On behalf of the Canadian Health Coalition, I want to thank the chair, Rob Merrifield, and members of this committee for the opportunity to raise with you serious concerns about the negative impact of the Canada-European Union comprehensive economic and trade agreement on Canada's health care system.
The Canadian Health Coalition has been working on international trade issues as they impact on public health care for over 20 years. Despite the announcement of the agreement in principle in October 2013, the text of the CETA itself remains a secret. Nonetheless, the parliamentary committee mandated to study the CETA must have access to the text itself.
I would like to raise two issues with you. The first one is the general threats to Canada's health care system from the flawed reservations for health care in the CETA. In the second point, I want to raise the specific threats to the sustainability of Canada's prescription drug plans from pharmaceutical provisions in the CETA.
For the first point, the legal principles in the Canada Health Act which governs Canada's public health care system are in blunt opposition to the principles that regulate the market. The Canada Health Act removes the delivery of health services from market rules to ensure access based on need; so-called unprofitable services, unprofitable populations, and unprofitable regions are not abandoned by a reliance on the market.
Canada's public health care system reflects Canadians' values. In the words of the Romanow commission, “Canadians view medicare as a moral enterprise, not a business venture.” Health care in Canada is legislated with federal legislation as a public good, not a commercial commodity.
Our public system is based on the Canada Health Act, as I mentioned, wherein health care is delivered solely on the criteria of the need of patients, without regard for their ability to pay, or their socio-economic status, or, I may add, regardless of where they live. The act also offers the best guarantees, by the way, of cost-effectiveness and sustainability.
On the other hand, the central objective of international trade agreements, including the CETA, is trade liberalization through the reduction of barriers to trade. The rationale is that goods and services are to be allocated solely on the basis of purchasing power. Concern with equity of distribution and access is seen as a barrier to trade.
The mix of public and private interests on the delivery side of the health care system makes it difficult to draw a sharp line between what is public and what is private. This causes problems when applying Canada's reservations and exemptions in trade agreements like NAFTA and GATS, as well as CETA. These trade agreements assume a clear demarcation between public and private.
Both Canada and the European Union, as you know, have said that they intend to exclude health care services from the CETA. However, one of the EU's highest priorities in these negotiations was to expand access to provincial and local government services.
Accordingly, the EU has demanded that Canada abandon the general reservation in NAFTA's annex I, which provides some protection for health services. Canada has reportedly agreed to abandon this reservation, which means that provincial and territorial governments will be required to negotiate exemptions for specific non-conforming measures in the health sector or else rely exclusively on protection in the annex II reservation. It would be interesting to know which provinces have submitted a list of exclusions.
The annex II reservation does not shield the health care sector from the full force of trade agreements. Instead, it is a limited and qualified reservation that only shields a health service to the extent that it is a social service “established or maintained for a public purpose”. The scope of this protection is uncertain, because Canada and the United States do not agree on the interpretation of this language. As a result of this uncertainty in annex II-C-9 of NAFTA, and responding to pressure from provincial and state governments and civil society, including a legal opinion commissioned by the Canadian Health Coalition in 1996, the Government of Canada negotiated a second general reservation with the United States and Mexico. This reservation will be removed under the CETA.
To address the seriously flawed nature of the one reservation the Government of Canada is relying on to protect federal, provincial, and territorial health systems, the Romanow commission on the future of health care recommended that Canada negotiate a new, more effective exemption for health care in all future trade and investment agreements. In order to provide maximum protection for health services and to safeguard its ability to expand coverage of public health insurance, the new exemption for health services required a complete carve-out for health services, like the NAFTA completely carved out law enforcement.
Therefore, the one recommendation I would make is that the Government of Canada negotiate a new exemption that reads: “Nothing in the CETA shall be construed to apply to measures adopted or maintained by a party with respect to health care, health services or health insurance.”
The second point I want to raise concerns drug costs.
Canadians are very concerned by the fact that the Harper government has negotiated a trade agreement that will result in higher prescription drug costs. According to a recent independent study, the announced details of the CETA will likely cost Canadians hundreds of millions of dollars more for prescription drugs annually. The report says that concessions by the federal government to cement the deal will delay the arrival cheaper generics. This delay will add between $850 million and $1.65 billion annually, an increase of 13% to the total drug bill paid annually by Canadians, who will be paying either directly or through insurance plans.
The study examined the latest revelations about the tentative trade agreement and finds it will: one, commit Canada to creating a new system of patent term extension that will delay the entry of generics; two, lock in Canada's current terms of data protection, making it difficult or impossible for future governments to reverse them; and three, implement a new right of appeal under the patent linkage system, again designed to create further delays.
On a per capita basis, Canadian drug costs are already the second highest after the United States. According to the study, the federal government has promised to compensate provinces and territories for any additional costs; however, that simply means instead of Canadian taxpayers paying at the provincial level, they will be paying at the federal level. Importantly, people paying for their own drugs at the pharmacy out of pocket or through private insurance will be hit twice: through the higher costs and through their taxes.
While the text of the CETA is being kept secret, one thing is clear: the agreement will seriously impact the ability of Canadians to afford quality health care.
It is also a matter of public record that the Minister of International Trade told Canadians a while back that it is a myth that a Canada-EU free trade agreement would increase drug and health care costs.
Canadians are being misled by the Harper government's claim that the CETA provision dealing with the pharmaceutical industry strikes a balance “between promoting innovation and job creation...and ensuring that Canadians continue to have access to the affordable drugs they need.”
A critical examination of the pharmaceutical industry's economic performance—and I would really urge this committee to examine the performance of the brand name drug industry in Canada—reveals that there’s no link between higher drug profits and innovation or job creation. There's no link whatsoever. Nor is it credible to claim that Canadians will continue to have affordable prices when cheaper generic drugs are further delayed.
According to the federal government's own agency, the Patented Medicine Prices Review Board, in its most recent annual report, “Several comparator countries, which have patented drug prices that are, on average, substantially less than prices in Canada, have achieved R and D-to-sales ratios well above those in Canada”. For example, France and the United Kingdom have an R and D-to-sales ratio that’s twice that of Canada's and have prices between 10% and 20% lower than Canada's prices.
It should be noted in this context that with the adoption of changes in 1987, the brand name drug industry made a public commitment to increase their annual R and D expenditures to 10% of sales by 1996. The Rx and D industry ratio of investment has been less than 10% for the last 10 consecutive years. These are the facts.
This means that Canadians began paying 15% to 20% more for new patented drugs since the Mulroney government brought in these changes in exchange for a promise they have systematically broken, a promise of innovation and jobs. The higher prices in Canada for new brand name drugs are costing us at least an additional $2 billion a year through the methodology used by the Patented Medicine Prices Review Board. Add to that another billion dollars through the CETA, and that's another $3 billion extra. This amounts to a subsidy to the drug industry coming out of health care budgets, but to make it worse, it’s coming out of provincial governments’ budgets to pay for a federal concession.
To add salt to the wounds, imagine how the provinces and territories feel about being lectured to by Prime Minister Harper about getting their health care costs under control.
To make matters worse, the drug industry uses this money not for innovation, but to buy influence with the federal regulator, physicians, politicians, consumers, and the media through their advertising departments. Is there a word for being bribed with our own money?
Canadians get nothing in return for these massive concessions.