Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue No. 24 - Evidence - May 18, 2017 (morning)
OTTAWA, Thursday, May 18, 2017
The Standing Senate Committee on Social Affairs, Science and Technology, to which Bill C-44, An Act to implement certain provisions of the budget tabled in Parliament on March 22, 2017 and other measures, was referred, met this day, at 10:30 a.m., in public and in camera, to study the subject matter of those elements contained in Divisions 5, 9, 11, 13, 14 and 16 of Part 4 of the bill.
Senator Kelvin Kenneth Ogilvie (Chair) in the chair.
[Translation]
The Chair: Welcome to the Standing Senate Committee on Social Affairs, Science and Technology.
[English]
I am Kelvin Ogilvie from Nova Scotia and I'm chair of the committee. I will invite my colleagues to introduce themselves.
Senator Dean: Tony Dean, Ontario.
[Translation]
Senator Petitclerc: Chantal Petitclerc from Quebec.
Senator McIntyre: Paul McIntyre from New Brunswick.
Senator Mégie: Marie-Françoise Mégie from Quebec.
[English]
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator MacDonald: Michael MacDonald, Nova Scotia.
The Chair: I will remind us that we are beginning today our study of divisions of the budget bill, and this morning, we have Division 5 of Part 4, and we're dealing with clause 115 authorizing a payment of up to $125 million to the Canadian Institute for Advanced Research, CIFAR, upon request of the Minister of Industry to establish a pan- Canadian artificial intelligence strategy. Funds would come from the Consolidated Revenue Fund. I am very pleased to welcome to this meeting two persons who will help us with this.
First of all, Dr. Alan Bernstein, President and Chief Executive Officer of the Canadian Institute for Advanced Research; and we have Alison McDermott, Director General, Science and Innovation Sector, Program Coordination Branch, Innovation, Science and Economic Development Canada.
It is my understanding Dr. Bernstein will be making a presentation and Ms. McDermott will give us assistance on any questions we might have of a technical nature. I invite Dr. Bernstein to present to us.
Alan Bernstein, President and Chief Executive Officer, Canadian Institute for Advanced Research (CIFAR): Thank you for inviting me here today and for the attention that the Senate is paying to the role of artificial intelligence, or AI, in our society and economy.
I will keep my opening remarks as brief as possible so we have ample time for questions. I'll be speaking about three things: the history of AI, CIFAR's role in that history and why it's important that, I believe, we're investing in AI in Canada. Back in the mid-1970s most researchers worldwide didn't think that AI could be constructed in a way that reflected how we think humans learn.
But a small group of scientists led by Dr. Geoff Hinton at the University of Toronto persisted in their intuition that AI, based loosely on how we think humans learn, was possible. In 2004, CIFAR decided to create a new program, led by Dr. Hinton, and now called Learning in Machines and Brains to pursue this line of research. That program was comprised of computer scientists, engineers, neuroscientists, biologists, physicists and psychologists. The program focused on exploring the full potential of what came to be called "deep learning.''
Just over a decade later deep learning and now reinforcement learning — pioneered by another CIFAR fellow, Dr. Rich Sutton at the University Alberta — are the AI systems that will transform everything from transportation to finance to health, the subject of my appearance in front of this committee a few months ago. Because of Canada's history of leadership in AI, we are now home to truly some of the very best AI researchers in the world. Through Budget 2017, the Government of Canada recognizes that AI is a disruptive technology with the potential to transform almost every aspect of the Canadian economy and Canadian society. For these reasons, the government is proposing to build on Canada's AI advantage by investing $125 million in a pan-Canadian AI strategy in AI research and training.
This program, developed by CIFAR in consultation with the research community and others, consists of five components. Approximately $86 million is earmarked for a chairs program that will recruit and retain top researchers in Canada and augment the pipeline of graduate students training in AI research; $30 million will support three AI institutes in Toronto, Montreal and Edmonton; $1.5 million will support work on AI and its impact in society; and $2 million is dedicated to national activities, such as student training at the undergraduate and graduate levels; and finally there will be up to $5 million over five years to enable CIFAR to run this program.
I have been asked by many people why Canada is investing in AI research and training. I believe there are two critical reasons. First and most importantly, AI has the potential to both transform and improve our lives. As I testified in my earlier appearance in front of this committee, AI-trained computers can now detect skin cancer from images as accurately or better than a board trained dermatologist. If we can start to source those images from our smart phones and feed them into an AI-trained computer, we will greatly increase the chance of early cancer diagnosis, and do it faster and at less cost. We know that early diagnosis is the best predictor of good health outcomes, especially for cancer. The benefits of AI aren't limited to health. We're already seeing early AI systems that can help monitor and optimize farming, to feed more people using less water and fertilizer. A CIFAR researcher is even using AI to develop devices that could possibly let blind people see again.
Second, by developing AI-based technologies here in Canada, we hope to harvest their economic benefits. If Canada is first to market with AI-based products, we can export them around the world, capturing tax revenue and creating new jobs. Building these technologies at home also helps our existing businesses and sectors of the Canadian economy by being first adapters. As Canada wrestles with its persistent productivity gap, close connections between Canadian businesses and the AI academic research community should help to improve productivity while also creating new jobs in the AI sector. For these reasons, I am pleased that the Government of Canada in Budget 2017 is proposing to invest in AI research and training.
As with many previous disruptive technologies, AI will undoubtedly bring change. Indeed, in a highly connected world, it will be impossible to ignore the societal impact of AI-driven innovation, wherever the advances come from. Therefore, it is critical that we do not ignore those changes but instead work towards understanding what is possible through AI and how advances in AI will affect Canadians in all walks of life. With that understanding, we can develop the policies and programs that will allow and ensure that all Canadians benefit from this made-in-Canada technology. We're starting a journey that, if we chart it correctly, can change Canada's future for the better in ways I don't think we can possibly imagine today.
The Chair: Thank you very much, Dr. Bernstein. Before I open it up to my colleagues, I would like to ask a couple of questions for further clarification.
The authorization identifies the total amount up to the $125 million. Is it anticipated that that will come in a single budget year or will it be spread over a period of years?
Mr. Bernstein: It will be spread over a period of years, but I will turn to my colleague to correct me if I'm incorrect.
Alison McDermott, Director General, Science and Innovation Sector, Program Coordination Branch, Innovation, Science and Economic Development Canada: That's accurate, and depending on the basis of accounting, or depending on whether we're talking about the flow of cash or how it's financially recorded in the government's financial statements, it will show up differently. So in terms of the government's financial statements, because the liability was taken on in 2016-17, it shows up as a 2016-17 expense but it's expected the funds will flow over a five-year period commensurate with the needs of the program.
The Chair: If a fellow is identified, that fellow would be funded for a five-year period out of this particular fund?
Ms. McDermott: Yes.
The Chair: Thank you very much.
The second clarification is to establish a pan-Canadian artificial intelligence strategy. You have outlined what I assume are key elements of the strategy; namely, the Canada fellows and the allocations to three specific institutions. We know from the past that we have often suffered by the spread effect of major allocations to distribute it across every region of the country, et cetera. This is a very critical area. Our study has just concluded, and we know this is a very critical area of Canada. It clearly states "three institutions will receive'' — and is it anticipated that the bulk of the chairs will be likely held at those three institutions.
Mr. Bernstein: The short answer is "yes.'' We have also set aside money within that $86 million for other universities that signal that they are prepared to develop a priority in deep-learning AI and put forward candidates who are up to the standards of excellence that we are putting in place. I see that unfolding in two possible ways. One is that we have set aside $10 million of that $86 million for what I just said, and second, if the pace of uptake of the chairs in the three institutions is not at a speed we think is appropriate, then with our discussions with ISET officials, we can transfer some of those funds to other universities that, over the next five years, have signalled they are really committed to this area of research.
The Chair: Thank you very much. I'm very pleased with those answers. I will now turn to my colleagues.
Let's do one question per round, and see how it goes, but I suspect you will get several questions.
Senator Stewart Olsen: I will start with a statement. It's a pan-Canadian initiative, and I would have been much happier to see some place from Atlantic Canada included in this supposedly pan-Canadian outlook.
As with everything that tends to happen in Canada, we don't tend to advise or keep people up to date on exactly the progress that's being made, where you're at, so that people can avail themselves of new technologies. Have you considered that, and are you working out something in your strategy to keep Canadians up to date on probably a yearly basis of what is happening?
Mr. Bernstein: Let me approach both your comment and question, senator.
The issue of Atlantic Canada goes back to Senator Ogilvie's remark. We made the decision in the first instance not to spread what are really small resources around the country but rather to focus on existing areas of strength in the country, which are the three cities. However, we are very sensitive to the comment that you made. The pan-Canadian aspect of this, and there is a budget item for it, will be to develop and expand what we are already doing on a smaller scale at CIFAR, but we will expand it, summer and winter schools for undergraduates and graduate students from wherever they are in the country. They will get exposed over a week-long period to some of the best deep-learning AI scientists in Canada and abroad.
Then, as I said to Senator Ogilvie's question, if Dalhousie decides it wants to build a strong presence in deep- learning AI, we have set aside $10 million exactly for that purpose.
As to your question of progress in the technology, a prior comment would be that there will undoubtedly be progress in both the science and its applications over the next five years. I agree with the reasoning behind your question. Again, we have set money aside for an AI-in-society initiative that will look at the economic, philosophical and policy implications of AI science and its applications.
These issues are not unique to Canada; these are issues for the world. We will be publishing white papers coming out of the discussions of the scholars and scientists from not just across Canada but from around the world that we intend to bring together. That will start with a conference we're having this September on some of the economic issues of AI. That will be one mechanism.
I also will be very pleased to come back in front of this committee on an annual basis to give you an update on the whole strategy. But I can assure you that we will be reporting to the public on various mechanisms and implications of AI sciences and advances.
Senator Stewart Olsen: Thank you.
Senator McIntyre: Thank you, Dr. Bernstein, for your presentation. The federal government will be providing funding for your study.
This committee has been studying the role of robotics, artificial intelligence and 3-D printing in the health care system. My understanding is that some witnesses have suggested that a pan-Canadian robotics strategy is also needed for various reasons. Do you expect that robotics will be included within the framework of the proposed pan-Canadian artificial intelligence strategy, given the considerable integration of the new technologies? If not, why not?
Mr. Bernstein: If you think of transportation and the application of deep-learning AI to smart cars. I imagine all of you have read about smart cars. In a sense, a smart car is a robot. It's a machine that's free of human interference in what it's doing. Most of the smart cars being considered, including smart cars such as the truck that has already driven a load of beer across the state of Colorado a few months ago, are driven by deep-learning technology.
There is a natural spillover between deep-learning AI and robotics. I imagine that most robots will be activated and driven by deep learning in their computer algorithms. So, yes, they're different sides of the same coin, if you will.
Senator Petitclerc: That $125 million — when it comes to different areas of AI — because we have been so focused on AI in health, and I'm curious to know, and maybe it's too early and we don't have the answer — but how is it distributed? You mentioned cars right now. We're focused on health here. You mentioned and we heard about farming. Is it dedicated to different areas, or what is the process to choose a little bit where that money is going?
Mr. Bernstein: Excellent question, senator. CIFAR's approach is not to be too top-down; that's our philosophy regarding everything we do. We will be welcoming from the three institutes applications from individuals who they think are of a calibre of excellence and international standards that will pass our judgment in any area of AI.
The applications are not just in health. They cut across areas you have mentioned. I would include clean tech and other areas of science. I had a discussion yesterday with a very distinguished astrophysicist in this country about the applications of AI to looking at the cosmos, and he's heavily involved in that.
We don't have a formula at this point, and we're not thinking of including one. But we will have constant discussions with the leadership of the three institutes, because I am concerned about having balance across our investments, both geographically and in areas of science and their application.
Senator McIntyre: I'm wondering about the ethical concerns. In your view, what are the ethical concerns in developing and using the new technologies that basically rely on AI?
Mr. Bernstein: Good question. It's an open-ended question, because as the science develops, we can anticipate different scenarios that will impact different ethical, economic and other issues.
One of the ethical concerns deals with a broad area of the interface between machines and humans. Indeed, I was up early this morning to catch a flight to come here, and on CBC Radio they were interviewing someone from the BBC talking about robots in the home, powered by deep learning AI. It's hard not to the follow the media without hearing about AI.
There was a lot of discussion about, for example, as robots become more human-like, will there be a substitution of human-human interaction by human-machine or human-robot interaction? I'm not sure I would call that an ethical concern, but it is certainly a social concern.
Another ethical concern will be the economic disruptions that result from replacing humans in the workforce with robots or AI-driven machinery. Again, I'm not sure that's strictly an ethical issue, but it's certainly a social and economic issue.
There are privacy issues that we are already facing with computers and the Web, so I think we're there now, actually, with those issues.
Those, senator, would be my comments at the moment in terms of ethical issues. In our AI in Society Program, we will be bringing together individuals, top scholars and scientists from around the world who will be looking at all of these aspects.
Senator Dean: I'm going to return to an earlier answer to the chair on the deployment of resources from places where we suspect those resources will be going to some other places.
Five years is a long time in this area. Priorities and technologies change. I'm assuming from the earlier discussion and from the reaction of Ms. McDermott that there is sufficient flexibility in the use of those funds — I'm going to call it across boundaries, but within the ambit of the allocation — subject to consultation and approval from the department, to be adaptive and flexible, albeit within the principles and purposes of this. I think that's what we'd like to see. It sounds as though that kind of relationship and governance scheme is there.
Mr. Bernstein: The short answer is yes, senator. We had extensive discussions with the department, both sides working on the fine details of the agreement. We recognized exactly what you said, that five years is a long time. In a fast-moving area of science like AI, one never knows; I can't say in three years, let's say, where the pillars of strength in AI will be in this country, and no one can, really. So we wanted the flexibility to reflect exactly that.
I've had discussions with university presidents outside the three centres for exactly that reason, because they share that concern, understandably, and we have acknowledged that. Again, we also put in what I will call an elasticity or flexibility fund of $10 million for exactly that purpose. Even if the bulk of the chairs are taken up by the three centres, we still have $10 million there to deploy in other centres. There is nothing, I think, stopping CIFAR from going back to the government and saying that this has been a huge success. Look what's happening outside those three centres and the importance of this to Canada; we need to replenish the fund earlier.
[Translation]
Senator Cormier: As you know, the extent to which Canadians interact with artificial intelligence depends on whether they support the idea, which cultural and language groups they belong to, and whether they live in a rural or urban area. How do you take those different realities into account in developing and implementing your strategy?
Dr. Bernstein: That's a great question.
[English]
Let me give two extreme examples. I am aware of two industries in this country that are very interested in the application of AI to their industries. One is the banking sector and the other is agriculture. Those are very different geographies, as you said, senator. We've been talking with groups in Toronto, Montreal and Winnipeg about the applications of AI to farming and banking. Again, the realities of those two communities are very different. Bay Street is not a farm in Saskatchewan. But AI has applications in both contexts, and so we are working locally with the groups that are interested in that, so that they apply it in a way that is context-sensitive. It's not for us to do it, but it's certainly up to the communities on the ground to do it appropriately.
We're aware of that and are working with, as I said, the communities there. I've met with representatives of the tractor and farming industries, as well as the banking sector, to talk about AI in their industries.
Senator Petitclerc: I did have one more question. Maybe it's a little out of the scope, but I understand that this part of the budget goes to research and training. How do you transition from the research and training to applying it to Canadians? Is it the same budget or a different budget?
Mr. Bernstein: An excellent question. The $125 million, strictly speaking, is for research and training. That is CIFAR's business. That's what I think we're quite good at and that's where our funds will go.
Having said that, one reason we wanted the funding to go to the institutes that are affiliated with the universities that are in the budget speech is so that those institutes will be a meeting ground between academic researchers and the private sector. Our goal at CIFAR — and I'm sure the federal government's role — is twofold. One is to advance the science, but the other is to catalyze innovation. I view this investment as doing both, and I want to make sure it does both.
The Chair: Thank you very much, Dr. Bernstein. As I implied in my opening question to you, I think this is a marvellous decision in the budget to recognize the opportunity that we have in Canada in this emerging and powerful area. I think it also recognizes that Canada is a leader in this field, and it has been based on solid investments in studying how the brain works over time in Canada that has led to Canadian science making an enormous contribution to developing the capability of artificial intelligence and deep learning.
Mr. Bernstein: Absolutely.
The Chair: We've completed a study in this area, as of last evening, as you know — you testified before us on that study — and we recognize the tremendous potential that exists here and the challenges that will occur as it moves forward.
The last question from Senator Petitclerc identifies an area we are concerned about, namely, to make certain that Canadian entrepreneurs have an opportunity to take advantage of this area. We know they already are. This will come out in our study. It's not part of this bill, but I want to make the comment to you to encourage you to pursue the direction that you have outlined. We know there are barriers in major areas in Canadian society for acquiring new technology. The health care system, for example, is one where we learned the enormous frustration of the limits on individual units in the health care system to acquire new technology and so on.
That's not part of this bill or this study. I just want to make that observation to encourage you — from your answer to Senator Petitclerc, and I know from other experience that that's what you are doing — but to encourage you fully in that aspect so that, in this case, Canadian society does get the social and economic benefit from the knowledge that we develop in this country. Thank you very much for being here.
I'm delighted that our next panel of officials were able to join us ahead of schedule. As you know from these kinds of things in the past, committees are under very tight time frames here, so we really appreciate your being available to us a few minutes early.
I'm delighted to welcome back some faces we have seen before, who have been extremely helpful to us in previous studies.
Colleagues, we are dealing with Division 16 of Part 4 of the Budget Implementation Act, and this amends the Food and Drugs Act to give the Minister of Health the authority to fix user fees for services, use of facilities, regulatory processes and approvals, products, rights and privileges that are related to drugs, medical devices, food and cosmetics.
I believe Mr. Morgan will make a presentation, and then all of the officials are available to us for questions. Mr. Morgan, please go ahead.
Ed Morgan, Director General, Policy, Planning and International Affairs Directorate, Health Products and Food Branch, Health Canada: Thank you. Good morning. My name is Ed Morgan, and I'm the Director General of Planning and International Affairs in the Health Products and Food Branch of Health Canada. I am joined by Mr. Deryck Trehearne, Director General, Resource Management and Operations Directorate at the branch; David Lee, Executive Advisor to the Assistant Deputy Minister of the Health Products and Food Branch; and Naira Minto- Saaed, Director, Strategic Planning and Accountability Division, Resource Management and Operations Directorate.
It's a pleasure to be here today to discuss the very important proposal that seeks to create a sustainable, internationally comparable cost recovery regime for drugs and medical devices in Canada.
Health Canada ensures, as you know, the safety, efficacy and quality of health products sold in Canada through such regulatory activities as the pre- and post-market review of drug submissions. Like most Organisation for Economic Co-operation and Development countries, Health Canada has been charging fees for these activities since the 1990s so that industry pays a fair share of costs, thus ensuring fairness to taxpayers.
However, under the current approach, fees have been updated only once in 22 years. The fees in place today took 10 years to revise and were already out of date when they were implemented in 2011. As well, Health Canada recovers much less on a percentage basis than our top tier regulatory counterparts, such as the U.S. Food and Drug Administration, the European Medicines Agency and Australia's Therapeutic Goods Administration. These regulators routinely recover up to 100 per cent of costs and are able to revise their fees in a business-like fashion, sometimes annually.
Through Division 16 of the Budget Implementation Act, Health Canada is seeking revised administrative authorities to set user fees so that revenues can keep pace with costs, ensuring that industry once again pays a reasonable share and that fairness to taxpayers is maintained.
The proposal is part of a comprehensive approach to fee-setting under the Food and Drugs Act, one that is needed to develop the kind of modernized cost recovery regime that we need to help deliver our regulatory programs more effectively. The new regime will support the long-term transformation of Health Canada's regulatory system so that it better serves the overall health care system needs and those of Canadians.
Division 16 proposes to lift existing authorities from under the Financial Administration Act and shift them under the Food and Drugs Act to provide the minister with the authority to fix fees via a ministerial order. A ministerial order is a regulatory model that is subject to the same requirements as Governor-in-Council regulations but is somewhat streamlined. The same principles of good regulation-making apply, specifically the Statutory Instruments Act and the Cabinet Directive on Regulatory Management. The proposal does not raise fees in any respect; it simply revises our authorities to set fees in a simpler and more agile way, subsequent to a full consultation with all stakeholders.
All fee updates and revisions under these new authorities will continue to adhere to existing transparency and accountability measures. This includes public and parliamentary reporting, performance standards and penalties.
Division 16 also proposes that Health Canada's cost recovery regime be exempted from the requirements of the User Fees Act. You will have seen that another division of the BIA outlines some significant revisions to the act, including renaming it the service fees act, which Health Canada fully supports. However, Health Canada still requires an exemption from its provisions for several key reasons. First, by being placed in the Food and Drugs Act, the fee- setting authority will be aligned in both policy and legal instruments, allowing for a comprehensive regime that meets and exceeds all requirements of the service fees act, which is now being proposed.
The fees Health Canada charges to industry have been falling as a percentage of costs since 2011 and are now currently at about 40 per cent. The department urgently needs to reset its fees. While the proposed changes to the Food and Drugs Act and the cost recovery regime will take upwards of 15 months to put in place, waiting for a service fees act and related policies to be implemented is likely to take much longer and result in further uncertainty and increased strain on the department's drugs and medical devices programs.
Finally, Mr. Chair, we provided the clerk with a handout, and I believe that all members of the committee should have a copy of it. The document shows that the core accountability and business elements of the User Fees Act are reflected in the Food and Drugs Act amendments. These details aren't found in the BIA, which only reflects the legislative changes, not the implementation details that will be articulated in the regulations.
Mr. Chair, this concludes my remarks and we would be happy to take your questions.
The Chair: Thank you very much. I'll open up the floor to my colleagues.
Senator Stewart Olsen: Thank you for being here. Is this a new regime for Health Canada or for food and drugs?
Mr. Morgan: We currently have the authority to set user fees, so we currently set user fees, but you're right, the ministerial order is a new regulatory method of doing so.
Senator Stewart Olsen: Yes, exactly. So my real question to you is how long will it take your department to get up and running to actually implement this? Do you foresee additional costs? It is all currently done in one particular area and devolving it to different areas can sometimes be problematic. Do you have any input on that?
Mr. Morgan: In fact, there is an implementation plan. I will turn to my colleague Mr. Trehearne.
Deryck Trehearne, Director General, Resource Management and Operations Directorate, Health Products and Food Branch, Health Canada: Absolutely right; a great question. Essentially we have dozens of fees that are set under the food and drugs regulations right now, and we are proposing to lift them out from under the FAA and to shift them as a whole under the FDA as the instrument. We are not going to be putting in new fees in new areas, but that in itself will take 15 months through the regulatory process to complete. We have a full implementation plan.
In parallel to that we will obviously be consulting with our key stakeholders and we have already begun those conversations and I believe they will appear after us today.
We do have a full implementation plan, but as Ed points out, the new authority, rather than go through the full regulatory process, GIC, TBS and the whole deal there, would have a slightly more streamlined approach through the ministerial order. But it requires, as the handout points out, all those key elements of regulatory impact, economic impact assessments, requirements for consultation that are set in the legislation now. It maintains all the safeguards and accountability but allows us to potentially in the future, once we make this change, we hope to be able to renew our fees at a minimum every two years.
Right now, with the User Fees Act as it stood previously and the regulatory process, you're looking at a minimum four to five years there. And you can see from the history that Ed has outlined, we revised our fees once in 22 years and that took 10 years because there's a confluence of administrative and political will that is required to update those fees. What we're trying to do is simply make it in a slightly more business-like fashion.
Senator Stewart Olsen: To clarify, are you creating a new bureaucracy on top of one that's already doing it?
Mr. Trehearne: Absolutely not, no. We have the resources now.
Senator Stewart Olsen: Thank you.
Senator McIntyre: Thank you for your presentation. As I understand, the new legislation will affect user fees charged under the Food and Drugs Act. We have the User Fees Act and the proposed service fees act, and as I understand, it is proposed that the new service fees act will replace the User Fees Act.
Mr. Trehearne: Correct.
Senator McIntyre: It can get complicated, but at least it's a start.
That said, my question has to do with parliamentary review, and I draw your attention to Part 4 of Division 16, the new section 30.62. The bottom line with this, as I understand, is that the only requirement that must be met by the Minister of Health prior to setting a fee is to consult with any persons that the minister considers to be interested in the matter. Why should Health Canada not be required to conduct a thorough consultation and submit a fee proposal for parliamentary review?
David Lee, Executive Advisor to the Assistant Deputy Minister, Health Products and Food Branch, Health Canada: Thank you for the question, senator. If I can describe for you, there is consultation articulated here, but I would point out some other constraints on the minister in making any regulation, because once she makes an order it would be a regulation. It's just not through the Governor-in-Council.
She's also constrained to make sure when she puts proposals out — and I'm looking at (3), just above the section that you read — the costs are fixed. This is not an arbitrary number. She has to go through and look at our actual costs and then talk through it with industry. That's a very deep constraint and a good accountability for her.
In terms of tabling with Parliament, I did live through the last cycle of changing the fees, and it took quite a lot of effort to describe for Parliament what our intentions were, and then we sat for months in the drafting room, put the wording around it, and then went back out to industry and talked again about it, but the subjects were really the same. We're faithful to the scope of the exercise, which is making sure we don't go above cost, but the consultation really from the regulation side is, again, very robust. We have to have accountabilities around impact on the sector. It's very careful and methodical work.
You are pointing to something that is new. We don't go back into the Parliament, but again, the consultation is quite robust in this exercise.
Senator McIntyre: As I understand what you're saying is right because the proposed service fees make it clear that a fee can be fixed only after several requirements have been met with respect to consultation.
Mr. Lee: Absolutely.
Senator McIntyre: Thank you.
Mr. Trehearne: I would add that the Treasury Board Secretariat officials have changed the service fees act to reflect that as well.
Senator McIntyre: Thank you.
The Chair: Colleagues, are there other questions for the officials?
Senator Petitclerc: If I understand well, the goal really is to streamline and simplify and lower cost at some level in terms of efficiency, or not necessarily?
Mr. Trehearne: There are two kinds of costs. One is the cost to reset the fees, and so that certainly goes down because if you drag it out over 10 years, with all of us working on it, then it costs a certain amount to do the fee change, right?
Then there are the costs within government itself, and that's a much more complicated answer in terms of the cost drivers. One of our points here is that despite having a fee escalator set at 2 per cent, which is now a feature of the new services fees act as well, a requirement that all departments would have that, despite having that in our fees, which is one of the more positive aspects of our fee regime, the costs continue to rise and the fees, as a percentage, continue to drop. We're now around the 40 per cent mark, where we started in 2011 at about 50, and the rest of the world routinely recovers 75 per cent to 100 per cent.
Canada chose to set the fees at a lower percentage in the 1990s to ensure we didn't have a negative impact on industry and others because this was new. There was a lot of adjustment and growing pains for both industry and bureaucrats, I would suggest, at the time, which eventually gave rise to the User Fees Act. That in effect had a chilling effect in terms of fees and being able to be business-like or streamlined about any of this.
Senator Griffin: I want to be sure I understand clearly what drives the fees. Will it be the cost of living index, the CPI?
Naira Minto-Saaed, Director, Strategic Planning and Accountability Division, Resource Management and Operations Directorate, Health Products and Food Branch, Health Canada: Are you asking about the annual escalator piece or the overall?
Senator Griffin: Let me ask the whole thing.
Ms. Minto-Saaed: Sure.
Senator Griffin: Let's get to it.
The annual escalators, is that the cost of living index? That's one question. If you are looking at drugs or some approval process that's much more complicated, costs much more money than another one, which might be fairly simple, take fewer of your resources, are those also considered in the drivers of the fee? I wanted to be sure.
Ms. Minto-Saaed: In terms of setting the fee, we have time tracking in the department. Every submission is time tracked in terms of how long it takes to do, how long the review is, and when we set the fees annually we review what those costs are, do the average, and we develop unit costing. That is how we establish the fees so that it's representative of cost pure time.
With respect to the escalator, currently we have a 2 per cent escalator which was put forward. It wasn't necessarily tied to CPI or anything else. We are in the process of examining what we should be doing under the new regime: will we be sticking with the 2 per cent or going with CPI or a mix of both? That's what's being proposed for going forward.
Mr. Trehearne: So there's 100 per cent time tracking of costs as inputs to charge those fees, and that is shown to industry and stakeholders so that they can be very clear about what the costs are.
Senator Griffin: Up front, okay.
Mr. Trehearne: We are unique in some ways in having that capacity within our branch because of the nature of our business.
Senator Griffin: Okay, thank you.
Senator McIntyre: My question has to do with the roles of the stakeholders. What recourse, if any, would stakeholders have to challenge fees set under the proposed amendments? For example, could stakeholders request changes from the department, and if so, is this a change from the current policy?
The reason I'm asking you this question is because, as I understand, under the proposed amendments, the Minister of Health would be able to adjust the fee without preparing a proposal or meeting the consultation requirements set out in the new act.
Mr. Lee: This is a very important point. If I can just go back to our former conversation, the constraints would be placed right in the act so that the minister cannot make an order in a proper way without going through the consultation, and this would be with directly affected stakeholders at a minimum. It would have to be a good faith exercise of that.
Again, she's constrained by these costs that she needs to move out, so in order to meet these requirements to make the order properly, this is something we take very seriously. When we draft with our colleagues in Justice, they test very carefully that we have reasoning behind each of these before an order is made. We draft these along with Justice, and they keep an eye on that.
The minister would not be able to make an order without going through those steps. This is very decisive work in that way.
Senator McIntyre: So stakeholders could request changes, then?
Mr. Lee: Yes. If we were going to make changes, that's one aspect. If a stakeholder came in and asked the department to take a look and review the policy, certainly it's then open for the minister to start the exercise and go into consultation.
Senator McIntyre: Thank you.
Mr. Trehearne: There are a number of other provisions in our proposal, including that we have committed to come up with a broader dispute resolution process, as well. You have the guarantees of the consultation and we can always be invited to the House of Commons or here to discuss these proposals. You'll hear from our stakeholders, as well, after this.
In addition, we have things like fee mitigation policies for small business and small- and medium-enterprises so they are not affected by these fees if there is merit in that sense. We reduce our fees, I think, by about $20-odd million dollars a year in terms of lowering the fees where it might impact small- or medium-sized businesses. There are mechanisms for a number of these conversations.
Senator Neufeld: I'm all for streamlining and those kinds of things to make it easier; I want to preface my question with that.
What kind of a saving will there be to the department by doing this? When you talk about it having taken 10 years and all the work that would go into actually working all that paper for 10 years through a lot of different people, that must have cost some money.
Mr. Trehearne: Yes.
Senator Neufeld: What kind of a saving would this have for the department now? Have you even looked at that?
Mr. Trehearne: Well, there are two kinds of savings. I don't have a number. If I'm able to set fees in a streamlined fashion every two years and not turn it into a major issue every 10 years, then I think it lowers the cost on both the administrators, on legal, on the overall regulatory process, Treasury Board Secretariat and others, so there are a whole bunch of indirect costs here. There's a very demanding agenda in this government, and the regulatory requirements are quite large. Anything we can do to take the temperature down there is helpful, but again, as David pointed out, this is a type of regulation, but it's just a little simpler.
Then, also, I think there's the cost that we estimate that we're missing somewhere in the neighbourhood of $15 to $20 million a year at this point, based on the fees having been set on 2008 costs. If you take that cost savings into account, where we would recoup those fees, that's $20 million going back into the regulatory system every year to ensure the integrity and safety there. When we do not have those fees, we do what good bureaucrats do: We risk manage, we reallocate resources and we basically subsidize the cost of that.
Mr. Lee: In fact, senator, if I can illuminate that a little bit, several years ago we had a regulatory provision that we needed to put in to regulate active pharmaceutical ingredients, so these are the raw materials that go into drugs. It is a very important regime, and you need inspection cycles around that, but when we put it in, we couldn't keep up with the cost structure. We couldn't go under the User Fees Act fast enough to get cost recovery for that, so you have a very important safety oversight that's not being funded as the regulation comes in, and to this day we still don't have fees in that area.
The other cost that's sitting in the system, for us, as we move regulations in — mind you, we have managed that departmentally. We put good inspection cycles around it, but as Deryck says, you have to move monies within the programs. To have this aligned in a regulation-making way would be of great benefit, also.
Senator Neufeld: I certainly appreciate aligning it, doing those savings and actually applying the work to something that you have to do, rather than just shuffling paper to get a fee increase. I still come back to the fact that there's obviously a saving, and I guess what I get from your responses is that people will work a little bit more to make sure safety is better. Is that what you're saying? I kind of get that drift from what you're saying.
So you risk manage to a certain degree, but now your department will actually have more money, so what you'll do is risk manage a little bit better? In layman's terms, would that be fair?
Mr. Trehearne: I think that's fair to say.
Ms. Minto-Saaed: That's fair to say.
Senator Neufeld: Okay. So, the second part of this is I think you said 40 per cent recovery now, and you say worldwide it's 75 to 100 per cent. Is it your intention to get to 75 to 100 per cent? I would assume that's probably a fact. Over what period of time would you intend to do that? Then, would those extra earnings, I guess, to put it that way, go into risk manage a little bit better again, or will there be some saving, somewhere, that actually could be a saving to the Canadian taxpayer?
Mr. Trehearne: That's absolutely right. Yes, we do intend to have discussions with our stakeholders, starting this summer, about both the percentage and the costs. We intend to have a discussion about starting at a much higher percentage of the cost being recovered, as opposed to kind of a 50-50 sort of deal, which was a saw-off from 20 years ago.
We intend to have those conversations. Where we end up will be subject to those conversations, though, regarding what's doable within those industries and the impacts that they'll explain.
Senator Neufeld: I would assume you would start at somewhere around the 75 per cent mark if that is, in fact, where the average is.
Mr. Trehearne: We don't have a set target at this point. We want to open up that conversation, and we think it's worth having.
In terms of the savings, again, any new revenues from this, right, subject to re-spending authorities in the department set by the Treasury Board Secretariat, go immediately back into the direct costs of providing that regulatory service. What we will be able to do is, obviously, ensure the sustainability of that and enhance it. That should do more for performance and, therefore, that actually will ensure that there are better outcomes for Canadians, and for the stakeholders as well. There's a net savings there.
Any revenues cannot be distributed to other parts of the branch or the department that are not involved in the service of those revenues. That's fundamental.
Senator Neufeld: Let's say you went from 40 per cent to 75 per cent, what would that dollar amount look like? Give me some kind of ballpark figure.
Mr. Trehearne: We have looked at this.
Ms. Minto-Saaed: I don't think I have the numbers off the top of my head.
Mr. Trehearne: Let's put it this way: We recover, in the entire regulatory process — pre, post and vigilance — about $99 million a year, so we would be talking about $140 million a year if it came up 25 per cent.
Senator Neufeld: If it came up to 75? Okay, thank you.
The Chair: Colleagues, I think we have explored this. I have read the submission in detail. I fully understand it and we will get the comments from those that you will be regulating, or are regulating, and will be charging next.
Mr. Trehearne: Are charging.
The Chair: We'll see if there's anything that arises there, but I have no questions for you. I understand it fully. I believe our next witnesses are in the room, so we will get on to the next session.
Thank you all very much for being here.
Today we have two groups meeting with us: Innovative Medicines Canada and the Canadian Generic Pharmaceutical Association. I gather by peaceful agreement, Mr. Hamill will present first followed by Mr. Keon. It's the order they appear on the list, and I didn't have anything contrary.
I welcome Innovative Medicines Canada, Declan Hamill, Vice-President, Legal, Regulatory and Policy; and Keith McIntosh, Executive Director, Scientific and Regulatory Affairs.
Declan Hamill, Vice-President, Legal, Regulatory and Policy, Innovative Medicines Canada: Mr. Chair and honourable senators, thank you for inviting us to discuss this very important matter. My name is Declan Hamill, Vice-President, Legal, Regulatory and Policy from Innovative Medicines Canada, and with me is Keith McIntosh, Executive Director, Scientific and Regulatory Affairs.
[Translation]
Innovative Medicines Canada is the national voice of Canada's innovative pharmaceutical companies committed to enhancing the well-being of Canadians through the discovery and development of new medicines and vaccines. Together, we invest over $1 billion in research and development every year, thus helping to fuel Canada's knowledge economy.
[English]
Division 16 of Part 4 of Bill C-44 amends the Food and Drugs Act to give the Minister of Health the authority to fix user fee-for-service, such as regulatory review of innovative new medicines, which is a critical milestone in ensuring access to new therapies for Canadians.
The amendments to the Food and Drugs Act must be considered in the full context of other changes proposed to Bill C-44, Part 4. Division 21 of Bill C-44 also repeals the current User Fees Act and replaces it with a modernized services fees act, which requires consultation on fee proposals, performance standards, annual adjustments based on CPI and reporting on fees.
In contrast, Health Canada is exempted from this new services fees act, and the Minister of Health is provided with her own broad, discretionary authority to set fees by order and prescribe rules for the adjustment of fees without the same transparency, oversight and accountability afforded to other government fees.
On the subject of consultation, the act states that the minister shall consult any persons the minister considers to be interested in the matter.
In contrast, the services fees act prescribes public consultation, inviting representation from interested persons and stakeholders and replying to the representations made.
These amendments provide few safeguards for fee payers, such as performance standards; access to a complaint process during review; and central agency oversight, including by Parliament.
The most significant change impacts directly on Parliament by not explicitly requiring Health Canada to provide annual reporting on fees collected and costs incurred by Parliament, essentially exempting Health Canada's fees from any meaningful parliamentary oversight.
Also absent is true parliamentary review of proposed fees as was performed by this committee in May 2010 on Health Canada's proposal to Parliament for user fees and service standards for human drugs and medical devices.
In effect, those taxed via user fees, as a function of meeting their regulatory obligations under the Food and Drugs Act, will have no point of appeal or accountability for their obligatory fees.
Transparency, oversight and accountability to stakeholders have been hallmarks of Canada's approach to user fees since the User Fees Act was passed with all-party support in 2004.
Innovative Medicines Canada was involved in the development of the original User Fees Act, its subsequent amendment and its application of various fees incurred by our industry. Our industry has been notified, consulted, and had cooperative and comprehensive discussions with Health Canada that achieved timely regulatory assessment of innovative new medicines for Canadians.
We seek to ensure that these principles of transparency, oversight and accountability are upheld in the legislative framework, enabling timely regulatory consideration for innovative new medicines and health products.
Innovative Medicines Canada would also like to note a potential drafting error in Bill C-44, which we have appended to our remarks.
I would like to close by saying that Innovative Medicines Canada is ready and willing to work together with all stakeholders to increase investments in innovation and improve access to medicines for Canadians. It is our hope that this committee recognizes that legislative framework must ensure principles of transparency, oversight and accountability in service fees to enable stakeholders to work together in the best interests of Canadians with Health Canada.
Thank you.
Jim Keon, President, Canadian Generic Pharmaceutical Association: We appreciate this opportunity to appear before you.
I won't do much of a preamble since my colleague has done that. The generic pharmaceutical industry is Canada's primary pharmaceutical manufacturing sector and exporters. We are among the top R&D spenders among all industrial sectors. Our members operate the largest life sciences companies in both Ontario and Quebec, and directly employ more than 11,000 Canadians in highly skilled research, development and manufacturing positions.
We play a significant role in controlling health care costs. Generic drugs are dispensed to fill 70 per cent of all prescriptions in Canada, but account for only 22 per cent of the annual spend. Five or six generic prescriptions can be filled for the cost of one brand name because of the difference in price.
This issue on cost recovery and the changes to the User Fees Act matter to us because we are in favour of paying reasonable fees for regulatory review programs at Health Canada. Efficient and effective regulatory programs can help to generate many benefits to society. In the case of generic drug submission reviews, timely drug approvals are needed by payers, including the provinces and the federal government, to control costs and manage their drug programs. It allows them to take the savings provided by new generic medicines and invest in new, more expensive treatments or other health care programs.
I want to say a few words about our experience with cost recovery. CGPA member companies are major users of the Health Products and Food Branch's regulatory review programs. It is not uncommon for a major generic drug company to file a dozen or more new submissions for new generic medicines each year. Several of our members have more than 300 products in their portfolio and they pay fees for those products which remain on the market.
When CGPA appeared before this committee in May 2010, and my colleague was there at that time, we expressed major concerns about the ongoing resource issues within the Therapeutic Products Directorate at Health Canada which reviews generic drug submissions. At that time, significant backlogs for the review of generic drug submissions had been a reality for many years and the situation was reaching critical proportions.
In 2009, for example, 30 per cent of new generic submissions called ANDS, Abbreviated New Drug Submission, had exceeded the maximum number of days for review. That meant that 45 of 151 active ANDS submissions were in backlog. As a result of that backlog, Health Canada review staff would first pick up a generic drug submission six months after it was received. It basically sat for six months before they could pick it up because of their backlog.
If we look at the chart that we provided today, and I am just going to speak to the top chart, on the left of the bar chart you can see in the red at the top was the number of submissions in backlog in the period of 2012. Sixty per cent of submissions were in backlog. That is the time frame when the User Fees Act started to apply to Health Canada.
Immediately, Health Canada was penalized. It saw the revenues and resources for generic drug submissions decline. They took mitigation measures. Within two years they had removed the backlog. That backlog had been in existence for many years. Within two years of penalties from the User Fees Act they removed the backlog and found ways to address our submissions on a timely basis.
When the User Fees Act applied, there were initially some difficult years for Health Canada. They missed their performance targets and were penalized. At that time, 60 per cent were in backlog. There was a stack of submissions submitted before the User Fees Act applied.
We found that, over time, those submissions stayed in backlog and did not get attention. The ones that got attention were the new ones where the User Fees Act applied. As I said, we provided that chart to you.
Our concerns with the proposed Health Canada exemption from the service fees act are several. Without the prospect of severe penalties for missed performance targets, it is our view that generic drug submissions would never have been brought out of the backlog in the first place. We are concerned about the exemption of Health Canada from the service fees act that is included as Division 21 of Bill C-44.
There are many things required by the service fees act not required by the Food and Drugs Act amendments under Division 16. For example, the service fees act requires performance standards while Division 16 is completely silent on Health Canada performance standards.
I would be pleased to talk about other differences between the service fees act and the food and drugs regulations in the questions that follow.
I will take my last minute on the presentation to provide our recommendations. How do we move forward? As I said, our industry is not opposed to paying reasonable fees for services provided the following principles are followed: The fees must be fair and related to achievable international performance standards. The fees must be stable and predictable. Any changes in fees must be subject to appropriate transition time frames to provide companies with the time they need to adjust. Health Canada must be transparent about the true cost of operating its regulatory programs.
Number four is very important to us. Health Canada must be held accountable for its review standards through meaningful penalties for failure to meet the standards. Experience tells us how important that is.
Number five, Health Canada should be subject to parliamentary oversight as required in the service fees act.
Lastly, Health Canada must do all it can to control costs and should commit to adopting best international practices and use foreign reviews, wherever possible, to reduce resource burdens and time delays. Thank you very much.
The Chair: Thank you to both groups for your presentations.
Senator Stewart Olsen: Thank you for appearing before us today. I think you got to the heart of what I thought might be happening. The lack of consultation that you clearly spelled out does worry me. This is the second instance I've seen this government remove the requirements for public consultations and leave it directly in the hands of the minister. I think that's an important point.
I don't really have a question for you. I think you made your points very clearly. It's something for us to watch.
Thank you so much.
Senator McIntyre: Thank you for your presentations. In listening to you, it appears there is obviously a decrease in consultation requirements with regard to user fees affecting stakeholders.
My question brings me to the fees adjustments. I understand the current User Fees Act does not contain any provision regarding fees adjustments. In your view, will the new regulations governing the fee adjustments lead to more or less satisfaction with the pharmaceutical and medical device companies?
Mr. Keon: Currently, under the User Fees Act, Health Canada increases the fees by 2 per cent per year. I'm not sure whether we call it an adjustment, but they go up by 2 per cent each year. That has been occurring and our companies pay an extra 2 per cent each year. So there has been an increase.
In regard to the regulations, we don't know. We haven't seen them. We heard the witnesses before us saying that all those measures would be included and there would be a guarantee of consultations, but we haven't seen that. Clearly, as the previous senator said, there is going to be less scrutiny because it will not be presented back to Parliament. It will just be within the department the review going forward. So that does concern us.
Senator McIntyre: From what I understand, there was a proposal that fees fixed under the FDA, Food and Drugs Act, would not be subject to the proposed service fees act. Could you elaborate on that?
Mr. Hamill: I believe that is correct. That's our understanding. We are not comfortable with the exemption of fees under Food and Drugs Act from the general regime which is applicable to other federal government departments and agencies. As a point of principle, we don't agree with that, respectfully.
I would echo what the previous witness said about the discretionary element of the consultation provided for by Health Canada. Again, the quote is:
The minister shall consult with any persons the minister considers to be interested in the matter.
This affords the minister rather broad discretion. Even if a framework was set up from guidelines with a non- binding perspective, that framework would be at the discretion of the department and the minister. So that does concern us.
The other point is there were some percentages that were cited with respect to Health Canada user fees. For the record, in terms of drug submissions, the amount recovered is actually 54 per cent. That's higher than the aggregate number of other fees collected by Health Canada at the moment. So we are in fact, from a drug submission perspective, at 54 per cent. Thank you.
The Chair: Colleagues, do you have other questions? I think one of the things that I can say on behalf of my colleagues is your testimony has been exceedingly clear and your summary of issues is very much in front of us. I sense that the committee has understood your concerns and the previous testimony.
To my colleagues, I want to say that, as soon as we complete this session, we will go in camera for a short while to discuss what we heard on the two divisions to this point and give some instructions to the drafters. Just to let you know that.
As I said to the previous witnesses, I've read the divisions. I understand them very clearly. I'm not at all surprised at the issues that you are raising. The overall objective clearly is to recover reasonable costs of providing the service that you receive in order to get permission to sell your products in these regulated areas. From my perspective, that concept is appropriate in our kind of system. The issue is how those are set and the process that is used, and you have raised the questions around that. So I think that we have a good understanding of this.
(The committee continued in camera.)