A Senate committee studying health care has concluded that the medicare system is not fiscally sustainable with current funding levels and has recommended that the federal government impose about $5-billion in new taxes annually to strengthen Canada's health care system.

"Medicare needs to be restructured to make it more efficient and effective but restructuring any industry costs money," Senator Michael Kirby told a news conference Friday at the release of the committee's report"

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Mr. Kirby presided over the Standing Senate Committee on Social Affairs, Science and Technology, which released the report.

"Hence any new money can not and indeed must not be used to fund the system in its present form."

Any new federal money must be used to "buy change," the report said.

The committee determined that the new health dollars should come not from the existing federal surplus but from a national health-care sales tax or another option called a variable national health-care insurance premium.

Under the sales option, Canadians would pay a national sales tax of 8.5 per cent, consisting of the 7-per-cent GST and 1.5 per cent devoted to health care. The GST tax-credit rebate program would be expanded to parallel the increase in the rate to 8.5 per cent.

Finance Minister John Manley has previously ruled out raising the GST, a position he reiterated in Question Period on Friday after the report was released.

Under the alternative plan for a health-care insurance premium, Canadians would pay an amount in taxes that would vary according to their income.

Canadians in the lowest income tax bracket would pay 50 cents a day, while those in the next income tax bracket (with a taxable income between about $31,000 and $63,000) would pay $1 a day. Canadians with taxable incomes over $103,000 would pay $4 a day.

Mr. Manley said Friday that he does not favour a dedicated tax but is willing to look at the recommendations presented in the Kirby report. The Finance Minister said he also awaits the upcoming Romanow report and the Prime Minister's meeting with the first minister early next year before delivering his new budget.

Friday's report is the first of two major health-care studies to be delivered to the federal government. The other, led by former Saskatchewan premier Roy Romanow, is expected to be released at the end of November.

The Senate committee recommended that about 40 per cent of the proposed new federal funding be allocated to increasing the efficiency of country's doctor and hospital system as well as increasing the number of needed health-care professionals. About 30 per cent of the funding would be spent on expanding public health-care coverage and on health promotion and disease prevention. And the remaining 30 per cent would be spent on health research, performance evaluations and contingency to provide the necessary flexibility in federal investment.

"The committee believes that an additional $5-billion is an amount that Canadians should be willing to invest annually in a health-care system that meets the principles of the Canada Health Act and the objectives of Canadian health-care policy," the committee said in its report.

Among the committee's other recommendations was the establishment of a health-care guarantee that would ensure that Canadians receive proper medical care within an acceptable (medically established) time. If they did not receive the care in that time, the government would have to pay for care in another province or even in the United States.

The committee recommended that medicare cover a larger portion of drug costs and that individual out-of-pocket expenses for prescription drugs be capped at 3 per cent of the family's income. The federal government should pick up the majority of the drug costs, the report said.

Expanded home care and palliative care were also part of the committee's recommendations. The report called on the federal government to contribute $250-million annually toward a national palliative home-care program. The program would be designed and co-funded by the provinces and territories on a 50-50 cost-sharing basis.

Overwhelmingly, the majority of Canadians want to die at home, the Senate report said, but more than 80 per cent of Canadians die in hospital.

More money is also needed for medical schools and health facilities to develop new technologies. The report calls for $2-billion over five years to acquire new technology for academic health-sciences centres and another $4-billion over the next decade for capital investments.

The report also calls for another $2-billion over five years to develop a national electronic database of patient records and a system to manage them.

The Canadian Medical Association welcomed the report praising its call for investments to expand coverage, improve efficiency, health promotion and new research and technology.

"The CMA calls on governments to seriously consider the Senate committee's report. We need to turn the corner and move from debate to real action," Dana Hanson, president of the Canadian Medical Association said in a news release.

Sharon Sholzberg-Gray, president of the Canadian Healthcare Association, said she was generally pleased with the report pointing to its calls for more federal health funding, greater accountability and an increase in home care.

The report also clearly "recognized that if you want a better health care system you need more money," she said.

"Generally we like the tone of the report," Ms. Sholzberg-Gray told globeandmail.com.

One concern she expressed with the report was what she called its "excessive reliance on competition" which could lead to public hospitals competing with each other for patients and staff. For example, the report calls for "creating competition between hospitals to provide the best services."

The report also met some opposition on Friday.

"Instead of a plan to secure the long-term future of Canada's public health-care system, Kirby's plan will facilitate the commercialization and privatization of medicare," the Canadian Health Coalition said in a news release following the release of the report.

Evidence clearly shows that "for-profit ownership is more dangerous, costly, inequitable, fraudulent and unaccountable," the coalition said.

The report ignores such evidence, the coalition says, pointing to a section of the report as an example. "The Committee believes that the patient and the funder will be served equally no matter what the corporate ownership of a health care institution may be . . .," the report says.

The coalition renewed its call for the immediate resignation of Mr. Kirby over what they termed a conflict of interest.

"It is unethical for public office holders to influence government actions that further their financial interests. Senator Kirby is a director of Extendicare Inc. and sits on three committees of the board," the coalition said.

In the House of Commons during Question Period, NDP MP Judy Wasylycia-Leis echoed the coalition's concerns, saying Mr. Kirby is in a "very obvious conflict of interest."