Health Care Reform From the Cradle of Medicare - Janice MacKinnon JANUARY 2013 MEDICARE'S MID-LIFE CRISIS
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MEDICARE’S
MID-LIFE CRISIS
Health Care Reform From
the Cradle of Medicare
Janice MacKinnon
JANUARY 2013
A Macdonald-Laurier Institute Publication
True North in Canadian Public Policy
Board of Directors Advisory Council
CHAIR Purdy Crawford
Rob Wildeboer Former CEO, Imasco, Counsel at Osler Hoskins
Chairman, Martinrea International Inc., Toronto Jim Dinning
Former Treasurer of Alberta
MANAGING DIRECTOR
Brian Lee Crowley Don Drummond
Former Clifford Clark Visiting Economist Economics Advisor to the TD Bank, Matthews Fellow in
at Finance Canada Global Policy and Distinguished Visiting Scholar at the
School of Policy Studies at Queen’s University
SECRETARY Brian Flemming
Lincoln Caylor International lawyer, writer and policy advisor
Partner, Bennett Jones, Toronto Robert Fulford
Former editor of Saturday Night magazine, columnist
TREASURER
with the National Post, Toronto
Martin MacKinnon
CFO, Black Bull Resources Inc., Halifax Calvin Helin
Aboriginal author and entrepreneur, Vancouver
DIRECTORS Hon. Jim Peterson
John Beck Former federal cabinet minister, Partner at
Chairman and CEO, Aecon Construction Ltd., Fasken Martineau, Toronto
Toronto Maurice B. Tobin
Erin Chutter The Tobin Foundation, Washington DC
President and CEO, Puget Ventures Inc., Vancouver
Navjeet (Bob) Dhillon Research Advisory Board
CEO, Mainstreet Equity Corp., Calgary
Janet Ajzenstat
Keith Gillam Professor Emeritus of Politics, McMaster University
Former CEO of VanBot Construction Ltd., Toronto Brian Ferguson
Wayne Gudbranson Professor, health care economics, University of Guelph
CEO, Branham Group, Ottawa Jack Granatstein
Stanley Hartt Historian and former head of the Canadian
Chair, Macquarie Capital Markets Canada War Museum
Les Kom Patrick James
BMO Nesbitt Burns, Ottawa Professor, University of Southern California
Peter John Nicholson Rainer Knopff
Former President, Canadian Council of Academies, Professor of Politics, University of Calgary
Ottawa Larry Martin
Rick Peterson George Morris Centre, University of Guelph
President, Peterson Capital, Vancouver Christopher Sands
Jacquelyn Thayer Scott Senior Fellow, Hudson Institute, Washington DC
Past President, Professor, Cape Breton University, William Watson
Sydney Associate Professor of Economics, McGill University
For more information visit: www.MacdonaldLaurier.ca
Table of Contents
Executive summary................................................2 Cost saving and interprovincial co-operation .....13
Sommaire...............................................................3 Changing the way medicare is funded.................15
Introduction...........................................................4 Conclusion...........................................................17
History of medicare in Canada..............................4 About the author .................................................18
Comparisons between Canadian and Endnotes..............................................................19
Western European health care models..................6 References ...........................................................20
Changing the medicare model...............................7
The author of this document has worked independently and is solely responsible for the views
presented here. The opinions are not necessarily those of the Macdonald-Laurier Institute, its
Directors or Supporters.
Executive summary
A s the oldest of the baby boomers turn 67
this year, the “fiscal squeeze” looms larger
and larger. Providing health care for all Ca-
nadians while encouraging a robust economy will
require a more efficient health care system with
In Canada, a co-payment could be implemented
whereby individuals would pay for services used,
up to a ceiling of 3 percent of income. The income
tax system would be used to collect the revenue;
thus, the administrative costs and complexity
better methods of funding. would be reduced and the sick should not be de-
terred from using the system since no fees would
Changing the health care system to make it more
be collected when care is accessed.
affordable and effective will require addressing
the three main structural problems built into the Health care has been like a car with federal and
original design of the system: the focus on hospi- provincial governments vying for control of the
tals and fee for service doctor services; a funding steering wheel. The federal government provides
model in which there is no relationship between funding and sets standards, and the provinces
users of the system and its costs; and the extent to have the power to design and administer the sys-
which federal-provincial structures and tensions tem and control spending. Controlling costs and
have made reform more difficult. making structural changes is complicated by the
A better medicare system requires changing the complexity of federal-provincial relationship. In-
traditional 1960s hospital model by funding hos- terprovincial co-operation will also be key to re-
pitals differently, diverting patients to alternative ducing costs.
facilities, and focusing more on a holistic, integrat-
More use of private clinics, home care, and long-
ed approach to health. An emphasis on prevention
term and chronic care facilities would produce
and health promotion would save lives and money
in the future. The current full coverage of hospi- more appropriate and affordable care than hos-
tals and doctors does not leave funding for these pitals. The health department established the Sas-
areas, and furthermore, it diverts resources from katchewan Surgical Initiative in 2010 to reduce
areas like education and income support, which wait times. Comparing the total cost of perform-
are crucial to supporting a healthy lifestyle and ing 34 procedures in the clinic versus the health
environment. department hospital reveals that it is 26 percent
less expensive to use clinics than hospitals, and in
Most Western European countries have less ex- all cases the clinics were less expensive.
pensive health care systems with better outcomes.
Significant differences include linking patients and Preserving the noble ideal of universal health care
taxpayers to the costs of health care through user will require making fundamental changes in Cana-
fees or co-payments; paying doctors a salary; and of- da’s health care system. The changes suggested in
fering broader coverage for services like home care, this paper will make Canada’s health care system
physiotherapy, and prescription drugs. Additional- more affordable and open the door to investments
ly, health care is seen as one of many social services in other services and programs that are more im-
and is subject to reform, like the reforms Canada portant in promoting the overall health of the
used in the 1990s to change other social programs. population.
2 Health Care Reform From the Cradle of MedicareSommaire
A lors que les premiers baby-boomers attein-
dront 67 ans cette année, le spectre du
« resserrement fiscal » prend de plus en plus
d’ampleur. Fournir des soins de santé à tous les Ca-
nadiens tout en favorisant une économie vigoureuse
ont été effectuées par le Canada dans les années 1990 à
l’égard de différents programmes sociaux.
Au Canada, on pourrait instaurer une formule de par-
ticipation aux coûts des services en vertu de laquelle les
utilisateurs assumeraient une partie de ces coûts jusqu’à
nécessitera un système de soins de santé plus efficace
concurrence de 3 % de leurs revenus. L’infrastructure
tirant parti de meilleures méthodes de financement.
mise en place pour l’impôt sur le revenu pourrait servir
Pour transformer le système de santé en vue de le ren- à recueillir ces frais de participation, ce qui limiterait les
dre plus abordable et plus efficace, il faudra régler les coûts administratifs et la complexité du système et évit-
trois principaux problèmes structuraux du système erait ainsi de dissuader les malades d’utiliser le système
depuis sa conception : l’accent mis sur les hôpitaux et de santé, puisqu’aucuns frais ne seraient recueillis au
la rémunération des médecins à l’acte; le modèle de moment de la prestation des services.
financement en vertu duquel il n’y a pas de corrélation
entre les utilisateurs du système et les coûts rattachés Les soins de santé sont comme une voiture dont les
au système; et la mesure dans laquelle les tensions et gouvernements fédéral et provinciaux se disputent le
les structures fédérales-provinciales ont compliqué la volant. Le gouvernement fédéral fournit le financement
réforme. et établit les normes, alors que les provinces exercent le
pouvoir de concevoir et d’administrer le système et de
Pour améliorer le système d’assurance-maladie, il faut contrôler les dépenses. La nature même des relations
modifier le modèle hospitalier traditionnel des an- fédérales-provinciales augmente la complexité du con-
nées 1960 en finançant les hôpitaux de manière différ- trôle des coûts et de la mise en œuvre des changements
ente, en redirigeant certains patients vers des installa- structurels. La coopération interprovinciale sera égale-
tions répondant mieux à leurs besoins et en favorisant ment la clé pour réduire les coûts.
une approche holistique et systémique à la santé. Si
l’on mettait l’accent sur la promotion de la santé et la Il faut que les options comme les soins de longue durée,
prévention, cela pourrait sauver des vies et économiser les cliniques privées, les soins à domicile et les établisse-
de l’argent. À l’heure actuelle, le financement intégral ments de soins prolongés soient offertes pour garantir
des hôpitaux et des médecins ne laisse aucune place au des soins de meilleure qualité, plus abordables et plus
financement de ces autres secteurs ; en outre, ce mode rapides que ceux offerts par les urgences des hôpitaux.
de financement accapare des ressources qui autrement En 2010, le ministère de la santé de la Saskatchewan a
seraient attribuées à d’autres secteurs dont l’éducation mis en œuvre la Surgical Initiative (l’Initiative chirurgi-
et le soutien du revenu, essentiels pour assurer un cale) afin de réduire le temps d’attente. La comparaison
mode de vie sain et un environnement de qualité. du coût total de l’exécution de 34 actes médicaux dans
une clinique par rapport au coût total de ces mêmes
La plupart des pays de l’Europe de l’Ouest sont dotés de actes médicaux en milieu hospitalier a révélé qu’il en
systèmes de santé qui sont moins coûteux et génèrent de résultait une économie de 26 pour cent dans les cli-
meilleurs résultats. Parmi les différences notables, men-
niques et soulignons que dans tous les cas, les coûts
tionnons les suivantes : le recours aux frais d’utilisation
étaient moins élevés dans les cliniques.
ou de participation aux coûts qui établit une corréla-
tion entre les patients et les contribuables et les coûts Si l’on veut maintenir le noble idéal des soins de santé
des soins de santé; le versement d’une rémunération universels, il faudra apporter des changements fonda-
aux médecins basée sur un salaire ; et l’offre d’un large mentaux au système de santé du Canada. Les trans-
éventail de services comprenant les soins à domicile, la formations proposées dans le présent document vont
physiothérapie et les médicaments sur ordonnance. En rendre le système de santé canadien plus abordable et
outre, les soins de santé sont considérés au même titre vont ouvrir la porte aux investissements dans d’autres
que tous les autres services sociaux et ils peuvent faire services et programmes mieux axés sur la promotion de
donc l’objet d’une réforme, dans l’esprit de celles qui la santé globale de la population.
Janice MacKinnon – January 2013 3Introduction History of medicare
in Canada
F undamental changes to Canada’s health
care system and its funding will be required
T
to help address the looming “fiscal squeeze” he fundamental problems with Canadian
caused by the aging of the baby boomers, whose health care are especially interesting since
oldest members turned 65 in 2011 (Ragan 2011). the other parts of Canada’s social safety net
Population aging will lead to increased health have been reformed to make them more effective
costs since more than half of one’s medical costs and affordable. Programs like the Canada Pension
occur after 65, and costs will also increase because Plan and Canada’s welfare and post secondary ed-
of technological developments – new treatments, ucation systems were changed in the 1990s and
procedures, equipment, and drugs (Robson 2001; made affordable by linking the costs of programs
CIHI 2001).1 At the same time, population ag- to their benefits, targeting benefits, changing in-
ing will lead to declining labour force participa- centives, and introducing competition and other
tion, which will slow income and revenue growth. market forces (Federal/Provincial/Territorial CPP
Hence, Canada’s health care system will have to Consultations Secretariat 1996).3 The question,
both become more efficient and find new and bet- then, is why has there not been a similar restruc-
ter ways of funding. The purpose of this paper is turing of Canadian health care?
to recommend changes that can be made by the
provinces, which are responsible for designing and The answer lies in the original structure and fi-
administering health care, to achieve these goals nancing of the Canadian health care system, which
while maintaining Canada’s single payer publicly set it apart from those in Western Europe, and cre-
funded health care system. ated major obstacles to change. Understanding
these structural problems is essential to identify
what needs to be changed.
The foundations for medicare were laid in the
Medicare’s design focuses 1950s and 1960s, when the prevailing medical
model was curative rather than preventative. For
on curative rather than Canadians health care meant hospitals (with their
preventative care. high tech equipment and professional managers)
and doctors, whose primary obligation was to cure
ill patients (Gagan and Gagan 2002).4 At that time,
there was not the broad range of pharmaceuticals
Relative to comparable countries Canada’s health that are available today and it was not possible to
care system is expensive, its outcomes average, treat diseases like cancer in the community. More-
and its wait times for many procedures long. A over, the idea that health care involved more than
Conference Board of Canada study comparing the the treatment of illness only began to emerge in
health care systems in 24 Organization for Eco- the early 1960s when American and British reports
nomic Co-operation and Development (OECD) first linked smoking to disease. Further research
countries found that Canada was the third larg- would show how lifestyle and other factors (like
est spender on health care, but our wait times are income, education, and the environment) affected
among the highest, and in terms of health status people’s health (Bird and Fraser 1981, 29).
– or outcomes – Canada ranked only 13th of 24
countries (2004, 1). Subsequent studies have con- By the time this shift in thinking occurred, deci-
firmed similar results.2 sions had been made about funding health care
that set the pattern for the future. In terms of fi-
nancing, many early reports assumed that some of
the costs of medicare would be paid directly by pa-
tients or taxpayers. The 1939 Rowell-Sirois Report,
4 Health Care Reform From the Cradle of Medicarewhich dealt with federal-provincial fiscal relations, The decision to fund health care solely from gen-
assumed that contributions from employers and eral tax revenue, restrict its coverage, and pay doc-
employees would raise most of the money (Cana- tors on a fee for service basis has had profound
da 1954, 42). One of the intellectual architects of implications for Canada’s health care system. The
Canada’s social programs, Leonard Marsh, wrote pre-medicare link between the costs of medical
in his 1943 report that there were “psychologi- services and their benefits was broken. With doc-
cal” as well as financial benefits to having taxpay- tors paid according to the number of patients
ers pay a part of their health care costs. He linked seen, neither doctors nor patients have an incen-
the amount of coverage to the size of contribution tive to consider what increasing use of the health
made directly by individuals – that is, if more ser- care system means for its costs. The result, in the
vices were to be covered, then individuals would words of former Quebec Health Minister Claude
have to pay more directly from their pockets (Bliss Forget, is that the Canadian health care system has
1975, 12-13). Tom Kent, Prime Minister Pearson’s “a powerful engine and no brakes”. It is a lethal
key policy adviser when medicare was created in combination of open-ended services for patients
the 1960s, recommended that up to 25 percent of with no mechanisms to contain costs (2002, 3).
health care costs should come from making health
care a taxable benefit. Kent believed that there was
a problem with health care being a “free good”. If
even a small part of what patients and taxpayers
paid for health care was related to their use of the The health care system has
system, there would be some restraint on the de- “a powerful engine and
mand for services. Kent also knew that if medicare
were to be funded solely from the general pool of
no brakes”.
taxes, governments would only be able to cover a
narrow range of services (Kent 2005).
Moreover, in fully covering hospitals and doctors,
the government funded the expensive services,
while other services that are more cost-effective
Early reports assumed and promote the prevention of illness, were un-
patients would pay for some funded. This point was made in the 1985 report
on government services done by Deputy Prime
portion of their health care. Minister Erik Nielson, who states that Canada was
above average in its spending on health care due
to the emphasis on “illness care” in the Canadi-
an system. His report called for more spending
A key decision point came in 1964 when the Hall on preventative services (Canada Task Force et
Commission, established to advise on the struc- al. 1986, 39, 52). Every major health care report
ture of medicare, recommended that medicare since has recommended more funding for preven-
should cover more than doctors and hospitals tion and health promotion and has pointed out
and should include other services like home care that this would save lives and money in the future.
(Canada 1964, 19). However, the government re- However, because hospital and doctor services are
jected the idea of having people pay directly for a fully covered, the incentive for patients is to rely
part of health care costs by making health care ser- on these expensive acute care services, and this
vices a taxable benefit. Without the extra revenue, demand is so high that provinces have only limit-
the government could not afford broad coverage; ed funds for the health promotion and prevention
thus, coverage was restricted to doctors and hospi- services that would produce long-term savings. It
tals. The government also accepted the Hall Com- is a classic Catch 22.
mission’s recommendation to fund doctor services
on a fee for service basis.
Janice MacKinnon – January 2013 5Comparisons many services that are essential to primary health
care are not covered by medicare, doctors are paid
on a fee for service basis and act as the gatekeepers
between Canadian for access to other services – responsibilities that
can be changed by governments only after exten-
and Western sive negotiations – while other health care profes-
sionals jealously guard their own scopes of practice
European health (the responsibilities assigned to their profession).
There has been progress, particularly in Ontario,
care models in moving family doctors to alternative payment
schemes and in using interdisciplinary teams to de-
I
liver primary health care, but it has been slow and
n contrast to Canada, most Western European
uneven across the country (Tuohy 2004. 88).5
countries fund health care services in ways
that link patients and taxpayers to costs,
through user fees or co-payments; doctors are
paid by salaries; and there is broader coverage –
for instance, there is some funding for services like
Opposition to reform makes
physiotherapy, home care, and prescription drugs. rationing the only way to
Thus, there is less incentive to rely on expensive control costs.
doctor and hospital services and more reason for
people to use other services that are more cost-
effective and important in preventing illness and
future costs to the health care system. Moreover, Another difference is that health care in Western
because of the structural differences in their sys- European countries is seen as one of many servic-
tems, Western European countries are able to es and is subjected to the kinds of reforms used
make extensive use of a primary health care model in Canada in the 1990s to change other Canadian
to deliver services. In this model, services are inte- social programs, such as competition, financial in-
grated and medical professionals work as part of centives, and market forces. In Canada, relative to
a team, so rather than seeing a physician a patient other areas of social policy, health care has many
might see a dietitian, a physiotherapist, or whatev- powerful interest groups – from doctors, nurses,
er member of the medical team can best treat the and technicians to public sector unions – and aca-
patient’s ailment. The result is a more integrated, demics who see themselves as the intellectual gate-
holistic, and cost-effective model of health care, keepers of the current health care system. When
which helps explain why many European systems the use of competition or other market mecha-
are less expensive but have better health care out- nisms are advocated (such as in Kirby and Keon
comes than Canada’s. 2004; Bliss 2010), public sector unions cry that
private sector delivery amounts to privatization of
health care, while the intellectual gatekeepers ar-
gue that health care is a “public good” as opposed
Many European health care to “a market-driven commodity” (Lewis 2004).6
systems are less expensive
Facing formidable opposition to change, govern-
but have better outcomes ments have been left with few options to control
than Canada. costs, and they have been forced to rely on restrict-
ing the supply of medical services, equipment, and
personnel – or rationing – to control costs.7 But
rationing means shortages and Canada has fewer
Though virtually every report on health care in doctors and hospital beds and less equipment than
Canada has recommended moving to a primary the OECD average. Shortages mean waiting lists
health care model, the obstacles are formidable: and Canada has for some time had longer waiting
6 Health Care Reform From the Cradle of Medicarelists than countries with comparable health care tal focus in health care has been on trying to in-
systems.8 fluence the level of and conditions attached to
federal transfer payments to the provinces. First
Finally, while European countries are unitary Ministers meetings on health care have not been
states with one level of government funding and efforts to work together to reform the system; in-
administering the health care system, in Canada stead they have provided a forum for provincial
health care has been like a car with federal and governments to rally public opinion in support
provincial governments vying for control of the of increased health care transfers. The dominance
steering wheel. The federal government’s use of of the federal-provincial relationship has left little
its spending power to fund a national medicare opportunity for the provinces to work together to
system created a major structural problem and improve Canadian health care.
source of tension: while the federal government
provided funding and set standards, the provinces Therefore, changing the health care system to
had the power to design and administer the sys- make it more affordable and effective will require
tem and control spending. Moreover, it is argued addressing the three main structural problems
that federal transfer payments have induced “a fis- built into the original design of the system: the fo-
cal illusion”; since the money is perceived to come cus on hospitals and fee for service doctor services;
from taxpayers across Canada, taxpayers see such a funding model in which there is no relationship
spending as less costly than if the money were between users of the system and its costs; and the
raised within their own province (Kneebone 2012, extent to which federal-provincial structures and
12).9 Hence, a dramatic increase in transfers to the tensions have made reform more difficult.
provinces, as occurred in 2004 when the federal
government committed to increase health trans-
fers by 6 percent per year for 10 years, predictably
led to a dramatic increase in provincial spending Changing the
on health care. From 2004 until 2010 health care
spending increased at an annual average of 6.7 medicare model
percent (Health Council of Canada 2011). Thus,
controlling costs and making structural changes
have been made more difficult by the complexity
and tensions in the federal-provincial relationship. A
more effective and affordable medicare sys-
tem requires changing the traditional 1960s
hospital model by funding hospitals dif-
ferently, diverting patients to alternative facilities,
and focusing more on a holistic, integrated ap-
proach to health.
True change is complicated Hospitals are the single biggest cost in Canada’s
by the federal-provincial health care system, accounting for more than one
third of public spending on health care (CIHI
relationship. 2011).10 Hospitals are dominated by health care
unions and professional associations that have
historically been very adept at using their mo-
nopoly control over services in their negotiations
What is often overlooked is that since medicare with governments, which are fearful of the politi-
was created in the 1960s, the primary intergov- cal implications of a health care strike.11 Thus, it
ernmental relationship of the provinces has been has been difficult if not impossible to get changes
with the federal government. For example, federal in contract terms that would improve productiv-
funding for hospital services in the 1950s was an ity (Kirby and Keon 2004). Just the simple reality
incentive for provinces to go on a spending spree of having to juggle the different contract terms of
– between 1961 and 1971, the number of hospi- three or four unions in one hospital shows how
tal beds increased twice as fast as the population difficult it is in a hospital setting to allocate re-
(Perry 1989, 650). Similarly, the intergovernmen- sources efficiently.
Janice MacKinnon – January 2013 7Competition in the system, which can be achieved winning bidder was Surgical Centres Inc., a Calgary
by changing the way hospitals are funded and us- based company with more than 20 years of experi-
ing private health care clinics for specific proce- ence performing day surgeries in non-hospital set-
dures, can produce more affordable and effective tings in Alberta and British Columbia (Saskatoon
care for patients. Historically, hospitals have been 2011). Surgical Centres Inc. and the other winning
funded globally by health departments or regional bidders then signed contracts with the health re-
health authorities, which means that funding is not gions specifying the number of procedures to be
directly linked to the level of activity and patients performed, the time frame, and the costs. The fa-
represent a cost. The 2010 OECD report is one of cilities were accredited by the Saskatchewan Col-
many recommending “hospitals should be funded lege of Physicians and Surgeons and had to meet
on an activity and standard cost basis to cut wait- the same standards as hospitals.
ing lists” (10).12 When hospitals are funded accord-
ing to their activity – the procedures they perform Public sector unions and the Saskatchewan Health
or the patients they treat – there is an incentive for Coalition condemned the policy decision using
hospitals to perform more efficiently and to put arguments that are often repeated across Canada.
patients first. Also, governments can benchmark They said the decision was “driven by the Sas-
the cost and timeliness of performing procedures katchewan Party’s privatization ideology” and that
in various hospitals and reward those with better the Conservative government of Prime Minister
outcomes. Stephen Harper was complicit since it refused to
enforce the Canada Health Act (Regina 2011a).
They also alleged that the clinics would “cherry
pick” patients by selecting “healthier patients”
Private clinics can perform (Saskatchewan 2010). A recurring theme was that
specific surgeries more the clinics would be more expensive since part of
the revenue would be “siphoned off” by the com-
efficiently than hospitals. panies for profits (Saskatchewan 2010; Regina
2011a). They argued that instead, the government
should increase capacity in the public system by
Private clinics can also be used to deliver specific building a $14 million publicly funded day sur-
procedures more affordably. Clinics are located gery centre that would be staffed by public sector
outside the complex and expensive hospital set- unionized employees. Underpinning arguments
ting and have the advantage of only performing like these was the assumption that health care is a
specific procedures that can be delivered more public good and should not be subjected to mar-
efficiently. Also, private clinics are generally not ket forces, like profits or competition for services.
unionized, which allows them more flexibility in The opponents’ arguments are not substantiated
organizing staff efficiently, and they do not have by the facts. In terms of ideology, left wing gov-
the significant administrative costs that hospitals
ernments around the world use private delivery of
and health regions require to manage union con-
health care services. The Canada Health Act speci-
tracts and grievances.
fies only that the system has to be publicly admin-
An excellent example of the use of private clinics istered. Moreover, “cherry picking” is not possible
is the Saskatchewan Surgical Initiative established in the Saskatchewan process since the publicly
in 2010 by the health department to reduce wait administered health district chooses the patients
times (Saskatchewan 2012).13 The use of private who are referred to clinics. More generally, while
clinics to perform specific surgeries that can be health care is not a public good in an economic
done outside of hospitals was a key part of the sense,14 it is true that good health is highly val-
strategy. Thus, the Saskatoon and Regina health ued and not easily quantified. Of course, the same
regions issued requests for proposals for the deliv- could be said of education or clean air. Surely, all
ery of specific surgeries based on credentials and services should be delivered as efficiently as pos-
experience, service factors, implementation sched- sible and the focus should be on outcomes or
ule, and pricing (Regina 2011b). In Saskatoon, the results.
8 Health Care Reform From the Cradle of MedicareThe Saskatchewan Surgical Initiative: The numbers don’t lie
In an effort to reduce wait times, in 2011 Saskatoon and Regina contracted with private clinics to perform
specific day surgeries on patients selected by the publicly administered health department. The charts below show
that not only did the clinics enable patients faster access to care, the cost to the province was greatly reduced.
In 2012, services were expanded at private clinics in Regina, and a greater variety of surgeries were performed.
Figure 1 Cost per case at Regina Qu’Appelle RHA and Surgical Centres Inc., 2011
Shoulder Arthroscopy-
5000
Bi-lateral Knee Arthroscopy
Bankhart Repair
Decompression
Arthroscopy &
$4487
Nasal Septal Reconstruction/
Endoscopic Sinus
4000
Transobturator Taping
Septorhinoplasty
Knee Arthroscopy
& Cystoscopy
Surgery
Myringotomy & Intubation
3000 $3093 $3031
Septoplasty
Pediatric Dental
$2552 $2500
2000
Arthroscopy, Anterior
$2157
$2000 $2011 $2000 $1920
Cruciate Ligament
$1803
$1647 $1700 $1706
$1600
(ACL) Repair
$1350
1000 $1200
$1058 $1200
$960
$648
$ 0 $230
Regina Qu’Appelle: Cost per case Surgical Centres Incorporated: Contract price per case
Note: The cost of implanted hardware is the same at both facilities.
Figure 2 Cost per case at Saskatoon RHS and Surgical Centres Inc., 2011
3500
3000 $3212
2500
$2618
Knee Arthroscopy
$2526 $2486
Pediatric Dental
$2500
2000
$2000 $2000 $2000
1500
Shoulder Arthroscopy-
Ligament (ACL) Repair
Rotator Cuff Repairs
$1340 $1300
Anterior Cruciate
Bankhart Repair
Cataract
Decompression
1000 $1200
$960
500 $593
$388
$ 0
Saskatoon RHA: Cost per case Surgical Centres Incorporated: Contract price per case
Note: The cost of implanted hardware is the same at both facilities.
Janice MacKinnon – January 2013 9Figure 3 Cost per case at Regina Qu’Appelle RHA and Aspen Medical Surgery Inc., 2012
Rotator Cuff Repair
Arthroscopy &
4000
Arthroscopy
Bankhart Repair
Shoulder
Arthroscopy &
Shoulder
3500 $3706
Shoulder
3000 $3200
$3032
Arthroscopy
$2957
2500 $2645 $2700
Knee
$2300 $2300
2000
$1875
Arthroscopy, Anterior
1500
Cruciate Ligament
1000 $1310
(ACL) Repair
500
$ 0
Regina Qu’Appelle: Cost per case Aspen Medical Surgery Inc.: Contract price per case
Note: The cost of implanted hardware is the same at both facilities.
Figure 4 Cost per case at Regina Qu’Appelle RHA and Surgical Centres Inc., 2012
Abdominoplasty
3500
Breast Reductions
Excision Axilla Sweat Gland
Tonsillectomy & Adenoidectomy
Tympanoplasty $3251
3000
Tympanmastoidectomy
Gynecomastia
2500 $2632
Rhinoplasty
Bunionectomy
$2377 $2410
Tonsillectomy
$2270 $2300
2000
Cataract
$1845
$1755
$1760 $1637
1500 $1670
$1500
$1400 $1313 $1334
$1273
1000 $1255 $1255
$1000 $1000
$890
500 $618
$ 0
Regina Qu’Appelle: Cost per case Surgical Centres Incorporated: Contract price per case
Note: The cost of implanted hardware is the same at both facilities.
10 Health Care Reform From the Cradle of MedicareGlossary of Medical Terms
Abdominoplasty: Cosmetic surgery to make Myringotomy & Intubation: Surgery to
the abdomen firm; “tummy tuck”. cosmetically reshape the nose and remove
Adenoidectomy: Surgery to remove the nasal blockages to improve breathing.
adenoids (tonsils). Nasal septal reconstruction/Septoplasty:
Anterior cruciate ligament (ACL) repair: Surgery to correct the nasal septum.
Surgery to rebuild the center ligament of the Rhinoplasty: Surgery to reshape the nose;
knee. “nose job”.
Arthroscopy: Minimally invasive surgery using Rotator cuff repair: Surgery to repair a torn
a tiny camera to examine and/or repair tissues. tendon in the shoulder.
Bankhart Repair: Surgery to stabilize a Septoplasty: Surgery to correct the nasal
shoulder that habitually dislocates. septum
Bilateral knee arthroscopy: Arthroscopic Septorhinoplasty: Surgery to cosmetically
examination of both knees the same day. reshape the nose and remove nasal blockages
Bunionectomy: Surgery to remove a bunion, to improve breathing.
an enlarged joint at the base of the big toe. Shoulder arthroscopy: Surgery using an
Cataract surgery: Removal of the natural lens arthroscope (tiny camera) to examine and/or
of the eye and replacement with an artificial repair tissues in or around the shoulder joint.
intraocular lens. Shoulder arthroscopy – Decompression:
Endoscopic sinus surgery: Surgery to Arthroscopic surgery to remove scar tissue and
remove blockages in sinuses (sinusitis). bone spurs in the shoulder.
Excision axillary sweat gland: Surgery Tonsillectomy: Surgery to remove the tonsils.
to selectively remove sweat glands to treat Transobturator taping & cystoscopy:
excessive sweating. Surgery to treat incontinence.
Gynecomastia surgery: Surgery to remove Tympanomastoidectomy: Surgery to remove
excess breast tissue in men. a growth or infected bone from the ear.
Knee arthroscopy: Surgery using an Tympanoplasty: Surgery to repair a torn
arthroscope (tiny camera) to examine the eardrum.
tissues of the knee. Other instruments may be
used during the procedure to repair the knee.
The outcomes from the Saskatchewan experiment
clearly show that private clinics can deliver surgi-
cal procedures more cost-effectively than hospi- In all cases in Saskatchewan,
tals. (For the data, please see the editorial box on
the Saskatchewan Surgical Initiative.) Comparing
private clinics were less
the cost of performing 34 procedures in private expensive than hospitals.
clinics and in hospitals shows that in all cases
the clinics were less expensive. The cost savings
varied across procedures, but it should be noted Despite the campaign against them by the unions,
that in four cases it was twice as expensive to per- the private clinics have generated little adverse
form procedures in hospitals relative to the clin- public reaction in Saskatchewan, the birthplace of
ics. Comparing the total cost of performing the 34 medicare. They have helped to reduce wait times,
procedures in the two settings reveals that it is 26 are more convenient than hospitals, and there is
percent less expensive to use clinics than hospitals less risk that patients will come in contact with the
(Saskatchewan Department of Health 2012).15 flu or hospital based infections.
Janice MacKinnon – January 2013 11As well as freeing up resources in hospitals, divert- delivers hospital-type services in the community to
ing patients to other facilities could also produce those with chronic diseases. Similar teams of med-
significant savings. Hospitals are the most expen- ical professionals provide in-home psychiatric ser-
sive place to care for patients: the average daily cost vices as an alternative to hospitalization in British
of a hospital bed is estimated to be $842, while the Columbia. Such innovative approaches reduce vis-
average daily cost of a long-term care bed is $126 its to emergency rooms and hospitalizations and
and home care costs about $42 a day (CLHIA 2012, result in significant savings (Council of the Federa-
4). Yet there are many patients in expensive acute tion 2012, 15).
care hospitals who could be cared for more afford-
ably and often more effectively in other facilities if There are also people in emergency wards who
they were available (CIHI 2009). Many should be should be diverted to other, more cost-effective
in long-term care facilities; about 7 percent of all centers that could better address their needs.17
hospital beds are being used by patients receiving Some should be in chronic care facilities, oth-
long-term care (CLHIA 2012, 4). But while hospital ers could be cared for at home, and still others
stays are covered by medicare, long-term care is a have underlying social problems. More emergen-
provincial responsibility and financial support for cy wards should be co-located with clinics. Sig-
care is usually linked to ability to pay. Also, there is nificant savings and better care could be achieved
a shortage of long-term care beds, which will only by diverting more patients to Family Care Clinics
worsen as the baby boomers age. where various health professionals and others like
social workers provide a more holistic, integrated
approach to treating the underlying problems that
bring people into the health care system.18
Home care costs about $42 De-hospitalization, by diverting patients to other
per day; hospital care costs less expensive facilities, can be an effective strategy
about $842 per day. for making the health care system more efficient
and effective. Other ways to improve health care
include the provision of better data to increase ac-
countability, performance evaluations, and more
Health care costs could be reduced and patient transparency for citizens and more and better use
care improved if governments adopt a long-term of information and communication technologies
care strategy, which includes using public-private (Prada and Brown 2012, 4, 21). Currently half of
partnerships to increase the supply of long-term Canadians have some form of electronic health
care beds, educating Canadians about the fact that record, but the facilitation of timely introduction,
most will have to pay for at least part of their long- adoption, and coordination of electronic records
term care, and encouraging Canadians to save for has been an issue.
their future care needs. Governments could pro-
vide tax credits to Canadians who buy long-term
care insurance or they could use a Registered
Education Savings Plan (RESP) approach to give More emergency wards
people an incentive to save for their long-term should be co-located
care. As with RESPs, investment income would be
sheltered until it is withdrawn for long-term care, with clinics.
when people’s taxable income is lower (CLHIA
2012, 7-8).
Long-term care waiting lists could also be reduced
by providing better home care (CLHIA 2012, 6).16 There is also a consensus that health care should
There are innovative ways in which services are be- be seen in a broader and more holistic way, and
ing delivered in the community rather than a hos- more emphasis should be placed on preventing ill-
pital. In Manitoba, for example, a “virtual ward” ness rather than merely treating disease. Improv-
comprised of a team of health care professionals ing people’s health means focusing more on health
12 Health Care Reform From the Cradle of MedicareThe Report recommended various ways to move
away from the traditional fee for service model
More emphasis should be where doctors act as gatekeepers of the health
care system. In some cases, it was recommended
placed on preventing rather that other health professionals like nurse practi-
than merely treating illness. tioners or paramedics could deal with less acute
medical problems or provide emergency services
in rural and remote areas. The report stressed the
merits of promoting a primary health care model
promotion, disease prevention, and investing in where a team of medical professionals provide an
programs that reduce poverty. Consider the exam- integrated, patient focused, and less expensive
ple of obesity. A study done for Statistics Canada way to deliver health care (Council of the Federa-
in 2010 finds that “[c]hildren are taller, heavier, tion 2012, 14-17).
fatter and weaker than in 1981” (Tremblay et al.
The Report also made some initial recommenda-
2010, 11). Obesity is a “silent epidemic” that will
tions to deal with one of the main cost drivers
result in increases in many diseases and will cost
in health care – services provided by physicians
an estimated $4.6 billion (Hodgson 2012). Tack-
and other health care professionals and work-
ling obesity, by such simple measures as increas- ers. Health care unions and professional asso-
ing physical activity and education about diet at ciations have been very astute at bargaining with
schools, can reduce health care costs and enhance governments to ensure that their members get a
population health.19 healthy share of the spending pie. So, when fed-
eral transfers increased by 6 percent, much of that
new money went to compensation paid to health
care providers. Between 1998 and 2008, the cost
Cost saving and of physician services increased by 6.8 percent a
year (in 2009 they rose by 9.6 percent), with more
interprovincial than half of the increase coming from higher fee
schedules. Also, the salaries of nurses and others
co-operation in health care grew faster than inflation or compa-
rable public or private sector wage rates (Simpson
2012b, 314-15; Simpson 2012a; CIHI 2011).
T
wo other major costs for the health care
system – doctors and prescription drugs –
could be reduced by interprovincial co-
operation. The federal-provincial dynamic was A team of medical
changed in December 2011, when the federal gov- professionals can provide
ernment announced that starting in 2016 it would integrated, patient focused, less
reduce health transfers to the rate of economic
growth and recognized the provinces’ jurisdiction expensive health care.
to reform the system. For the provinces, there is no
reason to badger the federal government for more
funding, and there could be benefits from work- The significant increase in doctor salaries is not
ing together to reduce costs. Hence, in January driven by international competitive pressures:
2012 the premiers established a Working Group Canadian doctors are among the highest paid in
to study health care and its first Report six months the world (Simpson 2012b, 313), and they have
later states that “[t]his is the first time there has reaped other benefits from their participation in
been this level of engagement and commitment medicare, including a “high level of clinical au-
to a provincial-territorial cause from the Premiers” tonomy [and] relatively low transaction costs”
(Council of the Federation 2012, 7). (Tuohy 2004, 88). The competition that does exist
Janice MacKinnon – January 2013 13is among the provinces; as one province increas- In theory, there is a good case that the federal gov-
es the salaries of health care professionals, other ernment should assume responsibility for drugs
provinces follow suit. The federal government has by establishing a national drug plan. It would pro-
no policy levers that it can readily use to contain vide better drug coverage for all Canadians, end
the interprovincial competition for health care the patchwork of provincial programs, and allow
professionals. the federal government to establish one national
formulary and use its buying power to reap signifi-
However, the provinces have the capacity to work cant savings in drug costs. It is not surprising that
together to constrain the acceleration in health in 2004 the Premiers agreed to support a national
care compensation rates, and with approximately drug plan run by the federal government.
70 percent of health care costs attributed to hu-
man resources, they have a powerful incentive to But the question is, why would the federal govern-
do so (CIHI 2011, 18). The Report recommends ment assume responsibility for one of the most ex-
“reducing competition among jurisdictions for re- pensive and rapidly growing areas of health care,
sources” and “innovative approaches to managing especially when it has a sizeable deficit, which it
labour costs and reducing competition” (Council hopes to eliminate in the medium term? It might
of the Federation 2012, 4, 6). As well as limiting be argued that in exchange the federal govern-
competition with each other, the provinces com- ment could reduce or eliminate its transfers to the
mitted to more co-operation in planning for and provinces. But why would the federal government
training health professionals to avoid shortages change the way it contributes to health care from
that also can drive up costs. transfers, whose cost is known and can be unilat-
erally decided by the federal government, for a na-
Action to limit the compensation of doctors has
tional drug plan whose future costs are unknown
been taken by provinces, notably Ontario. After in-
and uncontrollable? Moreover, governments re-
creasing doctor salaries by almost 75 percent since
sponsible for drug plans have to make difficult de-
2003, in November 2012 the government signed
cisions about which drugs are covered and face in-
an agreement with its doctors that would effec-
tense political pressure when coverage is denied.
tively freeze the cost of physician services for two
Why would any government willingly take on such
years. Other provinces have followed suit in lim-
a difficult and expensive responsibility?
iting health care compensation (Wingrove 2012).
Moreover, the Ontario Medical Association and the If not a national drug plan, some argue the federal
Ministry of Health committed to work together to government should at least establish a national
implement evidence-based savings (Benzie 2012), formulary for drugs to reap the savings from bulk
which is an important step in making physicians buying. In reality the federal government has no
assume some responsibility for the cost-effective- levers, beyond spending money – cost sharing,
ness of the health care system. transfers, the transfer of tax room to the provinc-
es – to compel provinces to join a national health
Considering the magnitude of previous cost in-
creases for health care provider compensation, care program and to abide by its terms and condi-
collaborative interprovincial action to reduce com- tions. In fact, the outcomes of the 2004 Health Ac-
petition could bring significant savings. cord, in which the federal government committed
to spend more than $40 billion on health care over
Provincial and territorial collaboration can also 10 years, show that even when the federal govern-
produce savings on prescription drugs, which rep- ment does provide funding, it cannot control how
resent a major and rapidly growing expense for it is spent by the provinces. It was never part of the
governments and Canadians. The decision in the 2004 federal plan to have a significant amount of
1960s to limit medicare’s coverage to doctors and the new funding go to compensation increases for
hospitals and exclude national coverage for pre- health care professionals, yet that is exactly what
scription drugs has meant very poor coverage for happened. So, what levers would the federal gov-
drugs for most Canadians and a patchwork of cov- ernment have to corral the provinces to accept a
erage from province to province. common national formulary for drugs?
14 Health Care Reform From the Cradle of MedicareThe provinces, on the other hand, have the power – moving services out of hospitals to private clinics
to work toward a national approach to purchas- or other less expensive facilities – and more focus
ing drugs. The significant cost savings that can be on primary health care models in which physicians
captured provide a powerful incentive for them are salaried and no longer the system’s gatekeep-
ers can produce savings and a more integrated
system. At the same time, interprovincial co-op-
The provinces, not the federal eration can help constrain the escalating costs of
health care provider services and of prescription
government, have the power to drugs. If the Canadian health care system was as
consolidate procurement efficient as the best in the OECD, it has been esti-
mated that spending would decline by 2.5 percent
of drugs. (Simpson 2012b, 196-96).
However, none of these reforms address the other
to work together, and they have already taken main structural problem with medicare: the lack
some steps in that direction. In August 2010 the of connection between users of the system and its
premiers agreed to create a “provincial-territorial costs, a problem that leads to open-ended demand
purchasing alliance to consolidate public sector for services, which in turn is a factor in driving up
procurement of common drugs, medical supplies, the costs of health care.
and equipment” (Council of the Federation 2012,
20). The goal was to “capitalize on the combined
purchasing power of public drug plans” to pro-
duce lower costs not just for governments, but
also for employer sponsored drug plans and in-
Changing the way
dividual Canadians. Another goal was to achieve
“greater consistency of listing decisions across par-
medicare is funded
T
ticipating jurisdictions” (Council of the Federation
he main fiscal problem with health care
2012, 20).
is that its costs are rising faster than the rev-
At its July 2012 meeting the Premiers agreed to enue of any government in Canada (Dodge
extend their co-operation on brand name drugs and Dion 2011). Consider Ontario, where be-
to include generic drugs (Council of the Federa- tween 1997-98 and 2002-03 government spend-
tion 2012, 20). Six months later it was announced ing on health care increased by 42 percent while
that the provinces (with the exception of Quebec, government revenue only went up by 31 percent.
which has its own drug plan) and the territories Because health spending is growing at a faster
had agreed to buy in bulk six generic drugs (rep- rate than government revenue, it is consuming a
resenting about 20 percent of the publicly funded larger and larger share of the public spending pie.
spending on generic drugs) at 18 percent of the Prior to 1994-95, the Ontario government spent
equivalent brand name drug price. Premier Brad about 32 percent of its budget on health care. By
Wall, one of the co-chairs of the premier’s working 2003-04, health care accounted for 39 percent of
group on health care, declared that the announce- the budget (Ontario Ministry of Finance 2003a, 8;
ment represented “a good day for Canadians” and Ontario Ministry of Finance 2003b, 5). Currently,
vowed that this was only the beginning of inter- 46 percent of Ontario’s budget is spent on health
provincial co-operation to trim health care costs care, and without major changes it is estimated
(quoted in Couture 2013). that by 2030 it will consume a whopping 80 per-
cent of the budget (Drummond 2010).
Thus, significant savings can be achieved by ad-
dressing two of the original structural problems This is a problem because health care is squeezing
with medicare: the focus on hospital and fee for out funding for other important programs, such
service doctor services and the dominance of the as education, poverty reduction, and the environ-
federal-provincial relationship. De-hospitalization ment; areas that also impact health outcomes. Pay-
Janice MacKinnon – January 2013 15ring significant debt. Indeed, a major global prob-
lem is the limited opportunities for young people
Health care costs are rising who face the prospect of seeing their standard of
living decline relative to their parents. Consider
faster than government the situation of 18 to 24 year olds in Canada. Their
revenue. unemployment rate (including discouraged job
seekers and involuntary part-timers) is 19.6 per-
cent, while 28.6 percent are in temporary jobs, and
their average household debt is $74,100 (Grant
ing for health care by crowding out funding for and McFarland 2010). Is it equitable to expect this
areas like these does not lead to a healthier popu- generation of future taxpayers to pay a big part of
lation. It has been estimated that only 25 percent the baby boomers’ health care costs?
of a person’s health status depends on the health
care system, while 50 percent is related to ‘living Beyond equity, is it realistic to expect the future
costs of health care to be paid exclusively from
conditions’, which includes factors like lifestyle,
general revenues? A recent study projected the tax
diet, income level, education, or the environment
levels required to continue to provide a publicly
(Conference Board of Canada 2004, 15; Brown
2012). In other words, the areas that are being
squeezed out to fund Canada’s health care system
are twice as important to the overall health of the
population.
A portion of the costs of
health care should be borne by
The crowding out problem can be alleviated by
using alternative ways to fund health care, raising those using it.
new revenue as demand increases with the aging
of the baby boomers, and technological advances.
Raising new revenue to fund increasing demand is funded health care system with similar levels of
an option for the provinces, since the federal gov- services (Emery, Still and Cottrell 2012). The study
ernment’s reduction of the GST from 7 to 5 per- projected the average lifetime taxes paid for health
cent left ‘tax room’ that they could occupy. care by individuals in each age cohort relative to
A major consideration is the kind of tax measures the lifetime health care services used. It showed
that Canadians born between 1958 and 1967 will
that should be used. If medicare continues to be
consume over $4000 more in health care services
funded exclusively from general tax revenues by,
than they will pay in taxes for health care; those
for example, increasing sales taxes, some of the born between 1998 and 2007 will pay over $18,000
main structural problems with the system will per- more in taxes for health care than they cost the
sist: open-ended demand will continue since there health care system; for those born between 2008
will be no link between the costs of the system and and 2017, their tax contributions will exceed their
those who use it and the “squeezing out” problem health care costs by over $27,000 (Emery, Still and
will continue since health care will absorb a dis- Cottrell 2012, 8, 10). Especially noteworthy is the
proportionate amount of the new revenue. authors’ conclusion that “peak taxes for Canadi-
ans born after 1988 will end up twice as high as
Another factor is the intergenerational implication
the peak taxes that the oldest baby boomers paid”
of raising taxes like the sales tax to fund health (Emery, Still and Cottrell 2012, 1). It is simply not
care. If medicare is funded exclusively from gen- realistic to believe that governments will be able to
eral tax revenues, a significant share of the health significantly increase the tax load on a smaller base
care costs of baby boomers will be paid for by their of taxpayers and maintain a competitive economy.
children and grandchildren. These are the same
young people who are paying taxes for interest on Rather than relying exclusively on general tax rev-
the public debt, most of which was accumulated enues to fund medicare, a portion of the costs of
before they were born, and who have shouldered the system should be borne by those using it. In
an increasing share of education costs, often incur- the past, the idea of linking people’s use of the
16 Health Care Reform From the Cradle of MedicareYou can also read
