HEAL Committee Meeting

STANDING COMMITTEE ON HEALTH

COMITÉ PERMANENT DE LA SANTÉ

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, December 8, 1998.

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[English]

The Chair (Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)): Good morning, ladies and gentlemen, colleagues.

Madam Minna, I'm glad to see you here. We can begin.

Pursuant to Standing Order 108(2), we are considering chapter 17 (Patented Medicine Prices Review Board) of the September 1998 report of the Auditor General of Canada.

We have with us today some people who are familiar to the committee: Madam Maria Barrados, Assistant Auditor General; Mr. Ronald Campbell, director, audit operations branch of the Office of the Auditor General; and from the PMPRB, the Patented Medicine Prices Review Board, Dr. Robert Elgie, chairperson; and Mr. Wayne Critchley, the executive director.

I know all of our witnesses are familiar with the routine. We like to go for about five minutes, and you can share the time with your colleague. Then we'll go into questions from committee members.

I'd like to start with Dr. Elgie, if we might.

Dr. Elgie,

[Translation]

you have the floor.

[English]

Dr. Robert Goldwin Elgie (Chairperson, Patented Medicine Prices Review Board): Thank you very much, Chair.

Good morning. I welcome the opportunity to respond to the committee's request to appear today on the report of the Auditor General on the Patented Medicine Prices Review Board. As you mentioned, with me is Wayne Critchley, the executive director of the board.

You'll be aware, as we are, that over the past 18 months the board has been the focus of more attention and interest than at any other time since its creation in 1987. This interest, we believe, is directly tied to the charged environment surrounding issues of pharmaceutical policy in general and issues of the patent policy and drug costs in Canada in particular.

In 1997 the Standing Committee on Industry reviewed Canada's drug patent legislation, Bill C-91. That report included several recommendations concerning the board: first, that the government renew and strengthen the board's mandate; second, that an audit by the Auditor General be carried out, and that's what we're to talk about today; and third, that the board consult with the public and stakeholders to find out what additional information it might provide on drug prices.

As I reported to this committee last April, we responded to the third recommendation by conducting a year-long consultation process throughout the whole country. The board released the result of that exercise, entitled Road Map for the Next Decade, in September. I believe each of the committee members has received a copy of that report. If not, there are some here today, so you can obtain one.

The response to our report, as provided to us by a stakeholders' meeting of about 20 stakeholders on November 20, has been very positive.

The board, as you know, is a quasi-judicial tribunal that operates independently from government to administer a price review system for patented drugs and to apply the standards established by Parliament.

Our recent report, Trends in Patented Drug Prices, shows that worldwide sales of all drugs by manufacturers increased by some 8.6% between 1996 and 1997, topping $400 billion. During that same period, sales in Canada increased 7% to $7 billion.

• 0910

But sales of patented drugs have gone up much faster than that. In 1997, for the first time, sales of patented medicines in Canada accounted for more than half of manufacturers' sales of all drugs. Overall, sales of patented drugs increased by 23% in 1997, to $3.7 billion at the manufacturers' factory-gate price.

It should be emphasized, however—and this is a point that sometimes people overlook—that the prices of patented drugs did not go up, even though the expenditure on drugs did go up. Most of that increase in sales is the result of increases in the utilization of patented drugs, and the rest resulted from the sales of new drugs.

Understandably, Canadians are concerned about the growth of pharmaceutical expenditures. In this context, the role of the board has taken on an importance that may not have existed to this degree in the past. It was therefore timely that the Auditor General acted on the recommendation of the standing committee to help ensure that Canadians have confidence in the board's work.

It's important to mention that the Auditor General performed a thorough audit of the board, during which he reviewed all aspects of our operations. We made it clear to them and to others that we welcomed the audit and we welcomed constructive recommendations. As noted in the report, we agreed with almost all the recommendations, and we are acting on them.

In his report, the auditor noted, and I quote:

The Board has exerted a constraining influence on the prices of patented medicines sold in Canada.

Moreover, he found that our price guidelines were generally applied rigorously. He also indicated full support for the direction in which the board is headed in its current consultation process.

Having said that, the Auditor General also identified a number of concerns and made recommendations for improvement. Among other things, he was concerned that the scope of our jurisdiction and the limitations of our consumer protection role are not widely understood. He was concerned that a study we did two years ago overstated the board's impact, because it did not quantify the effect of other factors in constraining drug prices in Canada. He identified a number of instances where he felt the reasons for our decisions were not clear and transparent and encouraged us to find cost-effective ways to check the accuracy of price information and to improve the reporting of trends in drug prices and R and D expenditures.

The main issue identified is not the operation of the board but rather its legislative framework. The auditor stated, and I quote:

We observed that some requirements in the legislation and regulations are difficult to apply in practice, and a review of their continued relevance needs to be considered.

In this case, I have brought those concerns to the attention of the Minister of Health and have indicated the board's readiness to work with the government in addressing improvements to the legislation.

Where the board has a measure of control over its own destiny, we have been taking action. Our year-long public consultation with our various stakeholders identified many of the same issues raised by the Auditor General in his report, and our Road Map for the Next Decade sets out not only a summary of what we heard but also an action plan.

After our stakeholders' meeting on November 20, it was agreed that we would establish a working group of stakeholders to examine and provide recommendations on a number of important issues within our mandate. These include: firstly, how to improve the price review process and at the same time make it more transparent; secondly, issues related to the guidelines for non-breakthrough drugs; and thirdly, how to use information on prices paid by the U.S. Department of Veterans Affairs in our international price comparisons. Other matters, such as the guidelines for breakthrough drugs, may be added to the agenda of the working group during the year.

Our Road Map for the Next Decade also reported the concerns of many stakeholders about our mandate. Many expressed concerns about the lack of price regulation for non-patented drugs, both brand-name and generic. In particular, several provincial governments are concerned about the absence of controls over non-patented, single-source drugs, and they said so at our hearings.

• 0915

Concerns were also expressed about the basket of countries used under the regulation for price comparison purposes, and in particular the inclusion of high-price countries in that basket. Through our report we've passed on these concerns to the government for its consideration.

In an environment where the operations and mandate of the board have taken on a level of importance and visibility beyond what it's known in the past, we recognize the need to make changes, where warranted, to the way we conduct our business.

First, we need to have more dialogue with our stakeholders, and that's been at the heart of our increased consultations.

Secondly, we must be ready to examine alternative approaches to key areas of our operations, and that's part of the rationale for the working group on price review issues, which will commence its work in January.

Above all, we must make every effort to ensure that Canadians are kept better informed on the main aspects of the board's activities and the trends in the prices of patented drugs. In this context, we're increasing our communication efforts and seeking opportunities to establish communication links with other organizations representing various health care associations.

We see ourselves as very much an agency in transition. This transition is directly tied to the input we've been receiving from our stakeholders, from parliamentary committees, and from the Auditor General. This process is going forward.

I would be pleased to come back at any time before this committee to report on further progress of our efforts to improve the board's effectiveness in serving the interests of Canadians.

Thank you.

The Chair: Thank you very much, Dr. Elgie. You were absolutely precise in your observance of time. You had five minutes for Mr. Critchley and five for yourself, bang on. I thought I only wanted one five-minute session, but anyway...

Madame Barrados, I know you're going to go over the five-minute mark, but I have a few members here who are waiting to hear what you have to say.

Ms. Maria Barrados (Assistant Auditor General, Office of the Auditor General of Canada): Thank you, Mr. Chairman. I'll try to stay within my five minutes; maybe I'll go for six.

The Chair: There's a lottery on about how far you'll go over.

Voices: Oh, oh!

Ms. Maria Barrados: I'd like to thank you for this opportunity to present the results of our audit on the Patented Medicine Prices Review Board, which we reported in chapter 17 of our 1998 report tabled on 29 September.

The industry committee's fifth report, issued in April 1997, recommended that the Office of the Auditor General perform an audit of the PMPRB 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 with a staff of 35 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.

[Translation]

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

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 in scope.

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 that affect the eventual price paid by consumers. In addition, the Board does not have jurisdiction over the prices of non-patented drugs. This is not well understood, and can lead to a significant expectation gap.

In our examination of the Board's performance in the area of drug price regulation, we noted that the majority of patented drugs sold in Canada are priced within the Board's guidelines. Generally, the Board's guidelines have been applied rigorously.

However, the Board essentially relies on companies themselves to report the data on which the regulation of their drug prices is based. We would expect the Board to do more to obtain a reasonable level of confidence in the accuracy of the data. The Board needs to find cost-effective means to check the accuracy of price information submitted by manufacturers.

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

[English]

The board has reported an estimate of its savings to the Canadian health care system as being between $2.9 billion and $4.2 billion between 1988 and 1995. While the board has exerted a constraining influence on the prices of patented medicines sold in Canada, the evidence also suggests that other factors have a moderating influence on the prices of these drugs. These factors include provincial cost containment measures and increased market penetration of drug manufacturers.

The board needs to use better evaluation methods to take these external factors into account when measuring the actual impact of its activities. Mr. Chairman, your committee may wish to pursue with the board its plans to improve the measurement of its effectiveness.

The audit also identified areas in the legislative framework that are difficult to apply or that may no longer be relevant. We are not raising concerns with the broader aspects of the Patent Act or the regulations. Rather, our 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 class in other countries. Board staff felt they could not meet this requirement, because valid data are not 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 or unclear in 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.

The board has indicated that it is moving forward, in the context of its consultations with stakeholders, to address many of the findings in our report. Your committee may wish to seek further details from the board as to the timing and nature of any specific steps that are being taken to respond to the recommendations.

Mr. Chairman, that concludes my opening statement. We'd be pleased to answer your committee's questions.

The Chair: Thank you, Madam Barrados. True to all the precision and attention to detail of the Auditor General, you were bang on five minutes.

Mr. Elley.

Mr. Reed Elley (Nanaimo—Cowichan, Ref.): Thank you very much, Mr. Chairman.

We do want to welcome all of you to the health committee today. I'm sure we all have some very important questions to ask you.

As a consumer—and I suppose we all are consumers of drugs at some point or another—I know the drug cost component in our total health care system is very significant. It's one that continues to eat up a major portion of our health care dollars in this country.

In the report it says the price of patented medicines has increased at a rate of about 1% per year. The consumer price index has increased by an average of 2.8% per year. On the basis of that, it seems you've certainly achieved some of your goals to keep the costs of drugs in Canada down.

But you do talk about some additional factors that would influence drug prices in this country. I'd like to ask Dr. Elgie to elaborate more on these additional factors and then perhaps ask Mrs. Barrados if she thinks the board has really portrayed accurately its effectiveness in keeping prices down, considering these other factors that are there.

• 0925

Dr. Robert Elgie: Again just let me emphasize that our role is in prices. The cost of drugs—in other words, the expenditure of private payers or public payers—is the cost we're talking about. What I've said in our document and what we say everywhere is that many other factors contribute to the overall cost of drugs.

If I may, I'll paraphrase the present dean of the faculty of pharmacy in Montreal. The total cost of medicines reflects a multiplicity of factors, such as the number of beneficiaries—the size of the population; the population's health status, poverty, demographics, and so forth; and the life expectancy of the population—Are we living longer? The answer is yes, we are. As well, there are new diseases to be addressed, such as AIDS; there are old diseases that we're now finding treatments for, such as Alzheimer's disease; and there are old diseases that can be treated better, specifically some of the mental diseases. The prescribing profile of a physician will also have some influence on the ultimate cost, and the overuse of medication and the prices and their evolution will play a part.

So the manufacturers have come together. What new drugs are going into the basket and how much are the existing drugs being used? The use is dependent upon how many people there are and what diseases there are—new diseases, old diseases—and new ways of treating them.

Mr. Reed Elley: I have a supplementary to that, Dr. Elgie. Who's the watchdog on the pharmaceutical companies themselves in terms of the cost of actually producing the drug vis-à-vis the actual cost then to the pharmacy or to the hospital? Is there a watchdog there on excessive profits and that sort of thing?

Dr. Robert Elgie: No. That is not part of our mandate, nor is it anybody's mandate that I know of.

Mr. Reed Elley: Nobody in Canada watches over drug profits?

Dr. Robert Elgie: No, what you asked is whether anybody watches over the costs of making and manufacturing, including research and development costs, and the portion of those costs that should be paid by Canadians. I know of no organization that's doing that. It would be quite a task, by the way.

Mr. Reed Elley: Yes, it would, but maybe one that should be done.

Mrs. Barrados, please.

Ms. Maria Barrados: Our comments about the reporting of performance that were made in the audit report come very much from what we do as auditors and what we expect all organizations in government to do. We expect organizations in government to report on their own performance. This is not only our expectation; it's a parliamentary expectation and it's an expectation of the Treasury Board.

So we looked at the report the board made of its own performance, and our specific concern was that their estimates of the amount of money saved were overestimates, because of the methodology they had used in generating these estimates. Hence our comment that the board should have taken other factors into account in its analysis.

Other things are going on in this area of trying to keep the prices down, particularly in the provincial drug plans that are negotiating prices and putting limits on prices. As well, there are economic factors, such as the changing markets from the old regime to the new regime, that they could have taken into account in their methodology.

I should be clear that our question is in relationship to their estimates, which we felt were overestimates, but we still feel the board has a constraining effect on the prices of drugs.

Mr. Reed Elley: Thank you.

The Chair: Madame Lalonde.

[Translation]

Ms. Francine Lalonde (Mercier, BQ): Thank you, Mr. Chairman.

Ms. Barrados, considering the critical observations you have made, did you attempt to estimate the real savings which are attributable to the work of the Board?

Ms. Maria Barrados: No, our audit consisted in evaluating the study made by the Board. We did not make our own estimate.

Ms. Francine Lalonde: Thank you. I did not want to criticize the Board since I understand very well that they work with the tools available to them, and they are not that big. We are concerned that, because of that, the cost and consequently the price of dedicated patented drugs could elude the control of the Board.

• 0930

Do you think that, for the companies which do some research, it was possibly a way to elude the control of the Board? We see that from 1989 to 1995, patent rights were dedicated for more that 130 products. I would like to hear the point of view of our two witnesses on this matter. This could be an important question.

[English]

Dr. Robert Elgie: You're certainly correct in highlighting an issue that was presented to us wherever we travelled across this country, namely that non-patented drugs, be they brand-name or generic, were of concern to all provincial governments we heard from and to many of the stakeholders we heard from. Indeed, one of the presenters, the Minister of Health from Saskatchewan, even indicated that they were willing to delegate responsibility to this board with respect to single-source, non-patented drugs. So yes, there is a concern.

Is some work going on? We don't have that within our mandate, but we are facilitating as technical advisers to the federal-provincial-territorial task force, who are looking at a number of issues, including single-source drugs and multiple-source drugs. When that work is completed, we'll have to wait and see what they do with that data. It's not ours; it's theirs. But we've been playing a role in helping them get their formulary databases in order so that they can make those determinations.

The Chair: Madame Barrados.

Ms. Maria Barrados: A question was raised about patent dedication, and this is an area where the framework is weak: there is a lack of clarity about what is expected of the board. We identified in the report the activity the board took, realizing that in not having regulated drugs that had their patents dedicated, there was actually an increase in the prices that they felt was not warranted.

One of the recommendations we make in the report is that the board be systematic in how it approaches this issue of which drugs had their patents dedicated and the procedures they would take for the past drugs. The board is suggesting that they would respond to complaints. Our view is that a quasi-judicial organization should have a systematic approach to how they deal with this issue.

Dr. Robert Elgie: Chairman, could I just elaborate on the patent dedication issue? I overlooked that, and I apologize.

The Chair: Go ahead, Dr. Elgie.

Dr. Robert Elgie: Patent dedication is a process through which a company gives up its patent, in other words—and that's what you're talking about, the prices after patent.

I came to the board in 1995, and at that time we noted that in a hearing Dr. Eastman had held in 1993, he expressed concern about the issue, because a company that was appearing before the board suddenly dedicated its patent.

Patent dedication is not an issue that's specifically dealt with in the Patent Act, but it had become a practice over the years for the patent commissioner to accept a patent dedication. We reviewed all of the data on it and found that from 1969 to 1987, only two pharmaceutical patents had been dedicated. After 1987, some 460-odd patents were dedicated. We concluded that there was a problem.

By common-law principles, it's my belief and the belief of others I've talked to that you have to go back to where you first announced that you were looking at the issue—in other words, the time when you commenced the process of overturning. It's very difficult to go back beyond that time, because as you all know as legislators, the law abhors retroactive activity in the absence of specific legislative direction.

• 0935

So we're satisfied that the way we've dealt with patent dedication from January 1995 on is working. There have been no further problems of patent dedication. The issue Mrs. Barrados is raising—and it's a correct one for the auditor to raise—is what you will do if you have to go back before January 1995. That would be a difficult thing for us to do. If that arose, I have to tell you, as I told the industry committee two years ago, we'd go to the government and tell them we had to deal with it, as we will with any effort we see to avoid our jurisdiction.

The Chair: Dr. Elgie, I happened to sit on that industry committee two years ago, and one of the issues raised then was raised again by some of my colleagues this morning, and I think you raised it as well. It's the question of controlling prices, not only of the patented products, but of the non-patented as well as the generic products.

Will you correct an impression I have—and I hope others share it as well—that at least as far as the generics are concerned, the prices are already regulated, because typically they can't get on a formulary until they meet a particular reduction in price from a patented product that they would replace? Is that in fact true or not?

Dr. Robert Elgie: It's true in varying degrees across the country. In Ontario they have what I believe is called a 90-75 rule now, where it's 90% if it's a single-source drug and 75% thereafter of the price of the patented product. So yes, that does occur there. And Quebec, I believe, requires that the price submitted be the lowest in the country.

The Chair: Okay.

Mr. McTeague.

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Thank you, Mr. Chairman.

Dr. Elgie, I'm interested in the discussion of extending PMPRB into other areas, but I want to first deal with the problems I have, which I expressed, quite thankfully, in my submission back in June 1998 to you and your committee, which travelled the country last year. I thank you for that opportunity.

I am, however, distressed at the question of methodology, and in particular at the way in which the Patented Medicine Prices Review Board achieves its prices based on the so-called median of seven countries. As the Auditor General's office has just suggested, in most instances it's not from several countries, but rather from the United States.

I'm wondering if you could tell this committee how many instances you have of introductory prices that were based on, if I can put it very bluntly, the submissions by the manufacturers themselves.

Dr. Robert Elgie: You're talking obviously of a category two drug, which is a substantial improvement or breakthrough drug.

Mr. Dan McTeague: Maximum non-excessive, yes.

Dr. Robert Elgie: Yes. The act requires the companies to provide us with publicly available factory-gate prices in all classes of customers. To date we have relied on that evidence, although where we had any reason to doubt it, we did phone persons who were known to members of staff in the various countries, and we were able to check the formularies of those countries.

Remember that the United States is quite different from all the other countries, in that in Europe, a negotiation takes place that sets a price the government will pay for the product and puts that in a formulary.

Mr. Dan McTeague: Do you find that to be a question of price discounting? Does that constitute discounting, which of course is not taken into account by the PMPRB?

Dr. Robert Elgie: Well, we take it into account within our own jurisdiction in this country, because the statute says we should.

Mr. Dan McTeague: But you compare and ensure that a patented drug does not exceed the discounted price of an example such as the United States, as you've just mentioned?

Dr. Robert Elgie: The United States is a problem. If you will review the road map document and our research agenda, you'll see that on the issue of category two drugs, one of the items to be dealt with is the issue of how we price a product when we only have one or two countries to compare it with.

But you're asking me about discounting. Let's step back a minute. When we had an audit done, the auditor of that time, Deloitte Touche, suggested that we might be able to find out the true factory-gate price if we backed out from the price that was in the government formulary—in other words, the formulary price being the price the government will pay.

• 0940

We've taken that advice, and in the document you all have in your possession, Trends in Patented Drug Prices, and in the verification of patented drug prices, you'll see that overwhelmingly the data supplied to us has been in compliance with the law.

I can't believe a government body that sets the price it will pay for a product wouldn't require a company to submit information or evidence about what the real prices are. But we now have a methodology to verify the information given to us by the companies, and that's an important step forward.

Mr. Dan McTeague: When did you do that, by the way, Dr. Elgie? When was that done? Just recently?

Dr. Robert Elgie: Yes. It's in the documents that have been sent to you.

Mr. Dan McTeague: Okay.

The Chair: Madam Barrados would like to make a comment on that question.

Ms. Maria Barrados: I just want to point the member to a few observations in our report.

The information on drug pricing almost exclusively comes from the drug companies. That's the way the system is, and the board—

Mr. Dan McTeague: Ms. Barrados, I'm sorry to interrupt, but the problem some members of the committee have is this. If we are trying to monitor drug prices, and if the people who are providing and furnishing the prices to us, as bodies and agencies and representatives, are the very people we question from time to time, do you not see a possibility of conflict of interest? And if so, how do we get around that?

Ms. Maria Barrados: One of the observations we made in the audit report was that more had to be done to verify and check that information. The board has limits, but there are some possibilities they could explore.

For some of the other points you make, I'll refer you to the audit report. We did have a concern, identified in paragraph 52, that the comparisons the board was making with foreign prices weren't exactly the same and that their own guidelines weren't really catching the difference. We made the recommendation that they rigorously apply guidelines, or if they can't do it, they should change those guidelines.

But there is a difficulty in terms of what is actually in that price. There's this business of the ex factory price and the other kinds of prices you get from the foreign countries, and they're not exactly the same. These comparisons have to be the same.

As you look through the Deloitte Touche audit, the conclusion overall in the audit report is that the foreign prices, the way the board can derive them, would give them the information they need. But if you look at the details, there are major differences for 10 out of the 50 drugs that they tested. So it's not entirely reassuring.

The Chair: I'll come back to you, Mr. McTeague.

Madam Wasylycia-Leis.

Ms. Judy Wasylycia-Leis (Winnipeg North Centre, NDP): Thank you very much.

Let me follow up on Dan's line of questioning. Some of the statements in the Auditor General's report concerning reliability of data submitted by drug companies and the whole process of the PMPRB verifying that data are very serious observations. They certainly have fed the general public's concern that the body does not necessarily operate in the best interests of the public and that in fact there is a lot of close association between this body and the multinational drug industry.

The Auditor General says clearly:

The Board essentially relies on companies themselves to report the data on which the regulation of their drug prices is based.

In response, in this report, PMPRB basically has said what you have said this morning, Dr. Elgie: that you don't believe that is the case, and that there are strict fines if it is the case. But I'd like to hear from you what specific things you have put in place to actually get second opinions on the information you are getting from drug companies and how you are broadening your base of research to do that important function.

Dr. Robert Elgie: First of all, let me comment on something you and I have talked about before: the association of this board with the drug industry and the underlying suggestion that there's some—to use a phrase we would have said in high school, Mr. Chair—hanky-panky going on.

• 0945

I told you then and I've said publicly at every meeting that I have no associations or relationships with the pharmaceutical industry, and I've told them that. At the stakeholders' meeting we held on November 20, I raised this issue specifically with them—whether it was ever appropriate for me to have meetings with the pharmaceutical industry—and there was a general feeling that it was a dangerous thing to do, but they would give more thought to whether or not it was possible for me to do that.

I don't do it. There is no relationship. They have no special leverage over this board, and I hope we can put that to bed for a long time. As Kennedy once said, myths are often harder to overcome than lies, and this is a myth that has to be put to bed.

In terms of validating our data, as you will know, the companies are required to certify that the information they give us is correct. If they fail to do that and they're charged, significant penalties and fines are available.

In terms of foreign data, I've indicated to you that we now have a process through which we can back out and verify the factory-gate price, and I'm satisfied with that. We will, however, continue to explore whether there are better ways of assuring the public that the information we get is correct information.

Let me also be clear that whenever there is a hearing, all that information is before the public and it's all publicly available.

We've never had an instance where we've had to consider laying a charge, nor, I believe, did the Auditor General find one or point it out to us. But that shouldn't stop us from trying to find ways to assure the public that the data we're receiving is accurate and true. And we'll do so.

The Chair: Madam Barrados.

Ms. Maria Barrados: It's important to recognize that the Patented Medicine Prices Review Board is functioning with the legislation and the terms of operation it was given. That's a constraint on the board, and we say that several times throughout this report. This is the way they have been directed to work.

Having said that, more could be done on the kind of verification we ask of the drug companies, for example. We could ask their auditors to verify those prices. With the situation the board is in, given their mandate and their framework, they can't go in and verify in the drug companies themselves. They just do not have that power. So there are other ways, such as this, that we suggest perhaps they could have more confidence that the information they get is correct.

The Chair: Madam Wasylycia-Leis.

Ms. Judy Wasylycia-Leis: Around this whole question of the board operating under certain constraints—that there's clear legislation and it can only go so far in terms of being more proactive on some of the concerns raised—the industry committee study two years ago heard a lot of submissions from folks about the mandate of the PMPRB, and that was tied into questions about transparency, accountability, and so on.

The conclusion of that committee was that there needed to be a review and a strengthening of the mandate of the PMPRB. To me that suggests that everything should be on the table, not simply a consultation around the current mandate, which is basically the essence of this past year's consultation process of the PMPRB.

So my question is to both Maria and Robert. Would it not be appropriate at this time, and consistent with the observations that the Auditor General's report makes and consistent with some of the statements made here today, for the government itself, for the Minister of Health, to initiate an independent review of this whole area? Because it would be fairly difficult for the PMPRB to review itself and to open up this whole notion of an appropriate mandate.

The Chair: Dr. Elgie, your answer is probably no, but go ahead; try it yourself.

Dr. Robert Elgie: No, these are important questions, Chair.

• 0950

We have sent the government a copy of Road Map for the Next Decade, which flowed from the consultation process. In that document we record all of the things that were said to us about the mandate of the board, beyond what its present mandate is. We have made it clear that if the government wishes to review that mandate, we're available to take part in that process, and we pointed out the areas that were raised.

The Auditor General has raised some other issues, and I've forwarded a letter to the Minister of Health and the Minister of Industry setting out what the auditor's points were and indicating our willingness to collaborate with them if they feel there's any need to review matters further.

In the meantime, where we have control of our own destiny, we're taking steps. I've said we will consider whether or not there are other ways within our present mandate that we can better assure the public that the data we're receiving is reliable. Having said that, we have never had any occasion to date to find that it wasn't, but nevertheless, that possibility exists, and the public has the right to know it's being dealt with.

The Chair: Madam Barrados, do you want to answer that too?

Ms. Maria Barrados: My office doesn't really get into policy discussions or specific policy recommendations. The only thing I could add is that two years after we table a report, we look to see what kinds of changes have been made, and in those areas that affect the legislative framework, we would be asking what kinds of changes have occurred.

The Chair: Committee members are already encouraged by the process that developed immediately after the recommendations of a year and a half ago. We're already beginning to see some of the results. So for those people who don't think committees do anything, here we are: we have both the Auditor General and PMPRB responding to our recommendation.

Mr. Myers.

Mr. Lynn Myers (Waterloo—Wellington, Lib.): Thank you, Mr. Chairman.

Dr. Elgie, I want to go to the industry's 10% contribution to research and development. How confident are you of that target being met? I understand they certify it to be true and correct and such, but I want a sense of the accuracy of that.

Second of all, I was interested in this document that you put out with respect to the so-called “free riders”, and I wondered if you could speak a little bit about that. Essentially what I'm interested in is how you capture the contributions of those people, if in fact it's possible.

Dr. Robert Elgie: Let me deal first of all with the question of free riders that you raise. This is a new element that we've added to our annual report, and if you have the annual report, it's on page 29. We report that of the 75 companies that report to us, 18 make no contribution to R and D in this country, 32 contribute zero to 10%, and 25 contribute over 10%.

Obviously the group that are contributing over 10% also have most of the sales revenue, but nevertheless what we are faced with is 18 companies contributing nothing, at least in 1997, and 32 companies contributing under 10%. We can only point that out to government, and what they wish to do with that information is out of our hands.

The other question is the reliability of the data. Each year, as you know, we publish our data, which indicates the percentage of sales revenues that are going into R and D, and the pharmaceutical organization publishes an audited data sheet outlining what their auditor has told them they're contributing to R and D. There's usually a little difference, and the differences are explained in minor ways.

I don't think there's any reason to doubt them, but again, the Auditor General raises the point that it's not a matter of whether they're cheating; it's a matter of whether the public knows there are processes in place to ensure they're not. That's something we'll have to look at to see what we can do with it in our present mandate.

The Chair: Do you want to hear a response from Madam Barrados?

Mr. Lynn Myers: In a minute, if I could.

Dr. Elgie, I want to pursue what you said about bringing this to the attention of government. I read in this same document that some of the stakeholders think there should be perhaps a better way of doing this, and the way I'm reading it is that there should be a research fund managed by government, comprised of profits from the industry. Do you think that's a good idea? Is that in fact an option?

Dr. Robert Elgie: Those are policy issues the government will have to face. That's one of the points Dr. Eastman made when he carried out his royal commission on the pharmaceutical industry, and other countries have suggested it. I don't know of any country that's implemented it yet, but it's something government would have to consider.

• 0955

Mr. Lynn Myers: Without getting into the policy minefield, it would be an option, I gather.

Dr. Robert Elgie: Certainly. Anything's an option.

Mr. Lynn Myers: Madam Barrados, first of all, I'm wondering about your comment on the accuracy, and second of all, is there a better way of capturing this?

Ms. Maria Barrados: Well, I won't add anything to policy. I'll do that in my private life, but not in my official capacity.

Dr. Robert Elgie: Come on; do it.

Voices: Oh, oh!

Ms. Maria Barrados: I like where I work.

Voices: Oh, oh!

Ms. Maria Barrados: As for the comment about the accuracy of the numbers, there is a difficulty with this, because the requirement to be reporting on those R and D numbers is related to the tax legislation that was in place in 1987, and of course the legislation has changed and the tax requirements have changed. So it's very difficult to make a real judgment as to what is actually occurring or to use other ways to check the accuracy of these numbers.

This is one of these areas that has to be looked at to see whether this remains relevant, because it is asking the board to do a very difficult thing, and you wonder whether it's worth the effort to do the kind of work you would have to do to verify that.

Mr. Lynn Myers: Does this go back to something you said a few minutes ago: that you would have to have audited statements from the industry people themselves and then you would verify that? Is that what you're saying?

Ms. Maria Barrados: There is certification here from the auditors, but the base is different.

Mr. Lynn Myers: I see.

Ms. Maria Barrados: Because times have changed.

Dr. Robert Elgie: That's why there's a minor difference.

Mr. Lynn Myers: Thank you.

The Chair: Madam Barrados, if I can piggyback on that question, one of the reasons it becomes a policy question for many members of Parliament is that on one hand we have the medical sciences institutes—hospitals and universities—coming to members of Parliament of all political stripes, asking for continued funding for basic research, and on the other, according to the PMPRB, there has been a steady decline in the amount of investment in basic research by the companies reported. Yet the PMPRB says the companies being reported have actually met the requirements for research and development.

From the Auditor General's perspective, is there a way for us to separate out what members of Parliament get lobbied for—basic research and development—from the rest of the research and development that goes to putting a product on the market? Or as the Auditor General, in your examination, did you look exclusively at their compliance with the Income Tax Act—I think it's the provisions in 1987?

Ms. Maria Barrados: I should just clarify my comments about audited statements first, before I try to deal with your question, Mr. Chairman.

The companies obviously have audited statements that will show some of this information, but the actual information given to the board is a certified statement, which has not been audited, but certified by the company itself.

We didn't look too much further into how other information could be obtained, but the initial thinking when this was set up was that the information be similar to what was required by Revenue Canada. If that's the case, it makes it a lot easier to deal with. But we didn't pursue it much further than that. I don't know whether the people in the PMPRB have looked at it in any greater detail.

The Chair: Dr. Elgie, am I right in concluding that you really weren't required to do that or it's not part of your mandate to separate those out, even though you do make the analysis?

Dr. Robert Elgie: Yes. We do make the analysis. The mandate is simply to report on research and development, and we've developed a protocol to report to Parliament and to the public on what is happening.

You raised the point that there's no dramatic increase, indeed a slight decline, in the percentage of research dollars going to basic sciences. You and I have talked about this before. One view, which I'm sure you hold, and maybe I do too, is that basic sciences reflect the commitment of the company to the country.

The Chair: Thank you very much.

Mr. Elley.

• 1000

Mr. Reed Elley: I'd like to take this into the practical realm of a consumer's point of view, and I'm speaking on behalf of my wife at this point. She suffers from migraine headaches. She takes the prescription drug Imitrex. I think it's been in the country for perhaps three or four years. It's a very expensive drug, as you know. I think it's $18 a tablet.

It's probably one of the only things that can help her headaches. When she has one coming on and it becomes more or less full-blown, taking an Imitrex relieves the symptoms greatly, and it goes away within an hour or so. Anybody who suffers from migraines knows how much you would depend upon a drug like that.

It's very costly. We're thankful for drug plans, private drug plans in the main, that help us to be able to use those kinds of drugs from a financial standpoint. But I'm wondering how long this drug has been used in the United States, say, as compared to Canada. Do you have any statistics on the relative cost of it in the States and the coming down in cost over a period of time, and what it would do in Canada?

My question ultimately is, when can we expect a drug like that to come down in price appreciably? How many people have to start using it for that to take place?

There are a lot of questions in there, I know, but I'm trying to get at something here.

Dr. Robert Elgie: A quick answer to part of your question is that clearly when another drug—what's called a category three type of drug usually—is on the market, then the competition would tend to drive that price down.

For Imitrex in particular, we can look at the course of its price history, if you wish, and provide the committee with that information.

Mr. Reed Elley: You don't have to do it for the committee, although other committee members might be interested in it, but I certainly would personally be interested in it.

Dr. Robert Elgie: I'd be pleased to do that.

The Chair: Could you make that available through the committee to our researchers?

Dr. Robert Elgie: Yes, we shall.

The Chair: Thank you.

Mr. Reed Elley: The further question out of that was, with a drug such as Imitrex as an example, in the patented drug protection of that company's drug, Imitrex, how long does it take for a drug to start coming down in price and what are all the factors that contribute to that?

Dr. Robert Elgie: If it's a unique drug, which is a breakthrough or substantial improvement drug, then the price will stay at the price the company charges for it until there's a competitor in the marketplace or until the patent expires, and then there will be a generic competitor in the marketplace. It's simply a matter of whether there's a competitive drug in the marketplace.

The price of it can't go up annually more than the CPI, so the price trend has to be in line with that, but whether or not the price is maintained depends on how exclusive their market is.

Mr. Reed Elley: And as far as patent protection goes today, what's the time on that?

Dr. Robert Elgie: It's 20 years from the time of filing.

Mr. Reed Elley: So it's going to be quite a while before a drug such as Imitrex has competition then.

Dr. Robert Elgie: Well, no. Other products are coming out.

Mr. Reed Elley: Okay, thank you.

The Chair: When a product is put on the market, if it's a breakthrough drug or a single-source drug, whatever price the company gives you is okay—you don't challenge that, as long as it fits within the median of the seven countries? If there's no comparison, how do you determine whether it is appropriately priced or not?

Dr. Robert Elgie: That's one of the issues the working group will be asked to look at, but let me give you an example. There was a Canadian example of a breakthrough drug in Vancouver, Photofrin, for which there was no counterpart in any other country. So we worked with them in an advisory capacity and reached an understanding about a price, but we had an agreement with them that once prices came out in other countries, we'd have to come back and review it again. That's how we did it in that one example.

But it's a problem when there's only one other country, particularly when that country is the United States. That's an issue we're looking at particularly. One of the ways we're looking at it first of all is to examine the Department of Veterans Affairs formulary, which they now publish on the Internet.

• 1005

The Chair: Madam Barrados.

Ms. Maria Barrados: I just wanted to add that one of the issues of course is the determination as to what category a drug is, whether it's category one, two, or three—category two being the breakthrough drugs and the other categories being less new, if you like—and the judgment that goes into pricing.

One of the comments we make in the audit report is that Health Canada has an obligation to look at drugs for safety and approve drugs, as you all know. They have a procedure whereby they give more rapid approval for a drug, and the criteria are a lot like the breakthrough drug criteria. One of the suggestions we make is that there is some room here for some cooperation in streamlining and efficiencies in those judgments being made on the drugs, because there were instances where Health Canada felt something had a specific benefit and sped it through the process, and after it was through the process, it wasn't a breakthrough drug for PMPRB.

The Chair: Madam Minna.

Ms. Maria Minna (Beaches—East York, Lib.): Thank you, Mr. Chairman.

As someone who uses Migrainal because of severe migraines, Mr. Elley, I know exactly what you mean. Mine costs $15 a shot.

Dr. Robert Elgie: My wife and two of my children have it too, so I know.

Ms. Maria Minna: The report that talks about new medicines and how they're categorized basically says they're categorized under three headings. One is the drugs that represent a new product, in an existing or comparable dosage form, of an existing medicine; then there are the breakthrough drugs; and then there are the drugs that provide moderate, little, or no improvement. I would like to understand the difference between the first and the third. I don't see much from the way I read it.

Dr. Robert Elgie: The first is usually just a larger dose of the same drug—in other words, a 50-milligram or a 100-milligram tablet.

Ms. Maria Minna: So why would it be considered a new product?

Dr. Robert Elgie: It's for pricing purposes. It has to bear a reasonable relationship to the price of the product that's already on the market, because it simply is an increased dosage of it. Category three can be a different chemical entirely or it can be a new delivery form of an existing drug.

Ms. Maria Minna: My question goes to one of the constant complaints I hear when I meet with the generic drug companies. One of the things the patented drug companies sometimes will do is change an existing drug very slightly, just a compound. It doesn't make any difference to the actual therapeutic effect of the drug, but it changes the composition. Therefore now it's a new drug and it has to run a different course, or that component of the drug is new and therefore it has to go the....

Is that what category three does, and if so, how should we address that?

Mr. Wayne D. Critchley (Executive Director, Patented Medicine Prices Review Board): If it's simply a change to make it a modified release version, for example, then that would be treated as category one, as Dr. Elgie was describing—a new strength or a variation on the strength of an existing drug.

Sometimes they'll make the same complaint, though, when they're actually making a slight change to the chemical, in which case there will be a different chemical, even though it may be only a slight variation on something that already exists.

Dr. Robert Elgie: A different side chain.

Mr. Wayne Critchley: Yes, so in that case it would be treated as a new chemical, and Health Canada of course would treat it in that way and review it in that way, and then it would fall into category three.

But in both cases, the effect of our guidelines would be the same: to limit the price of that new drug so that it could not exceed the price of the existing one that's currently on the market.

Ms. Maria Minna: But the life of that new drug would change. It would go another 20 years.

Mr. Wayne Critchley: Oh, if it has a new patent, yes, it does.

Dr. Robert Elgie: Yes, it gets a new DIN.

Ms. Maria Minna: I guess my question is, are you able—or I guess maybe it's Health Canada—to look at a drug and say, “Yes, it has a new compound” and analyse it to decipher the impact of that drug, whether in fact it does make a therapeutic difference or not, or if it's being done primarily for the purpose of extending the patent life of that drug?

• 1010

Dr. Robert Elgie: We have nothing to do with the issuing of the patent or the DIN, but if it really didn't make any significant difference, it wouldn't get an increased price.

Ms. Maria Minna: Okay.

The Chair: Mr. McTeague.

Mr. Dan McTeague: Thank you, Mr. Chairman.

Dr. Elgie, I heard for the second time your point about not being able to compare the question of introductory prices, say, in the case of the United States. Knowing that and knowing that you've had the benefit of several months to consider my report but also others, if the information on the extent of discounts is not available from that country, could you justify why the Canadian list price should not be used in setting the maximum non-excessive introductory price rather than the transaction price?

Dr. Robert Elgie: Let's analyse first of all the information we provided you in the verification paper, where we looked a European prices, which are quite different.

Mr. Dan McTeague: These are not introductory prices, Dr. Elgie. These are 50 patented drugs that have been around for a little while. I'm referring to introductory prices.

Dr. Robert Elgie: Well, I'm talking about how we verify foreign data, and let me then switch to the U.S., if I may.

The data we get from foreign countries, with the exception of the U.S., is data from a formulary, from which we can now back out, using publicly available information, to confirm whether or not the company is giving us the factory-gate price. In terms of the U.S., there is no such thing as a factory-gate price, and therefore it's very difficult for us.

Comparing list price to list price, we did that once in a study back in 1994, but a list price in this country is not the same as a list price in the European countries. I don't know what it is in comparison to the U.S., but it's a difficult issue. The list price in other countries includes all the mark-ups, and that's in the formulary. The list price here doesn't. And don't forget that the market beyond us is not regulated.

Mr. Dan McTeague: But your drug would not be something that's considered to be on the formulary at this point. I think most provinces in this country readily recognize that they're not in a position to pay for it.

But again, I appreciate your telling me about this, which you presented to us a few weeks ago. I, however, have given you information that is now six months old, and I haven't had an answer to that, and I'm trying to get one here now.

Maybe my bigger question is how you construct the patented drug price index. Last year your executive director, Mr. Critchley, who's here today, reported to the Ottawa Citizen that some drug prices, particularly those under price review, under investigation, are excluded from the index. If that's the case, the PMPRB's patented price index does not include all patented drug prices for the period under review, but only those drugs that are within the PMPRB's guidelines. I'm reading part of this because I thought it was important enough to send to you directly.

I think everybody in this room or anybody listening here now will find that extremely misleading. It certainly puts a spanner in the claim that your success story is based on the fact that you've always been able to keep the price of patented drugs within the rate of inflation.

I think the PMPRB's patented price index could not possibly exceed the rate of CPI of the reported review period, since it includes only those drug prices that are compliant with the guidelines.

My question was then and it is now, does the PMPRB remove drugs under investigation from their patented drug price index, and if it does, what is the effect on the index of removing them, Mr. Critchley and Dr. Elgie?

And please, in this case, Madam Barrados, I'd just like to hear from the Patented Medicine Prices Review Board.

Thank you.

Dr. Robert Elgie: The answer is no, we don't remove them.

Mr. Dan McTeague: You don't remove them?

Dr. Robert Elgie: No. I had this investigated, because I've heard this story as well, and I'm told that back in 1992, for some unexplained reason, 13 drugs were not included in the index. They were then added to it, and it's never been done since then—never.

Mr. Wayne Critchley: And I have had to apologize to Dr. Elgie. For once the Ottawa Citizen quoted me correctly, and I was wrong. It was an error.

I was thinking of a situation such as our Virazole case, where the price information was not included in the index because we didn't have it. We were in court fighting the drug company over our jurisdiction, so we didn't have the information and it wasn't in our index. It's in the index now, as Dr. Elgie said, because we won.

All the current price trend documents you have reflect everything up to date, including the correction of that historical error. The effect of that was actually to decrease the patented medicine price index very slightly. It really had no appreciable impact. It was actually a slight decrease rather than an increase.

I'm glad you raised the question.

• 1015

Mr. Dan McTeague: So am I, because again, I know you had a lot of information to go through, but it seems to me we are bearing witness to the fact that some people in this country...

I see that mon collègue, Monsieur Bigras from the Bloc Québécois, is just leaving, but he will be more than familiar with the report by eminent individuals in the medical community in Montreal that suggests drug prices are so expensive that people are now choosing not to use them in proper dosages.

So we, as public policy advocates and legislators, are in the unenviable position of saying, on the one hand, we have a health care system that wants to cover everybody, and on the other hand, we don't want to include drug prices in that. And yet we see so many people in a position where they're unable to afford it.

That is not necessarily a question to you, but I had one particular question that may involve Madam Barrados.

During the investigation, the Auditor General's review of the Patented Medicine Prices Review Board, were you privy to all documents? Was there any delay between the time you announced the investigation or when the investigation was put forward and the time you began the process of reviewing? Were all the officials here available to your department? Were any documents missing?

Ms. Maria Barrados: The only delays we had were our own delays, in terms of our own workload. We had full cooperation from the people on the board. And we never had any sense that we were denied any documents or denied access to anything.

Mr. Dan McTeague: Were you part of that review, Mrs. Barrados?

Ms. Maria Barrados: It was done under my direction.

Mr. Dan McTeague: And were you in touch with each of these individuals during that period of time?

Ms. Maria Barrados: Yes.

Mr. Dan McTeague: Okay, thank you.

Thank you, Mr. Chairman.

The Chair: Okay, Mr. McTeague.

In that response to Mr. Critchley, I'm just wondering about the press now. Did I understand from your response that when they misquote us and you, they are accurate in their reporting, and when they do quote us accurately, we're giving them the wrong information?

Voices: Oh, oh!

Mr. Wayne Critchley: I wouldn't want to make that generalization.

Dr. Robert Elgie: I wouldn't recommend you use that in your next campaign.

Voices: Oh, oh!

The Chair: Yes, well, something twigged there.

Madam Wasylycia-Leis.

Ms. Judy Wasylycia-Leis: I wanted to go back to a comment that you, Mr. Chairperson, made a little earlier about seeing the results of the work of committees of the House.

The Chair: I'm not the witness here; they are.

Ms. Judy Wasylycia-Leis: No, but I wanted to use that as a jumping-off point, since I take a far less positive view of the work of committees, and I base that on the industry committee's report—

The Chair: Madam Wasylycia-Leis, there's at least one person back here who was here when the particular committee—

Ms. Judy Wasylycia-Leis: Sure, I have to acknowledge I wasn't here, and notwithstanding my tendency to be—

The Chair: We thought we were being rather tough.

Ms. Judy Wasylycia-Leis: —automatically suspicious of this government, we've had two examples in this present committee—today with the PMPRB and last week with the Canadian Food Inspection Agency—where we've had previous committees study these issues in great depth, with all kinds of recommendations made, and in fact very little action taken.

I think of the 1994 report on rBST and the in-depth recommendations that were made by a House committee, and we learned last week that those matters are still under review and are being studied.

Today we have a situation where some very tough recommendations were made by the industry committee, and we've had more study and consultations but very few definite, definitive answers around how to address some of the problems.

So my question is really to Maria Barrados.

You said you can't comment on public policy and your role is confined to examining existing provisions and operations of boards such as the PMPRB. But also, in your report at one point you talk about the need for amendments to legislation and you clearly identify a number of problems that have to be addressed. So would you not be recommending that we should, as a committee, be pursuing this matter vigorously to try to get more accountability from the government itself and to try to hold the government responsible for recommendations—good recommendations—made by committees over the years?

The Chair: Do you still like your job, Madam Barrados?

Voices: Oh, oh!

Ms. Maria Barrados: I still like my job.

Our role, as the auditor, is to put these reports before Parliament. We welcome the opportunity to come to standing committees, and we come to the standing committees to discuss these reports and the recommendations with the hope that the standing committees are interested and will do something with them.

• 1020

So yes, we encourage standing committees to take our reports and take action, or to do further reports or further inquiry, or to call us back later to see if progress has been made, or to call back the PMPRB. We welcome that opportunity.

But as the auditors, we do the report, we go on and do another audit report, and we come back in two years to see what kind of progress is made, but we don't get any more involved in the policy process and the operation of government, because that's not our role.

Ms. Judy Wasylycia-Leis: One of the issues you identified in your report has to do with transparency and accountability. It would seem, based on our discussion this morning, that there are limitations on the degree to which the PMPRB can be open to public scrutiny, I assume because of the nature of the legislation. Is it the case that there are limitations on the legislative mandate for the PMPRB with respect to public scrutiny and accountability? Or can we be putting a lot more expectations on the PMPRB to be open in this regard?

Ms. Maria Barrados: The reality is that the PMPRB is dealing with commercially sensitive information. They have to respect that commercial sensitivity of the information they get; they have that obligation. Similarly we had that obligation when we went through all their files and all their material.

We have a couple of suggestions and observations in the report where we felt the board could be more transparent in explaining the nature of specific decisions that came out as we did our testing. We have found that the board is very responsive to us in agreeing that these are areas they would seek to improve. That's the kind of thing we would look at when we follow up and ask if they have gotten better at doing this. They certainly have indicated their willingness to improve those things.

Ms. Judy Wasylycia-Leis: Are you satisfied with Dr. Elgie's response today to my question about searching for other sources of information when assessing the drug pricing data provided by a drug company? Could we be expecting more? What kind of timeframe should we be looking at? What would you suggest in that regard?

Ms. Maria Barrados: As I suggested in my opening statement, it would be helpful for the committee to get more specifics on timeframes. These may not all be in the hands of Dr. Elgie; these may be in the hands of the Ministry of Health.

Ms. Judy Wasylycia-Leis: Dan McTeague asked two questions. One was on the belief that in fact the board has been comparing the actual transaction price in Canada with the list price in other countries. His other point pertained to excluding from the index drugs that are excessive and over the guidelines. Are you satisfied, from your investigation, that in fact these two issues have been dealt with and they're not being followed, as is believed to be the case by many out in the broader community?

Ms. Maria Barrados: With respect to the comparisons of the prices, we did identify in the audit report a problem with the way the guidelines had interpreted the legislation in terms of types of prices that were being compared. We felt this had to be looked at and clarified.

What's really important in our minds, as the auditor, is that there is that consistency between the legislation and the guidelines—that it is clear and transparent—and then that those guidelines are applied vigorously. We felt there was a difficulty in the guidelines' interpretation of what prices should be compared, and the board has agreed to look at that and clarify it.

With respect to the index, we looked at the index, and we did have difficulty with the efficiency with which the board went about this, and that's because Statistics Canada does similar kind of work. We made a recommendation to the board that they consult more closely with Statistics Canada and use the same kind of data to make sure they do as much as they can to be economical in the use of resources. There was a specific recommendation in the report.

The Chair: Do you want another shot?

Ms. Judy Wasylycia-Leis: Sure, although I don't want to ever be accused of taking—

• 1025

The Chair: But I wouldn't like you to go away thinking a committee doesn't function. In fairness to our witnesses...

I refer to somebody in the audience, though I won't refer to him by name. He'll probably attest to what Dr. Elgie must be feeling right now.

There was a series of perceptions in committees before, and as a result of committees' efforts, the Auditor General was put into a position where some of the issues that were not addressed to the satisfaction of committee members in the past were handed over to the Auditor General to deal with. That report is before this committee.

I'm being very subjective here, but I think the questions that have surfaced around the table have not been addressed with kid gloves. They've been rather straightforward. And I compliment both Dr. Elgie and Madam Barrados for the way in which they responded. What happens with the answers we get from them is our business, but I wouldn't sell us short as a committee about what we can do. The fact that they're here is an indication that a previous committee actually accomplished something.

Anyway, Mr. McTeague, did you want to go ahead?

Ms. Judy Wasylycia-Leis: If you wanted me to jump in and complete—

The Chair: Well, now you'll have to wait.

Ms. Judy Wasylycia-Leis: Now I have to wait, see?

Mr. Dan McTeague: I won't be long, Judy. We're going to do a tag-team here.

The Chair: It's cross-pollination.

Mr. Dan McTeague: The answers are excellent, and they do help us come to certain decisions about where we're at with respect to the PMPRB.

Madam Barrados, when the investigation occurred, or when the review occurred... I hate to use the word “investigation”; it almost sounds clandestine. When you had the review of the PMPRB, did the individuals responsible for the review have some experience with the PMPRB? Or were they looking at it strictly from the microscope of the parliamentary obligation and their background in accounting? Did they have any particular expertise or prior knowledge, or had they done any work with the PMPRB?

Ms. Maria Barrados: The names of the audit team are listed in the audit report. Mr. Campbell, who is here with me today, was the head of that team. None of them had worked with PMPRB before. Their background is accounting and audit. We had two master's-level people involved and one economist. They had done quite a bit of work in becoming familiar with drug approvals and drug pricing.

In addition to that, as an audit office, the way we function is to strike an advisory group. That advisory group had in it specialists in drug pricing, medical doctors, and one of those people had been involved with the PMPRB. We thought that was important to us, so we got advice from the full spectrum. But that is advice to me and the Auditor General.

Mr. Dan McTeague: I asked you if there was any lag time between the time the audit team gave notice and the time you actually began the investigation. Did I hear you correctly; you said it began immediately?

Ms. Maria Barrados: No, I didn't say that. The report was in April. We began in September. There was a lag time.

Mr. Dan McTeague: There was a lag time.

Ms. Maria Barrados: There was a lag time, but that was entirely on account of us. That was because we had other audits ongoing.

Mr. Dan McTeague: I understand that. I'm just wondering if there was time...

The information you gleaned from the PMPRB was entirely provided and furnished by the PMPRB; is that correct? In other words, you were reviewing the documents furnished to you by the PMPRB. Were you capable of asking for extra information or extra materials?

Ms. Maria Barrados: I'm not sure I get the full intent of your question, but I'll give it a try and then you can follow up.

Under our act we have very powerful access to departments, such as the Department of Health. We went into the Department of Health, as was required. We have very powerful access to all the material in the board, and we did that. We don't have those same powers of access to people outside the government.

Mr. Dan McTeague: Okay. For instance, if someone had shredded a document in that lag time, you obviously would not have been able to get information that might have given you a greater understanding of the positive side and the negative side of the PMPRB. You wouldn't have been able to do that, obviously.

Ms. Maria Barrados: My auditors would go through all the files. They picked a sample of 80 cases and went through all the details. They would have been able to tell if there were obvious holes there.

• 1030

They talked to everybody in the PMPRB. They went to the length of actually having some people come to our office, instead of speaking to them in the offices of PMPRB, because some coverage in the media suggested there was some unhappiness. My auditors came up with nothing to suggest that anything was not reported here or that anything else was going on.

Mr. Dan McTeague: Did your auditors ever speak to any former employees of the PMPRB?

Mr. Ronald Campbell (Director, Audit Operations Branch, Office of the Auditor General of Canada): I don't believe so, no.

Mr. Dan McTeague: My final question deals with the question of R and D. Some time ago, as I was just explaining to my colleague, Bob, research and development as a component was not necessarily seen as research and development as a layman might understand it.

Dr. Elgie, perhaps you could clarify this. What constitutes PMPRB's definition of research and development? Can you tell this committee specifically that it does not include advertising, that it does not include picking up clerical staff to inform people or picking up customer relations people, that it does not include people who go from pharmacy to pharmacy selling a product?

Dr. Robert Elgie: I can tell you precisely what is not included, and it's on page 28 of the last report. It does not include market research; sales promotions; quality control or routine testing of materials; devices or products; or routine collection data. None of that is included in R and D.

Mr. Dan McTeague: Is that something you demand of the pharmaceutical companies when they submit a statement of what their total R and D is? Is that voluntary, or do you actually investigate that?

Mr. Wayne Critchley: As the Auditor General has noted, the investigation, as you put it, is limited to a certain extent.

First of all, the information is filed pursuant to regulations, and the regulations define research and development, as Mrs. Barrados has explained, as those definitions stood under the Income Tax Act in 1987. Presumably the intention was so that Parliament could see if the drug industry was living up to its commitments made in 1987.

Mr. Dan McTeague: What if I were to live up to my commitment by simply saying yes, and under R and D, I included several things that have been specifically prescribed, and there's no method by which that can be reviewed or policed? My direct question to you again is, do you gentlemen in the PMPRB review that? Do you actually check to see whether the data from the pharmaceutical company is correct, or whether they're inflating their numbers by simply putting money elsewhere, which is really not research and development after all?

Mr. Wayne Critchley: The information that is filed is reviewed by the officers on staff in relation to previous filings and in relation to their knowledge of the industry. They don't go out and search the premises to verify submissions, but if a company made a submission saying, “This is a promotional expenditure that we're filing as R and D”, that would not be permitted.

So they question the information that's submitted, they check it, and in effect—

Mr. Dan McTeague: It is checked?

Mr. Wayne Critchley: Subject to the caveats that—

Mr. Dan McTeague: For commercial interests, I understand.

Mr. Wayne Critchley: —are properly raised. They're not audited statements.

The only other thing I can offer to help on this, Mr. McTeague, is that Health Canada and Industry Canada are often consulting with us, because they are often looking at the question of whether the definition should be expanded. So they're often asking us the same questions, because we know they often get a lot of questions about the definitions being restrictive. I can't really go much further than that.

Mr. Dan McTeague: Yes, there's quite a divide between the proprietary interests of the pharmaceutical companies and the interests of those who really want to see that the obligations are being met. Proprietary perspectives and privileges are the whole reason we wound up with this very important issue, and you're only one part of it.

I thank all of you for those answers.

The Chair: Madam Wasylycia-Leis, is there something he left out that you want to challenge?

Ms. Judy Wasylycia-Leis: I could use another couple of hours, if we have the time.

The Chair: Let's try a couple of minutes first.

Ms. Judy Wasylycia-Leis: All right.

First of all, with respect to research and development, the Auditor General, as Dan McTeague has addressed, raised a very important point around the tendency on the part of the board to rely on information from the companies themselves, the patentees themselves, when assessing whether or not the industry has met its commitment to increase research and development spending in this country.

• 1035

That raises all kinds of questions about what percentage is actually going into research and development and how we can determine what level, if our information is only coming from the patentees themselves.

What are the plans on the part of the PMPRB to do a better job of finding out exactly what research and development is happening in real and innovative ways?

Dr. Robert Elgie: The Auditor General, as you know, has suggested that we receive audited material. I don't know that it's within our jurisdiction to require that, but I don't want any impression left that we don't have the same goal as the public and this committee, which is to have accurate information, the best we can do.

If other things need to be done to help us, then we'll see what we can do ourselves. If we need help from other agencies, such as the Ministry of Health, then I guess we'll have to talk to them about it.

But let me emphasize again that we've never had a complaint identifying one occasion where false information has been filed with us. If there were, we'd pursue it. I think that should be very clear to everybody.

We're not in anybody's pocket; let's go back to that little bit again.

Ms. Judy Wasylycia-Leis: To Maria Barrados, are you satisfied with that answer in response to your observations around research and development spending?

Ms. Maria Barrados: Yes. We also raised the question of whether it continues to be necessary for the board to do this. That's a question that could be asked.

If there were an interest to pursue it in a major way, there could be requests for a lot more information, a lot of detail, that people on the board would analyse. But in our minds, there's a question of cost efficiency here, because it's a small board, and the priority is in the work on the pricing of the drugs. So we didn't put any information in the report along those lines.

Ms. Judy Wasylycia-Leis: So what you're saying again is that there's a gap here in important work that must be done by the government—it's not necessarily the responsibility of the PMPRB, but it certainly is the responsibility of the government—and that we in fact should be holding the government accountable for providing us with an accurate assessment of what is really happening in research and development spending, particularly given the commitments made when the changes to the patent protection law were put into place.

Ms. Maria Barrados: I would probably use somewhat different words, but clearly the government, through bringing legislation to Parliament, identified research and development as an area of importance, because it's their legislative requirement. Our observations are about how easy it is and how efficient it is to meet this requirement.

Ms. Judy Wasylycia-Leis: Could you explain that last statement once more?

Ms. Maria Barrados: The requirement is on the table, and now the board is being asked to do a kind of reporting that we question how easy it is for them to do, given that the requirement is tied to a 1987 piece of legislation.

The board gets information that is not in a great deal of detail and that isn't verified, but one has to wonder if it should be the priority of the board to get all that detailed information and to take some of its resources and go into the analysis of that information. That's why we were fairly silent on that and suggested rather that the need to do all this be looked at.

As it stands, they are required to do it.

Ms. Judy Wasylycia-Leis: I'd like to ask Dr. Elgie a couple of questions.

At the outset, when we began the dialogue, you said you hoped we could put to rest the idea that the pharmaceutical industry's interests take precedence over the public interest. I would suggest to you—

The Chair: Where the PMPRB is concerned.

Ms. Judy Wasylycia-Leis: Yes, pertaining to the PMPRB.

I would suggest to you that the Auditor General's report doesn't give any cause for comfort, that it has some very serious critical observations that certainly feed that public perception of the pharmaceutical industry setting the agenda.

• 1040

If you add up the major concerns that the board relies on data from companies when it's verifying the regulations around drug pricing and that there's an absence of accountability and transparency, and when you include in that the questions about R and D—although we've had some clarification around that issue—it paints a fairly negative picture of the PMPRB specifically, but the government generally, with respect to a sound public policy that operates in the best interests of the public good and ensures that we have the lowest possible drug prices available for meeting the needs of Canadians.

Dr. Robert Elgie: I can't speak for the government, but let me just say I don't know of any statute that says “the lowest prices for Canadians”. What the statute says is “non-excessive prices”.

One should not cater to unwarranted suspicions that one hears in the streets. I've already said that yes, the data we received on R and D, based on 1987 income tax laws, may have some differences from the data they're required to submit today under the present Income Tax Act.

However, the Pharmaceutical Manufacturers Association does submit each year an audited statement of the R and D dollars that are spent according to the current Income Tax Act, and there's not that much difference between the two. They're usually a little higher in their R and D expenditures than we are recording, based on 1987 data. So I don't think there's any reason to go around the corner saying somebody is sneaking something by.

If there's a need to have an audited statement given to us, then that's something the government would have to deal with through the regulations. But I don't have any suspicions in my mind that anything improper is going on or that the best information we can obtain out of the powers we have isn't being obtained by us.

The Chair: Madam Minna.

Ms. Maria Minna: Thank you.

Dr. Elgie, I wanted to look at your road map. On page 22 you talk about the fact that patented drug sales have gone up by about 23%, largely due to the new drugs introduced in the last decade—at least that's what it says here.

Dr. Robert Elgie: Well, it's through utilization of drugs and some new drugs added.

Ms. Maria Minna: Yes, and some new drugs.

It says new drugs introduced in the last decade represent 89% of all the sales of patented drugs. That's a fairly large percentage. Does your office track all of these new drugs that have come on the market in the last decade as to how long they're on the market before prices start coming down, or if they stay high? Because if it's a new drug, you don't have a comparison necessarily, which you do when you look at the U.S. or anywhere else. With a new drug, generally the price tends to be high, as we've noticed before.

So are all these drugs tracked to see how many there actually are and at what point they start coming down? Or do they stay high? Most of them are going to stay high for, say, 20 years, until the drug patent expires. Does that raise the overall price level of the new drugs for a long period of time as we go forward?

I'm looking at the floor, and there's the old floor for the old drugs, which is fine, but we have all these new drugs from the last decade, which have raised the floor, because they're new. How long will they stay high? Is it for 20 years? Is there a tracking of any of these drugs? I'm just trying to see, because the floor of the prices affects the prices overall in the long term.

Dr. Robert Elgie: We tracked a number of new drug entries into the system and the diminution of the number of old drugs that are in the system. But in terms of specific tracking of drugs, are you aware of anything that's going on that I'm not?

Mr. Wayne Critchley: No, we're not doing anything at the moment, although it might be an interesting line of research. Traditionally, though, those prices would not go down. Typically, and certainly in all the economic literature, the price of the brand-name drug does not usually go down; it usually will continue to increase, even after the entry of generic competition. So when there's a generic version of the drug on the market, consumers benefit because they have a lower-priced alternative, so they get that medicine at a lower price, but the brand-name drug will often stay at the same price.

Ms. Maria Minna: But there's an alternative.

Mr. Wayne Critchley: There's an alternative; that's right.

Ms. Maria Minna: That's what I'm saying. Because of the change in the life of the patented drug, which gives it a life of 20 years, does that not raise the overall floor of drug prices, all the new drugs? You're saying they're likely not to come down.

• 1045

Mr. Wayne Critchley: Not the brand-name price, but it certainly delays the entry of the lower-cost generic; there's no question about that.

Ms. Maria Minna: Which affects the overall cost of drugs, because for 20 years the brand-name drugs are guaranteed a life.

Mr. Wayne Critchley: Indeed.

Dr. Robert Elgie: It takes them quite a while to go through the approval process and so forth, so it's not quite 20 years.

Ms. Maria Minna: Pardon?

Dr. Robert Elgie: It's not truly 20 years. They do have to go through an approval process, they have to go through research—

Ms. Maria Minna: From the time of patent, I guess.

Dr. Robert Elgie: No, from the time of filing.

Ms. Maria Minna: Filing, right.

Dr. Robert Elgie: It's from the time of filing the patent. When they get the notice of compliance and therefore can start selling the drug may be many years down the road or a few years down the road, depending on the product.

Ms. Maria Minna: I wondered if there was any tracking of any of the new drugs introduced to see if any of them at some point do start coming down, even though they're patented.

Dr. Robert Elgie: That's an interesting thought.

Ms. Maria Minna: After they've been on the market for, I don't know, 10 years, maybe they're not as—

Dr. Robert Elgie: We'll give it some thought.

Ms. Maria Minna: It would be interesting to see if there are any fluctuations at all, or if they just stay at the level they are introduced at.

Dr. Robert Elgie: Thank you.

The Chair: I know Judy wants to get one last statement in.

Dr. Robert Elgie: Don't say “kick at the cat”.

Voices: Oh, oh!

The Chair: Just before I turn to her, I want to ask a question that's been raised several times already. I raised it earlier on.

Maybe I haven't read this thoroughly enough, but I know in the previous report, you gave an indication of the outcomes of investment in research and development, and you made a comparison of the number of breakthrough drugs, true innovation, being produced in Canada and in other countries. I didn't see that comparison in this report. Is there a reason for that?

Dr. Robert Elgie: If you'll recall, we did an international R and D comparison study, and that's where the table you're talking about was present.

The Chair: Right, but you didn't do it in this one?

Dr. Robert Elgie: No, we haven't put it in the annual report yet.

The Chair: Okay. I raised this question with you before, because if those things... My colleagues have asked you questions about the relationship between R and D investment and the reference point, the reference point being the 1987 Income Tax Act, and what's allowed there is essentially what's counted.

There's another reference point, and that is what the intended outcome was supposed to be. The intended outcome was to be the development of research and development facilities in this country that would justify whatever prices were.

You were quite right in pointing out that the regulations in the act are looking for non-excessively priced product, not necessarily the lowest price. But in return for that, we were trying to develop, collectively, a policy framework and an environment where this industry would be nurtured.

In that last report—and this is why I found it instructive—you pointed out that Canada had three breakthrough drugs since I think it was 1976, so a 20-year period in your last report. That ranked it dead last amongst all of the industrialized countries—dead last. The next closest was either Luxembourg or Belgium—I'm not sure which—with about nine or 10 such drugs. I'm wondering whether you can go back to that particular table and that particular comparison, because it adds a dimension.

I'm rambling a little bit, but let me digress. You've borne some pretty hard-hitting questions this morning, and I compliment you on that, but one of the reasons is that members around the table and elsewhere want to see a proper fit, a proper mix. And it's not just health issues; they are industry issues. You saw some of those when that industry committee did the review. The issue was what you get for your money, and that's at the base of virtually everything. I'm wondering whether you can go back to that and, in your next report perhaps, give us an update.

Dr. Robert Elgie: Yes, it's doable. It means we have to look at the other countries.

You don't go to these pharmaceutical meetings, but you'll know that one of the criticisms that's always levelled against us by industry is that we don't accurately report the levels of R and D. They would insist that R and D expenditures are really something closer to 16% of revenues, because there are biotech companies in this country that are working on research and development, but since they don't have products they sell, they don't come within our mandate.

• 1050

The Chair: That's a fair observation.

Dr. Robert Elgie: That's the argument I get whenever I go. My response is that we compared the data to data that was submitted to the Centre for Medicines Research in the U.K., and they take the same approach to it that we do: they segregate out those biotech companies that don't sell products. So we tried to compare apples to apples, and I think it's an unfair criticism.

But can we look at putting something in the next annual report? We'll certainly explore that seriously.

The Chair: Thank you very much.

Judy, you may be the last one to speak. We've gone on for a while. Go ahead.

Ms. Judy Wasylycia-Leis: I'll come back to two earlier discussions we've had, the first one pertaining to the whole question of the perceived influence of the pharmaceutical industry.

I wasn't today trying to suggest that there was any deliberate collusion or improper conduct. What I'm suggesting, based on and supported, I think, by the Auditor General's report, is that through the absence of proactive measures on the part of government and its agencies, we are letting the pharmaceutical industry set the agenda and regulate prices according to its own needs.

I haven't received many assurances today to counter these serious observations or to lead me to believe that in fact we have this capacity within government to hold the pharmaceutical industry accountable and to assure Canadians—it may not be in legislation, but to assure Canadians—that we are trying to achieve the lowest possible drug prices so that we're not burdening Canadians with excess costs, which many Canadians increasingly claim they cannot afford. That's one question I'd like to further follow up.

The other question, in fact my very first question, was on the role of committees. I'm not suggesting the work today hasn't been constructive. I'm talking about previous committees' work, where we do in-depth studies and there's little evidence of follow-up and things just drag on and on. We aren't finding a way to hold government accountable on those issues.

The one I'm referencing today is the question of the industry committee's clear recommendation back in April 1997 to have a review and strengthening of the role of the Patented Medicine Prices Review Board. I don't think that's been accomplished by the PMPRB going out and having a set of meetings across this country. There has to be some independent approach to this whole matter.

So my question is to Dr. Elgie. Does he feel that consultation process has met the committee's recommendation for a review of the mandate?

And to Maria Barrados, would it be your assessment—and I know it's going a bit beyond your role—that the committee's recommendation for that kind of review of the mandate has not in fact been met and we need to do more work in that regard?

The Chair: I'm not sure, in fairness to our witnesses, whether they can make comments on some of those questions that are decidedly on this side of the table, but certainly I hope they weigh in on those issues that relate specifically to the PMPRB and its function and the Auditor General's assessment of what they were asked to do, pursuant to the recommendations referred to in 1997.

Dr. Robert Elgie: I don't want to get into commenting on a recommendation that the standing committee made to government, not to the board, with respect to broadening and strengthening its mandate. Clearly we heard a lot of things about that as we travelled across the country, and those comments have been provided to the government. If they wish any assistance from us in any review, we're pleased to be available.

• 1055

I have a sense that you're a little critical of the consultation process. What we're going through and what we have to understand is what the administrative tribunals would call a rule-making process. If you're going to change your rules or make alterations to your guidelines, which is the same thing, then you have to go through a consultation process that tells what you're doing now, what you think you should be doing, and what you propose to do as a result of the whole process. Then you have to say, “Tell us why we shouldn't do it.”

That's what's called a rule-making process and that's what gives import and strength to the guidelines you ultimately end up with. That's the process I'm involved in. I've been involved in that process before, because you have to have a sound base before you get into a rule-making process. I'm sorry that you're critical of it, because it's been a very effective way of trying to reach out to people and get their thoughts on a number of issues.

If you examine our research agenda, you'll see very clearly that we're looking at substantive issues. We're asking a stakeholders' working group to meet with us. We'll have representatives on it, the provinces will have representatives on it, and we'll have a representative of the Human Drug Advisory Panel on it to look at these very difficult issues. That's action. That's movement. That's in line with good rule-making procedures.

The Chair: Thank you, Dr. Elgie.

Maria Barrados, would you like to make a closing comment?

Ms. Maria Barrados: I would like to reiterate that my office tries to do everything it can to serve Parliament and to be of assistance to committees, and we will continue to do that.

As for the question by the member as to whether there is sufficient response to the recommendations, clearly the audit was a direct response to a committee recommendation. The consultation process the PMPRB is going through now is also a response to the committee's recommendations.

This is in process and is evolving. There is still a question of what's next, and that's a fair question. We haven't seen the specifics of what's next and what the specific milestones are with what's next, but I expect that to come.

The Chair: On behalf of the committee, I have to thank you, first of all, for your fortitude and patience in answering some very direct questions. In my limited experience on this Hill, the questions have not always been as direct and importunate, and I didn't interrupt them. Some of them even came close to crossing the line of, I suppose, courtesy, but I appreciate that you were willing to answer every single question. I can assure you those answers will help the committee in its deliberations as it decides what its role might be in the next step of the process that's ongoing.

Dr. Elgie and Mr. Critchley, thank you very much.

Maria Barrados and Ronald Campbell, thanks a lot.

I'm sure we'll call all four of you again.

I'm going to ask colleagues to stay behind for a few minutes. I'll adjourn for about five minutes and then we'll come back and tidy up some business.

[Proceedings continue in camera]