% or 20% of the total volume. If you extrapolated that, on a volume of $2.6 billion total, 20% of it is $500 million or something. It's really huge.
These 22 invoices totalled $5.5 million. They're like $250,000 invoices. This wasn't one dental claim or one drug claim; they're $250,000 each, on average. That stopped in 2003, I understand. But between 1997 and 2003, there could have been people billing wildly; there could have been the rampant abuse that my colleague—I thought Dave Batters was overstating things, frankly, but in reading these statistics—Do we know whether these billings—?
A voice: She already answered. Ms. Cartwright, say it again for him.
Mr. Pat Martin: I must have nodded off for a moment, then.
So we have tracked all of that money—of those 154, at least?