Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue 63 - Evidence
OTTAWA, Thursday, June 13, 2002
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 9:09 a.m. to examine the state of the health care system in Canada
Senator Michael Kirby (Chairman) in the Chair.
[English]
The Chairman: If we can begin, we are here to continue our study of the Canadian health care system, leading to our next report at the end of October, which will deal with costing and the need for new funds for the system from the federal government and how that money should be raised.
We have two panels this morning. The first will deal with university health care centres. We have another panel that will deal with issues related to the cost of catastrophic drugs and we will learn who is and who is not covered by drug plans in Canada.
Mr. Glenn Brimacombe, CEO, Association of Canadian Academic Health Care Organizations: The Association of Canadian Academic Health Care Organizations, ACAHO, appreciates the opportunity to make a significant and constructive contribution to the public discussion about the future of health care in Canada, and in particular the federal government's role in support of health and health care.
We would like to commend the work that this committee has done; the five volumes of detailed analyses are an important contribution in terms of framing the spectrum of policy issues and challenges we must consider.
As you may know, ACAHO represents more than 40 teaching centres and regional health authorities that have jurisdictional responsibilities for teaching institutions. Members range from single hospital organizations to multi-site, multi-dimensional regional facilities that provide clinical programs ranging from primary health care to highly specialized tertiary and quaternary services. The distinguishing characteristic of the association is that its members represent all of the principal teaching and health research sites for Canada's health care professionals. This includes the faculties of medicine and other faculties of health, and many colleges with technical and professionals in health, including physiotherapy and rehabilitation therapists, laboratory technicians, respiratory therapists, speech therapists and social workers.
The association was formerly known as the Association of Canadian Teaching Hospitals, and is over 50 years old. The name change reflects the different governance structures that come with the introduction of regionalized health care systems across the country, with the exception of Ontario.
While teaching centres appear to be relatively small in terms of numbers, it is important to keep in mind that our members have total health budgets in excess of $16 billion, of which more than 90 per cent is derived from the public sector. This means that approximately 50 per cent of public monies devoted to hospitals are allocated to teaching hospitals. Members of ACAHO account for almost one of every six dollars allocated to the health care system. In addition, we employ more than 150,000 Canadians across the country.
The mission mandate of ACAHO members is three-fold: first, to provide Canadians with timely access to quality specialized health services; second, to provide the settling where the next generation of Canada's health care professionals receive their hands-on education and training: and third, to be the engine of innovation through on-going health research, medical discovery and knowledge creation.
In the view of ACAHO, there are a number of important and multi-faceted roles teaching centres play when it comes to funding organization, management and delivery of health care. No other organization in the health care system provides the unique combination of services that teaching centres are responsible for.
ACAHO is concerned that Canadians will continue to experience difficulties in accessing timely quality health care services delivered by teaching centres. ACAHO holds the view that our member institutions are essential to the health care system and can make an important and constructive contribution to the public dialogue on the future of health care in Canada.
Our members serve not only local and community health needs, but also respond to regional, provincial, inter- provincial and territorial requirements. ACAHO members agree with those who define our role as a national resource in the system.
The document circulated to you is entitled ``Achieving Excellence and Supporting Innovation In Meeting The Health Care Needs of Canadians: The Role of the Federal Government in Funding a National Teaching Centre Health Infrastructure Fund.''
The proposal focuses on the critical need to have the necessary infrastructure in place to allow teaching the centres to continue to strive for excellence in all that it does, while improving the responsiveness and flexibility of the system to meet the changing health care needs of Canadians. The proposal identifies where synergies between teaching centres and the federal government could be nurtured and would contribute to re-establishing the federal government's leadership role when it comes to the future of health care in Canada.
The one word that has captured the policy discussions concerning the future of the health care is ``sustainability.'' While the term is most frequently used in the context of less than satisfactory levels of public funding for health care and the ability of governments to fund future increases, it is essential that we recognize that sustainability also reflects other critical dimensions of the system. The physical infrastructure, the dissemination of new technologies and, perhaps most importantly, concerns about the future supply, distribution and mix of health human resources across the country are important dimensions of the system as well. This also applies to our collective ability to generate new knowledge and to innovate.
ACAHO recognizes that the issue of sustainability is not about money or system structure, but is a combination of both elements that impact on the ability of Canadians to access quality health care services within a reasonable time- frame.
While there is an urgent need to review how we design the system architecture we do not have the sole option of reorganizing ourselves out of the current set of policy circumstances. Governments at all levels must be prepared to make strategic long-term financial commitments that will not only stabilize the system in terms of meeting the health care needs of Canadians today, but will give the system the flexibility to adapt to future demands.
The proposal to establish a national teaching centre health infrastructure fund is predicated on the basis that teaching centres are a de facto national resource.
While the breadth and depth of health care services housed within Canada's teaching centres are fully accessible by a local community or region, the fact is their mission and mandate extends their catchment areas to other communities or regions, and across provinces and territories.
Teaching centres are where the large majority of breakthroughs in health research benefit Canadians in terms of maintaining, enhancing or restoring their health status. The centres introduce new and more cost effective ways to deliver care and contribute to the advancement of science and medical discovery. Teaching centres are devoted to excellence in everything they do and have an important relationship to the health of Canadians.
The points above illustrate the reality that teaching centres are not only a local, regional, and provincial and territorial resource, but are an inter-provincial, territorial or national resource that has the competency and capacity to address a broad range of health care needs.
If one accepts the trinity of patient care, education and health research that defines the mission and mandate of teaching centres, then the logic should follow that teaching centres must be recognized as a national resource.
``What role is there for the federal government to address the national roles and responsibilities of teaching centres?'' ``How can governments nurture and support the role of teaching centres in a system that is experiencing profound change?'' ``How would the designation of teaching centres as a national resource allow the federal government, in close collaboration with the provinces and territories, to support continued access to health care services, and the training of health care professionals and researchers?''
ACAHO supports the view that teaching centres should continue to receive a large proportion of their funding from the public sector. That funding will ensure that patients have ready access to highly specialized quality health care services in times of need. Funding will minimize financial barriers to education and training. Further, knowledge creation and its contribution to medical discovery and innovation will be strongly supported.
ACAHO recommends that the federal government, in collaboration with the provinces and territories, teaching centres, and regional health authorities, establish a national teaching centre health infrastructure fund. This reinforces the view that there is an important and strategic role for the federal government to be a direct contributor in assisting teaching centres in continuing to evolve and fulfil their mandate.
ACAHO views the proposed contribution by the federal government to be a catalyst in accelerating system renewal, and innovation at all levels. In term of improved access to cost-effective health care services the ultimate beneficiary will be the Canadian public. The fund, which would be time-limited and targeted by nature, would focus on conditional investments in the infrastructure of teaching centres, specifically, health human resources, medical technologies, health information technology, and physical and capital requirements. All of these are essential inputs that contribute to the delivery of quality health care services to Canadians.
The fund would assist teaching centres in renewing their capacity to provide Canadians with timely access to quality health care services. It would develop the physical capacity required to train future health care professionals. It would replenish our investment in proven medical technologies. The fund would re-vitalize our ability to introduce new health information capabilities that promote system efficiencies, cost effective clinical and administrative decision-making, and ongoing health research. It would also ensure that there is adequate physical infrastructure and capital investment in the system.
Such a fund would require teaching centres to develop a strategic and cohesive approach as to how new resources should be allocated. It should be based on a renewed vision of how this national resource could be reconfigured into more cost effective partnerships that support a complementary rather than competitive approach.
The recommendation also emphasizes the important role that teaching centres play in terms of offering proactive and creative solutions that seek to improve the overall structure of the health care system and have a positive impact on Canadian's access to care.
This would not be the first time that the federal government has established a time-limited-targeted fund to promote excellence and innovation in the health care system. I am referring to the Hospital Construction Grants Program of 1948, the Health Resources Fund in 1965, the Health Transition Fund in 1997 and the First Ministers' Agreement in 2000.
We are in the preliminary stages of considering the cost implications of this proposal. Based on our initial analysis, we believe that such a fund would require a minimum investment of $3 billion within a multi-year funding framework. Understanding the focus of the next volume of work by the Standing Senate Committee on Social Affairs, Science and Technology, ACAHO is more than prepared to work closely with the committee to get a better handle on the cost implications.
In the view of ACAHO, the proposal to create a national teaching centre health infrastructure find is about looking to the future and assuring that there is an adequate infrastructure to meet the changing health care needs of Canadian. It is also about the need for federal leadership and the important synergies that can be nurtured between the teaching centres and the federal government, which are both focused on excellence and innovation in health care that would be of benefit to Canadians in times of need.
As a result of this proposal, ACAHO would highlight some of its important public policy benefits. The federal government would continue to re-establish its leadership role by directly contributing to programs that are designed to provide Canadians with timely access to quality health care.
Resources allocated to national teaching institutions supports excellence promotes innovation at all levels of their mission and mandate. The fund would be an important driver of improving overall system efficiency, cost effectiveness and integration. It reinforces financial accountability in terms of linking federal resources with its intended national uses. It would provide teaching centres with time-limited and strategically targeted funding with the flexibility to allocate the funds in defined areas based an their individual requirements.
This proposal is not unique; there is precedence in terms of the federal government making targeted funds available for health system infrastructure requirements.
We hope that this proposal is of value to the committee. ACAHO looks forward to being an active and constructive partner in the national dialogue about the federal government's role in health care.
The Chairman: You will be working on getting a handle on the costs. We would like to have that ``better handle'' from you, if we could, by the middle of July.
Mr. Brimacombe: That is possible.
The Chairman: You talk about ``time-limited.'' You talk about two year, five years, 10 years. Have you any sense of the length of the time frame?
Mr. Brimacombe: At this stage, we have been thinking about a three-year fund.
The Chairman: You mentioned $3 billion; one billion a year for three years.
The precedents are fascinating. There was the Hospital Construction Grants Program of 1948, and the Health Resources Fund, which led to the establishment of new medical schools across the country. The Health Transition Fund was also very targeted. The First Ministers' Agreement is not targeted. It increased the amount of money through the CHST, other than the $1 billion dollars, which in theory, was supposed to go into technology.
How would the provinces react to targeted funds, instead of increasing funds transferred through a block-funding program? These funds would be transferred for explicit purposes and would be subject to a federal accountability mechanism to track how the money is being spent.
Dr. Hugh Scott, Executive Director, McGill University Health Centre: I have worked in the Province of Québec and that is a province that does have a tradition of some concern about jurisdiction.
I do not think that there would be a problem for the Quebec authorities as long as they would be involved in the individual distributions.
The only time that there has been a problem has been when the decision to put money into a particular place has been made outside of Quebec. The model seems to have worked well for the Canadian Foundation for Innovation. In their case there is a preliminary screening.
I am sure the initial response would be ``Send the money, and we will look after it.'' However, the second response would be as long as there is a process in which —
The Chairman: Both sides can agree on the funding.
Dr. Scott: Exactly. I do not think that would be a problem.
The Chairman: You have had experience with the Canadian Foundation for Innovation and their process, which is essentially a joint decision-making process, has worked well.
Dr. Scott: We think it has worked very well. We have been beneficiaries, and that is why we think it has worked so well.
The Chairman: From your perspective, has it worked well from the government's point of view?
Dr. Scott: Yes. We must remember that it has required not only cooperation in the selection but also a matching approach, which would not be necessarily antithetical to what we are proposing today.
The Québec government has not only had to agree that a project is worthy, but in most instances they match the federal contribution. Therefore, it has been an important process in that respect as well.
Senator LeBreton: You referred to $3 billion and a three-year fund. How this would be administered between the various jurisdictions?
In Atlantic Canada the teaching hospitals feel that they are left out because of stiff competition. McMaster University feels that it has been left out. How would the funds be administered? This is a broad question, but I think it is something that needs to be put on the record.
Mr. Brimacombe: We have not reached that level of detail yet. There are a number of different models that could be implemented. We want it to be transparent, accountable and evidence-based. Organizations would be making application for funding in the four areas that we underlined underneath the name of the fund. The fund does have four pillars.
There are a number of different ways with respect to how you can mix and match the model. For instance, the money could be given to the provinces and they would parcel it out on a business case, or the federal government could fund the provincial teaching centres. There are combinations of decision makers.
At this point it would be premature to give you a definitive sense of how the model should be configured. That would be a product based on recommendations and consultations with other key funding partners, particularly the provinces. There would have to be agreements as to how the money would flow.
Senator Kirby correctly referred to the First Ministers' Agreement as following the model of national allocation. We referred to that agreement because of the segmentation in it that makes reference to primary care, medical equipment, and health information technology.
The Chairman: Do you agree that is somewhat different than the specific allocations of the other agreement?
Mr. Brimacombe: It is just taking that principle of recognizing the fact that you are trying to allocate precise amounts of money to specific areas of requirements, in terms of making the system function more effectively.
Other than just giving you some principles upon which it could be based, we are open to looking at different approaches. I think there are a number of different ways in which the model could effectively function.
Senator LeBreton: If money is parcelled out to the provinces and territories, does not the federal government then lose control? Are you suggesting a model that is controlled by, and accountable to, the federal government?
We have examples where there has been no accountability for blocks of funds sent to various provinces and territories and do not know whether the money ended up where it was supposed to end up.
In a perfect world, would you have a preference, or is that an unfair question at this time?
Mr. Brimacombe: At this time, it is slightly unfair. I can say that, based on the overall implied merit of the recommendation, we are looking at a collaborative model. One model that has been used, is the Health Transition Fund established in 1997. I had some experience working within that fund when I was with Health Canada. It was a recognized federal fund with, bottom-up involvement and decision-making with the provinces. In many respects, it was collaborative. You can argue about the relative share, but I think it is fair to say there was a majority shareholder role vis-à-vis the federal government, not only in terms of funding it at $150 million, but in terms of the overall working of the fund and the apportionment of the monies in the four defined in that fund.
The Chairman: Could you explain how decisions were made about the allocation of that $150 million?
Mr. Brimacombe: A joint committee of federal, provincial and territorial government representatives looked at the submissions that were presented. It was through a process of discussion and through looking at the merits of each proposal that monies would flow. Decisions were based on the need of home care, pharmacare, primary care, and integrated delivery systems.
The Chairman: Therefore, it was, a joint federal-provincial decision.
Mr. Brimacombe: Yes, it was a collaborative mechanism.
Senator Fairbairn: In your concept of this $3 billion, are you focusing solely on existing centres? Is there any indication in your proposal for the development of a new centre or other facility specifically focused on health issues that are not being covered by other institutions?
Mr. Brimacombe: If there were other centres of excellence that were to be developed that clearly would fall within the purview of the needs of the fund, I think that needs to be looked at.
The complementary point I wish to raise is that the fund is intended to focus on specific areas in the system. The fund, which is not meant to be competitive, would be complementary to broader initiatives. We have had questions from others concerning that issue. If there were another fund in this area focusing the federal government's role and investments within teaching centres, would it lead to the exclusion of all others in the system? The answer is: absolutely not.
Senator Cordy: What do you define as a ``centre of excellence?''
The Chairman: I should mention that the plane has landed. Mr. Jeffrey Lozon, President and Chief Executive Officer at St. Michael's Hospital, has joined us.
Dr. Scott: The centre of excellence can range from evident high-tech to excellence in rural medicine. I am sure it is not intended to be just ``high-tech,'' but rather it is to work with the teaching hospital. We are academic centres. We are involved in teaching, research and health care. As the presentation indicates, we would like to think that we are maintaining high standards in all three areas. Our immediate past president will indicate just how widespread we are across the country. We like to see ourselves as a national resource.
It is interesting that people sometimes try to suggest that we should be less a national resource. People tend to do follow-up studies of graduates of medical schools in province ``A'' and deem it extraordinary that ``X'' per cent of those graduates end up working in province ``B.'' Being a national resource, that is hoped for and expected. Not only is it desirable to have the federal government involved, but it is also to be expected because we are national resources. Sometimes we are almost pushed into positions of trying to hide that because of these kinds of things. We do not think there is anything to hide. Rather, we want to be national resources and fully rejoice in the role.
Senator Cordy: Are centres of excellence facilities or groups that have specializations in certain areas? Is the definition much broader than that?
Mr. Jeffrey Lozon, President and CEO, St. Michael's Hospital: A centre of excellence is clearly a place where you would like to send a family member to receive care that is provided with the quality and quantity sufficient to ensure that outcomes meet the expectations. A centre of excellence should be measured, to some extent, by the quality of the patient outcome.
A centre of excellence may also be a place where other organizations or other health care professionals come for foundational education, continuing education, or educational refreshment. A centre of excellence could also be a place where new and innovative processes for the delivery of care and the communication of care could be experimented on. A good example is telehealth. A centre of excellence approach would require some differentiation amongst the various teaching centres across the country. A centre of excellence at Dalhousie and its associated teaching hospitals may be quite different from one associated with McGill or with the University of British Columbia or with the University of Toronto. Those are a few examples of what a centre of excellence would be.
Senator Robertson: Considering our population spread and looking at the national resource you have emphasized in speaking of centres of excellence, do you feel that your hospitals could be doing more to serve all the population? Do you believe they are being sufficiently utilized, or do you see a more national profile for various centres of excellence, depending upon what that excellence might be?
Dr. Scott: I am sure we could do more. In some cases, we run into conflicting visions where there is a great desire for excellence to be transmitted into the regions. Is it better to localize cardiac surgery of all kinds in a certain limited number of centres, or should everybody be able to get cardiac surgery within five minutes of their house?
That is a rather extreme position. I do not think anybody supports it. I think you understand where I am going with this. There is dialectic within our country as to whether we should focus, be excellent and ensure that it is then made available to all the citizens, or should we move that out into the community?
That is a dilemma where, in the Canadian way, the answer is somewhere between the two. On some occasions we are being urged to move out from our centres certain things into the community. We are doing that all the time. I think that is also a natural ebb and flow. Certain excellence is developed in the centre, and one of the challenges is to not hold on to it forever. I think all of us have had that experience.
The centre that I represent was fundamental in developing neurosurgery in this country, but neurosurgery is widely spread, thank goodness, across the country. To say it should forever stay concentrated at the Montreal Neurological Hospital would have been very short sighted. It should be developed, as Mr. Lozon said, and then moved outside.
Senator Robertson: If we look at the country, taking out the large centres, such as Toronto, Montreal, Calgary and Vancouver, is it realistic to expect that one would get the quality of care that you have extended to the smaller communities? Do you think you can get the same quality of care as you can in the centres?
Would it be better for the patient to travel farther for a standard of excellence than to worry about the quality of care he would receive in his own community?
Mr. Lozon: It is one of the trade-offs that has to be managed in the overall management of the system.
We know that if you do more of things, you actually become better at them. I presume there is a maximum beyond which if you go you are doing too much and you are not as open as you could be. We do know that if you do more, you are a little bit more expert at it. There are many studies conducted by the Institute for Clinical Evaluative Sciences, associated with the University of Toronto, that amply demonstrate this. The political dilemma is to what extent do people want to do that? To what extent do they want to travel for that activity versus feeling somewhat vulnerable not having it in their own community?
I think that some provinces have already taken those steps, notwithstanding the most recent example that is here in this particular region. Just look at the province of Saskatchewan where they had that debate in the early 1990s. When they closed the rural hospitals, people said that the quality of the service would diminish and that the quality of health care outcomes would be adversely affected. On that particular question where you stand depends on where you sit. Some people may feel that has, in fact, occurred. I no doubt agree that in isolated examples it may have. On the other hand, there may be a very strong rationale to have individuals travel to centres of excellence, whether they are teaching hospitals or organizations that have developed a set of expertise.
It is a trade-off. There is no right or wrong answer to that dichotomy.
The Chairman: You mentioned that you need to do a certain amount to be sufficiently proficient, and it makes sense to have centres of excellence. I am trying to get a sense of the number. For example, I would not want a heart bypass done by someone who performed only one procedure a year. What is a reasonable critical mass to get to the point where one feels confident that the level of expertise is there? Does it vary by procedure?
Mr. Lozon: Yes, it definitely varies by procedure. It may be different if you are doing a laparoscopic exam than if you are doing a cardiac surgical procedure or deliveries.
The Chairman: Can you give me a ballpark sense of the numbers you look at as being the critical mass?
Mr. Lozon: Cardiac surgery is an example that is often cited. Under 150 cardiac surgical procedures a year by a surgeon means that they are spending a lot of time outside the surgical theatre. In our organization we benchmark at 200. We expect a cardiac surgeon to do about 200 open-heart procedures a year. There are others here who are better qualified. I see Senator Keon is not here. He would probably have the numbers in precise terms.
Dr. Scott: The other aspect is the non-physician component. If we go into the obstetrical area, the number of births in a given centre is also considered in light of quality of care and efficiency of the operation. In other words, all of us must staff our labour and delivery rooms 24 hours a day, and the ideal situation would be to have a reasonable volume going through them, just in terms of cost per case. You have the efficacy that draws together the effectiveness of the procedure and the cost effectiveness of it.
We like to come back to the fact that we used to have teaching in our name and we have academic still in our name. Wherever this quality care is going on the people who are performing the work have been well-educated in our centres. Whether we decide to localize the care in our centre or whether it is in an area 200 miles from us, that individual cardiac surgeon or obstetrician should have been extremely well-educated in one of our centres. We should bear that responsibility, and we do, to be accountable for how well they do when they get out there.
Senator Robertson: I have always had a pastry example. If I make pastry once a month and you make pastry 30 times a month, your pastry will be better than mine. Those of us who live in small population areas worry about this fact. How do we get the quality of care that our people deserve? Perhaps there should be an education program so people will understand. That would make your outreach more acceptable.
I am not blaming you. However, there may be more that your centres of excellence and your teaching units could do to encourage confidence in people living in smaller populations.
Mr. Lozon: Perhaps the very best example of what can happen concerns the dialysis issue. At one time if you wanted to have kidney dialysis, you had to go to a major academic centre to be able to get the service. Now you can actually get kidney dialysis in your home. In the Province of Ontario, it is distributed broadly to a variety of centres. We think that is progress. It is done through the innovations and the hand-in-hand work between academic centres and public policy developments.
It is not as if every place will get everything. We need to be pragmatic about that. We think those are success stories that should be replicated. There may be other ways of doing it. Maybe you could do it by a diagnosis on a telehealth hook-up between Sioux Lookout and Kingston General Hospital, or something like that. That is the type of thing we are talking about. Some place must pioneer things and then they must be distributed. We feel that we have a role in the pioneering and in the assisting of the distribution.
Senator Robertson: You are doing a good job but there is a lot still to be done particularly in your outreach program. Since its inception, this committee has heard of different approaches used for financing hospitals in Canada. We have heard about line-by-line, global and population based financing. Which approach is the most appropriate mix for your special teaching hospitals, as I would want to call them?
Mr. Lozon: Senator, the most appropriate funding vehicle is the one that most closely aligns the accountability of the academic health sciences centre and its outputs in a fair funding system. Our centres are accountable for their output. However, it must be understood that our outputs are going to be, different than they would be in a community hospital or in a rural environment. They will be more complex. We have different levels of output: we have output around the knowledge that we create; and we have output around the numbers of students that are educated.
We would probably be uncomfortable with a one-size-fits-all funding formula that might suggest my hospital be as low cost as a hospital in Yorkton, Saskatchewan. The hospitals do different things and so the cost varies. We need to measure the things we do and we need to be held as accountable as the hospital in Yorkton. However, it is a more complicated endeavour than strictly counting up the dollars.
In the United States the academic health sciences centres have become financially constrained because, in the insurance environment, they pay for the low-cost provider. We are not low-cost providers because of what we do and the types of activities in our organizations. We are prepared to work toward the development of the right funding formulas so that we can be held accountable.
Senator Robertson: Are you saying that your hospitals should be funded in a differently than other hospitals?
Mr. Lozon: Yes, but not in a less accountable fashion. We are quite prepared to be accountable and quite prepared to be seen as either performing well or not performing well.
Dr. Scott: Mr. Chairman, if you want to put it in a formula, there has to be multiples. Any time we try to put cardiac surgery and psychotherapy in a magic formula there will be problems. When you add in a teaching environment and so on, you will have even more problems. I look forward to simplicity and elegance. I think sometimes multiple factors have to be taken into account. When we have the desire to have a single number that will answer and explain everything, that is when we get in trouble. As Mr. Lozon said, we can certainly look forward to full accountability. I think we would like to do more accountability. For some reason, sometimes people think we do not. We think we have a great story to tell and being accountable is an opportunity to tell that story.
Senator Pepin: I think the costs will be not only for the institution but also for the patient and his family. If the patient has to travel to get the needed surgery then the family must travel there as well. The family will incur expenses while staying in the city where the hospital is. If the patient needs post-operative care after being discharged he will incur expenses again. Some of those expenses may not be covered by insurance and we must educate the public to that fact.
[Translation]
Mr. Scott: You are quite right and we are in full agreement. It is necessary in the functioning of such a system. This kind of system has already been set up in the Northwest Territories where the problem is huge.
[English]
Senator Morin: You represent a huge organization with an annual budget of $16 billion. You are recommending a fund of $3 billion in a time-limited fund.
Some of this fund would help Canadians have timely access to quality health care. In your other document you mention that some of this fund would be used to assist your various centres have access to health care providers because you have problems with human resources. You maintain that health resources and infrastructure are most important.
If we transfer $3 billion, 75 per cent of your budget, into your human resources budget this will fall into a black hole. We may wake up and have extra staff for the CEO of the hospital. I am sure you are all short of staff. Everyone agrees we have a serious problem with manpower training, both for physicians and for nurses.
Representatives from the Canadian Nursing Association recently told us they were lacking 500 seats in nursing schools. The Deans of Medicine have told us the same thing.
Your mandate of research and innovation is one of the priorities of the government and we support you in that. We are talking of centres of excellence, and we are talking about the translation of knowledge into clinical guidelines. The teaching hospitals and the academic health centres have a responsibility in that regard.
It would be best to have a fund of that kind targeted toward the mandates that are specific to the needs of the country. In that way we could avoid the problem of the money disappearing into what you called access to quality health care. I am not saying it is not a problem, however, we are talking about $16 billion.
I have some objections to simply giving money in transfers to the provinces and to major teaching hospitals. We are still looking for the effect of the $20 billion that was given on September 2000. I am sure it was well spent, but there has not been a single new program established with that money.
We wish to see a specific effect from the money that the federal government is giving to your organization. It should be targeted and it should not be for service work.
Mr. Lozon: The fund is not an end, but a means to an end. Part of the committee's deliberation is to find the priorities.
If you would like a process whereby we have national self-sufficiency in health human resources, then it is possible to use a fund of this nature for increases in training opportunities and innovations in training techniques.
If you see access or care guarantee as a higher priority, then it would be quite easy. Ultimately these become prioritisation questions. We would be prepared to say we want to see access to cardiac surgery, or access to advanced neurosurgical techniques, in a certain period of time. Instead, we may prefer to link up the country in an information context, and we would be prepared to provide funding so these centres can do that on a telehealth basis, but we would see this fund as being a means, rather than the end in and of itself. We are prepared to be held accountable for how it is spent.
One key issue we have tried to articulate is that we believe it should be targeted and specific. Honourable senators will have to decide the target, we but can give you advice on that. It should be time limited, and tied to specific initiatives. For example, every one of our organizations are under substantial space constraints. Dr. Scott's McGill Medical Centre is seeing patients in facilities that are well over a century old. We in St. Michael's are in facilities that are almost a century old. There are easy ways to tie resources of this type to specific projects and timelines and so forth.
That would be our view as well. We are not asking for a large pot of slush money to do what we think is in the best interest of the health of Canadians. We are prepared to work with the funding agencies to determine where the money should be spent and spend it appropriately.
Senator Morin: I fully agree that access to health care delivery is a priority.
The issue is that your organization represents only 50 per cent of the hospital activities in this country. How do you improve health care delivery? I am not sure your organization has the monopoly on this, and we have to consider that. That is why I was thinking of the other mandates more than this one specifically.
Mr. Lozon: I agree. First of all, the reality is we cannot deliver improved access to all Canadians because we do not do everything for all Canadians. Where we could contribute to access is around tertiary and similar services. The more prudent course would be education and research, and, perhaps, some of the network technology opportunities that need to be developed.
Senator Morin: I fully agree with that.
The Chairman: Over the last three years there has been a 20 per cent to 25 per cent increase in the number of spaces at medical schools. Is that true with the medical schools related to your facilities?
Dr. Scott: All the medical schools are related to us, because there are only 16 and our membership is the teaching hospitals of those 16 schools.
The 20 per cent does not get us back to where we were in 1985, so we still have a ways to go.
A couple of other points about manpower education, I happen to be a physician and, I think medical schools are important. However, in the area of nurses, I have only become somewhat more aware of recently of the fact that, after graduation from nursing school, there is a post-graduation education period, as with any other industry. When a recently graduated nurse comes to work in our operating rooms, she is still on advanced training for another six months.
Quite understandably, once that training is complete, some of the community hospitals think that is a good place to get an operating room nurse, and I agree with that. There is a further education component, which is usually referred to as on the job training, and the other 50 per cent looks to the teaching hospitals for nurses. One of the reasons that teaching hospitals are ``expensive'' is because that is what is going on.
If one looks at health research in this country, the majority of it is going on in our buildings, it is associated with the University of Toronto and McGill. The fact is it is not just the researchers, it is their graduate students. We are the graduate school for much of health research.
We look to the future, and talk about manpower: Nurses, doctors and health care delivery professionals. However, as we become the society we want to be, one of research, those biomedical and biotechnology educated people are being educated in our buildings, and there is some ambiguity between the role of the universities and the hospitals.
The Chairman: I was appalled to discover that while there has been an increase in the number of physicians in medical schools, there has not been a corresponding increase in nursing schools.
Frankly, the evidence we have indicates that there is a much bigger problem in the shortage of nurses than there is of doctors. You do not have to agree with my second observation, but at least you agree that there has not been a corresponding increase in nursing schools?
Dr. Scott: I can only speak for the jurisdiction I am in. That is true in the Montreal area. I do not have the national figures.
Mr. Lozon: It is the same in Toronto.
Senator LeBreton: Dr. Scott made a comment that when nurses finish nursing school, they go into his facility. They have a period of training and perhaps very quickly move on to some other facility. How many nurses actually stay in our facility? Is it a constant flow-through to other facilities?
Dr. Scott: It is a constant flow-through. The challenge in nursing is an interesting one, because we are not only in competition with other hospitals but with other health care facilities. One of the challenges of working in hospitals such as ours is that it is three shifts a day and all three shifts are busy. There are other important services in the community where you can get nine to five work.
I feel like that too. I do not like working at three o'clock in the morning either. However, there is a challenge to maintaining a downtown Montreal trauma facility. The Hell's Angels have been quiet lately, but we expect that they will be back. That is a challenge.
The second challenge is that we are downtown. Most of our centres are downtown. It is expensive to live downtown. Most people would, perhaps for family reasons, like to live out in the communities.
My nursing staff turnover rate in the emergency room is 50 per cent a year. It is a happy place. It is not a morale problem. My operating room staff turnover rate is about 33 per cent. We are in the on-the-job training business big time.
Senator Robertson: You are involved with the training of health professionals and paraprofessionals. This committee will be faced with a small problem. Do you have time at all to define and talk about turf protection or flexibility in the professions?
Mr. Lozon: I will talk a little bit about that subject. My comments are made on my behalf and are not necessarily the opinion of the association.
One of the enormous strengths in our health care system is the quality of the professionals that work within it. They are enormously talented, dedicated and hard-working.
Over the course of the last 30 or 40 years, the knowledge base of each one of those professionals has deepened, broadened and become more robust. This has led to some strong protection of the specialization of each profession.
There is no question that people say: ``I do this, and you do that only.'' It exists in our institutions. It exists in spades in a primary health care environment, where nurse practitioners and family doctors are dancing around the ring thinking about who is going to do what.
There is a certain amount of turf protection. To some extent that becomes a barrier. This deepening professional knowledge and expertise that has made us so successful has become a barrier. We want to provide greater integration. There is no easy solution to it, but it is certainly there.
Senator Cook: I am sitting here attempting to equate where I live to what I am looking at. Help me understand this.
You are an association that has jurisdiction for teaching institutions. Does that include community colleges or anyplace where learning takes place across the system?
Dr. Scott: The association's ambit is really the organizations that provide the teaching resources. We do not speak for community colleges or universities. However, our organizations are the sites for training. We are the training sites where community colleges may put some of their life sciences or health sciences students.
For example, in my jurisdiction, radiological technicians are trained in our organization as are laboratory technicians and respiratory therapists. We have affiliation agreements with those colleges for which we operate the training sites but we do not represent them through our association.
Senator Cook: The licensed practical nurse coming out of a community college in my province would not necessarily be represented.
Mr. Lozon: That is correct.
Senator Cook: Are cutbacks in the system the reason that the stresses and barriers in the system causes you to say a review are desirable? How many seats have been taken out of the nursing schools and medical schools due to cutbacks thereby limiting access to education? What kind of impacts has this had on continuing education, workshops and those kinds of things?
What impacts have provincial cutbacks had on education both in continuing education and at the point of entry? Are salaries and the dislike of union agreements stresses within the system?
You are talking about a $3-billion fund over a three-year period. Would that amount of money address the deficiencies? If we took that money today and used it as has been suggested, where would we be at the end of the third year? Would we be stable or would we need to move on?
Dr. Scott: You have seen some quite dramatic renewal in St. John's with one of our most easterly members; the Memorial Institution.
My own feeling is that it will be different in each centre. That is why the fund is targeted, but is also broad. In other words, what is needed in St. John's will be different than what is needed in Calgary.
St. John's has experienced a remarkable renewal. To say that we need to further renew your major teaching hospital may not be the case. I do not know the St. John's situation well enough to identify the need as perhaps in the area of information systems or research infrastructure. Each centre will have its different needs. For that reason, we think that it should be a collaborative effort.
As has been mentioned concerning Montreal, we operate in buildings that are over 100 years old. We have not seen the renewal of physical structure that you have seen in St. John's, whereas in respect to medical equipment, perhaps we do not have the same challenges. It is different at each facility.
Will all of the needs be satisfied at the end of three years? I doubt that, but the needs would be different then. It is more important to deal with this particular issue and then see where we are in three to five years.
Senator Cook: I would say that the needs could be manageable if we turned this around with an infusion of money for a three-year period.
Give me some idea of what that ideal model would look like. I know I cannot have a national model because in a country as diverse as ours, there will be different models for, as we say at home, ``different strokes or different folks.''
I need to know what a model could look like. I could be cynical about the collaboration, but somewhere in this, accountability has to factor in. Whatever the model may be, and I hope you will help me with that vision; it is the accountability that ensures excellence in that model.
Mr. Lozon: I do not think I have as well-defined an answer as you would like to have. Allow me to free associate for a moment.
If you were to resonate with the notion of a national fund to support, on a time-limited basis, targeted activities in academic health sciences centres, I would envision a three-party arrangement with the federal government, the provincial government and the actual recipients at the table together. As Dr. Scott would say, the existing needs in Montreal are different from the existing needs in Vancouver.
You could not do one only; you would have to do one for each central location. There could be one done for Ontario and there could be one done for Quebec, as well.
I envision a three-party forum with the fund provider: the provincial government. We must be practical about this. The provincial governments will have some questions about this. One of their questions will be about what happens after this is has been done for three years. That is why it is better to tie it to projects, as opposed to tying it to ongoing activities because at the end of the day, the provinces will be left holding the bag. I have been an employee at Queen's Park so I know that particular issue is at the forefront of the mind of the senior political servants.
That would be one model and it requires that the provinces, the federal government and the recipients sit down at the same table to work out where the money would be spent, what the right accountability mechanisms would be and how you would know you have reached them.
Senator Cook: You could see it happening province by province and there would be no national overtones?
Licenses in Canada for medical people are not portable. Each province demands different standards of the people who work in their discipline. Is there any hope that we could have a national standard with licensing? I see the existing policy as a barrier, given that Newfoundland nurses find many jobs in Texas, for example.
Dr. Scott: It will vary profession by profession. I spent a certain amount of time throughout my career involved with para-licensing activities, as far as physicians are concerned. We are more portable today than we have been in 100 years. Progress is possible. We still have some portability issues, but they are mainly non-Canadians who come into the system and face much greater interprovincial variability. However, the Medical Council of Canada has been a success story. In terms of specialist criteria, Quebec is more integrated with the rest of the country than it has been for a long time.
In many areas we see a waxing and waning; we make progress in one area and then experience a little slippage in another area. As far as medical people are concerned, it ties into the earlier question of inter-professional barriers or ``turf protection.'' That is diminishing, as you would expect in these times of shortage.
When there is a surplus of people, the barriers go up because there is not enough work to go around. Now, there is enough work for everyone and people are anxious to have a hand in it.
At my institution, we have fewer internal barriers than ever before in the past forty years of my experience, mainly because the oncologists are delighted that somebody else wants to see some of their patients. They are not trying to hold on to them because they have so many and there is so much demand. General internists and family physicians are seeing oncology patients, and the oncologists think that is just terrific. Fifteen years ago, they preferred to hold on to their patients.
Senator Cook: What caused the shortage?
Dr. Scott: I have a personal opinion that it was a planned shortage. We made major cutbacks in the early 1900s. I have said before, and I can back this up,
The only place in the Western world where it was harder to get into medical school than Canada was Albania in 1995.
We cut back to the lowest number of entries in medical schools in the Western world. It was a conscious decision that was a display of federal-provincial cooperation that has rarely been seen in this country.
Senator Morin: We also followed the advice of experts.
Dr. Scott: We did, but not the advice of all the experts. There were a few of them who gave contrary advice but were not listened to.
Mr. Lozon: The experts would say that you did not follow their advice; that you only followed one-half of the advice. I am not defending them but I am —
Senator Morin: I read that report recently.
Mr. Lozon: That would be their view. I would agree that it was a planned shortage and I would say that it was undertaken in the context of difficult provincial financing situations. Basically, the provinces saw physicians, for example, as cost centres. Every physician will set up a practice and see patients and generate income. However, the patients pay for the billings through the plans. As Dr. Scott said, it was a conscious effort to change the trajectory of doctor-population ratios. It was, if you had listened to the experts, partially implemented. Clearly, it was taken on a short-term rather than on a long-term perspective.
Mr. Brimacombe: Concerning the question of the models, we are not recommending a specific one to you. You have heard a description of one model from Mr. Lozon. From a principle point of view, you would want the model to be accountable, transparent, focussed, flexible and targeted. Hopefully, from that founding principle, it would lead to a model in a practical sense. Earlier on in our conversation, we talked about the Health Transition Fund in terms of the way that it has worked in the past. There are different kinds of options. From what principles to you want to begin in order to have this fund move forward so that we can build upwards?
Senator Cook: I want to see federal accountability as the first principle. When you talk about areas of excellence, the nursing profession is still at risk in this context, and I would like to see something stable in that area.
I certainly want to see accountability, however that is accomplished. After that, I think the other elements would flow naturally.
Mr. Lozon: What we are proposing is not new. It is not the first time that this has occurred. In 1948, the National Health Grants Program funded the building of many hospitals that we are now thinking of replacing. In the early 1960s, medical schools such as Memorial and in Calgary were created as a result of a federal initiative. You can look back with some pride at a federal level in terms of some of those major initiatives.
Senator Cook: This is a personal comment. I believe the system worked collaboratively in the 1980s and 1990s to bring in a new program for the nursing profession. We amalgamated the schools. I see government cutbacks as having the greatest impact on our desire for excellence. Each time we achieved excellence and efficiencies in the system, we were faced with yet another cutback. That is unfortunate. I would like to see in the model that it does not happen again.
Senator Callbeck: Senator Cook asked a question about your association. I want to ask a question about its membership.
At the back of the brief you submitted, there are a couple of pages listing the members. Nine provinces are represented. The only province not represented is my province of Prince Edward Island.
You say you represent teaching and health research sites for Canada's health care professionals including the faculties of medicine, faculties of health, and nursing. We have a nursing school at the University of Prince Edward Island. I wonder why there is not any representation from Prince Edward Island.
Mr. Lozon: Historically, senator, the relationship of an academic health sciences centre is principally, although not exclusively, defined by its relationship with the medical school. If you look at the work that, for example, Dr. Duncan Sinclair has done in the past, and some of the more recent scholarly publications on this academic health sciences centre notion, the one defining characteristic of an academic health sciences centre is the relationship between the care- giving facilities and the training of medical students in the medical school.
There are many sites outside our membership that provide training sites for nursing. In fact, there are many sites that provide training sites for physicians, but they are not fully affiliated with the university medical school.
Senator Callbeck: Is it not at all associated with the medical school at Dalhousie?
Mr. Lozon: I am not sure if the University of Prince Edward Island nursing school is associated with the University of Dalhousie or not. I do not know.
Senator Callbeck: Is that the reason?
Dr. Scott: That is the reason.
Senator Callbeck: Mr. Lozon, when you were here the last time, you mentioned that when the committee is preparing its report, it would be a good idea if we prioritized what we feel should be done to sustain and improve our health care system. No doubt you have read our last report, the fifth that includes 20 recommendations. I would like you to elaborate on how you would prioritize the various areas that we are looking at.
Mr. Lozon: That is a hard question. However, I have a couple of observations. First, the committee has really focused on the federal role. One of the key things the committee will need to think about from a priorization perspective is: Where can the federal role be most impactful? Where can it be most legitimately executed? I have personal observations about that, but they are only personal.
One criterion should be: Where is the federal role most likely to be successful? If you are talking about an expanded federal role, you want it to work.
Beyond that, I would have to give it more thought to give you a full answer about how you would priorize the 20 recommendations.
Senator Cook: I noticed, too, with interest that in Newfoundland Mr. Tilly is a member of your association. I do not see Memorial University or Grenville College as part of your association. Given the fact that the centre for nursing studies is an accredited program with two exits, and one of these exits is directly into the school of nursing at Memorial, would it not be desirable to have representation from the universities as part of the association? Or is there some reason for the situation?
Mr. Lozon: The reasons are historic. We are not synonymous with the national body, the Association of Universities and Colleges of Canada. The AUCC is a different membership. They are the universities and they have different activities. We represent the care-giving organizations associated with universities as opposed to the universities themselves.
Mr. Brimacombe: Given the fact that all provinces are regionalized, with the exception of Ontario, what you have in many respects are the regional health authorities now that have the overarching responsibility. That is why in the case of Newfoundland you have the health care corporation and not the recognized, if you will, sub-components that are now under the umbrella of the regional health authority. The same applies if you look at the Province of Alberta where we do not have a specific university but we have the Calgary Health Region and the Capital Health Region. It is under the rubric of the fact that we have reconfigured the overall structure of the system within a regionalized governance system.
Senator Cook: I understand that. I am speaking from a continuing education perspective. A representative of the centre for nursing studies sits as a member of your association. When a nurse practitioners moves on, they move into the university to get that continuing education to make up what we call centres of excellence. I see that as a gap concerning continuing education. The centre for nursing studies is offering a three-year accredited program for nursing students. The next step is an exit choice to go to the next level of excellence in continuing education.
As we deal with the collaborative programs we offer, I hope that we will be sitting at the same table.
Senator Morin: I return to the Chair's recommendation that we receive from you a more detailed presentation of how you see this fund being spent. I think we have agreed it should be based on your organization's mandate concerning manpower training, research, innovation and networking.
It is important for us to have more details on how you intend to spend the money. I realize that the needs are different from one province to the other. It is very important that we get this information from you soon as we will be working during the summer. We do need more detailed information from you.
Mr. Lozon: Agreed.
The Deputy Chairman: Any other comments from our witnesses? It is my pleasure to thank you gentlemen for appearing before us. It was compelling testimony.
Honourable senators, we will begin our next session. I welcome our next witness Mr. Brian Ferguson. As you know, we are now in the costing phase of our study. Mr. Ferguson, please begin.
Mr. Bryan Ferguson, Partner, Applied Management: It is a pleasure to be back with you again sharing ideas regarding insurance for prescription medicines. There is a lot to cover in the time available, so I have chosen to organize my presentation according to the specific questions you sent me. I hope there will be enough time to address your specific questions following that.
The area of coverage for prescription drugs is complex and made all the more so by the number of organizations and programs involved. When you consider there are 30 million people in the country and most of us have some form of coverage, the reasons for this complexity are understandable.
You asked if I could provide a broad overview of current prescription drug coverage for Canadians?
Before answering the question, I want to address the word ``coverage.'' It is tempting to think that someone who has ``coverage'' has some portion of their drug costs paid for by an insurance company or a government plan. However, there are many Canadians with coverage who pay the full cost of all their drugs themselves and only receive a financial contribution from their insurer or their government if their costs are very high. That is why in Saskatchewan, over a third of the residents reported on the federal government's National Population Health Survey that they do not have coverage. Saskatchewan covers all residents but with a deductible that amounts to 3.4 per cent of income for a non- senior family.
Similarly, a person with coverage may require a specific drug. However, if this is not listed on the formulary or the drug list of the payer, they receive no reimbursement. There are many examples of this, and the lists vary a lot between provinces and across different types of plans.
With these caveats in mind, here is the situation in Canada. By the strictest definition of ``coverage,'' 97 per cent of Canadians do have coverage, meaning that if their costs are high enough and if they require a drug that is on the payer's list, at some point they will get some reimbursement.
As we showed in the Health Canada study I reported on last time, someone who has already spent $49,000 this year on drugs on the provincial government drug list could expect full reimbursement for the next $1,000 in all provinces except New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. However, for someone who only spent $999, 10 per cent of the population would have no reimbursement at all from a drug plan, with this number ranging between zero in B.C., 18 per cent in Ontario, and 22 per cent to 24 per cent in Atlantic Canada.
Of the approximately 30 million people in Canada, 16 million to 17 million have private plan coverage only. This is primarily the working population who have insurance through their employer for themselves and their dependents. Nine million to 10 million have coverage only from their provincial plan. This would be primarily seniors, individuals on social assistance, and people in provinces that provide universal coverage and have no other type of insurance. Approximately 700,000 have coverage from NIHB, the non-insured health benefits program, the federal program for native Canadians. Approximately one and a half million have dual coverage, which is usually a private retiree plan that supplements a provincial government plan, but there are many other variations here as well. As I mentioned before, 800,000 have no coverage of any kind.
You asked: How would you define catastrophic drug costs? People face catastrophic drug costs for two reasons. First, because they need expensive medicines that their public or private insurer does not cover, or where they have exceeded maximums allowed in their drug plans. These individuals are usually suffering from very debilitating diseases such as multiple sclerosis, rheumatoid arthritis, or HIV/AIDS, for example. One definition could be drugs that cost more than, for example, $3,000 per year, which insurance plans do not reimburse. I stress that is an arbitrary number. It is one way of addressing this particular issue of individuals who are facing extremely high drug costs because of their medical conditions.
We can look at an individual's annual drug expenses to see the second reason. In this instance the expenses represent a disproportionately high share of their net income. The most recent annual report of CIHI indicates that people in the lowest income bracket in Canada spend 3.9 per cent of their net income on health expenses, and those in the top income group spend 2.6 per cent.
When you realize that drugs are only one component of health spending, it seems reasonable to think of drug expenses in excess of 4 per cent or 5 per cent of net income as catastrophic. The number could be even lower and still represent a serious financial burden to an individual.
All of the public plans in the country outside of Atlantic Canada, with the exception of the federal NIHB and Veterans Affairs programs, have taken a ``catastrophic coverage'' approach, essentially dealing with the burden of costs to patients in the second category. While not called ``catastrophic,'' these plans are designed to limit an individual's exposure when they face high drug costs relative to income. However, they do not pay for much below that level, except in special cases such as seniors or social assistance recipients. While some provinces simply have high deductibles, others use a combination of premiums, co-payments and deductibles. They all limit out-of-pocket expenses for drugs at somewhere between 2 per cent and 6 per cent of net income, assuming again that all of the drugs making up this expense are on the government formulary.
If you look at the graphs at the end of this document, you will see what I mean.
The first graph shows a situation for a family with $25,000 of net income and how much they would pay as a proportion of income for different levels of drug costs. The second graph shows the same information for a family with $50,000 net income. The diagonal line going from the bottom left-hand corner to the top right-hand corner shows the actual out-of-pocket cost to individuals in those provinces are exactly what their actual drug costs were. In other words, there is no point at which they receive any assistance from the government.
Where the curves start to bend shows the implications of government policy as they try to keep the cost burden from going above a certain level. Somewhere in the vicinity of 2 per cent to 5 per cent, depending on the income level of the individual, you see the lines start to flatten out in the different provinces.
Senator Fairbairn: What do the dashes mean with Ontario and Manitoba?
Mr. Ferguson: The dashes are only there to indicate different provinces so you can distinguish between the lines.
Senator Pepin: Where is Quebec in all this?
Mr. Ferguson: Quebec is around the middle. For relatively low-income families, Quebec comes in about the middle of all of the provinces in terms of the out-of-pocket impact. For higher income families, they are at the top of the provinces that are intervening in this way.
The third question you asked was: Who has catastrophic drug coverage and who does not?
Let us deal with those who do not.
The first group are people everywhere in Canada, who spend more than 5 per cent of their income on drugs that are not listed on a provincial or private formulary, or whose drug expenses exceed the maximums established for their plan. I have not seen any data on the size of this group, but there probably would not be more than a few thousand in the whole country. Again, as I mentioned before, these are people who, for the most part, suffer from very debilitating illnesses and conditions. However, over 50 per cent of Canadians would not have coverage if they needed drugs in this category.
In the second group are Atlantic Canadians under age 65 without private insurance, and over age 65 who are ineligible for the public plan because their incomes are too high and who have opted not to purchase alternative coverage. There are about 800,000 people in this group.
The rest of Canadians have some coverage available for catastrophic costs.
Your third question was: Should the federal government introduce a catastrophic drug program targeted to residents of some provinces?
I am 100 per cent in favour of ensuring that no one in Canada should have to spend more than 4 per cent to 5 per cent of net income on prescription medicines. However, a federal program targeted essentially at the residents of Atlantic Canada seems to be loaded with problems.
For example, such an approach would be unfair to the provinces that have built such a system in to their plans and charge their taxpayers premiums or high deductibles to finance it. Also, this will not help people in the rest of Canada who have catastrophic costs because their provincial or private plan does not cover the drug that they need.
If the federal government is going to enter this field, it should establish and fund part of a ``catastrophic drug expense pool.'' Some ideas on how a pool like this could work would be: Drugs with a very high annual cost would not go through the usual provincial government funding processes, but be reviewed by an overarching group for inclusion in the catastrophic drug expense pool. Again, I have used $3,000 as an arbitrary point to start from. All provinces would include these drugs on their provincial formularies and claim reimbursement from the pool for any eligible resident requiring the medication. Private insurers could be given the option of coordinating their plans with the pool on a cost-recovery basis, and the federal government could pay a share of the cost, say 50 per cent, although the contribution for any province could vary depending on the overall health status or revenue-generating capacity of the province.
There would need to be a good actuarial analysis of these high-cost drugs and their utilization to determine exactly where the cut-off level would be. I did an analysis of all the drugs receiving notice of compliance from health Canada last year, and I estimate that there are at most six that would fit into the criteria of high cost. My rough estimate is that not more than 50 drugs in total would qualify for a program such as this.
Federal participation on behalf of any province could be conditional on provinces implementing measures to ensure full coverage once any resident's expense to income ratio exceeds 5 per cent.
With the high cost drugs taken out of the equation, the number of residents falling into this latter category should not be a great additional burden to the system.
I would like to see the federal government work through the tax system to allow low-income earners without insurance to opt into the provincial plan so that they can get access to drugs without financial barrier.
In my last presentation I provided a proposal on how to solve this problem. As I pointed out then, cash flow is often more of an issue for low-income individuals than the actual total expenditure amount.
Your last question was: Would I rather be in favour of a national pharmacare plan? I submit that a common national program is not a practical solution. The plan design and policy issues that underlay the plans of each province and territory are different, and so are the needs of the residents. Under a national system, all provinces would have to change their programs, and I wonder if this would be a workable solution. When you realize that the provincial governments pay only about 40 per cent of the costs of prescription medicines, you realize that you would have to find a way to finance the other of 60 per cent of the cost and possibly lose private investment that pays for most of it now.
The system needs changes to fill major gaps, but the interventions I mentioned should accomplish this while ensuring that no one falls between the cracks while protecting the jurisdictional control of provinces over health care.
The Deputy Chairman: On page 2, you mention that approximately 30 million people in Canada have private plans or combination plans. You say that 800,000 have no coverage of any kind. You talk about the 800,000 people in Atlantic Canada. Is that the same group, or is it a distinct and separate group?
Mr. Ferguson: That is the same group. In all other provinces, people have coverage at some point. For example, in Ontario, if the drug expense is high enough, it is covered by the Trillium Drug Program in Ontario. The Atlantic Provinces are the only provinces that do not have some government program that comes into effect under the condition of high costs.
The Deputy Chairman: On page 4, you say:
There would need to be a good actuarial analysis of these high-cost drugs and their utilization to determine exactly where the cut-off level would be. I personally did an analysis of all the drugs receiving NOC last year, and I estimate that there are at most 6 that would fit the criteria of high-cost. My rough estimate is that not more than 50 drugs in total would qualify for this program.
How many other drugs are there that people might think they have access to that would not qualify? Have you got a figure for that?
Mr. Ferguson: I have no idea. It would be a long list because the variances are so great on a province-by-province basis. You might have drugs covered in one province and not covered in another. You would have a shorter list of drugs covered in all provinces than you would of drugs covered in some provinces.
Senator Robertson: Would you give us your best interpretation of what we should do about the high cost of drugs?
Mr. Ferguson: We need to provide some mechanism for coverage for individuals who face very high drug costs because of their medical condition. In many cases, these drugs are not listed on the formularies of the provinces where they live. The difficulty with this issue is that it is different on a province-to-province basis. We need to have some common definition of what fits into any category and ensure that people who need the drugs in that category are looked after. It cannot be done other than in the context of some national program.
Some incentive should be given to Atlantic Canada to provide catastrophic coverage for their residents. If you take the first step, the amount you would have to deal with in the second step would not be that great because most of the high cost drugs would be out of the equation. You would then be dealing only with people who are relatively low income who need routine drugs, which to them are a significant cost.
Those are the two primary things that need to be done.
Another thing, of lesser importance, would be to provide a mechanism for people who do not have access to private coverage, and are not eligible for coverage under the provincial government plans at the present time, to opt into those plans so that they could at least have the day-to-day costs of the drugs covered. The financing mechanisms could be worked out, perhaps through the tax system with tax credits or points to low income individuals.
Those are the three primary things. First, ensure the people who have the high drug costs because of health conditions have some kind of protection. Second, find a way to assist the Atlantic Provinces in dealing with the issue of high drug costs relative to income. Third, find a way to allow individuals who have no other access to insurance to opt in on some sort of voluntary basis at the provincial plan level.
Senator Robertson: At the provincial plan level. The federal government would not be involved in that one?
Mr. Ferguson: There is a mechanism where the federal government would be involved. A very easy way to do that would be through the tax system. The federal government could fund some part of the cost of that through tax points or a sharing back and forth with the provinces on the mechanisms with any adjustments made at tax time.
Senator Robertson: Would your catastrophic expenses be accommodated through the tax system, or would they be done in a more direct manner?
Mr. Ferguson: The catastrophic costs, the very high drug costs, would be taken care of in a more direct manner through the provincial drug plans. Individual residents of each province would be able to get coverage from their provincial drug plan. If they needed any of these high cost drugs the provincial government would simply draw from the pool. To the individual in the province, it would be a seamless process.
Senator Robertson: There is a small problem here. The federal responsibilities in the health care system place doubt on its position to dictate to provinces what they should or should not do.
Could you rephrase that provincial participation in another way that would be more directly related to role of the federal government?
Mr. Ferguson: To me, it is more an issue of leverage. The federal government would play a role in providing some financing to the cost of this pool. Currently, there are many of these drugs that the provinces are not paying for anyway. Therefore, the role of the federal government would be to provide some payment for the individuals who require the drugs, but doing it through the mechanism of using the existing provincial plans to assure that the individual who requires costly drugs would be reimbursed.
Senator Fairbairn: In your second point, you talked about incentives for Atlantic Canada. Could you be more specific about that?
Mr. Ferguson: It seems reasonable to say that the federal government is prepared to make a financial contribution to ensure that catastrophically high drug costs are looked after for the residents of Canada. The quid pro quo is that the provinces would be required to bring their programs to a level that provides some kind of catastrophic level beyond which individuals in the province did not pay any more for the drugs. The figure would have to be worked out. If the federal government were prepared to assist with the high costs, then the incentive for Atlantic Canada to make the adjustments in their plans would be strong.
Senator Fairbairn: Would this be in the field of catastrophic drugs?
The Chairman: I would clarification on the word ``catastrophic,'' because you use it in two ways. In one way, catastrophic is used in reference to a drug with an extremely high cost that is not on a provincial formulary and is, therefore, on the list of fewer than 50 drugs.
The other way catastrophic is used is in reference to the total drug bill of an individual as a percentage of the individual's income. That really is the difference between your first priority, the expensive drugs, and your second and third priorities, which are about allowing people to opt in, such as in the Atlantic provinces. Those priorities are related to the total cost that an individual would have to pay, independent of whether they were using the expensive drugs or other drugs. Is there a way to combine the three ideas in a plan to cover people when their total drug cost exceeds a certain percentage of the gross or net income? Would that not automatically include the expensive drugs? Could it automatically include the expensive drugs? Why would you cover the expensive drugs for everyone? Would you cover the expensive drugs only for those who genuinely need help? That would tie in the second and third priorities. I am looking for a simpler program design.
Mr. Ferguson: The issue is not a simple one. Such a program could be difficult to set up because of the wide variations and differences that the provinces have in terms of what they cover and do not cover. For example, a resident of B.C. might need help to pay for a high cost drug whereas a person in Quebec would not because the drug is covered by their provincial plan. In any event, you find that the provinces default to a level. At some point, you need to take certain medications out of the equation and then deal with the rest.
Senator Morin: I would like to come to a dollar figure. We are talking about 800,000 people who do not have catastrophic cost insurance.
Do we have an idea how many of these 800,000 people require expensive drugs or spend 5 per cent of their income on them?
Mr. Ferguson: Unfortunately, we do not have that number. It is possible that the people following me may have an answer to this question because they have done more work in this area than I have. Nothing that I am aware of would tell us how many people are involved.
My guess is that the number is quite low because we are not dealing with high numbers. It is probably in the range of a few thousand, and certainly, it is not anything like one-half or even one-quarter of the total.
Senator Morin: Let us say it is a few thousand. This would represent about $1 million or $2 million. I am considering the administrative costs to deliver about $1 million per year. If I understand your plan correctly, we would need a national formulary for these expensive drugs to ensure that they meet cost effectiveness criteria. You do not approve an expensive drug just because it is expensive. This should be done at the federal level, where, currently, there is no national formulary in place.
The federal government would pay 50 per cent of the cost of those drugs up to a maximum that would represent 5 per cent of the individuals' income. When would the provincial government take over?
Mr. Ferguson: Fifty per cent is an arbitrary figure. To cost share that at some point would look after those who have the greatest need.
Senator Morin: After 5 per cent of the person's income, the provinces would take over completely?
Mr. Ferguson: That is correct.
Senator Morin: That would represent about $1 million per year in total and about $500,000 per year for the federal government. I am trying to find a ballpark figure to determine how many federal bureaucrats would be needed to work for a plan that involves $500,000 per year.
Mr. Ferguson: By far, the greatest cost would be incurred in dealing with the pool on the high-cost drugs. That cost would be considerably more than the numbers that you are talking about.
You are probably not too far off with the numbers concerning assistance to people in the lower income brackets, who have high drug needs relative to income. To solve that problem would require a few million dollars, and would not likely be many millions of dollars.
Senator Morin: Every country in the world, outside North America, has pharmacare. Many of the studies that have been done on the Canadian health care system claim that it would be the best health care system in the world, with two exceptions: we do not have pharmacare and we do not have primary health care.
In a recent issue of the Irish Times it was written that Canada has the best health system in the world except for the problems it has with primary care and pharmacare.
I am not necessarily promoting it, but why should we not have national pharmacare? This could easily become a national program. The regional requirements are not overwhelming. In B.C. multiple sclerosis and AIDS are treated with the same drugs as in Newfoundland. Every country in the world that has been regionalizing their health care has not regionalized their pharmacare programs. For example, Australia's pharmacare program is still at the national level.
If we did have a national program it would free up more money for the provinces. We would do that on the condition that they spend their money on health care. There are many advantages to a national system. Most of the drug companies are large, multinational companies, and it is better to deal with them at a national level. We would have a national formulary. The risks would be spread out among the provinces.
I think it is difficult for Prince Edward Island to have a satisfactory pharmacare program. It is impossible with 100,000 people. I cannot see how they could manage the risk. It would be an expensive proposition and the costs are always increasing. There is not a single insurance company in North America that would deal with 100,000 people.
I know you are not in favour of this plan, but I wonder how you felt about it.
Mr. Ferguson: The primary reason for not being in favour of it is the issue of a national formulary. I can see a national formulary overlaying a lot of additional review on top of the things that are happening now. This would delay access to new drugs even more than they are already being delayed. You would have to develop a process that is extremely efficient and that really speeded things up.
If you got into a national program, would individual provinces be involved in decisions concerning the formulary and what drugs would be made available? Is this something that would be done at a different level and accepted by the provinces? How does that tie in with the priorities the provinces want to establish?
As I alluded to in my presentation, the third issue is the big role that private insurance plays in the country. What would happen to the role that they play? I think there are ways to work around that issue. Would a national program integrate with current programs of private coverage? How do you maintain that investment so it does not all fall back on the governments to finance?
Senator Morin: Most provinces have kept their programs.
Senator Callbeck: I certainly agree with your statement that you are 100 per cent in favour of ensuring that no one in Canada should have to spend more than 4 to 5 per cent of net income on prescription medicines.
I know a woman from Prince Edward Island who pays approximately $100,000 a year for her drugs. She cannot get any help from the government. A situation like that should not exist in this country.
I am interested in your proposal regarding the catastrophic drug program. I want to be sure I understand what you are saying. In order for a person to get money or to access this program, they would have to spend 5 per cent of their net income before they would get anything out of this; is that correct?
Mr. Ferguson: There are a number of ways to design it. Generally, that is how it would be done. That is currently how it is done in most jurisdictions. For example, in Saskatchewan they work with a high deductible, which is 3.4 per cent of income for higher income earners. The person pays the first 3.4 per cent of his income and when that has been paid, he is eligible for help from the program. Manitoba and British Columbia work in a similar way. Quebec does it through a combination of premiums, and co-payments, while some of it is deductible, although they spread the deductible on a monthly basis. Different provinces approach it from different directions. Essentially, they are targeting individuals who would pay whatever is decided is the maximum level. After that level is reached, the program takes over.
Senator Callbeck: In your opinion, is there one provincial plan that is better than another?
Mr. Ferguson: No. It depends on how you view it. If you do not have an extensive need for medications and you are a senior in Canada, the Northwest Territories or Ontario is probably the best place to be, for the co-payments are very low.
If your need for drugs are outside a more limited list, then a place like Quebec is a better place to be because they tend to cover more drugs. All the provinces have balanced this access to specific medications and costs in different ways, some by keeping the costs low and managing through a much more active intervention in the list of drugs that are available. Other provinces have done it by accepting relatively higher costs while at the same time making a wider range of drugs available.
It depends on what your needs are as to which plan works better for you.
Senator Robertson: I want to discuss Senator Morin's comments about a national pharmacare program. The Atlantic Provinces are working together to establish an Atlantic formulary. I believe the same cooperation could be achieved at the national level. You have said that a national program would impact the private insurers that are doing so much of the work right now. The private insurers, as you know, keep changing their costs and coverage. It is not usual for the private companies to increase their costs and add to the list of drugs that are not covered.
In terms of a national pharmacare process, I understand that, all the other programs would have to be dropped. That would cause, perhaps, a huge expense. It seems to me that work should be done on that to see if it is feasible. If, for instance, we were trying to move to a national pharmacare program, where would you start? Where should we begin? Have you any advice on that?
Mr. Ferguson: We could begin by tackling some of the issues that we are faced with today. It may be possible to say, that the principles I recommended with regard to catastrophic coverage are not all that different from the principles that Senator Morin outlined earlier. That may be the way to start. We need to have interprovincial cooperation to try to figure out a national program that will make it work for this level. Then how do we start to bring it down to cover a broader base of drugs and a broader range of people?
Senator Robertson: It seems to me that one bargaining agent with the pharmaceutical companies would show cost benefits rather than all the provinces doing individual bargaining. There should be savings if there was one bargaining agent for the country.
The Chairman: I guess you could achieve that with a national formulary even if you did not have identical programs in every province. I presume you could have a national formulary so that there was a coast-to-coast agreement on what drugs were covered and in terms of negotiating prices with the pharmaceutical drug companies. Would you agree with that?
Mr. Ferguson: If you had a national formulary that is presumably the way it would be done.
The Chairman: You have suggested in effect that, for the very high-priced, catastrophic-priced drugs, there would be a national formulary.
Mr. Ferguson: Correct.
[Translation]
Senator Pépin: Last May Ms Bégin came to testify before our committee. She told us that it was urgent for the federal government and the provinces to set requirements for the Canada Health Act as far as the intention is concerned so that all drugs and home health care services that are directly replacing hospital services be made accessible without cost to patients. What is your view?
Would it be viable to provide coverage for drugs replacing direct hospital care?
[English]
Mr. Ferguson: You mentioned coverage without cost to individuals from the beginning. That is certainly how our current medicare and hospital services programs work. If you were to bring drugs under the Canada Health Act, for example, and make it a requirement under the Canada Health Act, that would be something that you would need to do.
Senator Pepin: The first question was in regards to individuals leaving the hospital.
Mr. Ferguson: Individuals leaving the hospital right now are covered, if they have a private drug plan. In fact, that has been one of the cost drivers for the private plans. We are finding that, for many conditions, drugs enable people to leave the hospital earlier; they can be looked after at home and not require hospital assistance. I think that finding a way to compensate individuals who require drugs at home would make sense, in that it is a process that assists the rest of the health care system to reduce its costs.
Under the current programs, if the individuals who leave hospitals have private insurance, there is not a problem; if they do not have private insurance they are the people in the situation of having to pay for it themselves with no easy system to assist them. I would like to see some capability made available to those people to opt into the provincial program and receive a benefit during that process so that they are able to receive the drugs without the cost impact. You need an administrative mechanism to help that take place, and I think the provincial drug program is the one that could do it for them.
Senator Pepin: You would agree that we must do something for them?
Mr. Ferguson: Yes.
The Chairman: If I could turn to the two graphs at the back of your presentation: you have drug costs as a per cent of income. Is that gross income?
Mr. Ferguson: No, that is net income.
The Chairman: After tax?
Mr. Ferguson: It is taxable income.
The Chairman: It is after the basic deduction called taxable income.
Mr. Ferguson: Correct.
The Chairman: You have taken the very expensive drugs and put them into a national formulary on a separate plan. If a national plan covered the individual after his out-of-pocket cost as a percentage of income exceeded 5 per cent the net effect would be to take the four Atlantic provinces and put them roughly at the level of B.C. and Quebec. Is that correct?
Mr. Ferguson: Yes.
The Chairman: It would take your 45-degree line and have it go up to the 5 per cent level and then go horizontal. Is that correct?
Mr. Ferguson: Correct. It would look like B.C. or Quebec.
The Chairman: In that way you are not interfering with any of the provincial plans. You are not simply offering a program to Atlantic residents; it would be offered to everyone because everyone would have a 5 per cent cap. That would not interfere with any of the provincial programs but would pick up the catastrophic costs for anyone in the country. It would be more advantageous to people in the Atlantic Canada because there are more people there who would exceed the 5 per cent threshold. Am I correct so far?
Mr. Ferguson: Yes.
The Chairman: Do you have any idea of the cost?
Mr. Ferguson: The simplest way to get a handle on it would be to get some utilization data from the provincial drug plans of those provinces. They should be able to do an analysis for you, starting from the highest level of expenditure of individuals and working down from there. You would have to impute some income levels.
The Chairman: They will not have the relationship between expenditure and income level.
Mr. Ferguson: Correct. The other side is that those are only for people who are currently covered under the plans; they are not for people who are in this kind of situation. The other source that you could use is income tax data where people can claim medical expenses.
The Chairman: They have claimed the 3 per cent.
Mr. Ferguson: Correct. You do not know that is all drug expense. I do not know enough about the details that are kept in there to know whether you can break that down. The two gentlemen following me could methodologically have some better suggestions about how that could be done.
The Chairman: I am trying to figure out how to get the Maritimes down to the top of the other range. One way to achieve that would be to have the person become fully ensured by a public program after their out-of-pocket costs as a percentage of income, the vertical axis on the graph, reached 5 per cent.
Senator Morin: By ``public,'' do you mean federal?
The Chairman: I said ``public.'' I did not get into federal versus provincial at this point.
Senator Morin: There are a few exceptions to that which people do not realize. We were told this when we were in Alberta. I was surprised to hear that in Alberta they have a $25,000 maximum on their public drug plan.
Mr. Ferguson: Correct.
Senator Morin: If your drug costs are over $25,000, $100,000 to use an example means you are stuck with a $75,000 bill. They say that, through their generosity, it has not happened, but the fact remains that it could. This should be contained within your presentation. It is not.
It is a complicated issue. Should we start supporting Alberta?
The Chairman: Senator Morin, I would very sharply part company with you, as I do not see it as supporting Alberta, I see it as dealing with a Canadian problem.
If you go back to the original objective of medicare, which is the way the committee has phrased it in its reports, no one should suffer undue financial hardship as a result of being sick; that ought to include the cost of drugs. It ought to be ``undue'' financial hardship, not simply ``some financial hardship.'' It just should not be excessive. Where you live in the country should not be an issue. Whether that cost ought to be borne federally or provincially or a combination thereof is a different issue.
I did not get into the federal-provincial argument. I was trying to understand if a public plan kicked in once your cumulative drug cost exceeded 5 per cent, would it solve both your second and third categories? I took 5 per cent because that is essentially the B.C. and Quebec numbers in your two graphs. It would solve the second category clearly, and the third category, which was the low-income earner category because they would still be covered by the plan.
Mr. Ferguson: That is correct.
Senator Morin: Are we still talking about 800,000 people?
Mr. Ferguson: Yes, we are.
Senator Morin: Out of 800,000 people, maybe 1,000 or 2,000 may be in that category; it represents only a small number of people.
We must realize we are setting up an important plan to protect 2,000 people. There are interesting figures I will bring up later. I am sure the Atlantic provinces are not doing it on purpose; it is a matter of resources.
Mr. Ferguson: You would want to be careful to ensure that the other provinces maintain their programs, and not use this as a default position and have the federal government pick up everybody for that 10 per cent.
The Chairman: What do you mean pick up everybody for the 10 per cent?
Mr. Ferguson: If you had a program, for example, that said we will ensure that nobody pays more than 5 per cent, the provinces that are currently at some level below 10 per cent now will think they do not need those support programs anymore.
The Chairman: I do not understand the significance of the 10 per cent. Where did the 10 per cent come from?
Mr. Ferguson: If somebody is paying 10 per cent of income for drugs in Atlantic Canada, their out-of-pocket costs is 10 per cent, whereas the out-of-pocket costs for someone in British Columbia who is paying 10 per cent of income is somewhere, as you said, around 5 per cent. The B.C. government could simply decide that they are not going to run this program anymore. They will let the federal government ensure that nobody pays more than 5 per cent, and they will kick in at a level below that. Presently, they are providing some resources to ensure that does not happen.
The Chairman: Are you saying that if there is a catastrophic element, some of the existing provinces could lower their current coverage?
Mr. Ferguson: Correct.
The Chairman: They can always lower their current coverage, independent of whether or not there is a catastrophic program. I find it difficult to accept the notion that some people ought to suffer this kind of undue financial hardship, which is the test we have used, simply because of a fear that some of the provincial governments would lower their existing coverage. I would have thought that, frankly, the political pressure to avoid lowering the coverage would be pretty substantial within any given province.
I do not know if that fear ought to drive our ultimate position.
Senator Morin: Give $2 million to the Atlantic provinces.
The Chairman: So far, Senator Morin, you are doing well. You have accepted my proposition as to what we need to do. We are now into the modalities of how we get there.
Senator Morin: I do not think we should have a national program to solve the issue.
The Chairman: I was trying to understand if it is possible to design a simple program that would solve your categories 2 and 3, and there is.
Mr. Ferguson: Yes, there is.
The Chairman: Mr. Ferguson, thank you very much for coming. We appreciate it.
Mr. Ferguson: My pleasure.
The Chairman: We have our second presentation on the issue of catastrophic drugs and how to deal with the problem. Our witnesses are Mr. Ken Fraser, the CEO of the Fraser Group, and Mr. Richard Shillington, Principal of Tristat Resources.
Mr. Fraser, you will begin. We have your paper. We look forward to you hitting the highlights, and then we will turn to questions.
Mr. Ken Fraser, CEO, Fraser Group: I thank the committee for the privilege of appearing before you today to discuss our research with you. I hope that it will be helpful.
Our purpose is to share with you some recent work that relates directly to the issue the committee identifies in section 8.9.4 and 8.9.5 of volume 4 of your interim report regarding potential initiatives to protect against high drug expenses.
Let me begin with a bit of a background about Fraser Group and Tristat Resources. Fraser Group is a consulting firm based in Toronto that provides research and market information to the insurance industry and to others interested in the employee benefits market, including employers and government organizations. I have been in the consulting field since 1984 and have worked on social policy aspects of drug benefits since 1996.
With me today is Richard Shillington from Tristat Resources. He is a statistician and an independent consultant. Mr. Shillington has been consulting for almost 20 years, specializing in the quantitative analysis of social policy. His clients include front-line social agencies, provincial governments and federal departments concerned with social policy. He has worked in the past with the Senate Committee on Child Poverty. Before he was a consultant, Richard spent some time in provincial health departments in two provinces — British Columbia and Saskatchewan.
Mr. Shillington and I have collaborated over the past five years on several studies on the extent of drug coverage in Canada. Our initial work, entitled ``Drug Expense Insurance in the Canadian Population,'' which is cited in your report, was sponsored by the Canadian Life and Health Insurance Association. Mr. Shillington and I also worked together on a report prepared for Health Canada and the Health Transition Fund called ``Canadians' Access to Insurance for Prescription Medicines.'' This study is also cited in your committee's report.
The Canadian Life and Health Insurance Association have also sponsored the most recent work. It examines the extent to which Canadians would be protected from substantial personal expense by their public and private sector drug coverage plans in the event they were to require extremely costly prescription drugs. A draft report is before you, I believe.
You will note that the document is labelled ``Draft.'' This is not to imply any hesitancy about the findings we will discuss today. These were finalized some time ago. However, it is possible that the presentation of the material may yet be revised to improve clarity or to correct typographical errors.
You will also note that our report is only available today in English. I apologize for this. However, it is in the process of being translated and should be available shortly in French, along with the final English version.
In my presentation today, I will provide the committee with a brief tour of the highlights from the body of our report, which is entitled, ``Drug Expense Coverage in The Canadian Population — Protection from Severe Drug Expenses.''
I will first mention some of our key findings.
First, it is membership in drug coverage plans and the provisions of these plans that determines whether and to what extent Canadians requiring costly prescription drugs will actually experience substantial personal financial cost.
Second, our research shows that about 98 per cent of all Canadians have some form of public or private sector drug coverage that provides some degree of protection against severe drug expenses. Many people are surprised, of course, at how high this number is. I will address this matter in the course of my presentation.
Finally, our report differentiates between full and partial protection against severe drug expenses. What we call fully protected coverage provides a predetermined upper limit on the costs that an individual will have to pay personally, no matter how severe the actual drug expenses might be. With partially protected coverage, the individual has no upper limit on what he or she might have to pay personally. As drug expenses increase, the personal share of these expenses will also increase.
Our research concludes that 82 per cent of all Canadians have fully protected coverage with an overall protective cap on out-of-pocket costs.
I will now provide some elaboration on these and other highlights of our research, beginning with chapter 2 on page 6.
First, I must position the issue that we are discussing today within the broader area of health care costs.
Our research is not about the aggregate level of drug costs in Canada's health system, nor is it about the relative proportion of drug costs to other sources of health system expenditures. This aggregate drug cost issue has attracted extensive comment and analysis over recent years because drug expenditures have been rising dramatically in absolute terms and as a share of overall health spending.
For the ``average'' Canadian, the direct financial impact of this rise in drug expenditures is relatively modest. The proportion of average household expenditures committed to prescription drugs remains small in absolute terms. In 1999, the annual per capita expenditure on prescription drugs was $331.38, of which only $75.49 was paid for out-of- pocket.
In spite of this relatively modest level of average cost, all Canadians are potentially exposed to, and some Canadians do incur, much more substantial expenses due to the emergence of innovative but extremely expensive drug treatments. Individual Canadians can face extremely high personal costs for their drug needs.
On page 7, we list a number of ways in which the health care environment has changed in recent years. The total cost to develop and market new drug therapies has risen fairly rapidly as pharmaceutical companies have tackled more challenging diseases but also face more stringent drug approval regimes around the world. Many of the newer drug therapies are targeted at chronic conditions that are treated at home, as opposed to acute conditions that are treated in hospital. Changes in medical practice — and in some cases these are driven by financing issues, as well as new technology — have replaced hospital-based treatment with home care for some conditions that, historically, have had high drug therapy costs, such as cancer.
On page 8, we list some of the implications of this issue. First, and most obviously, depending upon the drug plan coverage, some individuals can experience substantial, personal financial costs for drug expenses. Some individuals facing significant personal financial burden may discontinue, or perhaps not commence, required medications. Medical practitioners may order hospital-based treatment, which is more costly, so that patients are not required to incur personal expenses for drugs that might be dispensed from community pharmacies. Doctors and patients may choose to use cheaper but less-effective drugs. In another situation, individuals on social assistance would face a disincentive to leave social assistance because they would lose their drug coverage.
A private-sector drug plan to which the affected individual belongs, might experience sufficient financial stress to prompt the drug plan sponsor to limit or discontinue the plan, which would therefore reduce drug expense protection for everyone else in that same plan. As well, other plan sponsors might decide to take pre-emptive action to reduce benefit levels to reduce their own exposure so that they do not get hit as well.
Our research looks at the first issue, the first implication, which is that individuals can experience substantial, personal costs. In chapter 3, our report reviews the pattern of drug plan coverage in Canada and looks at how various types of drug plans protect those who require expensive drugs.
On page 10, we take note that a small number of Canadians have no coverage. Recent studies have put that number between 2 per cent and 4 per cent, which is in the range of 600,000 to 1.2 million individuals. The number earlier today was 800,000. Our statistical models, which are based on slightly different data from that of Mr. Ferguson, come up with about 2 per cent.
The committee may be aware of surveys that place drug coverage levels much lower at 65 per cent to 70 per cent. Mr. Shillington and I have had the opportunity to examine the methodology and data from some of these studies. One of those is the National Population Health Survey done by Statistics Canada. We have no quarrel with the research methodology because it is sound, but it is important to recognize that what is being measured is not actual coverage but rather perception of coverage. When we dig into the data, we find that many Canadians do not include government drug plans in their perception of what constitutes a ``drug plan.''
In addition, these investigations are not typically focused on the issue of severe drug expenses. Respondents to these surveys are almost certainly thinking about routine levels of drug expense. We would agree that the number of people who do not have effective coverage for routine drug expenses is much higher than 2 per cent.
The public plan sector is discussed on page 11. It is worth noting that all provinces have public drug programs that cover virtually all of the drug costs of low-income seniors — those on the Guaranteed Income Supplement. This is about 5 per cent of Canada's adult population. This group is basically fully protected from severe drug expenses, as well. All provinces, except Newfoundland, offer coverage to higher-income seniors as well. All provinces have programs that provide necessary drugs for social assistance recipients, a group that comprised approximately 6.8 per cent of the population in the year 2000. This group is well protected from severe drug expenses.
A federal program assumes the full cost of providing drugs and other health services for recognized Aboriginal populations and for certain Armed Forces veterans. These groups account for approximately 2 per cent of the population and they are, thus, well protected.
The governments of British Columbia, Saskatchewan, Manitoba and Ontario have drug programs targeted to the general population that provide a protective cap — in some cases they are based on family income — on the personal financial cost of drug expenses to be borne by individuals.
Quebec has legislation that mandates drug coverage with out-of-pocket caps no higher than $750 for all residents, either under an employer-sponsored program or under the provincial program. Thus, Quebec residents are protected against personal financial costs above these pre-determined levels.
Alberta offers a public, voluntary premium-based program to all residents. It provides significant drug expense coverage after a three-month waiting period.
In summary, there are a significant number of public sector drug plans that provide a degree of protection against personal financial hardship for Canadians who face these severe levels of drug expense. Before we review the extent of this protection in more precise terms, I will offer observations about private sector plans, which can be found on page 12 of the report.
Private-sector plans are important contributors to the drug coverage of Canadians. They cover approximately 58 per cent of Canadians and, it is worth noting with respect to private sector plans, they exist entirely due to the voluntary initiative of plan sponsors. A large majority of these plan sponsors are employers, but significant numbers of Canadians are covered under group plans that are sponsored by unions, by joint union-employer entities and by educational institutions for students. In addition, about 1 per cent of Canadians are covered by individually purchased health insurance policies.
An estimated 2.4 million Canadians have private sector plans that cover 100 per cent of drug expenses, thus completely protecting these members from financial hardship in the event that they face severe drug costs. Beyond that, an additional 7.3 million Canadians, for a total of 9.7 million Canadians, which would amount to 55 per cent of those who are actually covered by private sector plans, have plans that include an overall protective cap on their out of- pocket costs.
There are another 8.1 million Canadians who are in private sector plans that have substantial, but incomplete, protection against severe drug expenses.
While drug plans have many features and attributes, there are only four provisions that are particularly relevant to the discussion of the extent of protection against severe drug expenses. These are deductibles, the initial deductible; co- payments, which are sometimes known as co-insurance; annual or lifetime maximums, which limit pay out; and out-of- pocket caps.
One of the difficulties in talking about drug plans is that drug plan terminology is not totally standardized. I am sure the committee has already noted this.
In the interests of clarity I will review some of the terminology that I will use today.
``Deductible'' is the initial amount of drug expense that must be paid by the individual before the drug plan reimburses anything. Deductibles, unless they were extraordinarily high, usually have minimal impact on the degree of protection a plan provides against severe drug expense.
``Co-payments'' are the portion of each prescription that must be paid by the individual. Co-payments take the form either of a percentage, such as 20 per cent, or a fixed amount per prescription, which might be $2 or $5.
An ``annual or lifetime maximum'' restricts the total amount of expense that a plan will reimburse, and will set an upper limit. Beyond this limit the individual person would have to pay the drug expense. For instance, a plan might say that there is an annual maximum of $10,000, which means that beyond the $10,000 it would be out-of-pocket.
However, the term ``out-of-pocket caps'' is actually a positive provision that restricts the amount of deductibles and co-payments imposed on an individual. In effect, people are then fully covered for the balance. These caps may be expressed either as a fixed amount, such as $750, which is the provision in the Quebec legislation, or it might be expressed as a percentage of family income, which is the approach used in other provinces, such as Saskatchewan and Ontario.
Today, when we talk about ``out-of-pocket costs,'' we mean the required deductibles and co-payments, as well as expense amounts that are in excess of annual maximums. Our definition of this term is consistent with the practice in public and private sector drug plans. However, the average Canadian might disagree. I point out that provisions such as limited formularies or price controls in some plans create additional personal costs. Our research model does not account for these. We are assuming people are getting their drugs within the formularies that have been set up by the plan.
On page 15, there is a chart which illustrates the out-of-pocket costs under this definition of deductibles and co- payments that would be required for an individual who had a $20,000 drug bill. You can see there is a number of recognizable plans here. There is a wide range of how much a person would have to pay for those $20,000 of drugs, ranging from zero for some plans to people without plans who would pay the entire $20,000.
We can see that for those on social assistance, typically, the cost is nothing. Under the Indian Affairs plan, again, the cost is essentially zero. In many common employee benefit plans there might be a small deductible of $25. The out- of-pocket cost in the Alberta seniors' plan is about $900. In Ontario, under the Trillium Plan, a family with $60,000 of annual income would pay $2,400. Somebody working for the federal civil service would pay just over $4,000, and so forth.
Talking about large expenses, we recently did an analysis of claims data drawn from employer-sponsored plans in Canada for the year 2000. We had data from approximately half of those plans. What we found is that a few individuals have individual drug expenses that exceeded $200,000. The number was few — in fact, it was a very small number — but drug expenses can hit in excess of $200,000.
Moving down the scale, about one person in 1,000 had medical expenses in excess of medicare that exceeded $10,000. These are expenses that were insured privately. The great majority of these expenses were for prescription drugs.
From this data, we can estimate that about 53,000 people in Canada covered by private sector plans had drug expenses that exceeded $5,000 in the year 2000.
We believe that a review of some public sector plans would suggest that the rate of high expense individuals in those plans is much higher because, typically, public plans cover higher need individuals, such as seniors and those on social assistance.
We concluded there are currently more than 100,000 Canadians whose drug expense exceed $5,000. That number is certain to increase in future years as we see more new drug treatments come along and as the population ages.
In Chapter 4, on page 17, we describe our methods. What we have done in our research is we have created a statistical model of drug plan coverage in the Canadian population. We then used this model to simulate the financial impact of various severe drug claim scenarios. Underlying the model is a large sample of about 60,000 families that were drawn from Statistics Canada resources. Ultimately, what we report here are simulations. They are what if something happens. When we talk about people who have $20,000 of expenses, we are not talking about the real individuals out there who incurred these levels, but this arbitrary, hypothetical situation where everyone in the Canadian population winds up with a $20,000 drug bill and we then answer the question: Who pays?
The actual simulation results are presented in Chapter 5, which begins on page 25. To assess how effectively the network of drug plans in Canada protects individuals from this risk of hardship, we looked at three hypothetical, severe drug cost scenarios. We looked at $5,000, $20,000 and $80,000 of annual expenses. In each of these scenarios we counted the proportion of population that would fall into various levels of out-of-pocket costs, the first level being up to $750, the next being up to $2,000, then up to $4,000, and more than $4,000. Isolated in our analysis are those people who have no coverage whatsoever and have to pay the entire amount.
Our analyses of these various scenarios lead us to identify three broad categories of people based on how their drug coverage behaves when faced with high expenses. In the first category, which we call protected, they have drug plans which limit out-of-pocket costs to predetermined levels that do not vary by the amount of drug expense.
The second category are those partially protected. They have drug plan provisions that absorb significant proportions of the drug expense but, as their drug expense rises, their out-of-pocket costs will continue to rise.
The third category includes that small number of people who are in the unhappy situation of having no coverage and have to pay 100 per cent of any expense from their own pockets.
Provincial drug plans and related public policy are the largest single factor which determine the level of protection against severe drug expenses throughout the population. Consequently, the analysis in our report is presented province by province. I will not go through every province individually.
I draw your attention to the example on page 27. This is for the province of Nova Scotia. The first line indicates that 47 per cent of the population would have out-of-pocket costs of $750 or less, if they had drug expenses of $5,000. This is also true if the drug expense were $20,000 or even $80,000. These are the people that we call ``fully protected.'' In actual fact, some of these people are covered by the seniors' program, some by social assistance, and some are covered by employer-sponsored plans with caps.
Moving down the table, we see that 29 per cent of the population would have out-of-pocket costs of $750, up to $2,000, with drug expenses of $5,000. However, as the drug costs increase to $20,000, these people slide into higher levels of out-of-pocket cost.
Finally, the last line on the table shows that 24 per cent of Nova Scotia residents have no drug plan coverage that would protect them against severe drug expense.
Then we move to the provincial summary on page 48. There are several charts on these three pages. While the lack of coverage for a substantial proportion of Atlantic Canada remains a striking feature of the national pattern, we can also see significant variations in out-of-pocket levels among provinces that have programs that cover their entire population. Quebec stands out as having the least variation in protection levels, followed by British Columbia, Manitoba and Saskatchewan. These are protection levels as stated in our absolute dollar amounts.
On page 52, our report indicates that the provinces can be allocated to one of three groups. First, there are those provinces that have fully protected coverage for all residents. These provinces are British Columbia, Saskatchewan, Manitoba, Ontario and Quebec. Second are those provinces that have either protected or partially protected coverage for all residents. Alberta is the only province in this category. Third, there are provinces where some residents are unprotected. As we know, the four provinces in Atlantic Canada are in this category.
In summary, I would list the conclusions of our research, which appear on page 52, as follows: New drug therapies and changing patterns of health care have created a situation in which Canadians with an increasing range of medical conditions may require extremely costly prescription drugs outside hospitals and, thus, outside medicare coverage.
While the statistical frequency of this situation remains low, it is increasing due to innovations in drug therapies. For example, while it is likely that fewer than five or six Canadians in a thousand would require prescription drugs costing more than $5,000 a year, there are more than 100,000 Canadians, and that number is certain to increase over the years ahead.
Membership in drug coverage plans and the provisions of these plans determines whether, and to what extent, Canadians requiring costly prescription drugs would actually experience substantial personal financial cost.
Nearly all Canadians, 98 per cent, have some form of public or private sector drug plan coverage that provides a degree of protection against severe drug expenses.
Essentially, 100 per cent of Canadian seniors have drug coverage and have protective caps on their out-of-pocket costs. In all provinces, low-income seniors have coverage and have fully protected caps. Furthermore, in all provinces, social assistance recipients are covered against severe drug expenses with minimal or no personal financial cost.
For the great majority of Canadians, 82 per cent, coverage provides an overall protective cap on out-of-pocket costs, regardless of the severity of the severe drug expenses. Sixteen per cent of the population has drug coverage plans without protective caps that require percentage co-payments or have reimbursement limits. For these individuals, out- of-pocket costs would increase in the severity of their drug expenses. Most commonly, these individuals are exposed to out-of-pocket costs equal to 20 per cent of their drug expenses, even for high drug expenses.
About 2 per cent of Canadians have no drug coverage whatsoever. All of these individuals reside in one of the four Atlantic provinces, where between 24 and 30 per cent of the population has no public or private sector drug coverage.
That concludes my presentation. We would be happy to take any questions.
The Chairman: Since you were in the room when we had the discussion with the previous witnesses, if we go back to our objective of trying to ensure that Canadians do not suffer undue financial hardship as a result of being sick, and that we include in that not just hospitals and doctors but drugs as well, on the basis of your data and your experience with the health insurance industry where you help to design programs and give an input to data for programs, the chapter that I would be looking for would be a chapter 7, since you stop at chapter 6. Chapter 7 would answer the question: All right, wise guy. What do I do now? That is, given our objective, what is the plan that solves the problem?
Mr. Fraser: My area of expertise is insurance plans. The technical issue of designing a plan has been done. There are a number of models out there that already provide coverage for entire populations. You can choose different models. There is a B.C. model, a Quebec model and an Ontario model. To a greater or lesser extent, they have achieved that objective for their own population.
The real challenge for this committee is to assure a national standard or achieve a national objective, which takes me out of my area of expertise. The fundamental problems are financial, constitutional and political.
The Chairman: We are happy to deal with the first one.
Mr. Fraser: The first one is financial. Depending on where we draw the line for catastrophic or excess undue hardship, we are not talking about huge amounts of money. The total money currently spent on drugs is about $14 million.
The Chairman: It is 14-point something.
Senator Morin: It is 15 per cent of $100 billion.
Mr. Fraser: All but $75 per person is being compensated already in the system. Some of that, obviously, is routine expenditures that one might not be interested in pursuing in the course of this discussion.
If we say that the problem is those 800,000 or 1 million people in Atlantic Canada, then we are probably talking in the neighbourhood of $100 per person, which puts you into $80 million to solve that issue — that is, if you can contain the issue to that. I am not sure that is possible.
The Chairman: We cannot do that.
Mr. Fraser: If you gross it up to a national level, if you assume that whatever you do in Atlantic Canada which will cost $80 million to solve a 2 per cent problem and, for equity and politics, you put that to everyone else, then you are looking at $4 billion.
Mr. Richard Shillington, Principal, Tristat Resources: Atlantic Canada represents 8 per cent of the population. You can use a comparable amount of money. In other provinces, you might be multiplying by 10.
Mr. Fraser: We have 2 per cent. We are multiplying by 50.
The Chairman: We never could do math. That is all right. It is big number.
Mr. Fraser: It is a fairly big number. Most of it is a redistribution.
The Chairman: Can you expand on that?
Mr. Fraser: We could go away and come back with a more accurate number. However, if we are talking about $80 million to provide some form of protection against high-level expenditures for these people in Atlantic Canada who do not have coverage, then we multiply by 50, and we get $4 billion. That is assuming that we take away the severe drug expenses from everyone. That is roughly one third of the expenditures already in the system, and most of that is already covered by some form of drug plan. It is a redistribution issue. If that becomes a federal program, it removes roughly $2 billion of expenses from provincial plans and about $2 billion from private sector plans. The solution is to not to let that become a windfall. You are probably looking at a form of payroll tax to recapture that from employers, or a re- jigging of the transfers to the provinces.
Senator LeBreton: I am pleased to see you have put in the annual per capita expenditure by most Canadians on prescription drugs, and that it is a relatively small amount. Our oncoming problem will be in the area of what we call ``catastrophic'' drug costs, those that you call ``severe.''
What is important is contained in your conclusions, where it is stated that, currently, 100,000 Canadians must pay more than $5,000 a year. That is the group on which we should focus. You add that this number is virtually certain to increase over the years ahead, obviously due to the higher cost of drugs and perhaps more people using them.
Are you able to expand on that, or to forecast five years down the road what that number might be?
Mr. Fraser: We do not have a five-year forecast. We have tried extrapolating in the private sector. We are seeing total drug expenditures rise in the area of 15 per cent annually. Our projections of these more severe levels show that they are expanding at rates in excess of 20 per cent annually. Part of it is that innovative drug therapies are coming on- stream and they are making it possible for those levels of expenditures to be created for those individuals. You have to escalate the threshold, because it is like bracket creep in income tax in that there is a magnified year-over-year increase. Instead of a break point of $5,000 in five years, we may be considering a break point of double that figure.
The average drug expenditure is rising much faster than incomes. You would escalate the $5,000 at 2 per cent or 3 per cent per year, and the drug costs would be escalating at about 20 per cent a year. There will be many more people in five years than there are today.
Senator LeBreton: That is the issue.
The Chairman: The issue is the 100,000 people and how that number will escalate over time. The population is growing at a faster rate than the average drug expense.
Senator Fairbairn: To me there is another issue, and that is: How can one have no protection whatsoever?
The ninth point in your conclusions states that 2 per cent of Canadians have no drug coverage whatsoever, and that all of these individuals reside in one of the four Atlantic provinces where 24 to 30 per cent of the population have no public or private sector drug coverage. Can you give me a profile of an individual in this country who has, for whatever reason, no drug cost coverage whatsoever?
Mr. Fraser: That is fairly easy to do. You have to live in a province that does not provide a universal program. Four provinces meet that criterion. You exclude all the possibilities of coverage.
People who do not have coverage are who those who are not seniors, people who are not on social assistance, and people who are not in an employer-sponsored plan or have a spouse in one. That includes many people. It includes those who are unemployed, or those who are employed but they have not been employed for the three-month probationary period they must serve before they enter the employer plan. A person may be employed by a small employer that has no plan at all; or working for an employer who does have a plan, but is a part-timer and is not being offered that plan; or working for an employer who has a plan, but with an option to join that plan, which, if he or she joins it, will have a payroll deduction so chooses not to join it. I have probably missed a couple of categories.
Mr. Shillington: There are also two groups of self-employed people. The ones who are professionals, and those who call themselves self employed although they really are unemployed. I will add a third group, contract employees. You know of the increasing practice of hiring people on contract, where they are treated as self employed because the employer does not pay CPP or EI and they do not get benefits. However, in every other respect they are probably employees.
Senator Fairbairn: I think it is important we have on the record who we are talking about, and why, because we cannot forget those people.
Senator Morin: I cannot figure out where you got the $80 million figure. If I understand correctly, it is 1,000 per 1 million of the Canadian population who have drug expenses of more than $10,000. Can we agree on that?
Mr. Fraser: Yes.
Senator Morin: Let us say there are 1 million people in Atlantic Canada who are not covered, and out of that 1,000 people would incur drug costs of over $10,000. If the plan covers 100 per cent of the costs, which is not the case, it would amount to $10 million. Where does the $80-million figure come from? No plan covers 100 per cent of drug costs. I am wondering why you say it would cost $80 million to cover catastrophic costs in Atlantic Canada, while a plan to cover the entire 800,000 would cost less than $10 p. 100 million.
My second question deals with the statistics from CIHI of April 2002. I will take Nova Scotia as an example because it is a larger Atlantic province and it is easier to deal with. Their total drug spending per capita is higher than it is in every province except Ontario. The percentage spent on prescription drugs is similar to that of the other provinces. Public spending in Nova Scotia is higher than in Quebec. At 34 per cent, it is higher than Saskatchewan and Manitoba.
There is an odd phenomenon here. They are spending as much as the other provinces. Their public percentage is as high as the other provinces, per capita. They are spending as much on prescription drugs. Therefore, it is not a matter of resources. Money is going into the pharmacare system. For some reason, they are not protecting their citizens.
The public resources are there. The amount of money is the same as the other provinces. They are spending $457 per capita compared to Quebec at $429. It is not a matter of not spending money. For some reason, they are not spending it in the appropriate manner, because they are not protecting their citizens. This is from CIHI, April 2002.
I did not deal with the other provinces because their populations are smaller. I thought Nova Scotia would be a good example.
Mr. Fraser: I would address your first question which relates to the cost figure. Frankly, that was a number that was off the top of my head. If I walk through your calculations, I would agree that there are about 1,000 people involved that would have drug expenses in excess of $10,000. In 2000, the average excess over $10,000 for these people — and I do not have the numbers with me — would be in the neighbourhood of $50,000, I believe. The first $10,000 — up to the threshold — would cost about $10 million.
Senator Morin: Which threshold are we talking about?
Mr. Fraser: The $10,000.
Senator Morin: When you are talking about catastrophic costs, you are including coverage below that amount?
Mr. Fraser: No, I am talking about the amount in excess.
Senator Morin: Below the threshold is not being considered here.
Mr. Fraser: No.
Senator Morin: Is that included in your $80 million?
Mr. Fraser: I must apologize. The $80 million is not a number that I have developed through research. It was a number, in terms of order of magnitude, that I offered today. It might be $60 million; it might be $80 million.
I came up with that number by saying that total drug expenses are somewhere in the $500 to $600 per person range, depending upon how you define them. The higher level might be in the neighbourhood of $1,000. That is not a well- informed estimate.
Senator Morin: What about the Nova Scotia situation that I cited?
Mr. Fraser: People in Nova Scotia are using drugs at a rate that is similar to other provinces and higher than some. Obviously those drugs are being paid for. The pharmacists or the drug companies are not giving them away. One way or the other, these people pay for the drugs.
We know that 24 per cent of the population are paying out of their pocket, although not for 24 per cent of the drugs because we know about half of the drug expenditure in every province is for seniors, and those are covered in Nova Scotia. In dollar terms, perhaps 10 to 20 per cent of the drugs are paid out of pocket.
As I mentioned in my presentation, the actual average dollars for most families is fairly modest. The issue that concerns this committee, and what our research was about, is the relatively few people where it is not a few hundred dollars but thousands and potentially tens of thousands of dollars.
Senator Morin: The province is spending as much per capita as the other provinces for drugs. The other provinces have succeeded in having catastrophic coverage while Nova Scotia has not.
The Chairman: I do not want to get into a technical argument with Senator Morin. I do not agree with his first argument. The data indicates that, in Nova Scotia, if you look at the total amount spent on drugs, roughly 34 per cent is paid by the public sector in that province which is the same number as Quebec. That is not the issue. What is the issue is the remainder of the expenditures. In highly unionized provinces and provinces with large employers, the remaining 66 per cent will be overwhelmingly paid for by employee plans. In Nova Scotia, a disproportionate share of that 66 per cent would be paid entirely by individuals who do not have a plan. That is the issue.
The issue is that, in the highly unionized provinces, a much greater percentage of the population is covered by either a fully protected or partially protected plan. In the Atlantic region, in part for the reasons that the witnesses explained in responding to Senator Fairbairn, but also in part because there is a lower percentage of unionized work forces, and therefore, a lower percentage of employers with plans, you have more people paying out of their own pockets.
Looking at the provincial numbers is not the issue. You should look at the non-public number and see how much of the non-public number comes from an individual entirely versus how much comes from a partially protected plan. That data is not in here.
Mr. Shillington: Think about the way the Trillium Drug Plan works in Ontario. If your drug costs exceed 4 per cent of your income, you can apply under this program and receive reimbursement after a deductible. This will cover those few families that have very high costs.
How does that affect the total spending in the province? It has little effect, because it is only covering those few families. I do not think that you would suspect, for example, in Ontario, the Trillium Drug Plan spending to affect public spending on drugs compared to private spending. It is a small percentage of the total spending, but it is important for those families.
Senator Morin: That is why I was surprised at your $800 million figure.
The Chairman: He said that that was a ballpark estimate.
Senator Robertson: Earlier in your presentation, you gave a figure of the average drug cost per person.
Mr. Fraser: It was $331.
Senator Robertson: Could you give us the average for seniors in the country?
Mr. Fraser: I do not have that available.
Senator Robertson: You can provide it to us, please.
Do you have a definition for ``financial hardship''?
Mr. Fraser: We do not have a definition that we used in the course of this research.
Senator Robertson: Five per cent of $25,000 or $20,000 is more of a hardship than 5 per cent of $100,000.
Mr. Fraser: There is an acceptance that if we are talking about hardship, it should relate to resources. Typically, that is income. Although, when you look at extremes, that breaks down, to some extent, because assets also come into play.
Senator Robertson: Poor people do not have many assets.
Mr. Fraser: They do not. If 5 per cent is a threshold for poor people, you might accept a higher threshold for people with assets in addition to income.
I have looked at this issue in the past because, obviously, it is a question that has been asked. My response is that there is a theme through existing public policy that tends to peg that threshold at somewhere between 3 per cent and not quite as high as 5 per cent. The Income Tax Act uses a 3 per cent threshold for the medical tax credit. The threshold in place in Saskatchewan is 3.4 per cent. In Manitoba, it is a step-scale of 2 per cent to 3 per cent. In Ontario, it is set at 4 per cent. I would accept thresholds in those ranges but you have to put them in context because you may have a threshold for drug expenses of 3 per cent to 5 per cent as well as a threshold of 3 per cent to 5 per cent for home care. Thus, it depends how many of these thresholds we expect people to absorb. If we have multiple thresholds, we may want to set it at 2 per cent.
Senator Robertson: I can understand the complexity and the variances to which you are referring. Perhaps part of the problem is that income tax kicks in at $7,900, which is an absolute disgrace. If we peg our models to the examples that surround us, it could be said that we are not a very compassionate society. That is a personal comment, so I shall move on.
Mr. Fraser: Perhaps I can add, as an observation around this discussion about thresholds and hardship and catastrophic costs, that there are several uses of the word ``catastrophic.'' It is important to separate those. We use the words ``catastrophic'' or ``severe'' to try to determine an objective, and essentially a statistical, definition. ``Severe'' or ``severe and infrequent'' bear an absolute ring. You would peg that, in some way, in reference to the dollar limit or the frequency of certain incidents. That is separate from the issue of how it impacts on individuals with limited incomes, which is an important issue.
There are many aspects of the severe drug phenomenon that are best treated by defining the phenomenon in absolute terms. The impact, not on individuals but on public sector plans, private sector plans and transfer arrangements, can be best discussed when we talk about an independently defined term like the $10,000 measure. We leave the issue of how to administer and take the broad principles back to how it impacts on the individual. Then, we have to set up an arrangement that reflects how it impacts the individual. Every province has to do that.
We mentioned those provinces that have percentage-of-income relationships. However, the provinces that do not have those formulae — sliding scales — do have step arrangements. They charge lower deductibles or waive premiums for low-income people. The formula is simply not as smooth. Everybody recognizes that there has to be an adaptation of financial burden on low-income people. That must be part and parcel of any solution that comes out of this exercise.
Senator Robertson: The Quebec plan seems to be a good, operative plan, from what we are hearing. What would the Quebec plan cost the federal government if it were implemented in every province by the federal government?
Mr. Fraser: I can probably come up with an estimate of that, but it would take some number-crunching.
Senator Robertson: Could you obtain those figures, please?
Mr. Shillington: I wanted to say something about measuring hardship, because of the work I have done on child poverty and I have measured poverty for years.
We talked about 3 per cent of net income as the figure for the medical tax credit. That 3 per cent is for all medical expenses, not just drug expenses. Perhaps, then, the portion for drugs should be less than 3 per cent. That would leave room for other types of private medical expenses.
The medical expense tax is poorly designed because it depends on the net income of the individual and considers the medical expenses of the whole family. If this committee were to look at tax provisions around this, one would want to look at some of the designs that Mr. Fraser mentioned such as asset testing.
I have done a great deal of work on the design of income support programs. We provide drug coverage for low- income seniors without asset tests. If we were to set up drug coverage for middle-income Canadians that do not have a plan, would we want to do asset testing in that instance? These issues make the whole discussion complicated, but worthy of thought.
[Translation]
Senator Pépin: We know that employer insurance plans are an important source of revenue for many Canadians, including the retired. A recent article in the New York Times noted that American employers were considerably reducing benefits because of a 40 to 60 per cent increase in the cost of drugs for retired persons. If Canadian employers decided to do the same and to reduce the pharmacare premiums for the retired, what would the impact be on the retired as well as on the public pharmacare plan? Do you think that the same thing could happen here? Often when they catch a cold, we later end up with pneumonia.
[English]
Mr. Fraser: The short answer is that there would be virtually no impact on public plans. That is because the private sector plans that cover retirees, who are also covered by the public sector, are secondary. The public plans pay first and the private sector plans do not absorb any expense from the public sector. The public sector pays the same amount for a retiree with a private plan as it pays for a retiree without a private plan. If the employers were to reduce coverage — and some of them are concerned about coverage — it would not affect the public plan.
Senator Cordy: Your document, Mr. Fraser, is excellent — well-laid-out and easy for non-medical people like myself to follow.
I am from Nova Scotia and I looked at the statistics that you have given us today. Certainly, as a committee, we have often heard about the number of Atlantic Canadians who do not have drug coverage. That causes me great grief and makes me wonder, from a social perspective, what is happening to these families. You gave us an excellent profile of this type of individual, who could be from my province of Nova Scotia.
I heard a story of a gentleman in Nova Scotia who was part of the working poor. He was able to earn enough money to provide for his family, but there was not a lot of extra money. He had a daughter who was chronically ill, so he asked the provincial government for help in buying drugs for his daughter. He was told they could not help.
This gentleman had no other solution to the problem other than to leave his job and go on social assistance. From a social perspective, what that did to the family and the gentleman himself, because he lost all self-esteem, is immeasurable in comparison to the small amount of money the government would have to pay to provide drug coverage for his daughter.
As somebody from Atlantic Canada, I want to know, what is the first step? How can we quickly get on the road to providing coverage for these individuals?
Mr. Fraser: Our reports have helped to position Atlantic Canada in this disadvantaged situation. Perhaps, in some respects, it is not totally fair because, except for a brief accident of history, the AIDS epidemic, Ontario would not have the Trillium Drug Program today, and would have a situation identical to Atlantic Canada, assuming there had not been another initiative to create such a program.
The last part of the 1990s was not a positive time for most provincial jurisdictions to expand programs. Historically, if we went back to 1991, Atlantic Canada would have been positioned as having comparable programs to every province except Saskatchewan, British Columbia and Manitoba, which had chosen to create a pharmacare parallel to the medicare program.
The Chairman: Not incidentally, these are the three provinces that had NDP governments at some point in the 1980s.
Mr. Fraser: As of 1990, except for those three provinces with an NDP political history, there was a fairly consistent approach to government involvement in pharmacy delivery — they covered the seniors and those receiving social assistance. What happened in the 1990s in Ontario was AIDS came along, and they had to do something about that. Rather than doing an AIDS program, they positioned it as a universal plan. It would not be just for the gays on Church St. in Toronto, it would be a province-wide program. It was needed, as there were all these very expensive AIDS drugs coming on board and no one could afford them.
Quebec has a more recent history, and has been closer to the developments that are emerging now, although much of what they did in creating their program four or five years ago had to do with financial pressures. Ultimately, although they created a program that produced universal coverage, they also reduced their investment in public sector programs.
I wanted to go through that bit of history to suggest that we should not be running down Atlantic Canada in that same fashion. If their fiscal situation had been different in the last five or six years, Atlantic Canada, in their public policy, would be responding to the same issues we are discussing today.
How do we proceed to the next step? Part of it is awareness and public pressure. Our numbers suggest that in all the four Atlantic provinces there are a thousand people with the potential that would draw this issue, that means a few hundred in any given province, and a few dozen in P.E.I. It takes a certain threshold of numbers before it makes sense to implement a policy.
There is the example of the individual in New Brunswick who you cited in your report. For a couple of years, the provincial government, completely outside of any policy support, was providing financial assistance. There was no statute stating he was entitled to it, but they worked it out. That is perhaps part of the cultural history of Atlantic Canada, that there is more reliance on ad hoc and community-based solutions rather than on public solutions. I am not an expert in this field. I am not a historian, and I am not an expert in social policy. That is my observation.
Senator Cordy: It is not my intent to run down the Atlantic region. It is the most wonderful place in Canada to live.
It frightens me a little bit to look at the social ramifications of what can happen to a family where there is no drug coverage.
Along the same lines, but getting into the private plans, we have heard statistics on the high cost of drugs, and how the cost is going up for a variety of reasons, whether they are new drugs or whatever. The reality is that the high drug costs will have an effect on private plans, and, while these companies are there to provide a service, they also want to make money. Will this result in higher premiums or less coverage, and how is that going to affect Canadians?
Mr. Fraser: It will — and has already — result in higher premiums. The typical trend rate, as we call it in the insurance business, is something like 16 per cent to 18 per cent. That is how much the insurance company will want next year versus this year to cover drugs and other supplementary medical costs. There is another 7 per cent or 8 per cent on the dental side. Yes, that costs more money.
However, there are two aspects to soncider. One is the aggregate level. It could be that everything will go up 15 per cent. That is a problem financially, but it is not a distribution issue. The other is where where you have spikes in the statistics. You get an individual with $100,000 of expenses, and that person happens to work for an employer with 40 people. That is a huge financial hit on that plan, and it produces stresses in the relationship between the insurer and the employer. Obviously, insurers try to have the lowest prices possible.
What is required in this exercise is a sharing and pooling mechanism across the industry, across the society. Quebec has recognized that issue. If you charge every small employer the costs of the people that work for the employer, then some unlucky people working for them will be priced out of the market. There is a mandated situation in Quebec.
Many insurance companies have internal pooling mechanisms in place because they want to stabilize pricing. They take all the large claims and put them into a pool and share that cost. However, that requires a certain amount of self- discipline, and there are certainly market forces that undermine that discipline. That concerns me more than the total increase in costs, because it destabilizes the private sector system.
Employers have the option of passing on costs to their employees, and some of them do. They can do it by increasing payroll deductions, by increasing deductibles or by employers absorbing the costs and passing them on to customers in increased prices for their products, if they can afford to do that.
Senator Robertson: I have a supplementary question related to Mr. Fraser's historical comment. For a number of years we had total pharmaceutical coverage in New Brunswick and it was done by legislation and by regulation.
The Chairman: Senator Robertson was, for the best part of one decade, the Minister of Health in New Brunswick.
Senator Keon: I would take you back to page 27, where you have used a clever way to break things down. At the top line, you have listed the 47 per cent of people who are in the best shape and you got rid of the $750 in the left column. Then Solomon came in and laid out the criteria to move the other 53 per cent into that line. What would that cost the system? It seems to me that it would not cost it much.
Mr. Fraser: Are you asking about the cost to bring everybody down to the $750 level?
Senator Keon: Even though many people do not agree with the hypothesis, let us talk about a national pharmacare program. Take the top line of your chart — the 47 per cent; eliminate the $750 maximum, or the 80,000 category; then, go through a series of manoeuvres, criteria and so forth, to move the other 53 per cent of the people up into that category — in other words, the protected-cap category.
Mr. Fraser: I think I follow.
Senator Keon: That would be an exercise, I admit, but technically, it would be possible.
When all is said and done, if you had a rational indication of the revenues, it seems to me you would not need much extra in the way of revenues to top up a system and put 100 per cent of the people in the same shape that the 47 per cent are in now. All of the people, at least the vast majority of the people who make up the 53 per cent, are also being sustained by various plans and revenues, et cetera.
Mr. Fraser: I would agree with your statement. I do not think it could be supported by this research because this is, essentially, a simulation of what would happen if everyone had huge drug expenses. Consider the fact that there is so much coverage in place and that we are talking about changing plan provisions that affect perhaps one in one thousand people. Yes, I would agree with the conclusion that, putting a provision in place, for these people who already have coverage, to cap their exposure is not a huge expenditure in relative terms.
The Chairman: That is the exact definition of a ``social safety net.'' The exact definition is the one that Senator Keon just pointed out. The statement that there are relatively few people helped by a program does not change the need for the program. If anything, it makes the program more necessary. The nature of Canadians is such that we have a sense of sharing the risk and the willingness to help those who are troubled. If those needing help are small in number, then I am with Senator Keon. It will not cost a great deal of money to protect that small group. We will ask you to help us to design a program. You heard the discussion that we had with Mr. Ferguson, earlier. We asked him what would happen if he put a cap on the figure — 5 per cent, for example. We would like your reaction to that.
Senator Cook: I come from Newfoundland. The reality is that we must, either together or separately, design an insurance plan that is appropriate for that region of Canada, recognizing the nature of seasonal work in the tourist industry, the fishing industry, and so on. The jobs are casual. We must think about young mothers who do shift work while they raise their young children. They do their best in a place where employers are barely making a living. The population is on and off Employment Insurance, EI, through no fault of their own.
Could we think outside the loop and build something into EI? That is my first bit of dreamtime. Look ahead to the next generation because those children now growing up in those families have colds, earaches and childhood ailments that are not being attended to properly. This nation cannot afford to not address that issue because in 20 to 30 years, we will have a chronically ill population because of a lack of care. We must find a way to make things easier for them.
The Chairman: Show us the way. I would like you to think that through and get back to us. Obviously, it is not possible for the federal government to design a program specifically for Atlantic Canada. Our motivation is to assist not only Atlantic Canadians but also individual Canadians everywhere in this country.
Is there a way to design a program that would be progressive in the sense that the amount of protection an individual receives would vary according to income but would guarantee that, as a percentage of income, all individuals would receive that element of coverage?
If that means transferring the responsibility for some individuals in a province over to the federal government, that would not necessarily be a disaster, because I do not think that would involve great numbers of people.
Mr. Ferguson put forward one proposal, and we have heard variations on that theme. They have in common the fact that we would need to determine the maximum amount any individual would have to pay to avoid what we call ``undue financial hardship'' — whether that is a percentage of income, or any other percentage. We need to know what would be reasonable and what it would cost.
If you could incorporate that into your report as chapter 7, that would be wonderful.
Senator Morin: Another alternative is to work on the Quebec mode. Quebec is not a rich province, far from it. We have set up a program that is expensive. The premiums are expensive and they have just gone up. More than one-third of the people think we should abandon it. The plan provides good coverage and it was the choice made by the people of Quebec. Keep in mind, it is not in place because Quebec is a rich province. I maintain that Nova Scotia has the same percentage of private coverage as the other provinces, although more than Saskatchewan, and it spends as much on drugs.
There is no reason that Atlantic Canada should not consider catastrophic coverage for its citizens. It is a matter of priority. I realize that the chairman has another view.
It is impossible to apply what you are asking for to the Quebec situation. I do not think that you can apply the $750 maximum to Quebec. Quebec will opt out again because the Atlantic provinces have not paid for what it costs.
The Chairman: Thank you both for coming. I do hope that you think about the issues we have raised. After you have had a chance to think about the issues raised, perhaps you could give us a call sooner rather than later.
Mr. Fraser: We would be honoured. I made a mistake in offering an $80-million figure, and I would like, for the record, to withdraw that and come back with a number based on more information.
The committee adjourned.