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The Canadian health care system : where are we, how did we get here? Law, Maureen M.; Evans, Robert G., 1942- Oct 31, 1991

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THE CANADIAN HEALTH CARE SYSTEMWhere Are We; How Did We Get Here?Robert G. EvansMaureen M. LawHPRU 91:100 OCTOBER, 1991HEALTH POLICY RESEARCH UNITCentre for Health Services and Policy Research429 • 2194 Health Sciences MallUniversity of British ColumbiaVancouver, B.C. CANADAV6T 1Z3THE CANADIAN HEALTH CARE SYSTEMWhere Are We; How Did We Get Here?Robert G. EvansProfessorDepartment of EconomicsUniversity of British ColumbiaVancouverandMaureen M. LawSenior FellowInternational Development Research CentreOttawaOctober 1991Revised version of a paper presented to a World Bank seminar, HAnInternational Assessment of Health Insurance: Lessons for the DevelopingCountries II , Indonesia, December, 1990. This paper draws on a paperpresented at the International Symposium on Health Care Systems, inTaipei, Taiwan, December 18-20, 1989. Support for R.G. Evans' research isprovided by a National Health Scientist award from Health and WelfareCanada, and by the Canadian Institute for Advanced Research.The Centre for Health Services and Policy Research was established by theBoard of Governors of the University of British Columbia in December 1990.It was officially opened in July 1991. The Centre's primary objective isto co-ordinate, facilitate, and undertake multidisciplinary research inthe areas of health policy, health services research, population health,and health human reSources. It brings together researchers in a varietyof disciplines who are committed to a multidisciplinary approach toresearch, and to promoting wide dissemination and discussion of researchresults, in these areas. The Centre aims to contribute to the improvementof population health by being responsive to the research needs of thoseresponsible for health policy. To this end, it provides a researchresource for graduate students; develops and facilitates access to healthand health care databases; sponsors seminars, workshops, conferences andpolicy consultations; and distributes Discussion Papers, Research Reportsand publication reprints resulting from the research programs of Centrefaculty.The Centre's Health Policy Research Unit Discussion Paper series providesa vehicle for the circulation of preliminary (pre-publication) work ofCentre faculty and associates. It is intended to promote discussion andto elicit comments and suggestions that might be incorporated within thework prior to publication. While the Centre prints and distributes thesepapers for this purpose, the views in the papers are those of theauthor(s).A complete list of available Health Policy Research Unit Discussion Papersand Reprints, along with an address to which requests for copies should besent, appears at the back of each paper.PART 1: AN HISTORICAL ACCOUNTCanada's system of universal public insurance for health care is by aconsiderable margin the nation's most successful and popular publicprogram. Far more than just an administrative mechanism for payingmedical bills, it is widely regarded as an important symbol of community,a concrete representation of mutual support and concern. In a nationsubject to strong divisive forces rooted in both geography and history,the health insurance system is an important unifying idea as well as aninstitution. It expresses a fundamental equality of Canadian citizens inthe face of disease and death, and a commitment that the rest of thecommunity, through the public system, which will help each individual withthese problems as far as it can. nThere is no social program that we havethat more defines Canadianism or that is more important to the people ofour country. III1.1 The Early Efforts (1930s and 1940s)Although a national health insurance program had first been promised bythe Liberal Party during the election campaign of 1919, and despite theirsuccess at the polls in that election, the first serious public discussionof public financing for health care really began on a national level in1937. In that year the Report of the Rowell-Sirois Commission (Canada,1937), an important Royal Commission which examined all aspects ofDominion-Provincial relations, recommended the development of lI s t a t emedicine and state hospitalization or health insurance ll , It declared thatsuch programs should be a provincial responsibility. Theserecommendations were to have a major impact on the thinking of futurefederal and provincial governments concerning the possible options for thecreation of a lI n a t i on a l ll health financing program. 2Over the next eight years, there were several federal committees, of bothpoliticians and public servants, to discuss the possibilities for publicfinancing of health care. The Beveridge Report (1942) in the UnitedKingdom was very influential. These committees wrestled with somedifficult questions.First, since the Canadian constitution assigns health care matters almostexclusively to provincial jurisdiction, how would it be possible to createa program that all provinces would support or could afford? Would it bepossible to achieve a constitutional amendment which would permit the1 David Peterson, the Premier of Ontario, opening the InternationalConference on Quality Assurance and Effectiveness in Health Care, Toronto,November 8-10, 1989. See also Evans, (1988a).2 The Commission rejected, however, the notion of large conditionalfederal grants directed to areas of provincial jurisdiction. Yet theseconditional grants - 50 percent cost sharing by the federal government ­were to be an essential component of both the hospital and the medicalcare insurance programs. In 1977 the federal contribution ceased to bebased on program costs, but it remains conditional upon the conformity ofthe provincial plans to national standards.2federal government to mount the program?Second) what would such a program cost? Although there were income taxdata available about physicians' incomes and data from the Dominion Bureauof Statistics about hospital costs, no one knew what would happen toutilization following the introduction of public financing.Third, how should revenue be collected? The "insurance ll approach whichwas always envisaged would require some kind of poll tax. It was thoughtthat this could be collected through employers, but what about theunemployed and the retired? The cost of having to register everyone andcollect premiums was considered too complicated and costly. And who wouldpay for those would could not pay for themselves?Fourth, should the program cover only the poor, leaving those would couldafford it to cover themselves with voluntary, private insurance?Fifth, what would be the reaction of the medical profession? The CanadianMedical Association (CMA) had also begun to debate the subject. Theirfirst statement on the subject came in 1939 when they declared that theywere not able to speak for their members on this because their memberswere not sufficiently familiar with such plans to take a position.However by 1943 they were ready to endorse two resolutions:"1. The CMA approves the adoption of the principle of healthinsurance.2. The CMA favours a plan of health insurance which will secure thedevelopment and provision of the highest standard of health services,preventive and curative, if such plan be fair both to the insured andto all those rendering the services." (Canadian Medical Association,1943).The doctors spoke of a preference for a plan which would have an incomeceiling for beneficiaries. They also tended to favour a system ofcapitation payments for general practitioners and fee-for-service forspecialists.Sixth, what would be the reaction of business? A British Columbiaproposal for a provincial program had been scuttled at the last minute dueto the opposition of business leaders to a new tax. The insuranceindustry at that time endorsed the concept, provided that the plan wastotally self-financing with the federal government paying for those whocould not. Farm and labour organizations were strongly supportive.Seventh, what would be the reaction of the provinces? In 1944 allprovinces agreed to the concept of comprehensive public health insurance,but they stressed the need for each province to be free to introduce eachbenefit as it was able to do so.Despite these difficult questions it is striking that the reports of thevarious government committees and the statements of the diverse interestgroups during that period reflected a very high level of support for3comprehensive programs which would include, indeed would emphasize,preventive measures.And so it seemed that by 1943 Canada was, after years of discussion,poised to introduce some form of public health insurance. However,throughout 1944 a series of federal/provincial disputes delayed thecalling of the meeting planned to introduce the federal proposals. Thusit was that they became swept into the wide-ranging proposals for the postwar reconstruction of Canadian society.Finally, at the historic federal/provincial meeting in August 1945, thefederal government unveiled its proposals. These included:1. Immediate planning and administration grants to assist provinces inpreparing to implement health insurance.2. Provinces were to administer a universal, comprehensive compulsory,health insurance program which they would implement by progressivestages, according to an agreed-upon timetable.3. The federal government would make a grant of 1/5 of the estimatedcost of the service, plus 1/2 of the additional actual cost to amaximum of $12.96 per capita.4. The federal government would provide additional health grants (toprovinces that had implemented the program) for public healthpurposes.5. The federal government would provide provinces with hospitalconstruction grants.Unfortunately, the entire conference collapsed due to the failure to reachagreement over the division of resources between the federal and theprovincial governments, and the health proposals were left if not dead atleast in limbo.1.2 The Saskatchewan Hospital Insurance Program (1946)Following the collapse of these efforts to establish a national program,the action shifted to the Province of Saskatchewan. This was the provincehardest hit by the depression. The sparse population, scarce resourcesand dependence upon a single crop resulted in the development ofcooperative agencies not only for the marketing of the wheat but also forthe provision of essential social services. In fact, the cooperativemovement flourished in Saskatchewan as in no other Canadian province, andthis form of local initiative was to be extremely important in the historyof health insurance in Canada.Saskatchewan had already pioneered the municipal doctor schemes, in whichgeneral practitioners were employed, on salary, by rural municipalities.They also had a "union hospital" system which had (by legislation) groupedmunicipalities into districts for the purpose of building and operating4hospitals. Some municipalities had even gone beyond their responsibilityfor providing care for the indigent to begin collecting local taxes to payhospital bills for all of their residents.In 1944, in anticipation of the federal program the Saskatchewangovernment passed legislation to create a Commission to administer ahealth insurance program in the province, thus raising publicexpectations.When the Premier announced, in 1946, the government's plan to launch thefirst comprehensive public hospital insurance program in North America,the province was suffering from severe shortages of health resources,including doctors, nurses, hospital beds and financial resources. Therewas fear that these resources would be completely overwhelmed.Nevertheless, the Premier, Tommy Douglas, had a strong personal commitmentto the enterprise. He was convinced that Saskatchewan would demonstratethe feasibility of public health insurance, thus facilitating theintroduction of the national program and the transfer of federal resourcesto the province. As he said in the Saskatchewan Legislature,"1 made a pledge with myself long before I ever sat in thisHouse, in the years when I knew something about what it meant toget health services when you didn't have the money to pay forit. I made a pledge with myself that someday if I ever hadanything to do with it, people would be able to get healthservices just as they are able to get education services , as aninalienable right of being a citizen of a Christian country.,,3It appears that there was never any thought of introducing a program thatwould be less than universal and compulsory.With respect to the benefits, it was decided, with the same underlyingprinciple, that all essential hospital services should be covered andthere should be no limit to the number of benefit days except thecriterion of medical necessity. It was assumed that hospitals wouldcontinue to charge extra for private and semi-private ward accommodation,but that it would be necessary to ensure that there were an adequatenumber of standard rate beds available.The initial cost estimates were made on the basis of existing hospitaldata and the estimate of utilization which had been agreed upon at thefederal/provincial conference in 1945.The major factor in the decision about the method of revenue collectionwas the requirement which had been proposed by the federal government ofan "insurance" approach - that is, that a registration fee or premium bepaid for each person covered by the plan. The government thereforedecided to contribute an amount equal to what it had been contributing tohospitals prior to the program and to collect the rest through premiums.3 Quoted in the Regina Leader Post, 1 April, 1944.5How to pay the hospitals proved to be the most complex of the problems tobe resolved. Certain principles guided the deliberations (Taylor, 1978):1. The Hospital Services Plan would become the chief source of revenuefor all hospitals in the province.2. It would be impossible to permit a hospital to close through lack offunds.3. The earning of a large surplus by any hospital would be undesirable.4. A system of payment should be one which would encourage efficientoperation and promote improvement in services. It must not subsidizeinefficiency, waste or extravagance.5. Additional payments by patients for "extras" should be kept at anabsolute minimum.6. Payment should be for operating costs only. Capital costs were to beborne by the community, with the assistance of provincialconstruction grants.It was agreed that the most practical method of payment would be to paythe costs of operation, but initially this was difficult to determinebecause of the lack of standard accounting procedures, and so initiallythe hospitals were paid according to a point system in which hospitalswere graded on the basis of their size and the services they provided.Administration was assigned to the Health Services Plan Commission whichwas composed of public servants.The ResultsInitially the hospital utilization rate increased even more rapidly thanexpected and as a result the costs exceeded considerably the initial costestimates. There were a number of important factors behind this: theshortage of physicians and the difficulties of transportation in the ruralareas lead to a high rate of hospitalization; the health of the populationwas relatively poor because of poverty and large families; there were noalternative facilities such as nursing homes.Nevertheless, the program survived these early difficulties, and within ayear or two the plan was working well and the people of Saskatchewan wereconvinced that the decision to proceed without the federal goverrunent hadbeen a good one.All of Canada benefited from the Saskatchewan experience. It has beensaid that "in the educational process through which Canadian governmentslearned how to administer universal hospital insurance, Saskatchewan paidmost of the tuition fees" (Taylor, 1978).61.3 The Background to the National Hospital Program (1945-56)Between 1945 and 1956, the federal government did not renew its healthinsurance offer to the provinces. However, in addition to theintroduction of the Saskatchewan program there were some importantdevelopments. British Columbia introduced a similar program in 1949, butpoor design and administration led to some serious early difficulties, andcontributed to the defeat of the provincial government in 1952. In 1954the new government terminated the effort to collect premiums through bothpayroll deductions and individual registration, and moved instead tofinancing from taxation. Alberta introduced a patchwork program in 1950,which required individual municipalities to opt into the plan, and thenapplied indirect pressure to force them to do so. Newfoundland, whichbecame a province in 1949, brought with it its "cottage hospital system"which provided hospital and physician services to residents who paid anannual premium. The hospitals were provincially owned and the doctorswere salaried. The system covered the population outside the urbancentres (about 1/2 of the total population).On the negative side, the CMA, in 1949, abandoned its earlier support forgovernment health programs in favour of the extension of voluntary plansto cover all Canadians, with governments paying the premiums for those whocould not afford them.During this period there was also a rapid expansion of voluntary insuranceenrolment.Undoubtedly the most important development, however, was that Ontario withits great political clout assumed the leadership role in pressuring thefederal government to deliver on its earlier promises of a nationalprogram.By 1956 the federal action government was under strong pressure to act:1. In 1952 a national sickness survey had demonstrated seriousinequities with regard to health status and the financial burdensresulting from illness. These inequities applied both tosocioeconomic groups and to geographical areas.2. There were also serious disparities among provinces, with respect totheir ability to provide needed health services.3. There was growing political pressure from the public and theprovinces for a national program.On the other hand, there remained some important constraints, whichincluded financial considerations, possible opposition from the CanadianMedical Association and the Canadian Hospital Association, both of whichcontinued to argue for voluntary, private schemes with governmentsubsidies for the needy. Finally there remained the complicatedconstitutional issues.71.4 The National Hospital Insurance Program (1956)Despite these obstacles, the federal government offered in 1956 to pay onehalf the national cost of diagnostic services and in-patient hospitalcare. Certain conditions were attached:coverage was to be universally availablewithin an agreed time period diagnostic services were to be coveredfor out-patientsco-insurance or "deterrentll charges were to be strictly limitedcapital costs were not includedmental hospitals and tuberculosis sanatoria (which were already fullyfunded by provincial governments) were not includedthe federal contribution would be 25 percent of each province'sshareable costs plus 25 percent of the average per capita cost forthe whole of Canada (permitting poorer provinces to benefit morethan the richer provinces)These provisions were embodied in the federal Hospital Insurance andDiagnostic Services Act, passed in 1957, under which federal paymentsbegan to flow to provinces with conforming plans.Ontario, the largest province, launched its plan for hospital insurance in1959. Although nominally "voluntary", the Ontario plan was sufficientlyfavourable that within one year it covered 92 percent of the populationand within two years 99 percent. In effect, the Ontario approach wasquite similar to the Saskatchewan plan, achieving de facto universalitywithout explicit compulsion.One important difference at the outset was that at the time of itsintroduction, about two-thirds of Ontario residents had at least someprotection against the costs of hospital care, mainly through the OntarioBlue Cross Hospital Plan, a subsidiary of the Ontario HospitalAssociation. One provision of the government plan was that it would takeover the administrative staff and equipment of that organization, and itspent two years in strengthening that mechanism before launching thepublic plan. The Ontario Hospital Association agreed to limit itsinsurance activities to coverage for supplemental benefits such as theextra costs of private and semi-private accommodation.In order to appease the Ontario Medical Association, the plan did notcover out-patient diagnostic services, nor did it include the innovativehome care component which had originally been contemplated.Because of the accumulated knowledge of the Saskatchewan program and theBlue Cross plan, the original cost estimates were much easier and moreaccurate. Standardized hospital accounting procedures made the8calculation of payments to hospitals much more straightforward than hadbeen the case in Saskatchewan.The ResultsBy 1961 all provinces had launched programs. With uniform conditions ofresidency, the same waiting periods for eligibility of new residents, anduniform benefits, ten provincial programs were melded into the reality ofa national program.To the surprise of many experts, public insurance did not accelerate thegrowth in hospital use. The rate of hospital inpatient days per capitarose only 13.7 percent between 1956 and 1966, compared with 27.2 percentbetween 1947 and 1956 (Barer and Evans, 1986). Clearly the main increasein utilization had already taken place - probably because of the voluntaryplans in the larger provinces.On the other hand, the decision to introduce hospital care as the firstpublic insured benefit, and the failure to provide support for lessexpensive alternatives such as nursing homes, home care or ambulatoryservices, led to the perpetuation and extension of the pattern ofinpatient use which had developed with the support of the private plans.By the mid-1960s, there was a growing recognition that a substantialproportion of inpatient use in Canada, as in a number of other countries,was inappropriate and unnecessary. Some services could be provided atless cost and equal or greater benefit in other settings; others, likeexcessive lengths of stay or inappropriate procedures, were simplyunnecessary activity - pure waste. The public plans did not create thisproblem, but they did for a number of years ignore it.Program financing, however, quite soon shifted away from the insurancemodel. By 1973 only two provinces, Alberta and Ontario, continued torequire the payment of premiums as a condition for entitlement to hospitalbenefits.' Today, only Alberta still levies premiums for hospital care,and as noted below, the federal legislation now clearly provides thatcoverage must be universal, and cannot be conditional upon payment (butsee note 5 below). The other provinces finance their programs fromgeneral revenues collected through various combinations of income tax andsales tax. In effect the hospital "insurance" programs in most cases hadbecome hospital IIservicesll programs for residents.1.5 The Saskatchewan Medical Care Insurance Plan (1961)Once again the action shifted to the Province of Saskatchewan. Theprimary motivation for action was undoubtedly the philosophical commitmentof the government, particularly of the premier, to the concept of healthservices as a fundamental human right. And the introduction of the, British Columbia abandoned hospital premiums in 1954, but continuesto levy premiums for medical care. As of the end of 1991, a shift frompremiums to some other form of tax is under active discussion.9federal hospital insurance program had produced a financial windfall forSaskatchewan. Furthermore, a local experiment in prepayment for medicalcare (the Swift Current region medical plan) had demonstrated thefeasibility of a universal tax-financed program. In fact, it had resultedin the highest doctor to population ratio in rural Saskatchewan, wherethere remained severe shortages of physicians.The major constraint, apart from the perennial problem of limitedprovincial financial resources, was the opposition of the medicalprofession, who "favoured health insurance but not state medicine ll(Taylor, 1978). They considered themselves, through their College, as thebody responsible for medical care in the province. Because of the chronicshortage of doctors and the mobility of physicians, they were in a verystrong position politically.The Physician-Sponsored PlansIn Saskatchewan, as in other provinces, there were physician-sponsoredmedical care insurance plans. These plans played an important role in thedevelopment of medical care insurance in Canada. They were voluntarYJcomprehensive plans which were often offered to individuals through theirplaces of employment (with the result that they tended to cover thehealthier members of society). Most of the plans were of the "service"rather than the "indemnity" type, that is, the doctor billed the plandirectly, not the patient. Payment by the plan according to the feeschedule was generally accepted as payment in full; except in Ontario,physicians rarely billed patients for extra amounts. These plansinstitutionalized fee-for-service as the preferred payment method for theprofession.The Saskatchewan Medical Care Insurance ActDespite the concerns about the possible reaction of the doctors, the press(which tended to be anti-government), and uncertainty about publicreaction (since about 2/3 of the population had at least some voluntarycoverage would the public countenance a major confrontation with themedical profession?), the Premier announced in December 1959 that thegovernment would introduce a provincial medical care insurance plan.There ensued two years of mainly acrimonious discussion and debate overthe proposed legislation, but in late 1961, the legislation was finallypassed.The legislation provided that:the intent was to pay for servicesthe administration would be the responsibility of a Commission of 6-8members, of whom at least three were to be physiciansthere would be an advisory council representing professional andother interested organizations10there would be a medical advisory committee with members approved bythe Collegethe program would be universal and compulsorythe plan would be financed by premiums and general revenuesinsured services were all services of physicians and surgeons inoffice, hospital, or homewith some minor exceptions, the plan payments were to be accepted aspayment in fullthe patient was guaranteed the freedom of choice of doctor and thedoctors were given the right to free acceptance or rejection of thepatientDespite its preference for a capitation system of payment for generalpractitioners, the government, in an attempt to appease the doctors,agreed to a fee-for-service approach.It is impossible in this brief overview to discuss all of the debate whichfollowed and the nwnerous proposals and counter-proposals which weredeveloped by both sides during the next six months. The outcome was theworst episode in the history of health insurance in Canada. On 1 July1962, the doctors began a strike which was to last for 23 days and whichproduced bitterness and rifts within the citizens of Saskatchewan whichtook a decade to heal.The government had prepared for the possibility of a strike by recruitingsympathetic doctors from outside the province, mainly from Britain, butalso from other provinces. The striking doctors were supported not onlyby the CMA and much of the provincial press (whose opposition was to thecompulsory nature of the program), but also by many citizens, who throughfear of losing their doctors or ideological conviction, organized "KeepOur Doctors Cornmittees". 5 These committees almost succeeded in forcingthe government to concede defeat. On the other hand, much of the nationalmedia was favourable to the position of the government.In the face of this impasse the government invited Lord Taylor, a Britishdoctor who had been involved in the start of the British National HealthService, to come to Saskatchewan. He concluded that the plan was5 There was also considerable support for the doctors from south ofthe border. liThe American Medical Association was at this timehysterically opposed to Medicare; and it endeavoured, not without somesuccess, to communicate its hysteria to the doctors and the public inSaskatchewan." Lord Taylor, quoted in Taylor (1978). A successful publicprogram in Canada might spread! The United States did launch its Medicareand Medicaid programs in 1965; and thirty years later, American interestin the Canadian system is again becoming intense.11basically a good one but that there had been insufficient early contactwith the doctors whose major concern was that they not become, in effect,public servants. After negotiations which involved not only theprovincial government and the College representatives, but alsorepresentatives of the GMA, he proposed a compromise which was acceptedfinally by both sides - that the prepayment plans would remain inexistence. Doctors would have the option to enrol directly with thegovernment plan and be paid by it or to bill a voluntary plan which wouldin turn bill the government, or to practise entirely outside these plans(in which case their patients would be reimbursed by the governmentcommission if they billed in accordance with the fee schedule or not atall if they did not). Initially most doctors did bill through theprepayment plans, but over time the tendency was to bill directly to theCommission.The ResultsIn the immediate aftermath of the strike, there was a significant exodusof doctors from the province, but within two years thephysician:population ratio was the highest ever, and physicians' incomeshad risen dramatically.Once again Saskatchewan had demonstrated that a universal program wasfeasible, albeit difficult to implement.1.6 The National Medical Care Insurance Program (1966)During the early 1960s another important event in the development ofCanadian health insurance took place - the Royal Commission On HealthServices, chaired by the Honourable Emmett Hall, Chief Justice ofSaskatchewan (Canada, 1964). The Commission released its report in 1964,recommending that there be a:"comprehensive, universal Health Services Program for theCanadian people, based upon freedom of choice, and upon free andself-governing professions; and financed through prepaymentarrangements; IIThe report was a landmark document which spelled out in some detail whatform the program should take.Again there were uncertainties about costs, provincial response,opposition by the doctors, and response by the business community. Againpolitical leadership was an important factor. The Prime Minister, LesterB. Pearson, who had a strong personal commitment to the concept, wasdetermined to have the program in place before Canada's centenary on 1July 1967. Accordingly the federal government introduced its program in1966. The legislation embodied four principles which had been presentedby the prime minister to a federal-provincial conference in 1965 (Taylor,1978). The provincial plans must:- be universal12cover all medically necessary services of physiciansbe publicly administeredprovide for portability from one province to anotherThese IlFour Points ll evolved into the five basic standards applied today,and explored in detail below.The ResultsThe legislation was not well received by some of the provinces, notablyOntario and Quebec, both of which objected on the grounds that theconditions (like those of the hospital insurance program) amounted to afederal intrusion into an area of provincial constitutional jurisdiction.Nevertheless, by 1971 all provinces had joined the program.The transfer of financing from private to public sources necessitated theimposition of new federal and provincial taxes.An important feature of the system as it developed was that privateinsurance for publicly insured services was prohibited in most provinces,making the emergence of a private system virtually impossible.The Established Program Financing Arrangements (1977)Despite the success and popularity of the hospital and medical careinsurance programs, the federal and provincial governments had concernsabout the financing arrangements. The federal government was frustratedby its lack of ability to control, or even to accurately predict, itsexpenditures on the two programs, since federal contributions wereresponsive to provincial expenditures. Moreover, the expected increasesin public expenditures due to the end of uncollectible accounts and someincreased utilization, were aggravated by factors which the insuranceplans treated as beyond their control, including the the steadily risingphysician to population ratio, expanding technology, and particularlyrapid increases in the use of services by elderly people. Administrativecosts, however, remained low.At the same time, the provinces were demanding greater flexibility in theallocation of the federal funds. Discussions began in 1976 between thefederal and provincial health departments about the possibility ofextending the cost-sharing arrangements to 1l1owe r cost alternatives II ­such as nursing home care and home care.In the same year negotiations began between federal and provincial financeministers to develop new financing provisions. Eventually there wasagreement on the fundamental change from cost-sharing to block funding,but not on the specific details. Finally in 1977 the federal governmentforced the provinces to accept the Established Programs Financing Actwhich ended the cost-sharing and provided for the provinces to receive a13combination of tax points and cash payments to the provinces. In returnthe provinces would have the freedom they had been seeking to spend thefederal contributions as they wished provided that the basic conditions ofthe programs (universality, comprehensiveness, accessibility, portability,public administration,) were met. In addition, the provinces were givenunconditional per capita grants for lI e x t e n de d health services ll •Several provinces improved the availability and accessibility of homecare and nursing home services; there has also been since the mid-1970s orearlier a slow decline in in-patient use. But in the subsequent years thefederal government has three times moved unilaterally to reduce itsobligations under the EPF formula, and in legislation passed in 1990 hasimplicitly established a schedule for phasing out its cash contributionsentirely. 6The Canada Health Act (1984)In 1979, the federal Minister of Health became concerned over severalaspects of the functioning of the provincial health insurance programs.She charged that the provinces were "diverting" funds provided for healthcare by the federal government through cash and income tax shares to non­health expenditures.' Moreover she feared that the imposition of userfees by provinces for hospital services, and extra-billing by physicians(direct charges to patients over and above the negotiated fee schedules),had reached the point where they were interfering in "reasonable access ll ,one of the basic conditions of the federal program.The federal government commissioned an independent review, again conductedby the Honourable Emmett Hall. This review rejected the claim that theprovinces were "diverting ll funds from health care, but supported theconcerns about user fees and extra-billing. The government thenintroduced new health legislation to cover both hospital and medical care.It provided for financial penalties for provinces which permitted extra­billing or user charges, penalities which led to the effective eliminationof both practices. It also consolidated and clarified the conditions ofthe earlier legislation.6 This will not eliminate the federal contribution, at least in form,since the EPF arrangements of 1977 provided for transfers of both cash anda share of income tax revenues. Only the former is being phased out, butthis may well have the effect of removing the federal govenment's abilityto enforce national standards., The provinces would of course have been entirely within theirrights to do so. The change from cost sharing to block grants, forced bythe federal government in 1977, placed no restrictions on how theprovinces used their funds! They thus interpreted the federal claim as anattempt to embarrass them politically.14Once again, there was an angry debate involving the provinces and thedoctors in opposition to the federal government. 8 But the Canada HealthAct finally passed in 1984, with the unanimous support of the federalParliament. The extraordinary decision by the opposition ConservativeParty to support this legislation was a bitter surprise for both doctorsand provincial governments, and reflected the oppostion's reading of thevery powerful popular support for Medicare. After all, the normal duty ofHer Majesty's Loyal Opposition is to oppose.The Ontario and Canadian Medical Associations later launched a legalchallenge to the legislation on the grounds that it was anunconstitutional intrusion into provincial jurisdiction, but withdrew theaction in 1990 without coming to trial.The implementation of a ban on extra-billing in Ontario led to a doctor'sstrike (the second in Canada) which lasted for 25 days in 1986. The lackof public support for the doctors finally caused them to abandon thestrike, which had in any case not been well supported by the doctorsthemselves.The major purposes of the Canada Health Act, the elimination of user feesand extra-billing, have thus been achieved, but its more ambitiousobjective of "protecting, promoting and restoring the physical and mentalwell-being of Canadians II will require more than the assurance of access tohealth services without financial barriers, as the continuing disparitiesin health status among socioeconomic groups illustrate.1.7 Lessons From The Canadian Historical ExperienceFrom the point of view of the general population, the Canadian health carefunding system has been in existence in essentially its present form forover twenty years. For many it has "always been there" - a majority ofthe present population were born within the universal hospital insuranceprograms. The evolution of policy and legislation has had, over thisperiod, very little impact on the individual patient or provider - or atleast that they could observe.The health care system does receive a great deal of public and politicalattention - there is always some sort of health "crisis II in the media.But this attention usually focuses on the immediate situation, andprovides a misleading or erroneous view of the underlying forces at work.Providers of care constantly hammer the theme of "underfunding ll , meaninglittle more than that they would like more money, while provincial payersbemoan lIeDst explosions ll and imminent system bankruptcy, All of thismakes wonderful theatre, and sells newspapers; it is also ideal for the8 Taylor (1978) quotes a former federal minister of health, JudyLaMarsh, at the time of the debates over the federal Medical Care Act in1966: "The opponents of medicare ... came out from their lairs again: themedical profession, the provinces, the medical care insurers, all ofthem." The same interests objected to the Canada Health Act in 1984.15exciting but meaningless two-minute television clip showing blood,emotion, and complex machinery.In the second section of this paper we try to provide a somewhat moredetailed assessment of the state of health care finance in Canada at thebeginning of the 1990s - a mature, but evolving system. We will considerstrengths and weaknesses, threats and promises, relative to the objectivesof its architects, and those of today. But certain lessons also emergefrom the historical record itself, independently of our current state, andit may be worth drawing these out first.A. Things take a long time: It was roughly fifty years from the firstserious discussions of health insurance at the national level, in1943, until the last province entered Medicare in 1971. The processwas very slow and contentious, and sometimes seemed to reach a deadstop.B. The present tends to be much like the past: What was from oneperspective a "radical ll shift from private to public funding, canalso be seen as a natural extension of well-established patterns ofreimbursement (the original Blue Cross model of non-profit, servicebenefit, comprehensive coverage) to cover the whole population,within the same framework of private fee-for-service medical practiceand independent non-profit hospitals. In contrast to the Americanexperience, the Canadian public funding system has turned out to behighly "conservative" of the system of delivery.C. If it is not fixed, it stays broken: When the Canadian provincesestablished universal hospital insurance, they inherited and extendedexcessively high rates of in-patient use. Changing the identity ofthe payer had no effect. Forty years later, while substantialprogress has been made, there is still much overuse. The sameinertia is observed in medical education. As we shall see below,Medicare began with a serious over-building of medical schoolcapacity, which has yet to be reversed. And of course physiciansthemselves continue to be reimbursed primarily by fees for service,just as before.D. Giving people things. is easier than taking them away: This appliesparticularly to providers of care, and of education. The right toserve (and be paid for it) seems to be an even more powerfulpolitical force than the right to be served. Thus it is much easierto expand a system, than to modify and manage it.E. Thus there is an implementation dilemma: Getting through the slowand contentious process of acceptance and implementation will beeasiest if minimal changes are made to existing arrangements.("Revolutionary" approaches fail - at least in Canada.) But thatstrategy then freezes in place all the problems of the existingsystem.16F. History does not stop: While to the user, the Canadian fundingsystem has been stable, the legislative, administrative, and fundingbases have gone through major changes, and continue to evolve. Andat each stage, the system has been attacked by the same economic andprofessional interests which resisted it from the beginning ­physicians, conservative provincial governments, medical insurers,well-off individuals. The same old arguments recur, and must berefuted again and again. But since these arguments are rooted in arealistic appreciation of private interest,9 they will never go away.9 Private insurers have larger and more profitable markets in aprivate system, physicians make more money, wealthy individuals can buypreferred access when there are user charges.17PART 2: CENTRAL FEATURES OF THE PRESENT SITUATIONThe Canadian funding system is, strictly speaking, not a national but afederal-provincial system, run co-operatively by the federal andprovincial governments. The federal government has, with limitedexceptions, no constitutional authority over matters of health. Thus thepublic insurance plans are actually operated by each of the provincialgovernments, which have full administrative and fiscal authority andresponsibility. But the federal government makes substantial financialcontributions to the provinces in respect of such plans (currently about40% of total costs), on condition that the provincial plans conform tocertain broad federally defined standards. It is thus possible to speakof, and describe, a "Canadian ll system, even though each of the tenprovincial plans has some distinctive features.As described above, Prime Minister Lester Pearson in 1965 laid out fourgeneral principles which characterized the existing hospital insuranceplans, and should apply to coverage of physicians' services as well.These have over time become refined and summarized as the five federalstandards to which each provincial plan must conform, in order to qualifyfor federal contributions.These standards - Universality, Comprehensiveness, Accessibility,Portability, and Non-Profit Administration - each represent a generalprinciple whose intent is clear enough, but whose detailed application isopen to considerable interpretation. They have been the subject of muchdiscussion and some evolution over time. The Canada Health Act of 1984has replaced and modified the earlier federal legislation (the HospitalInsurance and Dia~nostic Services Act of 1957 and the Medical Care Act of1966) which originally served as the basis for the federal contributions,and it is the current source for interpretation of these principles. Theyserve as useful headings under which to describe the present system.2.1 Universal CoverageUniversality was initially defined, when first the hospital and then themedical insurance programs were being phased in province by province, as"almost" all provincial residents (95%, rising over time to 99%). But itnow requires 100 percent coverage of provincial populations. This is ofparticular importance in the two remaining provinces which still requiretheir residents to pay premiums as part of the public health insurancesystem. ' O10 "Premi.ums " have a rather peculiar history in the Canadian system.It was obvious to the designers of the public insurance system thatuniversality was essential for a number of very good reasons - and theyhave of course turned out to be right. But this seemed to imply acompulsory system. The general population was in favour of universalitymulti-class medicine and dumping the poor has never had much support inCanada - but were very ambivalent on compulsion and on balance seemed tobe opposed. Physicians were, of course, ambivalent on universality and18Each provincial government is legally empowered to raise funds for theprogram any way it chooses, including through premiums. But the federalstandards require that everyone in the province be insured. Thus no onecan be denied services, or even charged for them, for failure to paypremiums ."" (Payment is legally required, and unpaid premiums are subj ectto collection, but payment is not a condition of coverage.) Hence thelIpremiumsll are simply a form of poll tax, and the national incomeaccountants have always treated them as such.In the early years, however, there was some concern that very low riskindividuals might still find it worthwhile to carry private insurance andstay out of the public plan. Since this would tend to defeat the purposeof risk-spreading over the whole population, by "creaming-off" the goodrisks, private insurance coverage for services covered under the publicplan was not permitted. Private insurance persists for services notincluded under Medicare - dentistry, prescription drugs out of hospitals,and costs outside Canada above those reimbursable by the public plans ­but (except for dentistry) these are relatively samll amounts.bitterly opposed to compulsion.The compromise was a premium~based system in which provinces werecommitted to achieving "almost ll universality by a combination ofregulation and tax incentives. Premiums were uniform, not risk~related;all employers over a certain size were required to enroll their workers;competitive private coverage was not permitted; and the premiums were setwell below actual cost with the difference made up from general revenue.In this way, de facto universality was reached without formal compulsion.It was apparent almost immediately that premiums in a universalsystem were simply a regressive poll tax, costly to collect, covering onlya small proportion of health costs, and moreover with certain technicaldisadvantages for provincial income tax collections. Thus by the early1970s most provinces had scrapped them, and relied wholly on other taxrevenues.Three provinces with relatively right-wing governments retainedpremiums, however, and tinkered with them to make them less regressive byproviding premium subsidies to lower income families. But they were neverable to present any plausible reason for retaining this relativelyexpensive way of collecting taxes. The real reason may be ideologicalsymbolism - some of their members and supporters were never reconciled toa truly "public" system, but could not say so openly. A change ofgovernment, from Conservative to Liberal, led to the abandonment ofpremiums in Ontario in 1990, and British Columbia is quite likely to do sowithin the next year or two, which would leave Alberta in isolation.11 The federal law on this point is clear, but provincial practice isnot. Most residents of the two provinces still levying premiums areunaware that they cannot legally become "uninsured"; and physicians arenot reimbursed for services provided to those whose premiums are not paidup. Thus the premium system has become to some degree a barrier to accessfor certain groups in the population, despite the explicit requirements ofthe federal statute.19Nor is there any "private ll system of health care delivery, operating sideby side with the public plan. All physicians and hospitals, like allpatients, work within the public payment system, but the delivery systemis still from most points of view "private ll •In some provinces it is still technically possible for a physician towithdraw from the public plan, and to see patients on a purely privatebasis, with neither being reimbursed by the public plan. A group ofphysicians could even set up their own, purely private, hospital ordiagnostic facility, on whatever economic terms they chose. But theirpatients would have neither public nor private insurance; such care wouldthus appeal only to a very select group. Furthermore, the physicians inthis situation could not simultaneously provide services to patients underthe public plan. They must be "all in" or "all out". Thus privateproviders would have to be able to make a living purely in a privatemarket, rather than playing both sides of the street as is common inEuropean systems with a private system.In consequence, no private market has developed, even where it ispermissible. This suggests a more general principle, that "private"markets in medicine can persist only where they can be supported directlyor indirectly by a public system.2.2 Comphehensive CoverageComprehensiveness requires that provincial plans cover "all medicallynecessary" services. Such services as semi-private or private hospitalaccommodation, when not necessitated by the patient's medical condition,or elective cosmetic surgery, are not included under the public plans.Similarly the services of non-physicians - optometrists, naturopaths,chiropractors, and other practitioners - are implicitly excluded from thefederal definition of "medical necessity", and need not be covered. Aprovince may cover other professional services of whatever type and onwhatever terms it chooses; but the federal government imposes noconditions and makes no contribution toward such care.The increasing interest in the effectiveness, or lack of it, of muchcontemporary medical care could conceivably infuse more content into theidea of "medical necessity", Many of the services provided by medicalpractitioners, and associated stays in hospital, appear to be in part orwhole unnecessary. Strictly speaking, then, they should not be covered bythe public plan. In practice, however, the test of necessity of a servicehas been (with very limited exceptions) that a properly licensed physicianwas willing to provide it, and a patient to accept it.The concept of "medical necessity" might receive further consideration infuture, if provincial governments decided simply to llde-insure ll servicesof no demonstrable health benefit. Physicians might still offer suchservices as carotid endarterectomy or cardiac by-pass grafts for one ortwo vessel disease, but patients would be required to pay the full coststhemselves.20At present, however, the trend is rather to try to develop improvedregulatory mechanisms to deal with these issues, in co-operation with theleadership of the medical profession, rather than to raise the host ofdifficult and potentially explosive political and professional issuesimplicit in such a "market" approach. 12Provincial governments have for years established temporary or permanentexpert advisory committees, composed of both professionals from thecommunity and bureaucrats, to review new technologies and makerecornendations as to which new programs should be started, when, andwhere. Decisions as to how much capacity to add, become in effectdecisions about the content of medical practice, since practice alwayspresses against the limits of capacity. This form of "steering ll ofmedical practice is as old as the public plans and older. ' 312 Certain services have always been excluded from the definition of"medical necessitylt - elective cosmetic surgery for example, or healthexaminations for administrative reasons. Annual health exams are alsoknown to be of no medical benefit and are excluded from coverage for thegeneral population; certain types of immunizations are also covered onlyfor high-risk groups. But when both patient and provider have an economicincentive, it is not very difficult to find some other reimbursableclassification for such a service - an ordinary office visit, for example.Exclusion of inappropriate services would require one to delve much moredeeply into the patient's condition, and second-guess the physician'sdecisions in individual cases, in a way which has rarely been done inCanada.One might limit the reimbursement of physicians or hospitals whenthere is evidence of marked deviation, on average, from externalstandards. Provincial patterns of practice review cooonittees already dothis, in a small way, and the move to funding hospitals on the basis ofthe populations they serve would carry implicit penalties for over­servicing. But the public identification of a doctor's decision as wrong,to the patient, among others, is political dynamite.13 The constraints on capacity imposed by the provincial governmentsare two-fold. They supply (or do not!) both the capital funding for newequipment, and the operating funds for hospitals to use it. Contrary tothe common allegations in the American press, these constraints do notlead to a failure to keep up with leading-edge technology, but they dolimit its proliferation. The new and expensive equipment or program willbe established in one or two sites, usually at a large health sciencescentre, and access will be limited to those most likely to benefit.Some physicians, and patients, who would like the new service, willnot get it. There are not CT scanners on every street corner, or inmobile vans set up at shopping centres. But one hears a great deal fromthose who are denied access, whether or not the service would have beenappropriate for their condition. One does not hear from the Americans whowere provided with useless or harmful services - they do not know who theyare. Again, the fundamental question is not, "Who has mos t ?" but lIWhatcare is appropriate?" That question is not emphasized, however, either by21But increasingly such committees are being asked to make explicitrecommendations about medical practice itself - guidelines for periodichealth examinations, for Caesarian sections, endarterectomy, orcholesterol screening, to take some recent examples. Some provincialprofessional bodies are beginning to seek an active role in this process,others are hanging back, but it seems almost certain that the developmentof professional protocols, through some form of government andprofessional co-operation is going to be an expanding field.The process is still at too early a stage to have much identifiable hardoutput. But there may be some emerging success stories. It seemsincreasingly likely that this consultation process will spare Canadiansthe gross excesses of cholesterol testing and therapy which are at presenta growing threat to the health of the American population. On the otherside of the ledger, careful evaluation by such a committee contributed tothe rapid spread of effective therapy for hypertension.What has not yet been addressed, is the issue of implementation. Whatdoes one do, when the protocols are not followed? No one, yet, hasgrasped this nettle, although there have been a number of suggestions ofprofessional and economic incentives.2.3 Reasonable Access on Equal Terms and ConditionsAccessibility has been a particularly contentious area, encompassing twomajor disputes between physicians and governments - extra-billing andhospital capacity. Do direct charges to patients impede access to neededcare and violate the principle? And do attempts to moderate the expansionof beds and technology constitute a form of "rationing" which effectivelydoes the same, even if care is "free". To date, the short answers givenby Canadian opinion and practice to these questions are, TlYes Tl, and TlNotnecessarily". The former question appears, for the moment, settled, butthe latter is wide open and takes up a major share of Canadian politicaldebate.Extra-billing by physiciansOn the first point, practice originally varied from province to provincedepending on the political strength of the medical associations at thetime the medical insurance plans were introduced. 14 In Quebec, at one endthose who sell machines, or by those who are paid to use them.14 Physicians have consistently sought the right to extra-bill abovethe fee schedule, and to impose other forms of direct charges on patients.Their objective is explicitly to increase the cost of a system which theyclaim to be underfunded. Yet simple-minded economic models assume thatsuch charges will reduce overall rates of utilization and costs, and lowerthe incomes of the physicians who advocate them! Either physicians orneo-classical economists are very wrong in their understanding of thedeterminants of health care use.22of the spectrum, physicians who billed patients for amounts above thenegotiated schedule were not reimbursed at all by the public plan, norwere their patients. At the other, in Alberta, physicians were free tocollect their official fees from the public agency and then extra-billtheir patients in any amount they wished - literally double-billing.Other provinces permitted some form of extra-billing but on more or lessrestrictive terms.The Canada Health Act, however, provided that any provincial governmentwhich either charged patients for covered services, or permitted anyoneelse to charge for them, would lose an amount from its federal grant equalto the estimated total amount of such direct charges. Since that time,all provinces have negotiated or imposed an end to extra billing, andremoved any other direct charges for covered services. 15 The Actresponded to growing concerns and some evidence (hotly disputed byphysicians) that extra-billing was beginning to spread, and was becomingan increasing impediment to access to care for those in greatest need.How much access is reasonable?The second issue is conceptually more difficult. Canada has historicallyhad a relatively large supply of hospital and other institutional beds,and a correspondingly high rate of use. Nation-wide, there are about 6.75public general hospital beds per thousand population, two-thirds in short­term units and one-third in long-term units or extended care hospitals.Days of care provided are about two thousand per thousand population, withjust over 60 percent in short-term units - a smaller proportion of daysbecause occupancy rates in short~term units average about 80 percent, inlong term facilities they are over 95 percent.Students of health care utilization have generally concluded that theCanadian pattern represents overuse, relative to medical need, and publicpolicy in all provinces has been, on balance, directed towards reducingThe comparison between the United States and Canada is suggestive,since the former has the highest charges to patients, in the OECD world atleast, and the latter among the lowest. Yet it is in the U.S. that costsare Ilexplodingtr.15 There is a significant exception to this penalty. Patients inlong-term care are provided with room and board, which they wouldotherwise be paying for out of pocket. (Patients in acute care do notusually give up their residences.) Since almost all such patients areelderly, and on some form of public pension, the allowable charges are setat a level to recoup most of the public pension, leaving a basic "comfortallowance". The charges bear no relation to the actual cost of providingcare, which is met from public budgets.lIPricesll in this case are used as income distribution mechanisms, notas ways of influencing use. Their focus is equity, not efficiency in theeconomist's sense.23hospital use. ' 6 Similarly the introduction and dispersion of expensivenew technical facilities and procedures has been restrained, through thepublic control of both capital and operating budgets in hospitals, and thenegotiation process which determines what shall be included in the feeschedule.Yet the supply of physicians has increased steadily, and this increaseinteracts with the rapid extension of technology to create a constantpressure for more and newer "tools of the tradel!. Physicians' incomes, ina fee-for-service environment, depend on their billing opportunities, andthat in turn, for many specialties, depends on their access to (publicallyprovided) capital and associated (publically paid) nurses and technicalstaff. To this interest is now added a very powerful pressure from nursesand other hospital workers, for whom hospitals represent jobs andopportunities for professional advancement. These groups have become theloudest public voices demanding more beds, and larger budgets, and warningthe general public of the threats to their health from "cutbacks". Oneobserver has coined the phrase the "job fortress" to describe the Canadianhospital. Canada has in fact the world's highest rate of expenditure percapita, after the United States, and outlays have been rising more or lessin line with national income over the past twenty years. But this is notenough for the providers of care, who look with envy at the ever-expandingshare of income claimed by their counterparts next door in the UnitedStates.It is generally agreed that "access" means, not the prOV1Slon of allservices imaginable, for everyone, but rather services according to need.The political struggle is then over the processes by which need is to bedefined. To the medical profession, need is whatever a physician says itis. If that requires more, and more costly, services, then so be it.Someone - the government, the patient, the rest of the community - shouldraise the necessary funds. Governments, on the other hand, areincreasingly arguing that the test of necessity is the demonstrable effectof intervention on health outcomes, effectiveness, not merely aphysician's opinion, professional or otherwise. Furthermore, they arebecoming increasingly aware of the large and growing body of researchevidence which indicates that there is often little or no connectionbetween the physician's opinion, and the demonstrated effectiveness (orlack of it) of the services provided.Since this conflict between professional autonomy (and economic self­interest) and payers' concern for value for money (and economic self­interest) is a central issue in virtually every developed country in the16 Certainly the Canadian rates greatly exceed the correspondingAmerican averages, which are themselves well above the experience ofpopulations served by American Health Maintenance Organizations. YetCanadian physicians continue to claim that they need more beds, andoccupancy rates are near the limits of de facto capacity. There aresimilar concerns about overuse of hospital beds in a number of Europeancountries, and similar efforts to reduce capacity.Health Care Expenditure Per CapitaInternational Comparison, 1980 and 19892500'......--------------------2000 .1500 -. _----_ _-_ .. _--.--.-----_ _-_ __ - _-1000 ._ .500 .Ol-l'----us SZ IC NO LX AU IT AL DE NZ SP GRCA SW FR GE NE FI JA BE UK IR PO MEANOECD COUNTRIES'_1989.1980 ITotal Health Expenditure as Share of GNPCanada and U.S., 1948-19891?-r--------------------------------CanadaNHECanada HPDP onlyAll Provincesincluded,1971679538,, ,, , ,, , ,,. ,/: .: ... '. " ,"". ., ..., ,".. ~,Federal Hosptlal, ; Federal Medical 1 : / U.S. NHEInsurance Act i ' Care Act:, , /passed, 1957: ,effective, 1968i, ". :. ,.. . ",....---,: /', ,:. : /' l,.. ........... ,': All Provinces .. ": , :: included, 1961 ':, ,,,, ,, ,,: ,-' . _ .: ,"". r" •...._.----, .....: ,," ... ,...: ••- .o.. .._. •.....: ,,... : ..- .- .:;' ..," ..,--, ,--- ......-: : ., ..._--;. •...... :4 ' ::,' :....._.. .,.- : :.. . ,: .>'. : ::....: :..... ...........:: :............. ..... :.... - :: ::: :" ,111~W~~W~OO~M~~mnMm~OO~M~~49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89Year1987-1989 data are preliminaryHPDP =Hospitals, Physicians, Dentists and Prescription DrugsHospital and MD Expenditure as Share of GNPCanada and U.S., 1948-1989Nc-u.s.CanadaFederal MedicalCare Acteffective. 1968·····,··,,,····,,·,,,·····j All Provinces• included,1961,,/'/,/'....... ,... ;I -'III/,I,I,,.. .......,-/',/........... ' ---­,":, :• I ': / ::, :i' .,'. :,: :" '.': :-- . .,... ,,,, i: All Provinces~. .', .... ': : i included,1971.... . ", '.· '· '.· "· "· ", '., ', ., ',, '.,7·····6. ··,:6 Federal HospijallInsurance Act :5.passed. 1957i,···a- 5 ·,,Z ···C' ·4. ·-··0 ,·-e 403.32.,...,,1987-1989 data are preliminary27world, the application of the principle of access in the Canadian systemis likely to remain contentious for a very long time to come.2.4 Portability of Coverage Within CanadaPortabili.ty of benefits is an important principle in terms of itssymbolism for national unity, but has not been particularly contentious.It is largely a technical problem. Political issues have arisen only inthe one or two cases in which a metropolitan region spans a provincialborder, or a significant region of one province receives its tertiary carefrom a large city in another. If the fee schedules are markedlydifferent, either providers or payers may object to the financialtransfers involved.More potentially troublesome, is the issue of payment across the borderwith the United States. As noted in the discussion of accessibility,provincial governments limit the proliferation of hospital capacity andparticularly of expensive diagnostic equipment, by funding them throughhospital capital and operating budgets, not through fees per item ofservice. A hospital which wishes to acquire an MRI machine, for example,or a lithotripter, must not only receive planning approval from itsprovincial ministry of health, it must also convince the ministry toprovide the capital funds. ' 7 Private physicians can in principleIpurchase and use such equipment, but if there is no correspondingprocedural item in the fee schedule, they cannot be reimbursed (bygovernment or patient) for its use. ' 8The result is that physicians claim a shortage of major diagnosticequipluent, relative to the much greater capacity and use in the UnitedStates. (The price, however, does not fall in the U.S.!) Whether thisrepresents a shortage in Canada, relative to the needs of the population,or a surplus in the United States, (or both) is another matter.17 In some cases, hospitals have been successful in convincingprivate donors to provide funds or equipment, but then the hospital mustfind resources for increased operating costs within its global budget.Ministries usually resist providing increased operating resources for anunapproved capital expansion.18 This is slightly too simple. Procedural fees for diagnosticservices are usually divided into a professional and a technicalcomponent. An appropriately qualified physician can claim theprofessional fee for interpreting the diagnostic results, whether theequipment is owned by a hospital, a private facility, or his own practice.But if there is not also a technical fee component in the negotiatedschedule, to pay for the equipment, technicians, reagents, etc., then ineffect the equipment is not reimbursable outside the hospital. Inaddition, even when private facilities can be reimbursed for diagnosticservices, there will be some form of additional licensure or otherrestrictions limiting those entitled to bill.28Portability outside CanadaOne could imagine, then, an increased flow of patients across the borderin response to the increasing gap between Canadian and American patternsof care. This would place provincial governments in the difficultposition of either paying for such additional care, and thus losingcontrol of their total outlays, or permitting the development of a defacto private system of care alongside the public, for those who canafford to pay the American price.In practice, however, this does not seem to be developing as a significantproblem, with the exception of one or two border cities, and one or twoparticularly contentious procedures. The reality of care use is thatpatients do not in general "demand" particular procedures; they seek therecommendations of their physicians. These latter can, and do, sometimesrefer patients to the United States and then energetically publicize theincident as part of a continuing struggle with provincial governments overthe availability of health resources. But this sort of political theatredoes not correspond to any large movement of patients or dollars. 1 92.5 Administration of Coverage by Non-Profit AgenciesNon-Profit Administration, the final principle, has drawn very littlesubsequent commentary in Canada, because in most parts of the country theprivate health insurance industry was relatively underdeveloped at thetime the public plans were introduced. In each of the provinces therewere not-for-profit insurers, sponsored originally by the hospital andphysician associations, similar to the Blue Cross plans in the UnitedStates. The hospital and medical insurance business of these plans wassimply taken over by the public agencies. In some cases the provincialplans continued to work through the previous carriers as intermediaries,but this arrangement was found to be both unnecessarily costly, andinefficient, and was soon terminated.The historical and customary support for non-profit administration wasstrongly reinforced by the recommendations of the Report of the federalRoyal Commission on Health Services (Canada, 1964), the massiveinvestigation which pre-dated the extension of public coverage fromhospital care to physicians' services. Justice Hall observed that theprivate insurance plans were paying out relatively low proportions oftheir premiums in benefits.Studies for the Commission indicated that in the early 1960sadministrative overhead absorbed about 22 percent of all premiums forprivate health insurance in Canada. This ratio was, of course, lower forthe dominant group plans (20%) than for non-group plans (30%). But the19 Such theatre cau, however, have powerful political consequences.Life and death events are emotionally very gripping, and can havesignificant effects on the allocation of health care resources amongparticular programs.29plans offered by commercial firms which were just beginning to penetratethe market, providing more limited coverage and selecting the lower riskgroups, had overhead rates of 30 percent for their group contracts, and awhopping 55 percent on the non-group (Canada, 1964, ch.18). This appearednot only inefficient, but unjust.But the raison d'etre of a private company is to make profits, not to payclaims. A private insurer refers to the ratio of claims to premiums asthe "loss ratio ll , to be minimized; profits and other expenses must befound out of the overhead share. To the rest of the community, however,the "loss ratio" is the proportion of total payments to the insurer whichactually goes to pay for the desired services, as opposed to being takenup in overhead costs. Thus Justice Hall referred instead to theII re t ent i on ratio II , that is, the percentage by which the basic cost ofmedical services must be increased to achieve the advantages of insurance.A "good" plan, from the perspective of both providers and patients, is onewhich minimizes the retention ratio, the cost of insurance per se, such aplan also maximizes the loss ratio.The Commissioners concluded that private, for-profit insurers operatedunder incentives which tended to increase this form of overhead cost,adding to the expense of health care without adding to the resourcesavailable to provide it. High retention ratios (low loss ratios) were notan aberrant result of inefficiency, or a transient effect of small scale,but a fundamental characteristic of (successful) private insurance. Thisinherent tendency is strongly reinforced in a competitive environment withmultiple insurers, in which the costs of intensive marketing and ofincreasingly careful risk selection must also be found out of theretention ratio (see also Evans, 1983). Regarding the costs of theinsurance mechanism as unproductive overhead, they recommendedcentralized, non-profit administration in order to minimize them.This recommendation has turned out to be quite perspicacious. Theoverhead cost of administering the public system in Canada are difficultto determine with precision, but are generally agreed to be in theneighbourhood of five per cent or less of payments to providers. As aproportion of national income, the costs of health care prepayment andadministration have remained roughly constant for the last thirty years.In the United States, by contrast, the costs of the insurance mechanismitself have escalated dramatically. The American payment process hasbecome increasingly complex, as payers are making increasing efforts tominimize their own outlays by passing the costs on to someone else.Governments have pushed more of the costs onto employers; employers andinsurers are trying to push costs back onto patients; the "uncompensated"costs of indigent care which hospitals have traditionally pushed ontoprivate insurers, are being pushed back to them; and payers and providersare struggling over the price and use of services in individual cases, acostly, frustrating, and mostly ineffective process. It has becomecorrespondingly more and more expensive just to push around the pieces ofpaper associated with providing and paying for care - to the considerableprofit of lawyers, accountants, consultants, and administrators.Costs of Insurance and AdministrationAs Share of GNPCanada and U.S., 1960-1989wou.s.Canada,,, ,: I, ,: ~~ :, " IFederal Medical: ," " 'Care Acd ,. '"l· " " ,effective, 1968: I' v1 ,""',,': r " ,/· , " .,, I 0;, ,, I, ,~~*~ I• -_, I: included in : ,'",': Hosp~allnsurance, i ./ '\...J'i 1961 ,:0. .I", , .. ,,,' __ oJ' : , ' •~,.- :. '---' .. .. . .. , . ._~--__.J : :MP~n~.. I I:included, 1971,,,O.0.7T---:--------,-----.,.-------------------,0.1c.Z 0.4e"'0'#.60 62 6461 636665 6768 70 7269 7174 7673 75 77Year78 8079 8182 8483 8586 8887 891987-1989 data are preliminary31Nor do the administrative costs of insurance and prepayment tell thecomplete story. The administrative costs borne by hospitals andphysicians' offices have gone up rapidly as they attempt to cope with anincreasingly complex payment and regulatory environment. Thus asignificant proportion of the recorded expenditures for hospital andmedical care, are in fact costs generated by the payment mechanism, thoughnot included as explicitly reported costs of prepayment andadministration. An increasing share of the sums Americans think they arespending on hospital and medical care, are going in fact to pay foradministrators, accountants, lawyers, public relations specialists, andother persons whose services are not usually considered as contributing tothe health of patients. The most recent estimates of the extra cost ofadministering the American system, relative to a Canadian-style approachare between $90 and $120 billion per year. (Woolhandler and Himmelstein,1991) .These ballooning costs of the insurance process - all those accountatnsand lawyers - are leading increasing numbers of American physicians, aswell as payers and patients, are beginning to believe that they might bebetter off under a Canadian system. Health expenditures in the UnitedStates keep going up, but providers feel - rightly - that their share isnot going up as fast. Yet they are bearing the full brunt of the variousmeasures intended - so far unsuccessfully - to limit cost escalation.Of course providers have always preferred non-profit administration. TheBlue Cross/Blue Shield plans were originally established by hospitals andmedical associations in the United States. What they did not want,however, was a single non-profit payer, negotiating on behalf of thepublic generally rather than under provider control. And officially, theystill do not (Todd, 1988). The Canadian form of non-profit administrationcomes in combination with lI s oc i a l i z e d insurance II - sole source payment, byan agency with both incentives and authority to try to keep down the costsof care - provider incomes - as well as the costs of insurance.But if the alternative, a fragmented payment system, inevitably leads toescalation of total health expenditures, and even more rapid escalation ofthe costs of the insurance mechanism, combined wi th ever more onerousinterference from regulatory agencies and private payers, and a less andless satisfying practice environment, then perhaps the Canadian form ofpayment might not be so bad. An increasing number of Americans - publicbodies, private individuals, and even physicians, are coming to supportsome form of universal public insurance (Blendon, 1989; NationalLeadership Commission, 1989; United States GAO, 1991), The AmericanMedical Association may still be bitterly opposed to what they continue todescribe, incorrectly, as llsocialized medicine ll , but the American Collegeof Physicians - the second largest organization - now favours publicinsurance.On the other hand, in Canada the question is beginning to be raised as towhether administrative expenses might not be too low; one observer hascoined the term lI admi ni s t rat i ve anorexia II to describe the attitude ofprovincial governments and their agencies towards spending on management.32A recent analysis of the Canadian system advances the thesis that, whilenot underfunded - indeed in total almost certainly overfunded, it is veryseriously undermanaged (Rachlis and Kushner, 1989). Still others refer toit as lIover-administered but under-managed ll • The distinction isimportant.Traditionally, insurers simply paid whatever bills were generated by thehealth care system (or refused to pay them, leaving the "insured llindividual with the liability). Physicians and other professionalsdetermined the care that was needed by "their" patients, and eitherprovided it or directed others to do so. Administrators ensured that thenecessary facilities, equipment and personnel were available to carry outthe directions of the professionals. But they did not "manage" in thesense of deciding what care should be provided, or how, or how its effectsshould be evaluated - these were professional questions. Administratorswere senior support staff; they did not define or direct the fundamentaltasks of the organization. The payers simply wrote cheques as requested,and raised their premiums as necessary_Management, by contrast, involves deciding what care should be provided,under what circumstances, by reference to its expected or observedeffects. It also involves determining how the organization will carry outits tasks, what is the most efficient mix of personnel, equipment, andfacilities. Who shall do what, and with which, and to whom? Thesedecisions are jealously guarded by professionals, as central to theirautonomy. But they are often made by default, with no accountability toanyone else, and the evidence is that they are not made very well. Agreat deal of ineffective or otherwise inappropriate care is provided, andproduced in unnecessarily costly ways - bad management.These are the same issues as underly the debates over accessibilitywhich services are worth paying for, for whom, and what information andprocesses of analysis are needed in order to decide?It must be emphasized, however, that these are quite different from theproblems facing a private insurer, and which generate a significant partof the overhead costs of private, for-profit insurance. The privateinsurer is forced by the laws of the competitive marketplace to devote agreat deal of effort to determining who not to insure - the worst risks.The private insurance market does not, cannot, cover those in most need ofcare. 2020 Unless they happen to be quite well off, which in general theywill not be, because illness is correlated with poverty, not wealth. Thetens of millions of Americans who are uninsured, or have grosslyinadequate coverage, are not an unfortunate aberration or oversight, butrather a natural and inevitable outcome of the operation of competitiveforces in a private insurance market. This point has been made veryclearly by Fein (1986), who illustrates it through the history of privatehealth insurance in the United States.33Since the universal public system responds to an explicit society-widepolitical choice that everyone is to be covered, this problem ofidentifying individual risk status disappears, and along with it the wholecomplex apparatus of rate-making and policy design. The privatemarketplace generates a multiplicity of different types of coverage - farbeyond the capacity of most purchasers to comprehend - in order toIninimize the extent to which those in low risk categories pay to supportthose at high risk. But the public insurance system expresses thecommunity's decision to do precisely that, to use the resources of thehealthy and wealthy to support the poor and ill. So the principalservices of the traditional private insurance sector are, literally,worthless, because their ll pr o duc t " is not what the community wishes tobuy.In its place, however, is the problem of determining the needs andpriorities of those to be cared for, and the effectiveness of the servicesoffered. Provincial governments are clearly responsible for purchasingcare on behalf of their populations. Achieving "value for moneyll in thisprocess may well require a build-up of managerial capacity, and thecreation of new administrative structures, within the overall framework ofnon-profit administration./34PART 3: MANAGING THE SYSTEM, AND COPING WITH CHANGEThere are several paradoxical features to the Canadian experience, notleast of which is the nature of the political controversy which seemsalways to surround it. On the one hand, as emphasized above, these isabsolutely no doubt about the strength of the public commitment - byordinary citizens, politicians, and even most providers - to thefundamental principles of the system. There is no support for, and indeedwould be overwhelming oppostion to, any overt attempt at abandonment ormajor revision of those principles.Yet on the other hand, the functioning of the health care system isconstantly in the forefront of public debate, and its management is by farthe most demanding responsibility, not just in dollars but in terms ofpolitical and technical skills, carried by each of the provincialgovernments. Ministers of Health, and premiers of provinces, are heldaccountable in the provincial legislatures and in the press for individualproblems and misadventures which occur in the operation of the health caresystem.The management of the health care system in Canada has thus becomepoliticized to an extreme degree. And while the results of such politicalmanagement are generally agreed to be relatively satisfactory, it doescarry with it certain characteristic limitations. On the other hand, itis not clear any of the other industrialized democracies, even the UnitedStates, is so very different from Canada in this respect. All suchcountries, except the United States, have collective systems for financingall or most of their hospital and medical care, and thus must dealpolitically both with decisions as to who shall be permitted to perform,and paid for, what sorts of services, for whom, and with the determinationof the relative incomes of those persons who provide health care services.And even in the United States, the critical decisions are political; themarket is much more prominent in rhetoric than in reality. The principaldifference is that the key political decisions tend to be moredecentralized and hidden, whereas in Canada they are centralized andplayed out in the full glare of the media (Evans, Lomas et al., 1989).European systems tend to be more similar to the Canadian, in that thepolitical decisions tend to be centralized, but they appear to be lessopen to the public than in Canada.At present, the health care policy agenda in Canada is being driven by aset of interlocked problems, none of which are particularly new, orpeculiar to Canada. On some, there is evidence of progress, on others wecan see that present problems are the result of past policy failures,which being left uncorrected, will generate continuing difficulties in thefuture. (But at least our grandchildren will not be bored.)3.1 Controlling the Escalation of Health Care ExpendituresThe first problem area, Cost Control, faces every society in theindustrialized world, with the possible exception - so far - of Japan. It35may be that if the modernization and growth of a country's general economycan continue to outstrip that of its health care system, it need not beoverly concerned with health care cost control. This has not, however,been the situation in North America or Western Europe, where all countrieshave had to wrestle, over the last decade or more, with the problem ofmoderating the growth of health spending in order to protect resources forother social and private priorities. And any country modernizing itshealth care system would do well to consider carefully how it will dealwith the inherent tendency of such systems to unlimited expansion, in theabsence of strongly enforced external constraint (Evans, 1990, 1991).Within the last five to ten years, however, all such societies except theUnited States appear to have found some response, if not necessarily apermanent solution, to this problem (Schieber and Poullier, 1991).Several countries have actually reduced their shares of national incomespent on health care, in some cases quite significantly.21 The process ofcontrol, in every country, has been accompanied with considerabledifficulties and political conflict, and it is always possible that thehealth care system will succeed in breaking out of the controls which eachsociety has placed on it, but for the moment a degree of stabilityprevails.The processes whereby the provincial governments in Canada have imposedthese controls, over a period of nearly twenty years with the exception ofthe "recession breakout of 1982, are three in number.First, as noted above, the nature of the Canadian payment system permitsit to function very economically in terms of administrative costs, andthese have not been rising over time. Ironically, it appears that theAmerican attempt to create more IIcompetition" in health care has addedsignificantly to these unproductive expenditures.Secondly, the fee schedules negotiated between the medical associationsand governments in each province have escalated much less fast than feesin the uncontrolled illnerican environment. At the same time, theelimination of extra-billing has prevented physicians from exploiting thisalternative form of fee inflation. Over time, fees in Canada have risenat a rate more or less in line with general price inflation; whenphysicians can set their own fees freely, fees rise substantially faster.21 FIgure 1 above show Canada's relative ranking in per capita costat the beginning and end of the 1980s - far below the United States, butabove all other OECD countries. Certain countries - Germany, Sweden, theNetherlands - have moved down in relative position, indication lower thanaverage cost escalation. But as Figures 2 and 3 show, the American lIcastexplosion" has largely been contained in Canada. These data have beendisputed by, among others, the Health Insurance Association of America,which is quite understandably concerned that the Canadian aproach might beadopted in the United States. But the difference is real: see Barer,Welch and Antioch (1991), and Evans, Barer and Hertzman, (1991).36Limiting utilization of fee for service medicineIn response, physicians in Canada do appear to have increased theirvolumes of billings per physician somewhat faster than in the UnitedStates, but they have not been able to offset fully the slower increase infees (Barer, Evans and Labelle, 1988). An important contributor to thecontrol process appears to be the fact that fee schedules limit thereimbursement of diagnostic services outside hospitals ~ most physicianscannot simply set up their own laboratories, for example - and alsoprevent implicit "fee splitting" between laboratories and referringphysicians (Reinhardt, 1988).These controls over the tendency of physicians to engage in "proceduralmultiplication" and "strategic billing", particularly when fee inflationis contained, are by no means complete, and any particular form of controltends to erode over time. Canadian provincial governments areincreasingly exploring ways of imposing more explicit "capslI on totaloutlays for physicians' services. Two provinces - Quebec and BritishColumbia - have already done so, and it is likely that more will follow(Lomas et al., 1989).Such caps can take a variety of forms. The simplest, direct pro-rating,establishes a fixed total of funds to be paid to physicians in a giventime period. This is then compared with the total dollar value ofbillings or reimbursement claims submitted by physicians for servicesprovided during that period, and the ratio between money allocated andtotal claims submitted is multiplied by the value of each physician'sclaims to determine how much he or she will actually be paid. Thepayments will be greater or less than the amounts submitted, dependingupon whether the total of claims is less or greater than the amountbudgeted. A version of this process has been used for a number of yearsby the German sickness funds; and cost escalation in Germany has been lessrapid, over the last decade, than in most other DEeD countries.Pro-rating has certain technical problems, which are not too difficult,but global pro-rating also some serious incentive problems, insofar as ittends to penalize more conservative and cautious physicians who fail toexploit the system to the utmost. A more elaborate and sophisticatedsystem with separate but linked regional and specialty caps has beendeveloped which has positive incentives for regional allocation ofservices, for conservative use of referrals, and for collective decision­making by physicians over the appropriateness of care (Evans, 1988b), butthis has yet to be tried in practice.The caps which have been imposed in the Canadian provinces involve settingupper limits for the increase in use in each time period, at the time ofthe negotiation of the fee schedule. If actual use of services - amountsbilled at the new fees - increases more rapidly than the target rate, theexcess is deducted from payments in the next period (Lomas et al., 1989;Barer et al., 1988). But the caps have not always been completely "hard",because the agreements often provide for only part of any excess abovetargets to be paid back by physicians, and because the payback process37becomes entangled in the negotiations for the next fee agreement, ratherthan being automatic.But the control of costs is also directly linked to manpower policy,because the volume of physicians' services billed rises more or less inproportion to the increasing numbers of fee for service physicians. Asnoted below, manpower policy has worked in opposition to cost control, bysupporting a growth in physician supply well in excess of the rate ofgrowth of the population. This places continuing upward pressure oncosts; but it has been extraordinarily difficult to mobilize politicalsupport for reducing the number of training places.Finally, a very important part of the control of health care costs hasbeen the system of global budgeting for hospitals, which enables thiscomponent of the health budget to be subjected to absolute "cash limits".The result has been a steady decline in acute care utilization, whichnevertheless remains high relative to United States experience, and a muchless rapid proliferation of new and very expensive high technologyinterventions. Canadian provinces do acquire the most recent technology,but such equipment tends to be confined to the teaching hospital centres,and does not proliferate throughout the regional hospital system or intofree-standing facilities. Thus the availability per capita of suchequipment tends to be lower than in countries such as the United States,Germany, or Japan, and this is another significant contributor to themoderation of cost escalation.3.2 Health Care Use by the ElderlyThe Aging of the Population is perhaps the most frequently cited source ofserious problems, now and particularly in the future, for the Canadian andmost other health care systems. Yet it is the area in which the rhetoricis in fact most misleading. The usual argument is that elderly peoplerequire more, and more costly, health care services, on average, than doyounger people. At the same time, it is notorious that the proportion ofelderly, and particularly very elderly, people in the population isgrowing, as birth rates have fallen and life expectancies have risen.Both these observations are true. But the common conclusion, that thecosts of caring for the elderly will therefore necessarily exceed thewillingness or ability of industrialized economies to pay for them, doesnot follow. It is particularly misleading, indeed flatly false, to claimthat such demographic trends are the source of the cost pressures beingfelt in health care today.A good deal of research has been done on the changing patterns of care ofelderly people in Canada, and it is all consistent. The aging of theCanadian population, and we believe of all other populations in theindustrialized world, is a very important phenomenon over a time span ofdecades. But its effects on health care use are very slow. In Canada,the aging of the population would add about one percent per capita peryear to health costs, if the utilization patterns at each age remainedunchanged, and only the population age structure changed (Woods, Gordon,1984). Over thirty, or fifty, years, this is a substantial impact. But38one percent per capita per year is well within the normal, or at leasthistorical, economic growth rates of industrialized economies, and couldeasilty be accommodated with a constant share of such growth being devotedto health care.But the age-specific use rates are not rema~nlng constant (Barer et al. ,1987). Hospital in-patient days per capita, for example, are increasingfor elderly people while dropping rapidly for the rest of the population(Evans, Barer et al., 1989). Average physician billings per person arerising for the whole population, but much faster among the elderly thanamong the rest (Barer et al., 1989). In-hospital procedures are likewiserising fastest in this age group. And these changes in relative use ratesby the elderly and non-elderly populations are observed after adjustmentfor the changing age mix within each group; they are not an artifact ofthe increasing average age of the elderly themselves.Thus elderly people are accounting for an increasing share of our healthcare effort and resources. But their growing numbers wand average agesmake a relatively small contribution to this increase. The much moreimportant factor is that, over time, ever more is being done for, or to,each elderly person. They are being subjected to many more, and moreintensive, interventions. And the effectiveness of these interventions isoften unproven, particuliarly for the older age groups who are less oftenenrolled in clinical trials.Thus the "Aging of the Population", which claims priority of place in somany discussions of health policy, is largely a false issue. The realquestion is what benefits are being derived from the services which arebeing applied in increasing numbers to the care of the elderly. Thattakes us on to the questions of technology, of effectiveness andappropriateness of care, and indirectly to issues of manpower orpersonnel. The demographic transition, at least as it applies to the pastdecade and the next, is in fact a smokescreen which obscures morefundamental questions of the basis on which utilization decisions aremade, and the costs and benefits of the results.3.3 Absorbing New Technologies: When, Where, and For Whom?Coping with the Extension of Technology is simply part of this moregeneral set of issues. Technology per se is neither good nor bad; newknowledge and capabilities in principle merely expand our range ofchoices. The rhetoric surrounding technology often suggests that we aresomehow compelled to apply whatever is discovered, at whatever expense.But the technology does not define its own range of application. Many,though not all, new technologies have the capability to reducesignificantly the costs or other burdens associated with particular healthproblems - if conservatively applied, and limited to areas of demonstratedeffectiveness. The real problem of a trade-off between technological"advance" and cost control arises when new and expensive techniques (orfor that matter old and not so expensive techniques) are employed and paidfor in circumstances in which there is no evidence that they will do anygood.39Thus the problem posed by new technology is primarily evaluative andorganizational, rather than economic. First, how do we determine whetherthe technique does more harm than good, and for which patients? Thisrequires careful analysis of the biological effect of the associatedinterventions, but also requires developing techniques for eliciting thepreferences and values of potential patients. Whether an interventiondoes more harm than good depends on both - what is right for one may beinappropriate for another. (But no one needs interventions that do notwork!) And second, once such information is available - lItechnologicalassessment ll in a broad sense - how do we ensure that utilization decisionsby providers and patients actually reflect this information?A number of students of the benefits and costs of new technology haveconcluded that there is ample capacity, in the health care systems ofindustrialized societies, to support all the new technology that one mightwant - if one could get rid of the minimally effective, useless, andharmful interventions now being provided and paid for. The problem is tofind an organizational framework, and decision processes, which will leadto this result.Coming back to the Canadian experience with cost control, it has beennoted that the intensity of serv~c~ng, or the inflation-adjustedexpenditure per person, has risen relatively slowly in Canadian hospitals.The control of hospital costs through global budgets, has been associatedwith a slower rate of increase in the number of procedures performed,and/or their expense, than in the United States. Technology hasproliferated more slowly in Canada.This raises the question of the appropriateness and effectiveness of thecare being provided. Are Canadians being denied potentially effectivetreatments which would increase the length and/or improve the quality oftheir lives? Or are they being protected against the over-enthusiasticapplication of interventions which would be useless at best, quitepossibly harmful, and certainly expensive? One can find advocates of bothpoints of view.What can reasonably be said is that the control of global budgets rests onthe assumptions (i) that physicians and hospital administrators, when theydo not have enough resources to do all that they would like to do - forwhatever reason - react by eliminating the least useful or most harmfulservices first, and (ii) although they will always claim the contrary,they really do have enough resources to do all that is worth doing, andprobably more besides, and finally (iii) if (ii) should cease to be true,other sources of information will bring this fact into the open, so thatbudgets can be adjusted as needed.On the other hand, it must be admitted that detailed information on theeffects both of the care that is being provided in Canadian hospitals, andof the care that is not being provided, is remarkably scarce (as it is inmost other countries) and we might be well advised to study this area muchmore closely - the same point which emerges when one looks closely at thechanging patterns of care of the elderly. But the growing evidence of40very substantial inappropriate, and actually harmful, use of "hightechnology" procedures in more richly endowed United States emphasizesthat the relative limitation placed on the diffusion of technology by theCanadian funding system may very well be a benefit of that system,although critics present it as a negative feature.3.4 Health Care Personnel: Capacity and NeedHealth care policy in Canada has been least successful in the formulationand execution of Manpower Policy. It is widely, though not universally,believed that Canada has a surplus of physicians and a shortage of nurses;the difficulties in both areas are traceable to inability to respond toobvious and well-documented facts.There are at present about sixty thousand physicians in Canada, roughlyone for every 450 people. The ratio of physicians per capita has doubledin the last thirty years, and is currently increasing about two percentper year. This expansion places continuing upward pressure onexpenditures for physicians' services. Independent private practitionersreimbursed by fees for their services appear always to be able to identifyenough unmet needs, such that total billings (adjusted for inflation) haverisen at or somewhat above the rate of increase in physician supply.There is no evidence, in the aggregate data, of a saturation point beyondwhich additional physicians result in falling average workloads andincomes. 22But the increase in physician numbers also places pressure on theavailable hospital bed space and associated facilities which physiciansuse in their practice, and without which their billing opportunities aremuch reduced (Barer, Gafni and Lomas, 1989). As the "physicians per bed"ratio rises, each physician perceives a more and more severe shortage ofcapacity, available to him (or increasingly, her), even though thecapacity per person cared for remains high.Bad forecasts make bad policyNo one planned this massive expansion; it was an accident resulting from aforecasting error followed by a stubborn refusal to change course.Population forecasts made in the early 1960s were the basis for a largeincrease in medical school capacity over the next decade. But thoseforecasts were made just before the historic collapse of the birth rate.By the early 1970s it was obvious that our medical school capacity was farbeyond the needs of a low-fertility society. But there were too manypowerful interests at stake to permit a reduction. Instead, medicalschool representatives clouded the political landscape with a variety offalse claims (documented and demolished in Lomas et al., 1985). By 1991,22 One might think that this was peculiar to a fully insuredenvironment, but in fact the same pattern is observed even in the UnitedStates, where a large proportion of physicians' services are paid for outof pocket by patients.41the actual Canadian population is nearly ten million people lower than theforecast level for which our current training capacity was built.The status quo thus has no logic or legitimacy in its origins, but it isentrenched. 23 Some reductions in training places are now occurring, butslowly and painfully. Universities in Canada are directed by independentBoards of Governors, and while they derive most of their funding fromgovernment, it does not come prilumarily from ministries of health.Medical schools must be bribed or browbeaten into reducing their trainingplaces, probably with guarantees that their budgets will not be cut, andperhaps with increased research funding. But this requires inter­ministerial co-operation.The benefits of reduction, in terms of costs saved by payers, accrue overyears or decades, and may accrue in another jurisdiction, since physicianscan move freely from province to province. But the political costs areimmediate, because the general population, encouraged by therepresentatives of medical schools, do not support reductions. They justdo not want to pay for the increased numbers of doctors!Provincial governments are, however, increasingly exploring policies totry to protect themselves from the fiscal consequences of past increases,and this is drawing their attention to the root of the problem (Barer,1988). Attempts to place global caps on payments to physicians, implythat they now have an increasing stake in helping to control the increase.Moreover, ministries of health have much more influence over specialtytraining programs, because these are directly funded through teachinghospital budgets. By reducing funding for residency positions, andperhaps training nurses or other personnel to provide the support servicesfor which fee for service practitioners now rely on residents, one couldboth hold down the rate of specialization, and also close off a "back­door" route by which immigrant physicians still enter Canada insignificant numbers.Inter-provincial committees of health ministers and their senior staffhave for some years been working to find co-operative ways of addressingthe problem, and in the summer of 1991 they received a major commissionedreport (Barer and Stoddart, 1991) addressing all aspects of the physicianmanpower issue. Something may yet happen.Nursing presents the opposite picture, with widespread claims of growingshortages. But in fact, shortages and surpluses alternate from year to23 No one in his right mind has ever suggested that there is anobligation on the public to train as a physician anyone who might wish tobecome one, and qualify for entry. The basic idea that a publiceducational and payment system should recruit, train, and reimburse thenumbers of personnel required to meet the needs of the population, isvirtually unquestioned, in principle. In practice, however, the needshave been redefined by professionals to justify a level of capacity whicharose by accident.42year, or even month to month, depending upon the provincial governmentelectoral and budget cycle. When funds for hospitals are plentiful, thereis usually a "shortage" of nurses to meet the new positions created. Whenfiscal times are tougher, the unfilled positions disappear. The supplyresponse is less flexible than hospital budgets.When nurses and their representatives refer to "shortages lt , however, theymean not that positions are unfilled, but rather that hospital budgetsshould be increased to hire more nurses. The II shortage II is relative tothe level of servicing which nurses believe they should be paid toprovide, not the actual demand by employers.Over the longer run, however, there are larger forces at work. Thecollapse of births in the mid-1960s has led to a sharp reduction, in thelate 1980s, in the age groups from which nursing has traditionallyrecruited. And alternative career opportunities for females have greatlyincreased. In total, nursing manpower has barely kept up with populationgrowth, while the aging of the population has much more impact on needsfor institutional care than for physicians' services.This problem is exacerbated by the persistence of traditional forms oforganization in hospitals, where nurses employed by the hospital care forpatients who "belong" to the physicians who admit them. This leads toinefficient use of both hospitals and nurses; hospital use rates in Canadaare much higher than necessary. It also limits career opportunities andprofessional development in nursing, contributing to growing labourunrest.In the long run, it seems inevitable that we will have fewer, more highlytrained and paid nurses, and fewer people will be in hospital. But how dowe get from here to there? At present, the professional objectives andeducational puilosophies of nursing leadership seem directly at odds withthe needs of the health care system.The lack of co-operation between the educational and health care systems,located in different ministries and institutions, with different cultures,objectives, and philosophies, has led to serious inconsistencies in healthmanpower policy. And faulty manpower policies can foreclose thepossibilities for improved management of health care delivery, sometimesfor decades.3.5 How to Decide What to DoThroughout the discussion w)ove, we have noted that a number of apparentlyseparate problems - population aging, the extension of technology,manpower - actually reduce to special cases of the more general issue ­what sorts of health care services do we wish to have produced, and for2443whorn?24 These questions, as noted, ultimately turn on a combination oftechnical and value information - "What will particular services actuallydo, in the way of good or harm?ll and "What do the rest of us, as bothpatients and payers, want.? IITo date the Canadian health care system has addressed these questions onlyindirectly. "All medically necessary" services are free, implying thateffectiveness, somehow defined, is the overwriding criterion. But thishas been determined implicitly, as whatever a physician is willing tooffer and a patient to accept. What we have discovered, as has everyother country in the industrialized world, is that (i) the indirectdefinition of lI n e e d ll is infinitely expansible within the relevant range,particularly for elderly people, and (ii) overall utilization rises withthe availability of facilities and personnel, and tends always to pressagainst any resource constraints, but (iii) the aggregate levels andpatterns of utilization which result are highly variable, and bear noidentifiable relation to any external definition of the "needs" of thepopulation served.The Canadian response has been to try to impose capacity constraints onthe availability of facilities, sources of payment, and (much lesssuccessfully) personnel. The assumption, as noted above, is that whensubjected to these constraints, the providers of health care willthemselves choose to provide the services which respond to the greatestneeds. Thus the payers for services can avoid the very difficult andpolitically very dangerous task of establishing explicit priorities andprotocols, and the fiercely defended autonomy of the physician need not bechallenged.This approach is slowly changing, however, in the face of accumulatingevidence that patterns of care use in Canada bear no more systematicrelation to indicators of need than they do in any other jurisdiction, andmore important, under the increasing pressure for more resources from theproviders of health care themselves . the consequences of the physiciansupply increase and the extension of technology. As the relativelyarbitrary limitations on facilities and resources are challenged more andmore intensely by providers, provincial governments are becomingincreasingly interested in the extensive research evidence of ineffectiveand inefficient care delivery as a basis for counter-attack.This last point is most important. The research evidence of inefficiencyand ineffectiveness of care provision, measured relative to the scientificbasis for judging what interventions work, and how they might be carriedout, has been available for many years - though it is certainly growing inscale and sophistication. But for most of the history of the CanadianThe struggle over how much producers should earn . income sharesis largely though not entirely a separate question, though providers tryhard to confuse the two. It is commonly claimed that higher (Tower ) feesand wages will lead to better (worse) quality of care for patients, thoughthe mechanisms are not always clear.44programs, at least, and apparently in Europe as well, the cruder forms ofcost restraint which raised no awkward questions about why physicians andothers do what they do, represented the politically most comfortablecompromise.That compromise appears finally to be breaking down, and governments in anumber of countries, acting as regulators and payers on behalf of theircitizens, are beginning to address explicitly the question of "howmedicine should be practiced tr • As noted above, in Canada this process isoccurring through expert committees appointed by governments andprofessional bodies to wrestle with priority setting and protocoldefinition, within the limits of globally fixed nudgets. This is a majorstep forward from the historic policy of implicit constraint throughdeliberate limits on the availablity of facilities, but it is too soon totell how successful such processes will be, and particularly whether theywill be able to sustain the inevitable political counter-attack. But atleast the questions are being raised at a much higher political level thanever before. 253.6 From Sickness Care to Health: Some Missing LinksThe Canada Health Act of 1984 defines the objective of Canadian healthcare policy as " ... to protect, promote, and restore the physical andmental well-being of residents of Canada, and to facilitate reasonableaccess to health services without financial or other barriers II and refersto "outstanding progress II through the system of insured health services.But it also declares that further improvements will depend on acombination of improved individual lifestyles, and "collective actionagainst the social, environmental, and occupational causes of disease."These themes reiterate ideas expresssed in a document issued in 1974 bythe federal Minister of National Health and Welfare, Marc Lalonde, "A NewPerspective on the Health of Canadians".Equalizing access to health care, or at least removing the financialbarriers - and significantly increasing the overall quantity of resourcesavailable - has not equalized access to, or at least the experience of lhealth, across the population. There remain significant inequalities inlife expectancy and health status across different socio~economic groups.Furthermore, there are obvious sources of mortality and morbidity whichare simply beyond the reach of health care services as conventionallydefined. A public health policy, as different from a health care policy,would have to go much deeper into the determinants of health and illness,25 In Canada, it is taken for granted that these questions will beaddressed through some negotiation between governments, representing thegeneral public as payers and patients, and the providers of care, alsorepresenting the public as patients and themselves as earners. Newinstitutions may be developed to assure a more effective representation ofboth patients and the general public, but there is little interest inprivate markets as ways of improving efficiency and effectiveness. TheUnited States experience is too close and too vivid.45and consider - and carry out - a much wider range of interventions thansimply the expansion (or contraction) of particular health care services.This is clearly recognized within the federal Department of NationalHealth and Welfare - the Ottawa Charter of 1986 was a strong affirmationof support for the World Health Organization Health for All initiative.Most provincial Ministries of Health have a similar understanding,although they are so heavily involved in the day to day and year to yearoperations of the health care system that they do not always have theluxury of pursuing the broader issues. In general, however, these broaderissues of inequalities in and determinants of health have been honouredwith much rhetoric - and a non-trivial amount of careful thought - butvery little money.The problem is simply that the relentless pressure for expansion from thehealth care system, independently of any contribution it mayor may not bedemonstrated to make to the health of the population, absorbs the lion'sshare of both current resources, and any additional that may becomeavailable. Thus cost containment in health care becomes a pre-conditionfor any new initiative in other areas of health. By a cruel irony, anover-extended health care system may become a threat to health.Nevertheless, despite its relatively limited constitutional role, thefederal government is clearly pressing ahead with its concerns for thepromotion of health, whether in or particularly outside the health caresystem. In particular, it has launched a number of surveys to accumulatea much wider body of data on the health status of the Canadian population;until recently we knew a great deal about utilization and costs of carebut very little about health. Provincial governments' concerns forimproved efficiency and effectiveness, though driven primarily by costconcerns, also lead quite naturally into questions as to the relativeeffectiveness of health care as against other public interventions inpursuing the central objective - the health of Canadians.46PART 4: CONCLUSIONSIn summary, the Canadian approach to health care funding has been verysuccessful in equalizing access to health care services, though less so tohealth. This appears to be a common finding in the industrializedcountries, reflecting the fact that population health is not determinedsimply by the availability or use of health care. The health status ofthe Canadian population, insofar as that is known (which is not very far)compares well on the usual indicators of life expectancy and infantmortality with the rest of the industrialized world, and continues toimprove.The public insurance system has not only assisted access to health care,it has also played a very important role in "nation-building" andcommunity solidarity, as it emphasizes a fundamental equality amongcitizens. Greater wealth or position buy many things, but they do not buymore or better health care; in that we are all equal. Moreover theeconomic burden of this system is shared, through the general tax system,according to the ability to pay of citizens. Since there are no directpayments, people who must bear the burden of illness and injury do nothave to carry an additional economic burden as well. No one in Canadafears economic ruin from the cost of health care, and no one depends on"charity", whetho r public or private. The financing problems, andassociated negotiations, are completely removed from the shoulders ofindividual citizens.Going beyond asssuring access, and improving the lives of individualcitizens, the Canadian system has also managed to contain the costs ofhealth care for an extended period of time. This is a crucial test of thesustainability of a funding system; disequilibrium requires change.Furthermore it has done so in a way which has reconciled the interests ofcitizens as payers, and citizens as patients, and is consequentlyoverwhelmingly popular politically. It is less popular with physicians,at least officially, though strongly supported by hospitals and otherhealth occupations. 26The political price of cost containment, however, is rlslng. The severerecession at the beginning of the 1980s was associated with a sharpincrease in the share of national income going to health care - becauseincome fell and health spending did not. Stability has been re­established, but in the new low· growth environment this requires eventighter controls. A stable share of a constant total income is much lessacceptable to providers, and the pressure for "Morelli is becoming26 It is probable that the inherent conflict of economic andprofessional interest - both income and autonomy - is so sharply drawnthat no system of funding which meets the concerns of the rest of thecommunity will ever be wholly acceptable to physicians, and conversely.Certainly the Canadian system was established over their opposition. Asearch for a national system acceptable to all parties would probably be anonsense exercise, a proposal to do nothing.47increasingly acute.But on balance, after more than twenty years of experience, it appearsthat even most physicians working in the Canadian system prefer it to theknown alternatives - they would just like more money (and more hospitalfacilities and more equipment, and the right to extra-bill patients,and ... !) Similarly, nurses and other hospital workers strongly supportthe existing system, but believe that its funding should be greatlyincreased. Taxpayers are less enthusiastic. (Patients generally believewhatever they are told by providers.)On the basis of this experience, which is not so different from that of anumber of European countries, we conclude unequivocally that centralized,public funding systems "work", although they will require an increasingdegree of explicit collective intervention in the determination of thecontent of medical practice. Whether this will be "public ll or "private ll ,or more realistically what should be the balance between the two, dependsupon whether the medical profession can bring itself to develop andenforce scientifically based standards upon its members, or whether thepublic sector will have to take on this role by default.On the other hand, we conclude equally unequivocally from the comparativeUnited States experience that private, or "pluralisticll funding systems donot lI work " ; they produce neither effective health care, nor equity, norpublic satisfaction, and cannot even meet the most fundamental test ofstable and sustainable cost. One cannot rule out the possibility thatsome pluralistic system might be developed in future which would becapable of harnessing competitive forces to improve health care systemperformance. But at present most such systems exist only in theimaginations of those with an over-riding ideological commitment to theprivate marketplace - they cannot be shown to have been seriously tried,much less to have succeeded, in the real world.There are, of course, examples of thoughtful and carefully worked outcompetitive proposals which take account of the sources of failure inordinary conceptions of "market" systems, and attempt to develop realisticways of dealing with them (e.g. Enthoven and Kronick, 1988). These may beattractive where the status quo is considered intolerable, but suchadmittedly imperfect but battle-tested systems as the Canadian are ruledout on ideological grounds. But even these are untried alternatives;moreover the feasibility of their full implementation in a highlyadversarial environment is very far from clear.Where the Canadian system has most clearly fallen short, is its inabilityto develop a coherent and consistent manpower policy, and this is anexpensive failing. Nor has it yet made much progress on the promotion ofefficiency and effectiveness - the United States appears to be far out infront of the rest of the world on these issues (yet unable to draw thebenefit from its superior knowledge and technique). Rachlis and Kushner'sassertion that the system is undermanaged is undoubtedly correct, so thatwaiting lines exist and patients may sometimes suffer, not because of ascarcity of overall resources, but because those available are mis-used.48This is in part the price of professional autonomy.And finally, along withnearly enough about thehealthy and others not.on it.most of the rest of the world, we do not yet knowdeterminants of health, and why some people areBut we recognize the problem, and we are workingReferencesBarer, M.L. and R.G. Evans (1986), "Riding North on a South-Bound Horse?Expenditures, Prices, Utilization and Incomes in the Canadian Health CareSystem", in R.G. Evans and G.L. Stoddart, eds. Medicare at Maturity:Achievements, Lessons and Challenges, Calgary: the University of CalgaryPress for the Banff Centre for Continuing Education, 53-163Barer, M.L., R.G. Evans, C. Hertzman and J. 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Centre For Health Services andPolicy Research, University of British ColumbiaBarer, M.L., P. Welch, and L. Antioch (1991), "Canadian/U.S. Health Care:Reflections on the HIAA's Analysis", Health Affairs 10(3):229-236Beveridge, Sir William (1942), Social Insurance and Allied Services, NewYork: MacmillanBlendon, R.J. (1989), "Three Systems: A Comparative Survey", HealthManagement Quarterly 11(1):2-10Canada, Royal Commission on Dominion-Provincial Relations (1937), Report,Book 2 [Rowell-Sirois Commission] Ottawa: The King's PrinterCanada, Royal Commission on Health Services (1964), Report, Volume 1 [HallCommission] Ottawa: The Queen's PrinterCanadian Medical Association (1943), Special Meeting of General Council,Transactions January 18-19, Toronto (mimeo.)50Enthoven, A. and R. Kronick (1988), "A Consumer Choice Health Care Planfor the 1990s" (Parts I and II), New England Journal of Medicine320(1&2):29-37 & 94-101Evans, R.G. (1983), "The Welfare Economics of Public Health Insurance:Theory and Canadian Practice ll , in L. Soderstrom, (ed.) Social Insurance,Amsterdam: North-Holland, 71-103Evans, R.G. (1988a), "We'll Take Care of It for You: Health Care in theCanadian Communi ty II , Daedalus: Journal of the American Academy of Arts andSciences 117(4):155-189Evans, R.G. (1988b), "Squaring the Circle: Reconciling Fee-for-Servicewith Global Expenditure Control", Health Policy Research Unit DiscussionPaper 88-8D, University of British Columbia, VancouverEvans, R.G., J. Lomas, M.L. Barer, et al. (1989), "Controlling HealthExpenditure: The Canadian Reality", New England Journal of Medicine321(9) :571-577Evans, R.G., M.L. Barer, C. Hertzman, et al. (1989), "The Long Good-Bye:The Great Transformation of the British Columbia Hospital System", HealthServices Research 24(4):435-459Evans, R.G. 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