Veterans Affairs’ marijuana bill reaches $44.5M
Producers find lucrative market in ex-soldiers using medical drug
Veterans Affairs paid out $44.5 million for medical marijuana expenses in the year before Ottawa cracked down on soaring reimbursement costs — more than three times what it covered in the prior two years combined.
The department covered 3.7 million grams of marijuana at an average cost of $12.01 per gram from October 2015 to September 2016 — 30 per cent higher than what it considers market value.
The cost breakdown was included in documents released under an access-to-information request ahead of a Veterans Affairs policy change this month that will significantly reduce the amount of medical marijuana eligible for reimbursement.
The move is part of an effort to curtail government spending on skyrocketing medical marijuana costs as the number of ex-soldiers claiming medical marijuana expenses rises rapidly.
Veterans Affairs Minister Kent Hehr announced in November the department would cap reimbursement at $8.50 per gram — the socalled “market value”— and reduce the eligible amount to three grams per day from 10 for new patients. As of May 22, the volume limit will apply to all veterans.
Reimbursement costs in the four months since the November policy change totalled $16.8 million, compared with $13 million spent in the entire two years from October 2013 to September 2015, suggesting spending is still on an upward trajectory despite recent cost containment measures.
Veterans Affairs began a review of its medical marijuana reimbursement policy in March last year following an auditor general’s report that found program costs were ballooning amid a massive increase in users and would soon account for nearly one-third of all federal drug coverage for veterans.
The review was completed in April 2016, but the changes weren’t announced until November. In the meantime, allegations emerged that some licensed producers were abusing the system with aggressive campaigns seeking out veterans by paying fees to doctors and clinics for patient referrals and purposely directing veterans to their most expensive products.
Veterans Affairs told the Financial Post it cannot provide details of investigations into specific companies due to privacy regulations, but said it conducts regular audits on licensed producers and if questionable practices are identified it can deregister the provider and refer to Health Canada for further action.
A departmental review found that retired soldiers were authorized for 10 times the amount authorized for other patients. At least seven in 10 veterans were being reimbursed for amounts greater than the new three-gram limit, according to the documents.
The department also found that one unnamed physician was responsible for 57 per cent of veterans’ medical marijuana authorizations.
It noted that “some family members have been distressed by how easily their veteran has been able to obtain MM (medical marijuana) from one heavy prescriber,” according to minutes from a meeting of experts.
Veterans Affairs did not address those specific allegations when it announced changes to the reimbursement program, despite their potential impact on rising costs.
Taxpayers covered $63.7 million in medical marijuana reimbursements for veterans last year, compared to just $19,000 in 2008, when five retired soldiers were reimbursed.
The department’s reimbursement costs have exploded since 2014 when the Conservative government launched a free market for medical marijuana and prices shot up to as much as $14 a gram from $5 per gram.
As of March, 4,474 veterans had their cannabis bills covered, up 154 per cent from the 1,762 covered in the year prior.
Veterans Affairs is among only a handful of Canadian institutions that cover the cost of the drug, which makes veterans a particularly lucrative market opportunity for licensed marijuana producers.
According to the documents, licensed producer MedReleaf Inc. — the biggest beneficiary of medical marijuana reimbursements — charged Veterans Affairs $22.4 million, half the total amount the department paid out to cover veterans’ medical marijuana costs between October 2015 and September 2016.
The Markham, Ont.-based company, which plans to list on the Toronto Stock Exchange soon, booked $30 million in revenues in the nine months ended in December, representing growth of 141 per cent from the previous year, according to a prospectus document filed May 9.
A “significant portion” of revenue came from veteran sales, according to the filing, however a spokesperson declined further comment because the company is in a quiet period ahead of the initial public offering.
MedReleaf is conducting a study on cannabis for veterans with posttraumatic stress disorder, has a separate shopping site for veterans and holds meetings and events targeting former soldiers. Spokesperson Darren Karasiuk declined to say whether it pays referral fees to clinics and doctors.
The government’s policy changes started to take a toll on MedReleaf’s sales as early as December, when it offered a discount to offset the price difference between veterans’ preferred strains and the $8.50 per gram reimbursement cap. It had been charging Veterans Affairs an average of $13.02 per gram, according to the government’s cost breakdown.
The company’s regulatory filings identified future changes to the veterans’ reimbursement program as a risk, noting that some veterans will be authorized to be exempt from the limit. “If a significant number of the company’s eligible veteran patients do not obtain such an exemption, MedReleaf’s sales and revenues could be adversely affected,” it said in the prospectus document.
Leamington, Ont.-based Aphria Inc. charged the department the second-highest bill: $6.6 million at an average cost of $12.04 per gram, documents show. Retired soldiers represent about 20 per cent of its patient base and account for half of its revenue. As part of its patient acquisition strategy, the company pays referral fees to “patient aggregators” such as clinics.
The reimbursement cap hit the company’s most recent quarterly revenues as its average selling price decreased from $8.18 per gram to $7.85 per gram even as the volume sold increased.
However, the impact of the new three-gram reimbursement limit will be mitigated by strong growth in other areas of the company’s business, chief financial officer Carl Merton said in an email.
“We anticipate that the existing demand for our products from registered patients, the demand associated with new registered patients in the quarter and the increased demand for wholesale product (sales to other licensed producers) will increase in the quarter, offsetting the decrease in grams paid for by Veterans Affairs.”
While licensed producers cope with the impacts of the changes on their bottom line, the new policies have already reined in taxpayerfunded reimbursements. Even as the overall program costs continue to rise as the number of veterans participating soars, the average cost per patient in the six months since November’s announcement was $5,872, down from $10,996 in the six months prior — a drop of 47 per cent.
Taxpayers covered $63.7 million in medical marijuana reimbursements for veterans last year, compared to just $19,000 in 2008, when five retired soldiers were reimbursed.