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Adapting to adversity, protecting the principles, resisting reactionary "reforms" : Canada's health care… Evans, Robert G., 1942- Aug 31, 1997

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ADAPTING TO ADVERSITY, PROTECTING THEPRINCIPLES, RESISTING REACTIONARY "REFORMS":CANADA'S HEALTH CARE SYSTEM IN THE I990sRobert G. EvansHPRU 97:9D August 1997Adapting to Adversity, Protecting the Principles, Resisting Reactionary "Reforms":Canada's Health Care System in the 1990sRobert G. EvansDepartment of Economics andCentre for Health Services and Policy ResearchUniversity of British ColumbiaAugust, 1997Paper prepared at for the International Symposium on Health Care and Payment SystemReform, Taipei, Taiwan, R.OC, June 23-25, 1997.The Centre for Health Services and Policy Research was established by the Board of Governors ofthe University of British Columbia in December 1990. It was officially opened in July 1991. TheCentre's primary objective is to 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 variety of disciplines who are committed to a multidisciplinaryapproach to research, and to promoting wide dissemination and discussion of research results, inthese areas. The Centre aims to contribute to the improvement of population health by beingresponsive to the research needs of those responsible for health policy. To this end, it provides aresearch resource for graduate students; develops and facilitates access to health and health caredatabases; sponsors seminars, workshops, conferences and policy consultations; and distributesDiscussion Papers, Research Reports and publication reprints resulting from the researchprograms of Centre faculty.The Centre's Health Policy Research Unit Discussion Paper series provides a vehicle for thecirculation of (pre-publication) work of Centre faculty, staff and associates. It is intended topromote discussion and to elicit comments and suggestions that might be incorporated withinrevised versions of these papers. The analyses and interpretations, and any errors in the papers, arethose of the listed authors. The Centre does not review or edit tile papers before they are released.A complete list of available Health Policy Research Unit Discussion Papers and Reprints, alongwith an address to which requests for copies should be sent, appears at the back of each paper.Financing and Delivering Health Care in Canada: A Micro-SummaryThe description of "Reform" in the Canadian health care system could be made very shortThere has not been any reform.There has been no change in the fundamental principles and basic structural features oforganization and finance of health care, since the system reached its modern form between 1968and 1971. That system has evolved over subsequent decades, and has adapted more or lesssuccessfully both to significant changes in the external environment, and to changing needs andpossibilities for health care services themselves. But it remains easily recognizable as the samesystem that was established a quarter-century ago.Nor is this likely to change in the future (unless of course the Canadian federation itselfbreaks up, in which case anything might happen). Although there is a great deal of rhetoric about"crisis", and about the "bankruptcy" and imminent collapse of the Canadian health care system,this rhetoric has in fact been a continuing feature of health care debate in Canada throughout thehistory of the public program. Such claims become louder and more strident during periods offiscal strain, but they turn out on examination to have little or no factual base. IA number of public investigative commissions have examined these programs, at thefederal and provincial levels, over the past decade. The most recent, the National Forum onHealth, chaired by the Prime Minister, delivered its Report in February 1997. All have reachedsimilar conclusions; the current system is fundamentally sound, and contrary to widespread claimsis also adequately funded. There are a number of ways in which the system should be adapted toyield greater "value for money" -- more effective care, more efficiently produced, for the samelevel of resource commitment as it now receives. But these can be achieved within the existingstructure; they do not require "Reform" in any fundamental senseThe "disinformation" has become much more intense in the 1990s, as a side-effect oftheabortive effort to achieve health care reform in the United States. Advocates of reform have pointed tothe superiority of the Canadian approach, in virtually all respects, over American arrangements fororganizing and particularly for financing health care. Opponents, especiallyprivate insurers andphysicians, then launched massive attacks on what they claimed to be negative features ofCanadianhealth care. These American publicity campaigns, though designed for intemal consumption and withminimal relation to actual experience, inevitably spill over into the international, and particularlytheCanadian, communications media.2structure; they do not require "Reform" in any fundamental sense.In broad outline, health care in Canada is provided by private professional practitioners -­physicians, dentists, pharmacists, and members of a number of other, much less numerousprofessions -- and by not-for-profit hospitals each overseen by a Board of Trustees. Practitionersare predominantly self-employed in their own private practices -- solo or small group partnerships-- though some are employed full or part time in practices owned by other professionals Theyare paid for their services on a fee-for-service basis. Hospitals, by contrast, receive an annualglobal budget from the Ministry of Health of the province in which they are located. Long-terminstitutional care is provided by facilities that may be part of an acute care hospital, or may befree-standing; but in either case they are reimbursed on a .Rer diem basis. Some are for-profit,owned by individuals or corporations; others are run by various community groupsThe principal form of public insurance covers the services of physicians and acute carehospitals; these made up 34.2% and 14.4% respectively of the estimated total of$75.2 billion(CDN) spent on health care in 1996. Patterns of coverage for drugs, dentistry, and long-termcare are much less uniform (from one province to another) and less complete. All residents arefully covered for "all medically necessary" hospital and medical care, without deductions orcoinsurance. (Certain forms of elective cosmetic service are excluded.) Thus, a resident whofeels a need for care will seek out a physician of his choice, and if accepted as a patient will thenbe cared for without any financial implications. The services provided will be paid for by theprovincial government, according to a uniform fee schedule negotiated between the provincialgovernment and the medical association of the province. (If a patient is cared for in anotherprovince, his "home" province will reimburse at the fees in effect in the province of service.)Diagnostic tests ordered by the physician are also paid for by the province according to afee schedule, as are referrals to specialists Roughly half of all physicians in Canada aregeneralists or family practitioners, so the normal pattern of care-seeking is for the patient to go to"the family doctor" and, if necessary, to be referred on from there. Patients may "self-refer" tospecialists, but this is discouraged. The specialist receives a larger fee for a formal referral; butperhaps more fundamentally the (deliberately) limited numbers of specialists permits them toconcentrate on truly "specialized" work, rather than competing for patients with generalists. Ifhospitalization is indicated, the physician will arrange to have the patient admitted. Physicians are3not, with a few exceptions, employed by hospitals; rather they have admitting privileges at one ormore hospitals.Patients have free choice among general practitioners in the first instance, and if referral isindicated they can request referral to a particular specialist. (The physician also has a choice as towhether to accept the patient.) Similarly, a patient wishing to be admitted to a particular hospitalmight select a physician on the basis of his admitting privileges. In practice, however, in selectinga physician, the patient has usually also implicitly selected (if necessary) both the set of specialistswith whom he has on-going referral relations, and the hospital at which he or they have admittingprivileges. In any case financial considerations play no pari because all hospitals, like allphysicians, are included in the public insurance program.There is no separate "private" system of care; what, after all, could it offer patients that isnot already available in the public system? If physicians were permitted to practice both in andoutside the public program, they would be able to manipulate access to public services so as toinduce patients to pay them extra "private" fees for preferred access. And indeed physicians havelong argued for this opportunity to generate extra income But at present such behaviour, whilenot strictly forbidden (at least in federal legislation), is rendered virtually non-existent by acomplex system of restraints.This brief outline of the system from the patient's point of view has not changed since thelate J960s, although the services that might be offered have, of course, changed dramatically asmedical technology has developed. The "complex system of restraints", however, refers to atotally different level of relationship, that between the federal and the provincial governments, atwhich major changes have taken place. The details of "federal-provincial fiscal arrangements" arearcane and highly specialized, and impinge little or not at all on either the individual patient or theindividual provider in day-to-day practice, Over the long run, however, the survival or dissolutionof the present system depends critically on decisions taken at this level.For fundamental constitutional reasons, as well as good practical ones, the governments ofthe Canadian provinces have virtually all responsibility for both regulating and funding health carewithin their borders. They can in fact set up health care insurance programs any way they choose,or not at all. The federal government, however. sets the standards for "conforming" provincial4programs, and provides both cash payments and access to part of the income tax base forprovinces operating such conforming plans. Effectively, then, the federal government candetermine certain of the fundamental principles governing provincial plans - so long as it alsocontributes to their cost.These principles are fundamental to all provincial programs - universal coverage, universalaccess "on equal terms and conditions", comprehensiveness of benefits, portability of benefitsacross provinces, and public administration. In particular the access provision has beeninterpreted - by the federal government -- as ruling out user charges, in whatever form. Aprovince may choose to impose such charges - ultimate constitutional authority rests at theprovincial level. But the federal grant to that province will then be reduced dollar for dollar bythe total amount of all such payments made by covered individuals with respect to insuredservices. Accordingly provinces have moved, in various ways, to suppress such charges. [Thereis, however, and probably always will be, a small number of physicians looking for ways to extra­bill patients that will not be noticed or can somehow be represented as other than for insuredservices.]Over time the nature of the federal contribution, as well as its relative size, has changedgreatly. In the beginning the federal government shared a proportion (roughly halt) of actualprogram costs; this was changed in 1977 to block grants independent of actual costs. In the1980s and early 1990s the federal cash contribution was actually on a steady downward trend. Ifthis cash contribution were to become too small, such that the federal government could nolonger withhold significant amounts from provinces whose programs failed to conform to thefundamental principles above, then it is a virtual certainty that the present system would begin tocrumble immediately. The road to an American-style systm would lie open.Certain of the more right-wing provincial governments have made their intentions clear-­they would move swiftly to introduce user fees, erode both comprehensiveness and universality ofcoverage, and permit the development of a private "second-tier" of services. Fiscally strainedprovincial governments face a powerful temptation to offload budgetary costs onto the privatesector. In doing so they would have enthusiastic support from strong elements within themedical profession, and from private insurers who are at present largely shut out of a market thatcould otherwise be as lucrative (for its scale) as the United States5investigative commission, and to the very strong public support for the present system, the federalgovernment's policy seems to be at least to maintain and perhaps even to strengthen the federalrole. If so, then major structural change - which would in any case be "Reaction" back to thepast, not "Reform" -- is unlikely.Funding Constraints in a Slow-Growth Economj'That being said, however, there have in recent years been some very significant changes inthe terms of the financial relationships between provincial governments and the providers of care.'These have involved the more rigorous application of control mechanisms that have always beenin place - tighter controls over budgets, fees, and capacity. Until very recently, however,provincial governments have felt that they had much more limited public support in applying thosemeasures over very vigorous political opposition from providers of care. But in the 1990s theysensed a stronger public mandate, and the consequences are shown in Figure 1.For the first time in nearly half a century, the level of health spending per capita, adjustedfor inflation, has actually stopped rising. Total spending has been flat for four years in a row.The agonized rhetoric of "savage cuts" emanating from some parts of the health care systemrefleets the fact that while the total has been stable, some sectors and regions have had theirfunding reduced while others have continued to expand. Thus it is not true that the Canadianhealth care system as a whole is undergoing funding cuts; the reductions that have occurred intotal "real" per eapita spending are too small to notice. But it is true that, for example, oneparticular provincial government (Alberta) reduced its own health spending by 8% in one year(1994). This works out to a cut of nearly 12% on a per capita, inflation-adjusted basis, across theboard. It was small comfort to workers in the health sector that that government later (facing aprovincial election) confesses that it had no idea what it was doing, and restored some of thefunding.2 Canadian readers, in particular, will note that I have ignored the regionalization initiatives thatare underway in almost all provinces, and that might very well be described as significant"reforms" But no province has included physician or pharmaceutical payment in these regionalbudgets. Moreover the newness of these iniatives, and their diversity across provinces, makes itdifficult to describe them, let alone predict their effect. For the present they can be thought of, inthe framework developed below, as primarily a rearrangement in the terms on which hospitalsreceive their budgets from provincial governments.6provincial election) confesses that it had no idea what it was doing, and restored some of thefunding.The lower line in Figure 1 indicates that the control of costs has been tighter in thehospital and medical care sectors, where there is universal, first-dollar public coverage, than in theother sectors where coverage is neither universal nor comprehensive, and reimbursement ofcovered services is commonly incomplete. Real per capita expenditure in the two fully coveredsectors has actually fallen, illustrating the general Canadian experience that, if cost control is theobjective, it can only be achieved by putting all the payments through a single "pipe". Multiplefunding sources, and "patient participation" in payment, are ways of preventing, not of achieving,cost control - that is why they are routinely advocated by those who draw their incomes fromhealth care. The "hospital and physician" line also extends our historical experience back to theimmediate post-war period; total health expenditure estimates were not compiled prior to 1960.The post-1992 "flat spot" can thus be seen as the first halt in a generation-long expansion.But it is not the only period of restraint. This point emerges from Figure 2, whichportrays spending on hospital and medical services - the same data as in the lower line of Figure 1- but now as a share of Gross Domestic Product (GDP) rather than as real, per capita spending.The dates of introduction of the major programs of public insurance are also shown. 1t can beseen that while spending rose over the whole historical period prior to 1992 (Figure 1), its shareof GDP actually topped out at the time of completion of universal coverage and then drifteddownwards during the 1970s. Universal coverage was associated with the first clear period ofglobal cost control.This pattern broke in the 1980s, however, as the share of GDP spent on health care rosesharply in the recession of the early 1980s. Health spending retained this higher share throughoutthe rest of the decade, and then jumped even more sharply in the even more severe recession atthe end of the decade. The trend in health care funding was unaffected by recession; when theoverall GDP fell the health share rose.The lower line at the right-hand side of the Figure indicates what the share ofGDP mighthave been, if neither of these recessions had occurred. If one fits a (log) trend to real GDP percapita, over the period from 1947 to 1980, and projects this trend through to 1996, and if (which7is highly unlikely) one assumes that health care spending would have followed its actual path evenif GDP had continued to rise on its previous trend line, then the share of GDP spent on hospitalsand doctors would have drifted downwards during the 1980s, and fallen off markedly in the1990s. But of course this did not happen.The shift in economic performance after 1980 is also the key to understanding why there issuch a contrast between the cost patterns of the I980s and those of the 1990s. If the structure ofthe health care system was essentially unchanged over this period, and the administrative controlmechanisms were "always there", why were they not used before?Figures 3 and 4 show the evolution of inflation-adjusted GDP per capita from 1947 to1996, with the superimposed trend line fitted to 1980 and projected thereafter Figure 4 takes theactual values from Figure 3, and expresses them as a ratio to the corresponding value of the trendline. What becomes obvious is that for the pre- I980 period, actual economic performanceclusters quite closely around the trend, rarely departing by more than 5%. There was a substantialand quite prolonged recession in the mid-1950s, but it was followed by an equally pronouncedrecovery. What is notable about the 1980s is that there was no real recovery after the firstrecession. Despite the rhetoric at the time, and prosperous conditions in some parts of thecountry, the ground lost in the recession was never regained. Unemployment remained higher,fiscal deficits larger, and personal incomes lower The next recession took us quite a lot furtherdown, and as in the I980s, the present "recovery" consists of stopping falling. There is no sign ofa recovery in the sense of a return to our previous pattern of real income growth.This then is the backdrop to the performance of the health care system. The degree of"tightness" of administrative control that was established in the 1970s, and that was quitesuccessful, or at least adequate, in an environment of steady growth, was insufficient to deal withthe post-1980s world. But providers of health care were accustomed to, and regarded as (their)right, ever growing resources. One had to be able to absorb all the new diagnostic and therapeuticpossibilities that were constantly emerging; at the same time no one wanted to think about givingup anything All quite understandable; but hard to maintain in a "no-growth" environmentWinners and Losers: "Re-Priorizing" by Fiscal DefaultBut the post-1992 restraint, as emphasized above, has not been balanced in its effects.8Figures 5 to 8 illustrate the differential impacts across major sectors; the variations would ofcourse be even more pronounced if data were disaggregated by province and by sub-sector. Thegeneral point, however, is that the overall containment has translated into quite substantial cuts inthe hospital sector, A simple indicator of the relative severity of controls can be read off thesefigures by looking backwards in time, to find the years in which the share of GDP spent in aparticular sector was about the same as it was in 1996.The share of total health spending in GDP was about 9.4% in 1996. This was significantlybelow its 1992 peak, but still well above the level prior to the most recent recession. Thisobservation supports arguments that the system, taken as a whole, is still well funded in terms ofits share of the overall Canadian economy. On the other hand, IF economic growth had continuedat its pre-1980s levels, Figure 5 also shows that current spending levels would yield a percentagenot seen for thirty years - just over 6%. So there has been considerable restraint, relative to pastgrowth trends.But hospital spending (Figure 6) now absorbs a share of GDP - not hypothetical butactual - roughly equal to its level at the beginning of Medicare in the early 1970s. That was ofcourse a "local maximum" - there were downtrends in the 1970s and to a lesser extent in the1980s, punctuated by the two recessions. And of course a good deal of the workload carried byhospitals in the 1960s is now in the (greatly expanded) long-term care sector. The currentpercentage is above that of most years of the 1970s, and not far below that of most of the 1980s.Nonetheless, Canadian hospitals could be said to have "lost" almost half a percentage point ofGDP in the last four years alone, and this translates directly into lost jobs and/or lower incomes inthat sector. Some expressions of distress are hardly surprising.Physicians on the other hand (Figure 7) have maintained a share of GDP that is still wellabove its 1980s level. Their effective "insulation" from the recession that began in 1989 haslargely been withdrawn, and perhaps painfully rapidly, since 1992. But their share is still high inhistorical perspective; and they have been affected much less than hospitals.Finally drug expenditure, as shown in Figure 8, has been very little affected by the currentperiod of restrain! Prescription and non-prescription drugs together now account for as large ashare of GDP as does spending on physicians - a remarkable change from even ten years ago. As9noted above, the universal public health insurance programs in Canada do not cover drugs(outside hospitals and long-term care institutions) But every province provides some form ofcoverage for particular categories of people -- the elderly, those on welfare, people with unusuallyhigh drug bills - and all have been struggling to control their shares of the steadily rising total.Figures 5 to 8 make it clear that the Canadian health care system has been going through ashift in priorities, at least as expressed in spending patterns, with a redirection of substantialfunding away from acute care hospitals and toward drugs. Physicians have suffered some short­term losses but seem, from a long-term perspective, to be holding their ground. There is, ofcourse, no reason why global restraint of health should be reflected in balanced, across-the-boardreductions. But in this case it is hard to avoid the sense that the relative burden of restraint hasbeen determined by bargaining strength, and the specifics of payment arrangements, rather thanhealth or other public priorities.It is simply easier, both administratively and most importantly politically, to cut funds outof global hospital budgets than to negotiate and especially to enforce global limits on payments tophysicians. And controlling fees alone, as is well known, is not sufficient to control total outlays.Physicians have other ways of adding to their billings, [The recent Canadian experience inattempting to control payments to physicians is described and analysed by Barer et al. (1996); butany published source is, by definition, somewhat out of date.]Pharmaceuticals are, however, most problematic precisely because there is no universalpublic program of coverage. The combination of private, largely employer-based coverage withpublic programs for designated populations, and a substantial level of self-payment (co-paymentsor simply lack of coverage), is essentially similar to the American approach to health insurance (orthe Canadian prior to universal Medicare) Accordingly it leads to exactly the same results. Noone payer has enough leverage to control overall. costs, and there is both temptation andopportunity to shift costs onto someone else - usnally the patient - instead of controlling them.But shifted costs do not go away; they just come back later and largerThe dynamics are well understood by all concerned. One of the reasons that the recentReport of the National Forum on Health gave for recommending the establishment ofa universalpublic program of pharmaceutical insurance was that this would permit some control over the1 0costs of drugs. For exactly the same reason, the pharmaceutical manufacturers ... especially thebrand-name companies - are very suspicious of the idea. [The Forum were also responding toevidence of both inequity of access and cost burden, and inappropriate prescribing patterns.]To this point, then, one could summarize the recent Canadian experience as not reform,but much more rigorous application of existing administrative control mechanisms, madenecessary by a weak general economic performance, and made politically possible by a growingpublic awareness of the severity of the resulting public fiscal situation. But successful overallcontrol has involved an unintended reallocation of spending, motivated less by consciousassignment of priority than by the differential abilities of provider groups to resist restraint.Small Country, Large World: Related International EXRerienceCanada's experience is not, however, unique. White (1995) observed that an"international standard" for health care finance had emerged in a number of industrializedcountries, characterized by many of the same administrative control features -- global budgets,fee negotiation, limitations on capacity and manpower - that are found in Canada. And generallyspeaking, these administrative systems have heen successful in containing costs in other countriesas well - so long as the public are willing to support, or at least tolerate, the necessary measures.Figure 9 shows, for the countries of the Organization for Economic Cooperation andDevelopment (OECD), the (unweighted) average of the ratios of health spending to GDP. [Onlythose countries with continuous data series since 1960 are included.] The series for the UnitedStates and the United Kingdom are superimposed as representing high and low cost countries,and Canada is included to link with the previous figures. Figure 10 presents the data from Figure9, but with the OECD average as a baseline of zero; the other three countries are shown relativeto the overall average.The most striking feature of Figures 9 and lOis the change in aggregate performance inthe mid- to late 1970s. Prior to that time, the all-OECD average moves up in parallel with theUnited States, though a couple of percentage points below. This was the period during which onemight plausibly claim that "all countries" were experiencing similar patterns of cost expansion,though the U.K was an obvious exception, as was Canada after 1970.1 1But that pattern changed roughly twenty years ago, and since the late 1970s the escalationof the OECD average has been much less rapid. American "uniqueness" is more and moreevident. (One still sees the popular media _. and some analysts -- in the United States alleging that"all countries" have similar problems, but this is for domestic consumption.) The administrativemechanisms have had a substantial impact, at least relative to past performance, and relative to theone country where they could not be applied. In the earlier period, the U.K cost experiencedropped steadily below the rest of the OECD group, but for most of the last twenty years it hasdeviated much less, and most recently has moved back toward the average.The last few years are of particular interest. The U.K. reforms, allegedly motivated by theobjective of increased value for money, have been associated with a substantial acceleration inspending as compared with other industrialized countries. Maybe this is a temporary adjustmentprocess; but for the moment it appears that managers, whatever else they do, cost money. TheUnited States has actually seen a flattening of its share of GDP going to health care since 1992.There seem to be three schools of thought on this observation:(1) "Managed care" is finally working, and costs will now begin to fall;(2) This is a temporary phenomenon, and the upward march will soon resume;(3) Too soon to tellIn any case the current American level is far above that in any other country (so that amere flattening is not too impressive). And in other countries, such as Canada now but earlier inDenmark, Sweden, and Germany, costs have fallen as a share of GDP without a "managed carerevolution" or even much in the way of reform. Indeed the overall OECD average now lookspretty flat; the recent U.S. performance is notable only relative to its own past.But the international experience opens up some other interesting, and perhaps puzzling,perspectives on cost containment, and on reform more generally. Figure 11 presents survey datafrom several countries (about a thousand people in each country) compressed into a very crudemeasure of satisfaetion with the country's health care system (not satisfaction with one's ownhealth care, but with the system of organization and finance as a whole). These are then graphedagainst levels of per capita spending.Apart from underlining American exceptionalism yet again -- so much spent, so little1 2satisfaction -- Figure 11 shows a clear relation between spending and satisfaction among the othercountries surveyed. This is not good news for cost cutters or reformers; it suggests that anyefforts at system containment should expect to meet public unhappiness that will readily bemobilized into political resistance. For Canada in particular, the very satisfying high ranking isfrom a time before the kink in the curve in Figure 1. The results might well be different now.Figure 11 supports the argument that effective administrative controls on health care costs- and indeed more detailed tools of management - may exist but be politically too difficult to use.It leaves open the question of whether "reform" might change the situation. If there is in fact agenerally close relation between spending and satisfaction, such that cost control equals politicalunpopularity, might there be ways of avoiding this trade-off through some form of restructuring?The data in Figure 11 show that it is possible to fall off the curve in the negative direction - tospend a lot of money on a system that people do not like. But unfortunately no country leaps outas being well above the curve, with high levels of satisfaction and low health spending.Yet the relationship expressed in Figure 11 does not appear to be as simple as (a publicperception that) "more is better". Spending and services are not the same thing; as everyeconomist knows expenditure is the product of price and quantity. Only if health care prices werethe same (relative to the prices of other commodities) in all the surveyed countries, would it becorrect to infer that people receive more health services in the countries where more is spent onhealth care.But these prices are not equal; in fact they appear to be very unequal across countries.Figure 12 presents, for the countries of the OECD, data on per capita health spending adjusted toUS. dollar equivalents in two different ways. Both use exchange rates based on "purchasingpower parities" (PPPs) that estimate the relative values of different national currencies, from theamounts they will purchase, in each country, of an identical "basket" of commodities. The firstand most common form of comparison uses a PPP measure based on a commodity basketrepresentative of the whole of the GDP, but the second includes only health care services in thehypothetical "basket". As can be seen, the two different measures tell very different stories aboutinternational comparisons of health care spending.The two bars for the United States in Figure 12 are identical, not affected by the choice of1 3PPP, since neither is adjusted. Per capita health spending in the United States is estimated andreported in $US. But for each other country the bars differ according to how the prices of healthcare commodities, relative to the general price level, compare with that same relationship in theUnited States. If health care is relatively cheaper (more expensive) in country X than in theUnited States, then the grey bar for that country will be higher (lower) than the black bar. Thisindicates that the per capita use of services is higher (lower) than would be reflected in acomparison of expenditure levels adjusted by GDP-based PPPs. A unit of the currency of countryX actually buys more (less) health care in country X, relative to what a $US would buy in theUS., than one would infer from exchange rates based on general PPPs _. because health care isrelatively cheaper (more expensive) in country XTaking Canada as an example, a comparison of the black bars shows that when Canadianhealth spending is converted into $US at general, GDP-based PPPs, we get the familiar result thatCanadians spend much less than Americans. In 1985 the ratio was about three-quarters; it wouldbe lower now. But health care prices are so much lower in Canada (relative to the prices of"other things") that all of this difference disappears when one uses health sector PPPs for thecompanson.This implies that Americans and Canadians actually receive the same amount of healthcare services (although the mix could be different, and indeed we know that it is). Americansspend more, but do not get more; they just pay higher prices. As Figure] 2 indicates, the greybars exceed the black in every OECD country in the study. Some countries, such as Sweden, theUK, and Japan, appear to enjoy particularly low prices for health care, and a correspondinglylarge increase in their relative position in terms of per capita service use. Others, such asAustralia, New Zealand, and Germany, look more similar to the US. But everyone has someadvantageUnfortunately the comparative price data are not nearly as good as one might wish, and inany case the study shown here is now a bit elderly One should not make too much of the fineinter-country detail. But the general point remains valid; if one wishes to compare the relativeavailability of services, one must deflate expenditure data by prices specific to health care servicesthemselves. And if one did this with the expenditure data in Figure 11, the comparatively regularrelationship between spending and satisfaction would certainly break down. So why might'i 4satisfaction be based, not on access to services (insofar as that is represented by use), but onspending levels?One should not, perhaps, push the simple bivariate relationship in Figure 11 so hard. Butthere is a rather obvious connection between spending and public satisfaction that runs throughthe behaviour of providers of care. Total spending on health care is, always and by definition,equal to the total incomes earned by those who work in or otherwise provide resources to thehealth care sector. That is just basic national income accounting. When expenditures stopgrowing, or fall, so do total incomes. Someone gets hurt, economically. Their distress, in turn, iscommunicated to patients.In Canada we have "medical terrorism" - deliberate (and occasionally confessed) scare­mongering by physicians - to try to convince citizens that their health will be at risk if moremoney is not made available. [The "crises" are always described in terms of shortages ofresources - people, beds, equipment - but the solution is always more money.] In France, actualstrikes by doctors seem to be fairly common, and always directly or indirectly about money. Inthe United States, efforts to establish some form of national health insurance have been defeatedby very sophisticated and well-funded dis-information campaigns by physicians and privateinsurers. These have spread fear about the consequences of adopting any specific alternative tothe current system, so paralysing attempts to change it. The British, from long experience withthe National Health Service, have coined the expression "shroud-waving": "Give us more money,or you or your loved ones will die!"The general point is that doctors, nurses, drug companies, and other providers of healthcare (or related private services) use public fear as one of their principal weapons in contests overresources with governments, or whoever else is paying the bills. Thus public satisfaction orunhappiness with health care systems is based on some mix of personal experience, and "second­hand" satisfaction (or more accurately dissatisfaction) transmitted from providers.Provider unhappiness in response to efforts at cost control then translates into pressure for"reform"; but it is "reform" with very different objectives from those motivating reformers seekinggreater value for money. Indeed they are diametrically opposed; providers' ideas of "reform"seem rather to focus on greater money for value. People with different objectives, however, often1 5employ the same rhetoric, not least because an open and explicit admission of what the realobjectives are might make it much more difficult to secure broader political support.The different objectives and corresponding arguments that have arisen in recent debatesover health care reform in Canada turn out to be the same as those that have emerged throughoutthe life of our system, and indeed over the decades preceding its establishment. Efforts are madeto present these arguments as "new thinking", but in fact the same interests consistently putforward the same policies to achieve the same objectives, year after year, decade after decade.Nor is this situation peculiar to Canada. The interest groups involved are universal, and so are thearguments.At risk of substantial oversimplification, however, one might say that there are, not just inCanada but universally, two major and distinct sources of pressure for reform, in the sense ofsignificant changes in system organization One source arises from the observation that attemptsby governments, as payers for care, to control system costs and more generally to increase theirmanagement role so as to increase "value for money" are politically difficult and dangerous aswell as technically demanding. The experience in Canada, as elsewhere, is that control is clearlypossible, and better management may be possible, within existing structures. But there are indeedpolitical costs. Some sort of structural "reform" might ease this trade-offThe second source of pressure for reform, however, is providers themselves. Theirobjective, as a very crude simplification, is to restructure payment systems so as to make difficultor impossible the forms of administrative control now being applied, and thus to increase overallcosts. They offer payers a "solution" to their difficult political trade-odd in the form of cost­shifting, rather than cost-control, Simply pass the problem on to someone else - patients, privateemployers, anyone - and control your own outlays while letting the overall system (and its costs,and outr incomes) go where it will.This is a very tempting siren song for fiscally pressed or ideologically conservativegovernments. It is also a very short-sighted strategy, short-term relief for long-term and possiblyirreversible damage, as the American experience shows. But the danger is that "reform"strategies that start with the objective of improved management and control may become divertedinto the path of (short-term) least resistance and perverted into simple cost-shifting exercises.16Certainly there will be a great deal of interested pressure exerted to bring this about.Distributional Effects of Alternative Funding SourcesNor are providers the only interested sources of pressure for "reform" in the sense of cost­shifting rather than system management. Figure 13 makes a point that should be obvious a priori,but that tends to be lost in discussions among economists in particular. Public health insuranceprograms are funded by contributions that are largely or wholly unrelated to either use of care, orrisk of illness. These could be equal contributions per capita, but in practice they generally bearsome relation to income. Systems funded from general taxation, like Canada's, require people tocontribute more or less in proportion to their incomes, regardless of their illness experience or riskstatus. Private insurers, by contrast, charge premiums that are based on estimated risk; whenpremiums are experience-rated they become used-based for the insured group as a whole. Directcharges are of course based on use.It follows that the larger the proportion of system costs that are drawn from public funds,the greater the proportion that will be paid by people with higher incomes. Conversely the greaterthe proportion financed privately, whether by insurance or by self-payment, the smaller theproportion that will be contributed by the healthy and wealthy, and the greater the share that willfall on the unhealthy and unwealthyAs noted above, this should be obvious a priori. Figure 13 presents data from the UnitedStates, showing the proportion of family income spent on health care through taxes, privateinsurance premiums, and self-payment, by income class and age offamily head. As one wouldexpect, both forms of private payment take a much larger share offamily income at lowerincomes, while taxation to support public programs for health care takes a larger share of theincomes of upper income people. It follows that, for a given level of total health careexpenditure, increasing (decreasing) the proportion funded through private channels will decrease(increase) the share borne by people at the upper end of the income distribution, and increase(decrease) the share borne at the lower end.It is also worth noting that the distributional pattern in Figure 13 holds for householdswith a head aged over 65, as well as younger ones. The United States does have a universalhealth insurance program for those over 65, but its benefits are diluted by substantial user charges17- deductibles and coinsurance -- ostensibly to control costs and discourage inappropriate use. Therecord on cost control is what it is; but it is also true that most elderly Americans purchase (if theycan afford it) some form of private insurance to cover (a part of) these charges. But the cost ofthis private insurance is not, of course, related to their incomes, so it takes up a larger share of theincomes of the lower-income elderly. The user charges in the American version of Medicare mayor may not have any effect on overall use and costs, but they very clearly act to redistribute theoverall economic burden of paying for care from higher to lower income people.Are such redistributional effects good or bad? That is a political question, and economistshave no more (or less) ability to answer it than anyone else. Where you stand rather dependsupon where you sit. But what one can predict with some confidence is that arguments for"reform" that emphasize "more personal responsibility" in health care finance are much morelikely to come from, and be supported by, those toward the upper end of the income distribution.They have a clear economic interest in shifting more of the costs onto individual patients orprivate insurers. Moreover, when wealthier people do become ill, a system with a substantialamount of private payment will provide them with preferred access to services. Any "shortages"will be borne by those who cannot pay. Moreover, what the wealthy and unhealthy may have topay for their own care can be offset against the taxes saved by not having to support a similarstandard for everyone else.The National Accounting Framework: Inevitable Constraints in Every SystemAll this discussion may seem rather cynical, the sort of thing that one would expect froman economist who knows the price of everything and the value of nothing. And clearly people'smotivations do go far beyond personal economic interest; otherwise most discussion would bepointless and no real society would exist But the discussion of health care reform is oftenconfused by claims and understandings that simply make no sense in terms of the underlyingaccounting relationships that, unfortunately, must and do hold, regardless of what we may claimto the contrary. An attempt at clarifying these relationships, so as to provide the basis for thediscussion above, is offered in Figure 14, with a subsequent discussion laid out in Figures 15 to18.Figure 14 represents an adaptation of the standard national income accounting frameworkapplied to the health care system alone rather than to the whole economy For simplicity it has18only three sectors - households, producing firms, and government _. suppressing the usual fourthor foreign sector. Figure 14 also abstracts from the accumulation and decumulation of assets andhas no explicit time dimension. Everything happens within one country, and within a "year"A certain sub-set of all the goods and services produced and consumed in this economyare designated as "health care", presumably because they are perceived as bearing some specialrelationship to health. These commodities are produced by "providers", that are NOT people, buteconomic organizations - professional practices, hospitals, public clinics, drug and equipmentmanufacturers, etc. Real, physical people, including doctors, nurses, pharmacists, etc., are allmembers of the household sector. The importance of this distinction, standard in national incomeaccounting, should emerge below.Households own resources, including the very important resources of professional skills,time, and energy, but also various forms of capital and raw materials, that they supply to providerfirms Firms then convert these resources into commodities - the whole range of goods andservices that have been identified as constituting "health care" - and these commodities aresupplied to and consumed by members of households. These "real" flows, of real, physicalresources flowing from households to firms, and real goods and services flowing back the otherway, are represented by dotted arrows in Figure 14.But households do not supply their resources for free. Firms pay for them, in the form ofwages and salaries, but also "rent, interest, and dividends" in the national accounting phrase, and(of particular importance for health care) net incomes of unincorporated business. Thesepayments then make up part of the incomes of those households that supply resources for healthcare production. For some, physicians and nurses, for example, this may be most or all of theirincome. But the holder of shares in a mutual fund, that has in turn bought shares in a drugcompany, is receiving dividend income from the health care sector. So is the owner of a buildingwho rents out part of the ground floor to a pharmacy, and these amounts are also included in thetotal dollar value of incomes paid by providers back to the household sector These financialflows are represented by a solid arrow.Providers must also be paid for their products, either explicitly as prices or fees, orimplicitly througb some form of budgetary process. These receipts must exactly equal their1 9expenditures; no assets or debts are accumulated. (This is not as unrealistic as it may appear.Profits and losses in the firm sector are flowed through the income arrow to some of those in thehousehold sector·- usually the firm's owners but sometimes, as in the case of bankruptcy, itssuppliers. Firms always break even because all discrepancies are moved, conceptually, to thebooks of the household sector.) Total expenditure on health care thus equals total incomesearned by households from its productionSo far, so good, and this framework can be applied in any country. The simplifyingassumptions can be relaxed without conceptual difficulty, but at considerable graphic cost. Thevariations come in when we consider how revenues are assembled, and providers are paid. (Thereare also a great many different ways of organizing the processes inside the provider box; these areimportant but will not be considered here.) In"normal" markets, members of households payproviders directly for their services, exchanging currency for commodities at some explicit price.The same is true for some health care commodities. But there are two other major channelsthrough which revenues are assembled for payment to health care providers, taxes, and privateinsurance.In all developed countries (including the United States but with the possible exception ofSwitzerland) by far the largest proportion of funding for health care flows either directly throughgovernments, or through highly regulated "quasi-autonomous non-governmental organizations"that are, in effect, public bodies. There are significant differences between systems that fund fromgeneral taxation, and those that collect social insurance premiums, but at this level of generalitywe follow the practice of the national income accountants and treat them all as taxes. Socialinsurance premiums are, after all, both compulsory and (largely or wholly) unrelated to one's riskstatus. The significance of truly private health insurance, on the other hand, varies from onecountry to another. In some countries it is very small; in the United States it accounts for aboutone-third of all health care expenditure. (This falls to about one quarter, however, if governmentsubsidies are netted off.)These three sources of revenue are indicated by the three solid arrows flowing out of thehousehold box. (We ignore minor items such as charitable contributions.) They add up to thetotal value of expenditures on health care, and these in turn equal the total incomes earned fromhealth care production. Because these relationships are derived from an accounting model, they2Clare identities arising from the underlying conceptual structure. They cannot not be equal -- exceptby arithmetic error.Figure 15 reminds us, however, that both the expenditure and the income components ofthis three-part relationship have a price and a quantity component. The resulting equation isshown at the top of Figure 16. For expenditures this product is obvious; total expenditures are a(vector) product of the (average) prices per unit of each of the different types of commoditiesincluded under the label of health care, multiplied by the respective quantities provided. Healthcare expenditures may vary over time or across countries, either because of differences in serviceuse, or because of differences in relative prices. This is the point that emerged so strongly fromthe cross-country comparisons in Figure 13, health care is in fact much more expensive, in relativeterms, in some countries than in others.The same is true of the resource inputs. These are factored into Z, for the (vector of)amounts of each of the different kinds of resource inputs used in health care production (e.gperson-hours of a particular professional or skill type) and W for their average rate of payment(e.g. wages per hour). Variations in health expenditures may be traced either to varying quantitiesof resources used in health care, or to variations in relative incomes. A country with high levelsof expenditure may be providing its population with a high level of services (Q); or it may simplybe paying relatively high incomes to those who provide inputs to health care (W). These will thenbe carried forward in higher prices (P). Relatively high prices may also reflect technicalinefficiency, in the form of a relatively high level of resource input (Z) per unit of output (Q).The lower half of Figure 16 "unpackages" the aggregate equation, to remind us that thetotals represent sums over all the different individuals, different types of health care services, anddifferent types of resource inputs used in their production. While the aggregate equation is anidentity, and must balance, it need not and probably will not balance for anyone individual (orhousehold). The same person can be at once a user of, a payer for, and an income earner fromhealth services But the amounts will be very different.Winners and Losers Again: Who Pays? Who Is Paid? And How Much?A healthy cardiac surgeon will receive a very high level of income from health care, butwill account for only a small or zero level of expense. His level of contribution will be greater or21less depending upon whether he lives in a country where health care is primarily tax-financed, orone in which there is a high level of user-pay and private insurance. The former will cost him alot; the latter, much less. A successful business executive will draw little or no income from healthcare (unless he is in, or owns stock in, a health-related business) but is otherwise similar to thesurgeon. On the other hand an elderly widow with a chronic illness, living on a public pension,will earn little or nothing from health care, but will account for a substantial amount ofexpenditure, and again will contribute more or less depending upon the financing system. A tax­financed system will cost her little; but one that relies heavily on user charges and privateinsurance will take a relatively large proportion of her income. Compared with the surgeon orthe businessman she both uses many more services, and has a much smaller income. In a strictlyuser-pay system, of course, she will probably be simply unable to afford the care she needs, andwill be unable to purchase insurance. That is why all developed countries finance most of theirhealth care through the public or quasi-public sector.In general, as shown in Figure 17, we can divide the population into three groups. First,we can identify those for whom WxZ, their earnings from the provision of health care, exceedboth their contributions and the proportion of costs that they account for. These we label"providers"; the rest of the population are primarily users of and payers for care. Ingeneral,providers have an economic interest in measures or policies that increase the total flow of fundsinto health care. Cost control, and more generally "value for money", are the concern of payers.As (actual or potential) users, we all have an interest in access to appropriate and effective care.But as payers we want to see it efficiently provided at reasonable cost. Providers share thislanguage; but their views on "reasonableness" and "appropriateness" tend to differ from those ofpayers. The conflict of (economic) interest is unavoidableBut payers/users, the rest of the population, can also be divided according to whether theyaccount for more of total expense than they contribute in revenue, or less. Those who contributea lot and use little, we may call the healthy and/or wealthy; those who use a lot and contributelittle are the unhealthy and/or unwealthy. The dividing line can be derived from the equation atthe bottom of Figure 16, by holding total expenditure constant and shifting revenue sourcesbetween taxes and direct charges. This involves making exactly off-setting changes in tax andcoinsurance rates for the system as a whole, and then identifying the characteristics of thoseindividuals whose total contributions rise or fall (Evans et al. 1994) Those whose share of total22income exceeds their share of total health expenditure, will gain (lose) if direct charges areincreased (decreased) and tax financed is reduced ((increased)."Reform" proposals in any country, can be represented in terms of rearrangements of theboxes and arrows in Figure 14, with corresponding changges in the sizes of the differentcomponents of the equation at the top of Figure 16. But the equation reminds us that it isimpossible to do only one thing. Any change in one component must be matched with eitheroffsetting or balancing changes in other components. But the disaggregation at the bottom ofFigure 16 further reminds us that any "reform" will have distributional implications, helping someeconomically and hurting others And the classification in Figure 17 shows that groups ofpotential gainers and losers are well-defined - and can be readily identified, by themselves as wellas others - in terms of the relationships in that equation.From Cost Control to Cost Shifting: The Universal Provider StrategyThus, when governments limit their expenditure (as in Canada), the value ofT falls, atleast relative to what it would otherwise have been. (This may be in the form of reduced futuretaxes for health care, i.e. less current borrowing; asset changes are not explicitly represented.)This must correspond to a reduction in both PxQ and WxZ, lower relative incomes for peopleworking in health care, andlor fewer jobs and shrinking markets. This could be avoided, however,if C andlor R, direct charges to patients or private insurance, could be increased. And indeed, asnoted above we are seeing increased pressure from provider representatives in Canada for "two­tier" medicine, permitting doctors to bill their patients directly for real or imagined benefits ofpreferred access to services. Whatever other effects this would have, it would at least maintainprovider incomes.On the other hand the European advocates of "separation of purchaser from provider"focus their attention on the relation between payers, particularly governments, and providers,while (in some cases at least) leaving the assembly of revenues largely within the public sector.Traditional public health services, as in Sweden or the pre-reform United Kingdom, consolidatedthe actual provision of services within government, thus combining the blocks that are shown asseparate in Figure 14. Their separation is intended to increase both the efficiency and theeffectiveness of health services.23But increased efficiency implies that fewer resources are required to produce a given levelof output -lower Z for given Q. Unless output is also expanded, total incomes will fall alongwith costs. Jobs, or sales, are lost. Similarly, if increased effectiveness is achieved by reducing oreliminating some services as ineffective in improving health, then the resources previouslyemployed in producing those services are now no longer needed - again, unless activity can beincreased somewhere else in the health care sector.Thus there has been a continuing tension in the health care reform process, between thosewho are trying to maintain or expand output at lower cost, and those who are trying to maintainor expand costs - incomes .... whatever the level or pattern of output. The latter may be willing tooffer higher output in return for higher cost -- as appears to be the case so far with the Britishreforms to the National Health Service. But they will resist bitterly -- as appears to have been thefate of the Plan Juppe in France -- reforms that are quite explicitly designed to make overall costreduction more acceptable to the general public by assuring or expanding levels of output.And always in the background is the fundamental division of interest among payers/users,between the healthy and wealthy and the unhealthy and unwealthy. When providers strive todivert "reform" efforts from cost-containment to cost-shifting, the healthy and wealthy (and theunhealthy, if they are wealthy enough) can usually be counted on as their allies Even if noprogress is made on system management -- even if overall costs go up and efficiency (and publicsatisfaction) go down, the wealthy and healthy may still benefit if funding sources are shifted frompublic ro private.Figure 18 lists several policies that have been suggested or applied in the management ofhealth care systems; their distributional effects can be worked through the framework developedabove. User charges, frequently advocated by economists fascinated with the theoreticalproperties of markets as a way to control costs, have already been demonstrated to be regressivein their distributional effects. The only other point to note is that such charges are consistentlyadvocated, in all countries, by physicians and other providers. It can readily be seen, from theequation in Figure 16, that if a rise in C (direct charges) did in fact lower Q while leaving Punaffected, then either W or Z- or both - must fall. Physicians would be advocating a cut in theirown incomes.24But of course physicians are not naive -- though economists may be. They advocate usercharges to increase the flow of private funds into health care, confident that aggregate effects onQ, if any, will be small, and can be offset by increases in P if physicians can regain direct controlover their prices. Governments are relatively effective at cost control, private individuals orinsurers are not, so the more private money that can be brought in, the higher will be overallcosts. So long as public contributions (T) do not fall in response to the increases in C, then totalcosts and incomes will be increased, however that increase may be split between P and Q.Meanwhile, the market economists simply confuse the public and the politicians as to what isreally at stake.Technical efficiency, as partly discussed above, is more interesting. An increase in Q forgiven Z can be captured in several ways. IfP and Z can be held constant, then Q and W go uptogether. This appears to have been the case with the dramatic improvements in efficiency incataract surgery, and earlier in cardiac by-pass grafts, in the United States. (And also in Canada,despite the very different processes of fee-setting.) In a genuinely competitive market, increasedefficiency, lower unit cost, and higher output are associated with falling prices. But this did nothappen in the United States surgical market; instead surgeons captured all the gains. Only whenthe U.S. Congress began the direct regulation of fees through the Resource-Based Relative ValueScale (RBRVS) were surgical fees adjusted downward.The U.S. experience with surgery was, at least prior to the RBRVS, providers' "best case"scenario for technical change. The "worst case" would have Q (and W) held constant, so that Zfalls as efficiency increases. Unit prices (P) thus go down, and payers reap all the benefits of thechange while some providers have to leave the industry. An example might be pharmaceuticaldispensing; individual pharmacists can do little to increase the overall volume of prescriptionswritten -- fortunately for them that is rising anyway - so cost-reducing innovations such asdispensing assistants or mail-order dispensing are a direct threat to their employment. Suchinnovations have accordingly been bitterly resisted over years or decades - unlike the changes insurgical technique.The intermediate case, redeployment, involves holding both Z and W constant ­protecting jobs - and increasing the overall level of health services output. The mix of servicesmay change. Thus, acute care hospital use falls, but ambulatory services, home care and long-25term care expand. New "needs" are met. In effect, P has fallen but Q has risen to compensate,and those who hoped for a reduction in overall costs from improvements in technical efficiencyhave been disappointed. They have more services instead, whether they wanted them or not, andif providers have not benefited from improved efficiency, they have at least pulled its teeth.Efforts to define "core services" that should be funded through public insurance programsplaya similar role in pulling the teeth of the health care evaluation movement. The guiding ideabehind the evaluation of health services is that many services now being provided are oflittle orno benefit, either at all or for many of those to whom they are offered. Ifsuch ineffective servicescould be identified, through reliable scientific analysis, then providers should stop offering them.In any case no one, public or private, should pay for them.But efforts to identify and weed out ineffective services will, if successful, reduce (someelements of) Q. Unless compensating increases can be made elsewhere (or prices somehowincreased) total costs and total incomes will fall. The elements of Z previously used to producethe ineffective services will no longer be reimbursed. It may be the ease - will be, if theevaluators have done their jobs properly - that the health of patients will be unchanged or evenincreased as a result of the elimination of these services. But that is a separate issue. Whateverthe health effects, sorneones income is threatened.Enter the advocates of "core services", or "basic benefits", who would refocus attentionon the sub-set of health services that should be covered by public programs. Rather thanidentifying and eliminating ineffective services from the total bundle, this approach would dividethe vector Q into "core" and "non-core" services and transfer the latter from public coverage intothe private marketplace. Private payment for these services will increase C, and so long as publicpayers do not reduce T in response, the total flow of funds will be increased. Even if publicpayers do reduce their contribution, private funding can now make up the difference.Furthermore, when sellers can set their own prices rather than having to negotiate with publicpayers, they can and typically do charge higher prices. And all the embarrassing questions aboutwhether the services actually do any good for patients can be avoided. In the private marketplace,if consumers want to buy it, that is sufficient justification for its sale. A program intended toreduce costs and increase the effectiveness of care is thus diverted into cost-shifting, with theexpectation of higher overall costs and lower effectiveness.26In general, however, attempts to define and de-insure "non-core" services have run upagainst the problem that very few services are clearly of no value to anyone, in any circumstances,at any time. A great deal of effort can be put into identifying trivial sums of money. The reallylarge issues are services that are sometimes effective, but are used far more often than they shouldbe, and these cannot be dealt with by a yes/no, in or out decision.But we may be seeing, in North America, the beginning of a very large-scale shift fromcovered to uncovered services in the pharmaceutical sector. Manufacturers in the United Statesare increasingly marketing prescription drugs directly to the public, and are clearly very interestedin removing the legal barriers to doing so in Canada. At the same time, they are applying to havedrugs that were previously available only on prescription approved for "over-the-counter" sale.This strategy may be in response to greater efforts at pharmaceutical management and costcontrol by managed care organizations in the United States, and public payers in Canada.Over the next decade, then, we could see an increasing proportion of drug costs movingout from insurance coverage - public or private - into the general marketplace. One might havequestions as to the implications for the health of the population served, if increasingly powerfuldrugs are marketed directly to consumers. But this process does appear to be an example of a defacto redefinition of insurance benefit coverage, driven by providers, and quite explicitly intendedto maintain or expand their own sales.Finally "two-tier" services, I take to mean a system funded from public sources, with aparallel "private" system in which people can pay for preferred access to superior services,perceived or actual. Private insurance mayor may not be permitted; in Canada for example it isillegal to offer private insurance coverage for services that are already covered by the publicprograms. (Private insurance for out-of-country services is, of course, perfectly legal.) Astandard argument for two-tier systems is that they relieve the pressure on chronically under­resourced public systems. (And anyway what is wrong with people spending their own money ifthey so choose") It should be noted, however, that the argument about supplementation ofunder-funded public systems is used regardless of the actual level offunding. It is heard both inCanada, still near the top in financing, and in the United Kingdom, still near the bottom.27What seems most clear about "two-tier" systems, actual or proposed, is that prices arehigher in the upper tier. The "more resources" drawn in through private payment are reflected inincreases in P and W, as much as or more than in Z and Q. Moreover, to the extent that a privatetier really does bring in increased resources for health care, rather than just more money forproviders, these may go to enhancing the image of the private tier - the plush carpets, the high­tech apparatus of dubious value - rather than meeting real health needs. Nor is this surprising,because the central problem of providers serving the upper tier is: "How do you convince peopleto pay more money?"An obvious answer is to focus ones' marketing on the healthy and wealthy, who canafford to pay extra tor whatever services they might need. But this may be a small market. Toexpand, one must convince a large number of people who really need services that there is asignificant difference between the private and the public tiers, in both ease of access, andprobability of a good outcome. This, in turn, is most easily achieved if physicians can work bothin the public and in the private systems, "streaming" patients and marketing private services tothose with money.The classic behaviour is for the physician with a private practice to promote the build-upof a long waiting list in the public system, and offer rapid access, for a price, to his privatefacilities. This seems to be a form of behaviour that generalizes across countries, though thespecific ways it is done vary depending upon the local organization. Where physicians paidsalaries or sessional fees in a public systems, they may simply fail to put in the contracted time,working in their private practices instead. In effect they sabotage the public system, pushingpatients into the private tier.But if the public system itself reimburses by fee for service, limiting its output will be moredifficult. Especially in a system as well-funded as Canada's, where the "long waiting lists" arelargely an American myth, some sort of misrepresentation or outright interference with accesswould be necessary to convince people to payout of pocket. (The waiting lists are largely, butnot entirely mythical; there do appear to be some significant problems in orthopaedics, andtransplant surgery depends upon the supply of suitable organs. But the key issues are managerial;there is no overall scarcity of resources.)28But the really serious effects are unlikely to emerge unless private insurance can be bought tocover private costs. And international experience suggests that that, in turn, probably requiressome form of public subsidy, either directly or via tax concessions or regulation Under suchcircumstances, there may be a substantial increase in the real resources absorbed by the healthcare system - the Z. But these would include all the underwriting, marketing, and administrativecosts in the insurance process itself, as well as the extra administrative costs imposed on providersin order to comply with the requirements of private insurers.These costs, in a full-blown private insurance system, can be quite staggering. The extracosts associated with "paper-pushing", compared with those in an efficient system like that ofCanada, have been estimated at over $100 billion a year in the United States, or over ten percentof total health care costs, and the discrepancy seems to be growing (Woolhandler andHimmelstein, 1991, 1997) Figure 19 shows the trend, since 1960, in the share of GDP devotedto costs for pre-payment and administration in Canada and in the United States. It should benoted that these data do not include the (very large) costs incurred in hospitals, physicians' officesand clinics, and by individual patients in dealing with the very complex American payment system.These administrative costs can be handled two different ways in our equation. The extratime and effort of all the financial, marketing, legal, and other personnel, the buildings andequipment, etc, all go into increased Z, with their corresponding rates of reimbursement W. Butthey do not produce any more health care services, as most of us would recognize them. So Qdoes not rise, and therefore P must. Recall that in Figure 13, relative prices of health care goodsand services were higher in the United States than in any other GECD country. The net effect ofprivate insurance is thus to increase R, P, and Wand Z, lowering technical efficiency. Ifthere arepublic subsidies as well - as in practice there usually are -- then T also rises and R goes up lessthan it would otherwise have to.Alternatively, however, it has been argued that because more resources have gone into thehealth care sector, the health services that emerge are somehow of higher quality- reflecting thebetter management or greater consumer choice among insurance plans. Costs are higher, butusers are getting "more" services, higher quality ifnot higher quantity, because more has beenspent, directly and indirectly, to produce them. In this case Q is in fact increasing, even if theincrease must be seen with the eye of economic faith. Since the "increase" in Q has had no29detectable effect on anyone's health status, however, we would then have to conclude that theadditional service "quality" was ineffective. Private insurance, on this interpretation, leads tomore, but less effective, output) In any case, it leads to higher costs.Risks of"Reform", Advantages of Adaptation: The Current Situation in CanadaThe analysis of Figures 14 to 18 is illustrative of the general point made previously.Health expenditures, by definition, equal health incomes; and it follows that any effort to limit theescalation of costs will be resisted, in a number of different ways, by those whose incomes arethreatened. To the extent that efforts to "reform" the organization, delivery, and funding ofhealth care services are expected to influence their overall costs, powerful pressures will bebrought to bear in order to direct reforms toward cost shifting rather than cost control.In this process, the public rhetoric will tend to be focused on expenditures (PxQ) andparticularly on allegations as to the inadequacy of the quantities of services provided. But thereal driving force behind efforts to capture the "reform" process comes from the income side(WXZ). And the critical policies have to do with the sources offunding (T+C+R). Theconsistency with which those who make their livings from the health care sector advocateincreases in C and R, more private funding, is not coincidental; but rather a perfectlyunderstandable focus on the only way of maintaining and increasing WXZ ifT is capped reduced.If reformers can be persuaded to spend their time debating abstract economic claims about theputative efficiency of various market structures, they may "take their eyes off the ball" of howmuch total revenue is being collected, and from whom. There is then a good chance that reformscan be structured so as to permit cost expansion, or at least prevent reduction. If in the processthe burden distribution becomes somewhat more regressive, so much the better.Viewed from this perspective, the Canadian experience of tighter administrative controlwithout structural reform may represent a less risky, ifless exciting, path to system control. Ineffect, public policy has focused on the revenue side by maintaining the virtual bans on user3 One might then argue -- some have - that the higher "quality" shows up in increased patientsatisfaction, rather than in health outcomes. Indeed it must - otherwise "consumers" would nothave paid for it. But by this point the argument becomes completely circular. The reality test isto ask American patients how much "satisfaction" they derive from dealing with the ever­changing maze of"choices", constraints and charges in that system. Consumers' Union has infact done so, and the results, not surprisingly, do not confirm the claims of public relations30charges and private insurance, at least for hospital and medical services. Whatever else happens,then, controlling T will control overall costs. And, again despite much rhetoric to the contrary,most of the limitation in expenditure seems to have taken the form of reductions in P, not in Q­outputs have risen, not fallen, in both the hospital and the physicians' services sectors. Underfiscal pressure, the system has become more efficient.But the balancing equation is relentless, both provider incomes and levels of employment,Wand Z, have been reduced. Moreover the uneven distribution of the financial pressure doesappear to have led to genuine problems in some areas. Not all of the claims of inadequate careare economically motivated. And the opponents of cost control understandably strive to give thehighest public prominence ny problem areas. Figure 20 indicates that while Canadians still placethe highest importance on equal access to care, there is also a very substantial concern for thequality of that care. If they came to believe that access or quality were being compromised in thename of"efficiency" or cost control, the present solid support for the public system might beginto crumble. The rhetorical fear-mongers accordingly use individual anecdotes of inadequate careto allege system collapse: "It will not be there when you need it!".But overall, though the adjustment may take some time, the Canadian system seems to beadapting to a somewhat less rich financial diet. Amd so fat, public confidence in the systemseems to be holding, as indicated in Figures 21 to 23. No major structural reform has occurred,and none seems necessary.SOURCES AND REFERENCESEstimates of national health expenditures, total and components, as reported in Figures1,2, and 5-8 are prepared periodically by staff at Health Canada, and now distributed by theCanadian Institute for Health Information. The latest estimates were included in "Drug Costs inCanada", a paper prepared by Health Canada and submitted to the House of Commons StandingCommittee on Industry for the review of the Patent Act Amendments Act, 1992, (March, 1997).The methodology for the current series that have been revised back to 1975 is given in Canada,Health Canada (1996) National Health Expenditures in Canada, 1975- 1994 Full Report OttawaHC Policy and Consultation Branch (January). Data back to the late 1940s have been piecedtogether from earlier publications; the sources are given in the data appendix to M.L.Barer andR G. Evans (1986) "Riding North on a South-Bound Horse? Expenditures, Prices, Utilization,and Incomes in the Canadian Health Care System", in R G.Evans and G.L. Stoddart (1986)Medicare at maturity: Achievements, lessons & challenges Calgary: University of Calgary Pressfor the Banff Centre, pp. 53-163.specialists and market-infatuated economists31Expenditures are deflated by the All-items Consumer Price Index, population estimates arefor July ] of each year, and GDP estimates are from the National Accounts, all generated byStatistics Canada (Figures 2-8). Data used are most recent estimates avqilable at time ofpreparation.Data in Figures 9 and] 0 are from the Organization for Economic Cooperation andDevelopment computerized health data base, OECD HealthData 96. Data in Figure] ] are fromR.I. Blendon, R. Leitman, 1. Morrison and K. Donelan (I 990), "Satisfaction with Health Systemsin Ten Nations", Health Affairs 9(2) (Summer) ]85-92; those in Figure 12 are from Ulf-G.Gerdtham and Bengt Jonsson (1991) "Price and quantity in international comparisons of healthcare expenditure" .Applied Economics 23, ]5]9-28. Figure 13 is drawn from data in E. Rasell, J.Bernstein, and K. Tang (1993) "The Impact of Health Care Financing on Family Budgets",Economic Policy Institute Briefing Paper (April) Washington, D.C: EPLFigures] 4 -] 8 were prepared by the author. Figure] 9 combines national healthexpenditure data for Canada and for the United States; the revised Canadian series subsequent to]975 are not published but are available from the Canadian Institute for Health Information. TheAmerican data are from the OECD HealthData 96; the GDP concept differs slightly from thatreported in American sources.Figures 20-22 are from an EKOS survey supported in part by the National Forum onHealth in ]995; Figure 23a,b is from surveys conducted by the Canada Health Monitor, 1995.Other works referenced (without any pretense of a complete bibliography) are:Barer, M.L, C Sanmartin and Ll.omas (1996) "Re-Minding Our Ps and QsMedical Cost Control in Canada" Health AffairsVol. ]5, no. 2 (Summer) pp. 216-34.Evans, R.G., M.L Barer and G.L Stoddart Charging Peter to Pay Paul: Accounting for the FinancialEffects of User Charges Toronto: The Premier's Council on Health, Well-being and Social Justice,June.White, Joseph (1995) Competing Solutions: American Health Care Proposals and InternationalExperience Washington, D.C Brookings.Woolhandler, S., and D.U Himmelstein (1991) "The Deteriorating AdministrativeEfficiency of the US. Health Care System" New England Journal ofMedicine, Vol. 324, no. 18 (May 2) pp. 1253-8.Woolhandler, S.,and D.U Himmelstein (1997) "Costs of Care and Administration at For-Profit andOther Hospitals in the United States" New England Journal of Medicine, Vol. 336, no. 11 (March 13)pp.769-74Figure ICanada Real Health Spending per Capita$1986, 1947 .. 1996------------ - .. - ---- ----. ---_......•••......... - _. -••. - --- -_.•••• ------;.;aalif.~ - .~-k'rsr.. --- -- - -- - - - - - -- - -. . . . - - - - - - - - - - - . - - - - - - - - -/ -.. ---- . -----. -- . -.. - - - .~-k~"'«- - - - - - • - - - • - • ;II:'~~. - ••• - • - • - •• - - - - - ••• - - - - - • - - - - - - - - ••• - •• - •• - •K"~_•• __ • _• _• •••• _•••• __ • .. ~....tt_ • _•••••• •• _• ••••• •••••• _•• _••• _~~~ ..... . . - - »-« ~-~ -.. - ---------. -.---- - ----- ------------ -.""JIr~'"$1,000$800$600$400$200$1,200 . - ---- -- ------ ------- ----. ---. -.. ----$2,000$1,800 -. - -- --. ---- . -- --------. - .. - ------ -------. -.. ------. . . . . . . ---. --------$1,600 -. --. - - ------. - --. -------. -.. -. ---.. ----- ------ -. . . --------.. ---. -------$1,400 ------- ------- ------.. --. -_ _. ----_. - ---.. - . -. . . . . ." -- _.. - .$0 ~ I I I I I I47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95yearI!!l Total -A- Hospital and MDFigure 2Canada Hosp. and M.D. Expo over GDP1947 - 19965.50%-r--------r------r-;:==========;T--r---------------~~.-.&. .....~· . . . . . . . .. . . . . . . . . . . . . .. . . .. ..:::::::::::::: - :.r:." : .. : : : : : : : : : : : : : ~:~~:S :::All provinces 'a• •••••••••••• - •••• - •• - • - • - • • • • •• « •••••• « • - •••• - - • • • • •• - - •• « included ill \.. ----..... « ••••••••••••••••••• - • - •••••Federal 4 Medicare• ••••• « • • • • • • • • • • • • • • • • • • • • • • •• •• Medical ~ :!- • • • • • •• • - •• - •••••• - • - •••••••• « ••••• « ••••• « ••• - - - - ••.. .. t j" Care Act •••..•.•••............................................................1.50% I I I I ! ~ t ! I It! I I 147 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 952.00%2.50%3.00%3.50%4.00%4.50%5.00%-4- Actual -A- Trend GDP ProjectedFigure 3Canada Real GDP per Capita$1986, 1947-1996$30,000$15,000 - ----- -----.. - . ---. --. - --- -. - .. ---- -.$20,000$25,000I I I47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95yeariii GDP -A- Time Trend (47-80)Figure 4Canada Real GDP per Cap. over Trend$1986, 1947 - 19961.1001.050 ... - - -.. -.. - - - - - - - - - - - - - - - - . - - . - .. - . - .. - -.. - - - - - - - -.. -- - -.. -.. - - - -... - -- -- - -... - . -- - - -- - -- - - . - ... - . - -..1.0000.9500.900 .. - - -- - - - - -- - - - . - - . -.. - - . - -- - - - . - - -- - . - - - - - - --. - - . - - -- - - - - . -- - . -. - . - .0.850 ---.... - . - . -- . - - . - . - - . - . - - .. -- - - - - - - - - - -- - - - - - - -... - - - - -- - - -... - - - - - - - -..... - - - - - - -.... - -... - - - - - -- - -...0.800 - -- - - - -- - - - -.. - - - - - - - -.. - - - - - -- -- -.. -- - - -- -- - - -- - - -- . - . - - -0.750 I I I47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95yearFigure 5Canada Health Expenditure over GDP1960 - 199611.00% ..,-----------------------------------,10.00% --- - - - - - -- - - - - . - - _ - - - -- - - - - _ - -- - - - - - - - - -<i:: - ••••• - - - - • - - - -. -. - •• ••• _. - - - - - -9.00% . -- - - - - - -- - -- - - - - - - - - - - - . - . - . - -- -- - - - - - --- - - - - . - .8.00% ---- - - - -- -- - - - - - -- -- - - - _. - - - - .. - - - .,.,.,.,AJtr-k-~ """tt. .............. IJs-,7.00% --- --- --- ------ __ ow ••••••••••••• ~••• •••••• ••••••••4 ._ ."~61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95yearB Actual -A- Trend GDP ProjectedFigure fiCanada Hospital Cost over GDP·1947 - 19964.000/0 -.-----------------------------------,3.50% -- - -- - . - - -.. - . - -3.00%2.50% --- ----- -. . . . . . . . . . . . . .. . - - -- -- .2.00% - --. -. . . .. - - -.. - - - -- -1.50% .. --- - ----- -- -.- - - --- -- -1.00% I I47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95yearFigure 7Canada Physician Cost over GDP1947 - 19961.60% --.-----------~---------------------------,1.50% .. - - ----- - - -- - -.. - - - - - - - -.. - . -- - - - - . - . - . - . - - - -- . - . - - - - - . - -.. -. - - - - - - - -. - - .. . -- - - --1.40%1.30% -- -- - . - - .. - - - - - - . - . - -- - -.. -.. - -.. -.. - . - -.. - - - - - - - . - .1.20%1.10%1.00% --- ------ - - - . - - - . - . - - - - - - -- - - - - - - . . . . . - - . - - -.. - - - - - - - - - - - - -- - - -- - .0.90% .. --.. - - - -- - - - - . . . . -.. - - - - - - -.. - - - - -- - . -.. -.. - - - - - - - .. - -- - - . - - . - - - - - -- -0.80% ------ . . . . . - . - - -- - -- - - . - - - -- - - -- - -.. - - - - -- - . -.. - - - - - - -- - . -- - -- - - - -..o.70% . _ -------.. - -- - - - -. -- - - - - - - . - - - - - -.. - . - - - -- - - - - - - - -- - - -- - - .0.60% I I i I47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 8385 87 89 91 93 95yearFigure 8Hospital, Physician and Drug CostsAs Percent of GDP, Canada, 1960-19964.00% -.------------------------------------,2.50%3.00% ... --.. ---. ----... --.... ---.. ------... -----..3.50% - --- ----.. - -- - ----- --.. -- -- ---.. ----.. -2.00% -- .. - _----_ -----_ _------ -_ __ - .. ---- __ _-- _--- .. ----- ---- ---- _------_ ..1.50% •••••••• - - - - ••••••• - .... - •• - - - - - ••••••.• - ••••••••• - •••••• - • - •••• - •••• - ••• - - - - •• - - - - • - • - - ........... "'lS-: • - ••• - •~ ,.Jt. .x- -x- -~.~lit"" /JJf-, K df- Ar-~ -;. ... • x'____ •••• _••• __ •• __ -<4Ir"- fir':'_ '!:'.. _. -" --_~~~~."'::"A_~.:'5'_ .... _. -... _. ~_-1<-- ••x..:~: :~- -' _... - -' _. - -.'-~A-4 -l!t. -a -lif' • ~ •X• - x- -x­x' .- 'x- -x- -x- -x- -X"9080I I70o.50% ...L-.L-..J....--.!.---L--L---L-..---L--L-...l--.l..--...J-----':"---.1...-:'---l.---l.-....1.--'--...l.....-'-----J.---L.-..L---l--l.-.....l.---l..-..L-l.-.....!--L----..l--..L--J...---L.......-I60IlII Hospitals -4- Physicians o Drugs (60-75) .. * _. Drugs (75-96)Figur~ 9Health Care Spending over GDPSelected Countries, 1960-19940.16-.-----------------------,O. 14 ------ -- -. -----.. - --- ..--- -. 0'_ -- -. -- •••• -" -- - .. -- - ••• -0 0_- ---- -- -- --------- .. _ •••• -. -- ---- -- -- _0 •• O. -_.- _ •• _ -- __ oM __ • ••• 0-- - .- ••• ---- --.. ....~~~~~~-----_ ......------_ .. ---0:1 ----------.-o' ., "" ,- - _ •••••• - - - .. - - - - - - •• - - - - - .. - - - - •• - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - •• - • - - - - - - - - - - -. - - - - - - - - - - -0.06 ----~----~--~.~~.O08 .."-.--.. -.. -.. - -.. -- --- -.. ----.- ".."-"""" -------- --------0 " - .. - - - - - - _ •• 0 - - - - - - - - - - - - - - - - - - - - - - - - --"O12 .- -- ---- _. --- --_ .. _........----- ...... -- ......--- -- .. __ >0._ ..... _-- O •• - .... ---- -. 00 --.----.--- ••• -. ---- ------ -- -- -- -- -. -- ------.---- - -- -- -- -- --.-- -- -- -- -------<0.02 60 62 "64 66 68 70 I 72 74 76 78 80 82 84 86 88 90 I 92 94I l1li. DECO Avg. + Canada * U.S.A. o U.K. ]Figure loHealth Care Spending over GDPDeviation from GEeD Average, 1960-19940.06-,--------0.05 --- --_.----- ----- ---- , _".- .'" ". --.- ----.- .- -- -- --_.- -- -- ------- -- _.. -- -- -- --'- --.- .. -- -- -- ----- -- --.- ,.. -'---"- -- -- - -0,04 ---- _- --- -- .. --.-- .. - --. -'. '- ..-..'_ ---- ---- - ---- ..-- -- -_._ -- ------- -- -- -_.- -- ..------- ----- ---- -- -- -- -- -- --- --. - -. "" --.- ---0003 ." .0- - _ .. ,-'- .. --. -- - - ,,-." - _._.- _ -.- -- -. ---- -- -- -- .. - --.- - -- -- --- ---- -- ••••••••••• -. -- - •••• --------- --- •• - -. -- -_ _. ---- -----O02 -.,- --.-.---" 0 - • ,. - , •• - - " - • - - - - - •••• - - - - - - - •••• - - - - - - - - - - - - •••• - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - .. - - - - - - ••" ~-s-~o 0 01· ..... ------ .. -........ ···-· .. ·-_ ....·......_.... ··..·....---·~I~..L:7l-0,02 60 62 64! 66 r 68 70 72 74 76 78 80 82 84 86 88 90 92 94---~--+-- Canada * U.S.A. 0 U.K.Figur« ] ISatisfaction with Health CareSelected OECD Countries-+----,-----,----,-------,--,--.-----.-----,-----IIIIH-I S0.6.,--------------------------,=- 0.55 -- ---- --- -- ----------- ---- -- - .... - --- ------------------ --- ---- ---- ------~GA_ ------- -- ---. -_. ------- ------ --- ------------Q)s: 0.5 I ------ --. --------- --------- -- --- -- -- --- . -- . ---- --- -- ---- ----------- ------ -- --- ---- --------- -- ---- - -- - ----- --------- ------ ------~ mNE~ 0.45 -- ----- ----- --------- ----- --- -------. _. -.... -------- ---------- -- --- --- ---- --- ----------- --------- -- --------_. --.. -------- -- -- -------- --- ---s: 0.4 --- -- -- -- ------ -- ----- -- .--. _...GEiIII_~.EB. --- -- --- -- ------- -- --------- --- - -------------------- ------------E*0.35 -- ---- - -------- -------- -- ----~At .------------------- -- -- -- --- ----- ------- -- -- -- ---- -- -- --... _.. --- ---- ----------- --- ---~ mSW~ 0.3 ------- ------ --- ----------- --- -- -liiiiJA- --------- ---- ------------------- --- --- --- ---- -------- --- ------ ------------------ ------- -- -- ----------c mUKo 0 25 ------ .. --------- -- -- ---------- ----------_. -- --------------------- ------ -------- ---- -------- --------- --- -------_. --- ------ --- ------------------"t:::: •8. 0 2 -~SP -- --------- --- --- -- --. ----------- ---- --- -- ---- ------ ---------- -- -------------- ----- ---- --- -- --- --------------- ------- --- --- ----- ---o .'-0... 0.15 ------ ------- ----------------- --- .--_. --------- --- -------------------- --- ----------- ------- -------- --- --- ------------------ -------------- ----miTO.~OO 1000 1400 1800 2200800 1200 1600 2000Per Capita Spending, in $US, 19892400Figure 12Health Care Spending per Capita, 1985As % of US, in Purchasing Power Parity--- .... ----- -.. ---1Wl-------···----------- -------------------------- .. ------- ... _.. -....us SW GE NO AU FI JA IT UK SP GRCA FR NE LX AL BE DE NZ IR PO TU0.6- --,.--,,,- .._­0.4 --._.. ----­0.2 .-- .. -- .... -.O-+-1.4--,------1.2 --. ---. -- - --- -- -- - --. - --.- -.. --"- --.--- -- -'" -- .-- ---- -- --- ---- 0 - -- ------. ------ ----- ---- -- -- -- -- ---- -- ------- -- •• _. -- ------- -- -- -- - ••• " ••1 ,--._-- --- --- --- ---- .. -_ ... -----.-----------.------------ .. ---.-------.-------------------------------------------------------------- ...o.8 --_ - -- --- -..- -.... -..--_- -. - .. --.-- .-.-_.-----..-- --- -----.--.------------------------_.. '" .. --------- ---..-----.. -.. '"0~ Health Sector PPPs ]GDP PPPs'----~--._---~--------Figure 13Family Expenditures for Health CareBy Income Decile and Age of Head0.35•.••• _•.•.••.•••••.•••••.•••••.••.•••••.•••••••••••.••.••.•.•••••••.• - _0._, .•. _,.c _o :10 9 8 7 6 5 4 3 2 1b 10Family Income Decile (Aged &Non-Aged)0.20.3+-lCQ) 0.1 .U'io-Q)o, 0.05ECOu,~ 0.15oQ)Eog 0.25~.-~ Out of PocketFigure 14ALTERNATIVE WAYS OF PAYING FOR HEALTH CARENETTAXESFOR HEALTH]PREMIUMS ~i-----'CHARGESHEALTH CARERESOURCESINCOMESTotal Revenues equal Total Expenditures equal Total rncomesFigllr~ 15REVENUES ASSEMBLEDFrom taxes, user charges, and private insurancepremiums[T + C + R]must equalEXPENDITURE ON HEALTH CAREQuantities provided multiplied by prices[P x Q]must equalINCOMES EARNED FROM HEALTH CAREFactor inputs multiplied by input prices[W x Z]Figure 16SO THE BALANCING IDENTITY:T+C+R=PxQ=WxZBUT THESE ARE AGGREGATED ACROSSPERSONS (i), COMMODITIES (j), AND FACTORINPUTS (k).RE-LABELLING:L.{tY. + L.(C. X q..) + R.} -1 1 J J D 1L .. [P. X q..] =IJ J IJLidWk X Zik}Figure 17THE IDENTITY HOLDS ONLY IN AGGREGATE.HOUSEHOLDS FALL INTO TWO CLASSES:(1) PROVIDERS:W X Z EXCEEDS BOTH T + C + RAND P X Q(2) USERS/PAYERS:T + C + RAND P X Q EACH EXCEED W X ZUSERS/PAYERS IN TURN DIVIDE:(2A) HEALTHY AND/OR WEALTHYT + C + R EXCEEDS P X Q(2B) UNHEALTHY AND/OR UNWEALTHYP X Q EXCEEDS T + C + RFigun: IXWHO GAINS AND WHO LOSES?USER CHARGES VERSUS TAX FINANCE:IMPROVED TECHNICAL EFFICIENCY:INCREASED EARNINGS?REDEPLOYMENT?COST CONTROL?"CORE SERVICES" VERSUS EVALUATION:"TWO-TIER" SERVICES:WITHOUT PRIVATE INSURANCEWITH PRIVATE INSURANCEWITHOUT PUBLIC SUBSIDYWITH PUBLIC SUBSIDYFigure 19Prepayment and Administration CostsShare of GOP, U.S. and Canada, 1960-94O.90%---r--------------------~o.80% -.>', - .. - • - _ .......... -- .. - - _ .... " ......., ...... - - - - - - - - - - - _ .. _ .. - - - - - - - - - - - - - - - - - - - - - - _ .. - _ .... _ .. _ .. - - - - - - - - - - - - - - - - - - - - - - - - - _ .... - _ .. - - - .. - - - ... - - - - - - - - - _ .. - - - -, - - ... - - - - - _ .... - .. , .. 00"70% --..---.'", -.. -" ...... -------.._..-"... --_.. ----.. ---.... --..------------------------------------.... ------_.._.... _........-...-------------_.. _.......--- .. -_.. .. .....-.. --',"" 0· __I9490858075700+o.40% -" -_.._ ----..---" -.. - - " -.. ------------_ ---.----------------_-----_----_..-..-------------_.. "" ',' ----.. -.. _ _0 ·0 - .. - - --0.20% -....... --- ------ .----. ----- -- -.... ---- ..-....-.......-.. -- -- -- -- -- -.... -..-- -- -.-- -- -- -- -- -- -- -- -- -- -- -- .. --- -- --- -..--------- --- --_... -- --- -- --."...--... -- -- ... -- ... ---O.60% .. -" --------.. ---..--.. --- -..------ - -.. -----.. -- -., --------..------ -.----..-----_--..- _------.. ---.. ------.. --- '-,,0 -- - " - - - - -0.30% ---- .. _- --- -----.- ------ '''"", --- _..",,- ..- -- .. -- --- - -- -- ------ ._- ---.- -. -. -- -- -- -- -- -- -- -- --.--._- -- --.- ----.. -_._.. _.. -0 -_ .. - --- --- - --- - - _ .. --- -- •• " .... -----o.50%' - '-- .. - ---.. ---------. -.' -----_ "".'"-------- -" ------------------- ----------"----------_------ _..-_..----- -.. .." --[ • . United States + Canada]Figure 20Importance of VariousAspects of Health Care"vvhicn one of the folJowing aspects of health care is of greatestimportance to you?"•Ekos Research Associates Inc.Les Associes de recherche Ekos inc. n=3,021Figure 21Satisfaction with Current System"Overall, in the area of g/U how would you rate theperformance of the current system?"80I6040Percentage20Job trainingUnemploymentJob creation Ir====--·i-~----· ------- -.~..--- .oHEALTH CAREConsumer protectionCrimeEducationEkos Research Associates Inc.Les Associes de recherche Ekos inc. n=3,021Figure 22Preferred ResponVarious Activitiesibility forPM. i¥S if ee M 9+& EMHealth Caren=4,020 responsesEkos Research Associates Inc.Les Associes de recherche Ekos inc.All Other Prioritiesn=50,035 responsesFigure 23aSupport for Canada Health Act PrinciplesUniversalityAccessibilityPortability0% 20% 40% 60%% rating "very important"80% 100%Source: Canada Health Monitor, 1995 [0"1991 11!11994 1m 1995 IFigure 23bSupport for Canada Health Act PrinciplesComprehensivenessPublicAdministration88%0% 20% 40% 60% 80% 100%% rating "very important"Source: Canada Health Monitor, 1995[ 131991 II 1994HEALTH POLICY RESEARCH UNITCentre for Health Services and Policy Research429 - 2194 Health Sciences MallUniversity of British ColumbiaVancouver, B,C, CANADAV6T 1Z3Telephone:FAX:(604) 822-4969(604) 822-5690DISCUSSION PAPERS & REPRINTSHPRU98:12D Heallh for AllorWealth for Some? Conflicting Goals in Health Care Reform. October, 1998 (Robert G, Evans),$8,00HPRU98:11 D Health Reform: What ''Business'' isitofBusiness? October, 1998 (Robert G, Evans), $8,00HPRU98:10D Income-Related Health Inequality in Canada. October, 1998 (Karin H. Humphries, Eddy van Doorslaer) $8.00HPRU98:9D(a) Wailing Lists and Waiting Times for Health Care inCanada: More Management!! More Money?? Summary Report.July, 1998 (Paul McDonald, Sam Shortt, Claudia Sanmartin, Morris Barer, Steven Lewis and Sam Sheps).No charge.HPRU98:9D(b) Waiting Lists and Wailing Times for Heallh Care inCanada: More Managemenf/! More Money??July, 1998 (Paul McDonald, Sam Shortt, Claudia Sanmartin, Morris Barer, Steven Lewis and Sam Sheps).No charge.HPRU98:8R Evans, R.G. (1998) "New bottles, same old wine: Right and wrong on physician supplY', Canadian MedicalAssociation Journal, March 24,1998; 158:757-9. No charge.HPRU98:7R Evans, R.G. (1996) "Toward aHealthier Economics (Reflections on Ken Bassett's Problem)", Health, HealthCare and Health Economics: Perspectives on Distribution (August 1998), pg. 465-500, No charge.HPRU98:6D Paper Tiger orToothless Tabby? Regu!ation ofPrescription Drug Promotion in Canada. July, 1998(Barbara Mintzes) $8.00HPRU98:5D Lies, Damned Lies, and Heatth Care Zombies: Discredited Ideas that Will Not Die. March, 1998 (Morris L. Barer,Robert G. Evans, Clyde Hertzman, Mira Johri) No Charge. (Released asHPI Discussion Paper #10, Health PolicyInstitute, The University ofTexas-Houston, Health Science Center)D= Discussion Paper R= Reprintpowerline'papers'hpru papers-88-97.docHEALTH POLICY RESEARCH UNITDISCUSSION PAPERS & REPRINTSHPRU98:40 Healthy, Wealthy and Cunning: Opportunistic Interests, Social Cleavage, and Health Care Reform. April,1998(Robert G. Evans) $5.00HPRU98:30 The Quick and the Dead: The Utilisation ofHospital Services in British Columbia, 1969 to 1995/96. February, 1998(Kimberlyn MMcGrail, Robert GEvans, Morris L Barer, Samuel BSheps, Clyde Hertzman and Arminee Kazanjian)$5.00HPRU98:20 Quebec's Drug Insurance Plan: A Prescription For Canada? February, 1998 (Steve Morgan) $5.00HPRU98:10 Genetic Technologies and Achieving Health for Populations. January, 1998. (Patricia A. Baird) $5.00HPRU 97: 12R (Morris L. Barer, Laura Wood) (Fall 1997) "Common Problems, Different "Solutions": Learning from InternationalApproaches to Improving Medical Services Access for Underserved Populations'; Dalhousie Law Journal, Vol. 20,no. 2, p 321-358. No Charge.HPRU 97:11R (Peter N. Nemetz, Cynthia Leibson, James M. Naessens, Mary Beard, Eric Tangalos, Leonard T.Kurland) (1996) "Determinants of the Autopsy Decision: AStatistical Analysis" American Journal ofClinicalPathology, August, 1997 Vol. 108 NO.2.HPRU 97:100 Cloning ofAnimals and Humans: What should the Policy Response be? September, 1997. (Patricia A. Baird) $5.00HPRU 97:90 Adapting toAdversity, Protecting the Principles, Resisting Reactionary ''Reforms'': Canada's Health Care Systeminthe 1990s (August 1997) (Robert G. Evans) $5.00HPRU 97:8R (Cameron A. Mustard, Anita L. Kozyrskyj, Morris L. Barer, Sam Sheps) (May, 1997) "Emergency Department UseAs AComponent ofTotal Ambulatory Care: A Population Perspective" Canadian Medical Association Journal,January 13,1998; 158(1). No Charge.HPRU 97:70 Acute Medical Beds: How Are They Used in British Columbia? April, 1997 (Charles Wright, Karen Cardiff, MilesKilshaw,) $8.00HPRU 97:6R (David R. Meddings, Clyde Hertzman, Morris L. Barer, Robert G. Evans, Arminee Kazanjian, Kimberlyn M. McGrail,Samuel B. Sheps) (1997) "Socioeconomic Status, Mortality, and the Development at Cataract ata YoungAge", Social Science and Medicine (June 1998) Vol 46(11): 1451-1457. No charge.HPRU 97:50 Issues for Canadian Pharmaceutical Policy. February 1997. (Steven G. Morgan) $8.00HPRU 97:40 Mortality and Morbidity Associated with the Distribution ofMonthly Welfare Payments. March 1997. (Glen Verheul,Sharon Manson Singer, James M. Christenson) No charge.Power Line zpeper s zhpr u papers""88··97.doc2HEALTH POLICY RESEARCH UNITDISCUSSION PAPERS & REPRINTSHPRU 97:30 Global Consumplfon from the Perspective ofPopulation Health. January 1997. (Clyde Hertzman, Shona Kelly) $5.00HPRU 97:20 Ulilization ofPhysician Services in the United States byResidents ofOntario. January 1997. (Steven J.Katz,Diana Verrilli, Morris L. Barer) $8.00HPRU 97:1D Evalualfng Amendments tothe Canadian Patent Act. January, 1997. (Steve Morgan, Morris L. Barer) $5.00HPRU 96:14R (R. Chamberlayne, B. Green, M. L. Barer, C. Hertzman, W. Lawrence, S. Sheps) (1998) "Creating a Population­Based Linked Health Database: ANew Resource for Health Services Research", Canadian Journal ofPublic Health89(4):270-73 July/Aug, 1998.HPRU 96:13R a-d a) Maficka-Tyndale, E., Godin, G., LeMay, G, Adrien, A., Manson-Singer, S., Willms, D., Cappon, P., Bradet, R.(1996) "Canadian Ethnocultural Communities Facing AIDS: Overview and Summary ofSurvey Results fromPhase III." Canadian Journal of Public Health, 87-supplement 1, May-June 1996, pp S38-42. No charge.b) Godin, G., Maticka-Tyndale, E., Adrien, A., Manson-Singer, S., Willms, D., Cappon, P., Bradet, R., Daus, T.,(1996) "Understanding Use ofCondoms Among Canadian Ethnocultural Communities: Methods and MainFindings ofthe Survey." Canadian Journal ofPublic Health, 87-supplement 1, May-June 1996, pp. S33-37. Nocharge.c) Manson-Singer, S., Willms, D., Adrien, A., Baxter, J., Brabazon, C., Leune, V., Godin, G., Matlcka-Tyndale, E.,Cappon, P. (1996) "Many Voices - Sociocultural Results ofthe Ethnocultural Communities Facing AIDS Study inCanada."Canadian Journal of Public Health, 87-supplement 1, May-June 1996, pp. S26-32. No charge.d) Adrien, A., Godin, G., Cappon, P., Manson-Singer, S., Matlcka-Tyndale, E., Willms, D. (1996) "OverviewoftheCanadian Study on the Determinants ofEthnoculturalty Specific Behaviours Related toHIVIAIDS." CanadianJournal ofPublic Health, 87-supplement 1, May-June 1996, pp. S4-1 O. No charge.HPRU 96:120 Mortality Rates Following Cataract Extraclfon. December 1996. (David R. Meddlngs, Stephen A. Marion, Morris L.Barer, Robert G. Evans, Bo Green, Clyde Hertzman, Arrninee Kazanjian, Kimberlyn M. McGrail, Samuel B. Sheps)$8.00HPRU 96:110 To BeorNot To Be in Hospital: ANew Approach toanOld Problem. October 1996. (Karen Cardiff, Samuel B.Sheps, David M. Thompson) $8.00HPRU 96:100 Price Regulation ofPharmaceulfcals in Canada. October 1996. (Aslam H. Anis, Quan Wen) $8.00HPRU 96: 90 Therapeulfc Management ofHIV Disease Among Physicians in a HIVIAIDS Drug Treatment Program: The Role ofExperience and Physician Characteristics inAdherence to Clinical Guidelines. September 1996 (Katherine V. Heath,Robert S. Hogg, Joel Manson-Singer, Martin T. Schechter, Michael V. O'Shaughnessy, Julio S.G. Montanger) $8.00HPRU 96:80 Some Data Issues in Genetics Research: Registries, Record Linkage, and Privacy Protection. June 1996 (PatriciaBaird) $5.00HPRU 96:70 The Eyes Have It: Cataract Surgery and Changing Patterns ofDay Surgery. June 1996 (David R. Meddings,Kimberlyn M.McGrail, Morris L. Barer, Clyde Hertzman, Samuel B. Sheps, Robert G. Evans, Arminee Kazanjian)$8.00Powerline!papers/hpru papers-8S·-97.doc3HPRU 96:6RHPRU 96:5DHPRU 96:4RHPRU 96:3DHPRU 96:2DHPRU 96:10HPRU 95:9DHPRU 95:8RHPRU 95:7DHPRU 95:6RHPRU 95:5RHPRU 95:4DHPRU 95:3DHPRU 95:2DHEALTH POLICY RESEARCH UNITDISCUSSION PAPERS & REPRINTSBarer, M.L., Lomas, J., Sanmartin, C. (1996) "Re-minding Our Ps and Os: Medicai Cost Controls inCanada" HealthAffairs, 15:2, Summer 1996, pp 216-234. No charge.What's Been Said and What's Been Hid: Popuiation Health, Global Consumption, and the Role ofNational HealthData Systems. February 1996 (Clyde Hertzman) $8.00Robert G. Evans (1996) "Going for Gold: the Redistributive Agenda Behind Market-Based Health Care Retorm",Journal ofHealth Politics, Policy and Law, Vol. 22, No.2, April 1997. No charge.Sharing the Burden, Containing the Cost: Fundamental Conflicts inHealth Care Finance. January 1996 (Robert G.Evans) $8.00Regulating Reproductive Technologies: Individual and Societal Interests. January 1996 (Patricia Baird) $5.00Is there Life After Death (of Federal Transfers). December 1995 (Michael Mendelson) $5.00Environment and Health in the Philippines. December 1995 (Clyde Hertzman, Elma B. Torres, Ronald D. Subidaand Maria Barroetavena). No ChargeEvans, R.G., Barer, M.L., Stoddart, G1. (1995) 'User Fees for Health Care: why a Bad Idea Keeps Coming Back (Or,What's Health Got to00 with It?)' Canadian Journal on Aging, Vol. 14 no. 2 1995, 360-390. No charge.Physician Expenditure Control in Canada: Re-minding our Ps and Os. September, 1995 (Morris L. Barer,Claudia C. Sanmartin and Jonathan Lomas). Cost $7.00.Barer, Morris L., Marmor, Theodore R., Morrison, Ellen M. (1995) "Health Care Reform in the United States:On the Road to Nowhere (Again)?" Soc. Sci. Med. Vol 41, No.4, pp 453-460. No charge.Robert G. Evans, Anthony J. Cuiyer (1995) "Mark Pauly on Weitare Economics: Normative Rabbits from PositiveHats". Journal ofHealth Economics 15 (1996) 243-251. No chargeThe Effects ofBritish Columbia's Physician Payment Initiatives: Making Sense of the Dollars. March, 1995(Robert G. Evans, Marina V. Pascali and Morris L. Barer). Cost $8.00.Research inHuman Genetics: Promise, Pitfalls and Policy Challenges. February, 1995 (Patricia Baird, M.D.).Cost $5.00.Marketing the Market, Regulating Regulators: Who Gains? Who Loses? What Hopes? What Scope? January,1995. (Robert G.Evans). Cost $8.00.Powerline/papers/hpru papers-88-97.doc4

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