The federal research, revealed by The Canadian Press on the weekend, showed that Europe's demands for patent-term restoration would cost between $800 million and $2 billion a year.
A compromise option would cost up to $900 million a year — a price that would be borne by provincial drug plans, employer-sponsored insurance plans and individuals.
"It confirms what we've been saying for a long time: that the stakes for both public health care and for private and supplementary plans are considerable here," said Adrian Dix, leader of the NDP in British Columbia.
Dix has led a vocal campaign against agreeing to the European drug-patent demands.
"The potential for this stuff being lost at the bargaining table takes away our single biggest ability to control health care costs over the next decade. And it doesn't seem to us that there is any reciprocal benefit for Canada," Dix said in an interview.
Europe and the many brand-name pharmaceutical companies headquartered on the continent say Canada's patent regime is not as robust as in Europe and other industrialized countries.
They argue that extending patents to recognize the amount of time unapproved drugs spend in the regulatory pipeline would improve Canada's competitiveness.
The Department of Foreign Affairs and International Trade has always insisted it's a "myth" that the Canada-EU free-trade deal would increase health costs.
But the analysis done by officials at Industry Canada and Health Canada shows that significant costs would result from Ottawa agreeing to implement patent-term restoration — just one of three demands from Europe that would bolster pharmaceutical patents.
The analysis concludes that full agreement with Europe on patent-term restoration would add an average of 2.66 years of market exclusivity to the average brand-name drug.
"I was struck by the fact that the Conservatives responded by claiming in writing that it was a myth that (the trade agreement) would have any increase to drug costs in Canada," said Don Davies, the federal NDP trade critic.
"I find it disturbing that we now find out they have internal studies and information that would suggest that in fact those changes would increase drug costs in Canada."
A spokesman for International Trade Minister Ed Fast would not comment directly on the government analysis, but says there has been no decision made yet about whether Ottawa should concede to Europe's demands.
"With respect to intellectual property protection in the pharmaceutical sector, nothing has been agreed to and no decisions have been made," said spokesman Adam Taylor.
Negotiators are meeting this week and next for their final round of talks, and will address intellectual property. Then any outstanding issues will be kicked up to the ministers' level in early November. The federal cabinet is expected to sign off on the deal by the end of next month.
But the brand-name drug industry in Canada says it would be "dangerous" to base any decision on the costing research because it reaches unreliable conclusions.
Russell Williams, president of Canada's Research-Based Pharmaceutical Companies, said any calculation of the effects of extending patents is faulty because it uses models from past patterns to predict the future.
The changes to drug patent terms would not start having an effect until 2022, he said, and no one can project reliably that far into the future.
"The notion of trying to use retroactive thinking on an industry that's going through huge change and offering more and more value and hope to our health care system and try to come up with a cost to our system — without even thinking of the value of it — is rather difficult to do," Williams said in an interview.
"I think (it) is quite dangerous to base any public policy on it."
Drugs account for about 16 per cent of total health-care expenditures in Canada. That percentage soared during the 1990s and early 2000s, but has since stabilized.
The Canadian Institute for Health Information estimates that Canada spent about $32 billion on drugs — brand-name and generic — in 2011. According to patent-drug price regulators, about $13 billion was spent on pharmaceuticals covered by patents.
Many of the major patents are about to expire, however. CIHI says that between 2010 and 2014, drugs worth $8.7 billion annually will see their patents removed.
Generic replacements are generally priced between 25 per cent and 56 per cent of the patented version.