Thank you. And thanks to the committee for inviting me here today. It really is a pleasure to address this body. It's the first time I have addressed a parliamentary committee, so it's quite an honour. Of course, I invite your questions and answers at the end of the presentation I'm about to give.
There are three areas I would like to address, which relate directly to research being conducted by the Fraser Institute. The first one I'd like to address is the price of patented medicines and the fact that I believe it is not the cause of unsustainable health care costs in Canada. Secondly, I'd like to address issues related to the cross-border drug trade and why I believe it remains a threat to Canada's drug supply and trading relationships. And thirdly, I would like to discuss issues related to the fact that governments are rationing access to new medicines in Canada, and hopefully offer some explanations for that.
Let me begin with the price of patented medicines. The evidence indicates that average prices for patented drugs in Canada have in fact grown at a slower pace than the general rate of inflation for all other goods and services in the economy. They are therefore increasing at a slower pace than they are allowed to grow under federal price controls.
Other evidence indicates that prices for patented medicines in Canada are also lower than those in the majority of countries the federal government uses for international comparisons through the Patented Medicine Prices Review Board and are, on average, 43% below U.S. prices for identical drugs, based on research done by the Fraser Institute, which relies on a large sample of the 100 top-selling products in Canada in 2003.
There are two main reasons why drugs are believed to be accounting for a rising share of health expenditures: the introduction of expensive new medicines that are simply treatments that did not exist previously for conditions, and the increasing use of drugs to replace other forms of medical treatment.
The evidence indicates that new drugs and the substitution of drugs for other medical therapies are positive developments. Research shows that they lead to net cost savings, when all health spending is accounted for, and to significant improvements in human health.
To follow up on this, I'd like to say that if drug prices are perceived to be a problem in Canada, the problem is really with generic drug prices. Canadian prices for generic drugs are higher than international prices for identical drugs, based on PMPRB research. Based on Fraser Institute research, the difference in price is, on average, 78% higher than the U.S. price for identical drugs, based on a sample of the 100 top-selling generics in Canada in 2003.
This is significant for Canadians in terms of the cost savings that are lost. If Canadian generic drugs were priced at the international median for the same products, Canadian buyers of generic drugs would save $800 million annually. If Canadian generic drugs were priced at the even lower U.S. price levels for the same drugs--which are the lowest in the world, by the way, and are a proxy for free market prices--and if lower prices pushed our generic substitution rates to the much higher U.S. rates that we have observed, Canadian buyers of generic drugs would realize nearly $2 billion in direct annual savings and nearly $5 billion in total annual savings,
I'll move on now to the evidence I'd like to present on the cross-border drug trade. The trade remains a threat to Canada's drug supply and trading relationships, and this is because while the value of the cross-border drug trade in prescription medicines has flattened at about $0.5 billion annually, based on the most recent data from IMS Health Canada, this is largely because generics are making up an increasing proportion of the prescriptions sold. So the total volume of trade likely remains very high. More worrisome, I believe, is that political momentum for legalizing the cross-border trade is rising dramatically in the United States. Evidence indicates that the number of annual attempts to legalize the cross-border drug trade at both the state and federal levels in the United States has risen from three per year in 2002 to 84 per year as of September 2005.
Interestingly, most of the proposals being put forward under these attempts would legalize bulk purchases from Canadian pharmacies to supply U.S. federal, state, and local public employees, as well as recipients of social programs like Medicaid and Medicare, a group of consumers that is nearly four times larger than Canada's entire population. As a previous health minister once stated, Canada cannot be the drug store for the United States.
Evidence also indicates that the cross-border drug trade is not based on free trade principles, as some have claimed. The trade relies on Canadian government interference in the market through price controls that permanently fix the gap between U.S. and Canadian prices. But more interestingly, and perhaps more threatening to our trading relationships, cross-border pharmacies are also trading in stolen intellectual property.
Data from IMS Health Canada show that medicines that are still under active patent protection in the United States account for nearly 50% of the value of sales of Canadian generic drugs through Internet pharmacies to the United States. The data show that nearly 50% of the value of generic drugs being traded through cross-border Internet pharmacies is for active patent products in the United States.
The third area I'd like to cover is the fact that governments are rationing access to new medicines in Canada compared to other countries. Canadians are not getting timely access to new medicines. Research indicates that Health Canada approves fewer new medications than other countries, and when Health Canada does approve a drug it takes much longer to do it than in other countries. Data suggest that the common drug review process is also being used to ration access to new medicines for recipients of public drug benefits. The CDR recommends less than half the drugs it reviews for reimbursement, and the provinces approve even fewer of those drugs, even though these drugs have already been approved as safe by Health Canada and are available in other countries.
Governments across Canada are rationing access to very expensive new life-saving medicines affecting small populations but are paying for affordable health care services for everyone. A good example of this is the drug Herceptin. Last fall I did some research on this and published an op-ed that showed that eight out of 10 provinces were refusing to reimburse for the drug Herceptin. It is a very effective treatment for breast cancer, one that the FDA thought was so effective in the United States that it stopped testing it and released it to the market early to prevent thousands of women from being relegated to an early death. Yet eight out of 10 provinces were not funding it last fall, in spite of the fact that the additional expense of covering the drug would have added only 1.6%, for example, to the Ontario drug budget.
Why is this occurring?
The reason governments are rationing access to safe and effective new medicines is because public health spending is unsustainable. Even a small additional amount of spending cannot be accommodated. In seven out of 10 provinces, public health expenditures are on pace to consume more than half of total revenues from all sources available to the provinces. When I say “all sources”, I mean including federal transfers. This will be by the year 2022. It will continue on that pace if nothing changes.
Governments are under extreme spending constraints, and that's why any additional expense related to medicines is a problem. The problem is not with the price of medicines, it is with the growing utilization of medicines and the inability of governments to cover that bill because of unsustainable health care financing.
I believe the only reason that governments get away with rationing access to medicine instead of making reforms in health care is because sick people don't represent a lot of votes. The data that I had access to from the population health research unit at Dalhousie University on the medicare records for everyone in the province of Nova Scotia on an anonymous basis indicated that about 21% of the population spends zero dollars on physician services in any given year. In fact, 96% of the population spent less than $1,500 on physician services in any given year; only 4% spent more than that. What that tells you is that the distribution of illness in the population is not widespread. Very few people are sick. That tells you that sick people don't represent a lot of votes, and there's very little incentive I think for our policy-makers to resist rationing access to new technologies. Instead, rationing is a way to maintain the facade of sustainability.
That is the conclusion of my comments, and I would like to welcome your questions.