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The Canadian health care system : a King's Fund interrogatory Evans, Robert G., 1942- Mar 31, 1989

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THE CANADIAN HEALTH CARE SYSTEM:A KING'S FUND INTERROGATORYR. G. EvansHPRU 89:5D March 1989HEALTH POLICY RESEARCH UNITDivision of Health Services Research and DevelopmentThe University of British ColumbiaVancouver, B.C.V6T lZ6jjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjjJTHE CANADIAN HEALTH CARE SYSTEMA King's Fund InterrogatoryRobert G. EvansIn 1988, the King's Fund Institute in London initiated a project tostudy patterns of health care finance and delivery in several of the majorindustrialized countries. The project involved the preparation of astandard set of questions about system organizaton, which was sent to ahealth care specialist in each country who had agreed to participate in theproject.The answers to these common questions (the "Background Data Set") werethen assembled by staff at the King's Fund Institute, and the resultingreport, Health Check: An International Comparative Study, by C. Ham, R.Robinson and M. Benzeval, will be published by the Institute in 1990.The questions posed by the King's Fund staff are quite comprehensive,and cover most of the issues which interest external observers of differentcountries' health care systems. Accordingly, it seemed likely that theremight be a wider audience for the relatively compact description of theCanadian health care system represented by the answers to those questions.We are thus issuing the questions and answers as a Discussion Paperdistributed by the UBC Health Policy Research Unit, although it is notclear whether they might also deserve publication independently of theKing's Fund synthesis.2I BACKGROUND DATA SET FOR EACH COUNTRY1.1 Financial Data1. How much is spent on health care per capita and as a percentage ofGOP?The most recent published financial data for the Canadian health caresystem as a whole are for 1985, and report total expenditures of $39.8billion, or $1568 per capita (Canada, 1987). Subsequent revisions byHealth and Welfare Canada, as yet unpublished, have raised this 1985 figureto $40.4 billion or $1605 per capita, with corresponding preliminaryestimates for 1987 of $47.9 billion and $1869. These figures are of coursein Canadian dollars. For purposes of international comparison they may beconverted into American dollars, but spot market exchange rates should notbe used for this purpose because the Canada/U.S. exchange rate has beenquite unstable during the last five years. A Purchasing Power Parity rateestimated by the DECO for 1985 is approximately $0.85 USD per CAD.The more common basis for international comparison is the percentageof GNP or GOP spent on health care. The DECO international comparisons ofhealth care spending use GOP as a base, and report Canada as spending 8.4percent in 1985 and 8.6 percent in 1987 (Schieber and Poullier, 1989). TheCanadian sources more commonly report percentages of GNP, parallelingUnited States practice. The last published data give this ratio as 8.62percent for 1985 (Canada, 1987) but again revised and unpublished dataprovided by Health and Welfare Canada report 8.7 percent for 1985 and 9.0percent for 1987.The discrepancy between the ratio based on GNP and that reported bythe OECO for GOP is partly a result of slight modifications made to theCanadian health data for purposes of international comparison; the newHealth and Welfare Canada data give 8.5 percent of GOP for 1985 and 8.73percent for 1987. But most of the difference results from a growingdivergence between the GNP and GDP measures of Canadian national income, arecent phenomenon which does not appear to have been investigated.The share of national income spent on health care in Canada has beenrelatively stable, in the range 8.5 - 9.0 percent of GNP from 1982 to 1987.The Great Recession of 1982, which hit Canada particularly hard, wasassociated with a jump in this ratio from 7.7 percent in 1981 to 8.6percent in 1982; prior to that date the ratio had fluctuated in the rangeof 7.0 percent - 7.5 percent since 1971. In the previous two decades,health spending had increased its share from about 4 percent, moving moreor less in line with patterns in the United states (see Figures 1 and 2).2. What percentage is public expenditure and what percentage is private?(N.B. We are particularly interested in any complications arisingfrom your national accounting practices which may not be apparent fromOECD expenditure figures for your country.)At present, about three-quarters of health spending in Canada is paidfor through the public sector (Canada, 1987; Schieber and Poullier, 1989).It is important to note, however, that this public spending is concentratedin particular sectors of health care, whose boundaries may not alwayscorrespond to those in other countries. The reimbursement of physicians'services and hospital care is almost entirely in the public sector - about95 percent - while dentistry, prescription and OTC drugs (out of hospital),and some long term care, is predominantly funded through private spending.The programs to fund continuing care - home care and "intermediate"(i.e. out of hospital) institutional care - vary considerably from provinceto province (Kane and Kane, 1985). But most require patients to pay someform of charges, which are set in relation to the minimum public pensionsfor the elderly in each province. The intent of such charges is not torecoup the cost of care, but to avoid paying twice for minimum subsistenceFigure 1Total Health Expenditure as Share of GNPCanada & U.S., 1948 - 8712Canada NHE~./J" U.S. NHE.I .r·..,!'."""/•I1IIIFederal IMedical ICore Act Ieffective. I1968 IIIIIIIIIIIIIIIIIIII AllI ProvincesI Included.I 1961I86100..ZCJ0+-o'*'42-+---r--,--r--r--T---,--i--r---r---,~-r--i-----r---,-.----r---r---,-.----,---,47 49 51 53 55 57 59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89YearFigure 2Hospital and MD Expenditure as Share of GNPCanada & U.S., 1948 - 877CanadaIIIIII AllI ProvincesI Included,I 1971I,I,IIIIFederal IMedical ICore Acteffective, I1968 IIIIIIIIII,IIIIIIIIIIIIII AllI ProvincesI Included,I 1961I,I • I1 ./:v./ I,,IIFederal IHospital IInsurance IAct passed, I1957 ,II,,III36a.. 5ZC)-o~ 42--l-L.,--..----.---.---r--.--i--....,--.-----,--!.......,.--r----r---r-..----.---.---.-..,--,47 49 51 53 66 67 69 61 63 66 67 69 71 73 76 77 79 81 83 86 87Year6by "clawing back" the pensions (except for a comfort allowance of 15-20%)for those in full time institutional care. The effect of this policy,however, is to record the public pensions as private payment for long termcare. In fact, the money still comes from the public sector, but at oneremove.The Canadian national health expenditure accounts are broken down intocategories very similar to those in the American accounts, which posesparticular problems for the identification of ambulatory, as opposed to in­patient, care. The "primary, secondary, and tertiary" distinction is evenmore elusive. Canadian physicians are in the main self-employed, fee-for­service practitioners, split roughly half and half between specialists andgeneral/family practitioners, but both groups have admitting privileges inhospitals and are reimbursed for services provided to hospitalized patientsthrough fees which are not included in the hospital budget.This means that the distinction between "hospital" and "medical"spending is between payments to hospitals, and payments to individualphysicians (or groups). The latter can be broken down into the individualitems in the provincial fee schedules, although this detail is notroutinely published. Each province has its own schedule, although there isa national list of about 120 billing categories into which each of theprovincial schedules can be fitted without undue violence. Some of theseitems are easily identifiable as being either hospital or community-basedhospital visits, for example, or office visits. But others, particularlydiagnostic procedures (laboratory and radiology) may be performed at ahospital or a free-standing facility, and if in hospital may be performedfor an in-patient or an out-patient. The provincial data set may simplynot record whether the patient receiving the service was vertical orhorizontal.7Hospitals are providing an expanding array of services to growingnumbers of people who are neither in-patients - they do not occupy a bedovernight - nor true out-patients. These patients may be in for day caresurgery, under general anaesthesia, or day medical care such as cancerchemotherapy or cardiac catheterization. Such procedures require thefacilities of the hospital, such as the surgical suite or major diagnosticequipment, but can be completed without an overnight stay. Do theseprocedures constitute "ambulatory care"?In addition, of course, hospitals run traditional out-patient andemergency wards whose patients are clearly ambulatory. But expendituresfor these facilities are not routinely broken out of hospital budgets, norare their patients always recorded on computerized reports returned toeither the medical or the hospital arms of the provincial reimbursingagency. They are simply lost in the hospital global budget.Estimates can be developed from the existing data of expendituresaccording to categories used in other countries, but the process is notautomatic, and requires a non-trivial amount of assumption and datamanipulation.3. How is public expenditure financed - general taxation? earmarkedtaxation? social insurance? raised by local, state or centralgovernment? What are the amounts (and shares) raised from eachsource?Public expenditure on health care is effectively all raised throughgeneral taxation. There is no earmarked taxation, nor in our budgetarysystem is it clear what such earmarking would mean. Would it imply thattotal spending would be dictated by whatever the yield of a particular taxsource happened to be? One could certainly designate a tax source aslinked to health finance, as has been done from time to time with parts ofthe provincial retail sales taxes and particular increases in the income8tax. But so long as such sources yield revenues which fall short of actualpublic spending on health, such "earmarking" is strictly a public relationsexercise.The principal sources of tax revenue are the personal income tax, andvarious sales taxes. The federal government administers the nationalincome tax, but provincial governments can either impose their own incometaxes, as Quebec does, or attach provincial income tax rat< thefederally defined tax base, and have the collections managed by the federalgovernment, as all other provinces do. The provincial governments thusreceive directly a large share of the personal income tax. In addition,the federal government imposes a "manufacturers' sales tax" (soon to bereplaced by a more broadly based Goods and Services Tax - the controversialGST) which is hidden in product prices, and the provincial governments eachimpose sales taxes at point of sale, which are separate from the price ofthe items sold. These taxes form the backbone of the public revenuesystem; in addition there are provincial revenues from natural resourceroyalties - timber, mining, oil and gas - and the usual sin taxes.Three of the ten Canr.dian provinces still retain a system of "healthinsurance premiums," but these too are meaningless except as a form of(rather regressive) general taxation. They have three critical features:1} The premiums are uniform province-wide, bearing no relation to actual orexpected use for any individual or group; 2} the premiums do not cover, andare not expected to cover, the full costs of the programs; and 3} perhapsmost importantly, no one can be denied services for failure to paypremiums. One may be liable for unpaid premiums, but not for the actualcost of services. [In 1989 the province of Ontario announced its intentionto abandon the collection of premiums for health care, and substitute apay-roll tax. 19Thus hospital and medical services in the Canadian provinces areessentially "public utilities," like the police or the fire department.Such services may be covered through a property tax, but one cannot bedenied services, or billed for them, if one has failed to pay the tax.This situation pertains, however, only to hospital and medicalservices. The public funding of such services comes entirely through theprovincial government in each province, but the federal government makes asubstantial contribution - originally set by formula at an average of 50percent of costs nation-wide, though less in the richer provinces - to eachprovincial government with a "conforming" provincial plan. This enablesthe federal government to exercise some influence over the structure of theprovincial hospital and medical plans, and leads to, not a national, but afederal-provincial system of hospital and medical insurance.Public plans contributing to the finance of dental care, drugs (out­of-hospital) and long term (non-hospital) care, however, are based at theprovincial level without any federal coordination or contribution (exceptfor a per capita contribution in support of long-term care). They are thusmuch more variable in their coverage and organization, and tend to becloser either to traditional insurance models, or to direct delivery.The statistical breakdown (Canada, 1987) of federal and provincialfunding is as shown in Table 1. NOTE HOWEVER that these data refer to thelevel of actual expenditure. The federal government transferred to theprovinces in 1985 an amount with respect to "Insured Services" - hospitaland medical care - equal to 40.1 percent of the total national expenditureson institutional and physicians' services. The federal government alsotransferred additional sums unrelated to these items but which amount toanother 1.1 percent of their total cost. The provincial government alsotransferred much smaller amounts to local governments; these are includedHospitals andOther InstitutionsPhysiciansDentistsDrugs and AppliancesAll OtherTotal10TableFederal Provincial Total Public1. 7% 84.1% 88.4%0.6% 92.5% 94.3%1.9% 10.9% 13.5%0.6% 21.9% 23.0%11.2% 57.3% 76.3%3.1% 70.1% 75.9%above as provincial expenditure. The Workers' Compensation system foroccupational injuries or illnesses is also included in the public sector,separate from the federal or provincial governments.4. Is public expenditureor is it demand led?containment are used?subject to aggregate cash limits/global budgetsIf it is demand led, what methods of costThe contribution of the federal government to each of the provinces,in respect of hospital and medical services, is now determined by a movingaverage formula based on population and income growth; in that sense it is"cash-limited." In the early years of the plan, the cost sharing formulaplaced the federal government in a position of having an open-endedexpenditure commitment, but this was changed in 1977. The key limitationissues now all arise at the provincial level.The provinces fund services in three ways. A variety of public healthand related services - particularly mental health and continuing (home andnon-hospital institutional) care - are delivered or directly purchased bythe provincial governments themselves. These expenditures are directlycontrolled through the provincial budgetary process.Hospitals, however, are run in each province by Boards of Trustees11which are more or less independent of the provincial government. Theiremployees are not civil servants. Hospital operating budgets are setthrough some variant of a de facto global budgeting process; separategrants for capital replacement or expansion also come in whole or in partthrough provincial ministries of health. Thus, subject to their abilitiesto generate political pressures or charitable donations from the community,hospitals are also cash limited.There is an important qualification, however, in that hospitalsfrequently run deficits. They are not supposed to, but it is difficult fora provincial minister to prevent this form of budgetary "end-run". Variouspossibilities exist - the provincial legislation varies but most providesome way of placing a hospital in trusteeship and sacking theadministrators. But the political risks are significant, and the balancepoint is difficult to find. Thus there remains a degree of open-endednessin a generally cash-limited system.Physician reimbursement, on the other hand, is apparently totallyopen-ended. Physicians are reimbursed according to a fee schedule,negotiated at periodic intervals between the medical association in eachprovince and the provincial ministry of health. Expenditures are "demand",or more accurately utilization-driven, as they are determined by the volumeof billings that physicians send in.Nevertheless, there has been a significant degree of overall controlexercised through the negotiation of the structure of the fee schedule(Barer et a1., 1988). Outlays have escalated significantly faster thanhave fees, even after allowing for growth in population and, moreimportant, number of physicians. But they have not escalated nearly asfast as in the United states, where the fee level has been completely outof control. It appears that physicians do have the ability to increase12their billings so as to offset, in part at least, the effects of feecontrols. But this ability can be curtailed, through the structure of thefee schedule itself.This control process, however, is not a static, once-for-allequilibrium. Rather it is a continuous, on-going game between adversaries,provincial governments and medical associations, each under changingpressures and searching for new strategies. In the last few years, thesteady increase in physician supply and the tighter pressure on provincialbudgets has raised the stakes in this game. The result has been increasingupward pressure on billing rates for given fee schedules, andcorrespondingly increased efforts by provincial governments to put somesort of global cap on overall payments to physicians as well (Lomas et a1.,1989).In two provinces, Quebec and British Columbia, this has taken the formof utilization targets with payback. The negotiated fee schedule includestarget rates or bands of increase in utilization which, if exceeded, mayinvalidate future fee increases, or the overall agreement. Unusually rapidrates of increase in billings may have to be "repaid" in the form of atemporary discount on fees in the subsequent payment period. It seems mostlikely that experiments with various forms of de facto "cash-limiting" incombination with fee-for-service will be tried out in the next few years.There is little probability of a general mOve away from fee-far-serviceitself, but the open-ended aspect is becoming increasingly modified.These issues arise, of course, only for hospital and medical care.There is little or no control in dental care, which is largely privateinsurance or private pay. The different provinces also each have their ownforms of payment for prescription drugs, particularly for the elderly,which have some quite interesting features and effects (Canada, 1985). But13any attempt at description would take us rather far afield. In any case,there are no cash limits in these areas.5. What groups, and percentage of the population, are financed publicly?Is there provision for opting out of the public system? If so, howdoes the arrangement work?For hospital and medical care, each province covers 100 percent of itspopulation - and must do so to qualify for full federal contributions.This is the condition which, while permitting provinces to continue to levypremiums, prevents them from making coverage dependent on payment ofpremium. (Dental and drug coverage is highly variable - most provincesprovide some coverage for people over 65 and for people on welfare.) Thereis no provision for opting out by patients - what is there to opt out of?The income tax?For providers, however, the situation is more complicated. In generalterms, the constraints on providers are that they must be either in or outof the program. They cannot split their patients into "public" and"private"; everyone is public. A physician, or even conceivably ahospital, could be completely private - non-participating - in which caseneither practitioner nor patient receives any reimbursement from the publicplan (though the patient continues to pay his/her taxes!). The patientcould go "privately" to such a physician without affecting his/her right offree access to other physicians participating in the public system forother services. But the physician cannot play both sides of the street; noservices provided by a non-participating physician will be reimbursed. Notsurprisingly non-participation is very rare - perhaps a dozen or twophysicians in the whole country.All residents are thus covered against the costs of physicians'services, as defined by the fees negotiated between the provincialgovernments and the provincial medical associations. But this leaves open14the question of whether individual physicians can impose extra charges ontheir patients, in addition to the reimbursement to which they are entitledunder the negotiated fee schedule.This is a complicated and contentious area, with a long history. Thefundamental principles of the Canadian plans, to which provincial plansmust conform in order to qualify for federal contributions, require"universal access on equal terms and conditions". But the exact content ofthis requirement was not initially spelled out. Physicians and theirspokesmen argued that direct charges to patients did not necessarily implyimpeded access; supporters of the public insurance plans believed that theydid.Practice varied widely across provinces during the 1970s. In Quebec,at one extreme, any physician charging a fee greater than the fee schedulewas automatically "non-participating"; neither physician nor patient wasreimbursed. In Alberta, on the other hand, physicians could literally"double bill", being reimbursed by the provincial plan at the negotiatedrate, and then billing the patient at any additional amount they chose. Inbetween, in Ontario, physicians could "opt out", and bill directly in anyamount they chose, with the patient being reimbursed at the scheduledamount. Collection was the physician's problem.But physicians could not "stream" their practices; they had to be allopted-in or all opted-out. Medical spokesmen argued for the right todesignate patients as opted in or out - so as to extra-bill only those mostlikely to pay - this was not permitted. There was however an exception forphysicians with admitting privileges at teaching hospitals, who wereallowed to have "two" practices. They could see their "opted-in" practiceat the hospital, and their "opted-out" practice in a private office, andthus effectively stream between these two groups.15Not surprisingly, extra billing was virtually non-existent in Quebec,while in Alberta, by the early 1980s, about half of all physicians weredouble billing. In Ontario, rates of opting out varied from about 12percent to nearly 18 percent during and immediately after particularlytough fee negotiations in the late 1970s. But the rates ran closer to 30percent for full time specialists - the opportunity to divide one'spractice made a difference (Wolfson and Tuohy, 1980).There were significant concerns raised about the impact of extrabilling on low income people in particular. In Alberta, under pressurefrom the provincial government, the College of Physicians and Surgeonsdeclared extra billing of people on welfare to be "unethical". But thepractice continued, on a large scale, and the College restricted itself toexpressions of distress, rather than using its statutory powers.Throughout the country, physicians' associations insisted that no one wasdenied services on the basis of inability to pay; newspapers regularly ranstories documenting precisely such situations.Behind this public debate, were two larger concerns. Physiciansbelieved, probably quite correctly, that extra billing was a "safety valve"to strengthen their bargaining position over fees. If provincialgovernments became too aggressive in bargaining, then what physicians lostat the bargaining table they could recoup from the patients' own resources- a sort of second chance - which also placed great political pressure ongovernments. They feared that the trend in negotiated fees would besignificantly lower if the right to extra bill were removed.On the other hand, supporters of the public plans feared that in themore conservative political climate of the 1980s, provincial governmentsmight deliberately connive at an expansion of extra billing to keep downtheir own outlays. Alberta in particular, never having been very16sympathetic with the basic idea of the public plan, was suspected of thisintent. There was and is very strong public support for the public system,so that to be "against Medicare" is political suicide - no politicianadmits it publically. But clearly there were some who would happilyundermine the system indirectly.The result was a bitter political debate in the early 1980s,culminating in the passage of The Canada Health Act in 1984. The strugglepitted the physicians, and several provincial governments, against thefederal government, and most of the population of Canada. The latter won.under the new act, the federal contribution to each provincial governmentis reduced, dollar for dollar, by each dollar of direct charges to patientseither imposed or permitted by the provincial government. Thus to theextent that Alberta physicians double-billed, or Ontario physicians optedout and charged above the fee schedule, the provincial governments lost acorresponding amount of revenue.Over the two subsequent years, extra billing has been brought to anend in each of the provinces in which it previously occurred. Somechiselling continues by a few practitioners - demanding "voluntary"contributions to their "research", for example, or "selling" x-ray films totheir patients. Physician representatives continue in their publicstatements to insist, almost ritually, on the necessity of their once againhaving direct access to patients' resources, but for the moment at leastthe issue of direct charges seems to be dead.A physician can still, in most provinces, practise completely outsidethe plan, with no public reimbursement for physician or patients. But eventhat right is limited. If for example all the physicians in a particularregion chose to withdraw, or all the members of a particular specialty,such that certain services were effectively eliminated or sharply17curtailed, the practitioners could expect to be legislated back in again.6. Are public subsidies offered for private exPenditure (e.g. tax reliefon private health insurance premiums)? What amounts are offered? Isthere any information on their distributional effects?Private insurers cannot offer insurance for services already coveredby the public plans. They are restricted to insuring supplementaryservices, such as out-of-hospital drugs, private rooms in hospitals (whennot "medically necessary" - if declared necessary by the physician, theroom would be free to the patient) and additional coverage for out-of-country travellers. (The provincial plans have reciprocal arrangements forcoverage within Canada.)Thus the opportunities for out-of-plan practice are minimal, exceptfor the special caSe of elective cosmetic servicing; and "private" care, inthe European sense, is effectively non-existent. It follows that there areno "public subsidies for private care," at least in the hospital andmedical sectors.Such subsidies do exist for privately insured dental care and drugs,insofar as employer-paid premiums for such insurance coverage aredeductible for the employer and not taxed in the hands of the employee.Various medical expenditures, in amounts above 3 percent of taxable income,are also deductible. But in those provinces (Alberta, Ontario, and formedical care alone, British Columbia) which still impose premiums,employer-paid premiums are taxable, at full rates, in the hands of theemployee. They are added to income as a taxable benefit. Thus the outlaysfor which tax-expenditure subsidies are available are comparatively small.Such subsidies have been little studied. They are almost certainly ofprincipal benefit in the highest tax brackets, both because that followsautomatically from the progressive structure of the income tax in Canada,18and because the remaining services for which such tax benefits areavailable - dentistry, for example - tend to be more heavily used in theupper income groups. But quantitatively they are not very important.7. How is private expendftur'e financed - personal insurance? employmentbased insurance? direct payments?Private payments for health care, being predominantly in the drug anddental field, are primarily made out of pocket or through employer-sponsored insurance. There is very little market for direct privateinsurance. This is not surprising; the outlays for such services are notparticularly uncertain. Private coverage must, on average, cost ffiQ£& thandirect private payment, over the covered group as a whole, even abstractingfrom the problems of adverse selection. Thus, if the cost cannot be sharedwith the employer, and thereby with the general taxpayer, individualprivate coverage has little point.8. What reimbursement methods are used for - primary care services? acuteand long term hospital services? physicians? (e.g. fee-for-service,prospective payments, capitation payments, salaries).&9. What special methods of finance, if any, are used to cover the healthcare expenditures of the following groups - low income people? elderlypeople? people with catastrophic illness? people with mental illness,mental handicaps or disabilities?Since the entire population is covered for public hospital and medicalcare, the questions of coverage for sub-populations do not arise. As notedabove, for dental care and drugs, the individual provinces have a diversityof programs covering, in general, people over 65 and on welfare. Somecover the general popUlation for drugs, but with high deductibles so as toexclude de facto most of the population. None of the public plans haveupper limits, so the catastrophic issue does not arise.Mental illnesses or handicaps, however, pose special problems, aseverywhere else. Traditionally, mental hospitals were the exception to the19generalization that hospitals are not run directly by the provincialgovernments. For those committed to long term mental care, largeprovincial facilities were owned and run as part of the civil service.Increasingly such patients are now placed in smaller community-basedfacilities, but still under a branch of the provincial government.The "conventional" hospital and medical care programs provide coveragefor short-term psychiatric care, and in some cases for clinicalpsychologists' care as well. Patients may also be treated for psychiatricproblems in acute care hospitals. But this area is an exception to thegeneralization about the absence of limits on coverage; the provincialplans place various limits on the number of reimbursable psychiatric visitsper year. The backbone of the mental health care system is formed by theprovincial direct-delivery programs, both institutional and community-based, with salaried personnel.10. Do your current government's policies emphasise equality of access tohealth care or are they based on providing an acceptable minimumstandard (i.e. safety net) for all? If appropriate please identifythe level of government involved, e.g. Federal, state, Provincial,etc., and any possible conflicts between levels of government.The hospital and medical insurance systems in Canada very clearlyemphasize equality of access to care, rather than a minimum "safety net".Most supporters of the system recognize that the universal system, in whicheveryone has the same benefit, is the surest way of maintaining the qualityof the social safety net. Nets for other people tend to be less wellmaintained. On the other hand, the public coverage in dental care andprescription drugs outside hospital is piecemeal, and reflects the "safetynet" view insofar as it has any coherent philosophical base.The relationships between the federal and the provincial governmentsin Canada have many of the characteristics of diplomacy between sovereignpowers, rather than relations between senior and junior governments. The20Canadian constitution assigns a number of powers to the provincialgovernments, and within their spheres of jurisdiction the provinces havejust as much sovereignty as the federal government. Thus there is ampleopportunity for conflict over all sorts of issues. Correspondingly,however, there is extensive experience, and not a little skill, in themanagement of these conflicts, and a number of federal-provincialconferences and committees have been developed to maintain cooperation inthis conflictual environment. Canada is very far from a zero-sum game!Matters pertaining to health are, with very minor exceptions, solidlywithin the area of provincial jurisdiction. On the other hand, the federalgovernment is empowered to distribute funds to the provinces, and it hasused this power to encourage and to coordinate the development of thefederal-provincial insurance system, which the provinces could not havecreated on their own. The permanent focus of conflict between the twolevels of government is over just how large the federal grants should be.This conflict, however, is merely part, although a large part, of the on­going discussions over inter-provincial equalization of taxing capacity,post-secondary education, sharing of "tax room" in the taxation of personaland corporate income, and all the arcane delights of fiscal federalism.The topic is very old, very complex, endlessly fascinating for thecognoscenti, and probably pretty boring for anyone else.The main point is that there is a continuing fight over which level ofgovernment should contribute how much to the common enterprise of payingfor health care. Nor is the fight a precise alignment of federalgovernment versus everyone else, because the smaller and fiscally weakerprovinces have interests different from those of, say, Ontario and Alberta.But the main squabble, stripped of detail, is over money.Secondary problems have arisen, however, over the nature and intent of21the program itself. This was most apparent during the extra-billingcontroversy in 1983-1984. Provincial governments differ greatly in theirideology and political complexion, and they do not all support the basicprinciples underlying the public hospital and medical insurance programs.They are also more or less susceptible to the influence of the medicalprofession, who collectively have never become reconciled to the publicplan - though many, if not most of them have as individuals. The vastmajority of the general population, even in provinces like Alberta withrelatively conservative governments, 2£g strong supporters of the plan; butthere is a definite social gradient in support - as one might expect.Indeed, in the case of some provincial governments, it is not at allclear that the responsible political leadership even understands how theinsurance plan functions, and what its effects have been. Publicstatements sometimes reflect a remarkable degree of ignorance andsuperficiality. Moreover, with increasing fiscal pressure on provincialgovernments, which are completely at risk for marginal spending on healthcare, there is a great temptation to try to shift the burden of the expenseonto someone - anyone - else. But the terms of the federal contributionmake this impossible, and force the provinces to struggle with managing thecosts of care, rather than transferring them. This constraint has been asource of conflict in the past, and may be again, although at the moment ithas quietened down.The key point, as reflected in Figure 1 above, is that theconfrontation between the provincial governments and the providers of carehas indeed served to control, at least relative to other jurisdictions, therate of escalation of health care costs. As Culyer (1988) has shown,Canada's performance is also relatively successful when matched against theOECD countries as a group, not merely against the relatively easy trialhorse of the United states. The structure which prevents the provincial22governments from transferring cost pressures to patients or privateinsurers, is precisely the feature which leads to cost control (Evans,1986), and it is precisely this feature at which medical associations leveltheir attack in trying to get more money into the system.11. What is the share of aggregate expenditure allocated between services,i.e. primary care, acute care, long term care, community services,etc.?The breakdown of total expenditure by area of expenditure is as shownin Table 2.As noted above (Qn. 3), however, there is no straightforward way toconvert these expenditures into ambulatory versus in-patient care, orprimary versus secondary. Special estimates have to be developed for eachparticular comparison.1.2 Delivery Systems12. What is the distribution of ownership of health care facilities (i.e.acute hospitals, nursing homes, primary care facilities) - publiclyowned? private not-for-profit? private for profit?Within this totality, the question of ownership and control is quiteambiguous. Medical and dental practices, and pharmacies, are owned by theprofessional or professionals concerned, as strictly private businessfirms. (The practice, however, cannot be incorporated, although a practicemanagement corporation can be set up to supply services to the practice.)But who owns hospitals?First, there are no private, for-profit hospitals. There are a coupleof examples of private, for-profit hospital management companies, operatingin Ontario, but no great likelihood that this will spread. Institutions23Table 2National Health Expenditures per Capita, Total and Components,and Share of GNP, Canada and U.S., 1985Per Capita Percent of Percent ofExpenditure ($ ) Expenditure (%) GNP (% )Canada U.S. Canada U.S. Canada U.S.Total 1378.27 1721 100.00 100.00 8.62 10.63Institutions 831 .24 818 53.02 47.50 4.57 5.05Hospitals 633.84 675 40.43 39.22 3.48 4.17Other institutionsand related 197.40 143 12.59 8.28 1.09 0.88ProfessionalServices 352.78 496 22.50 28.82 1. 94 3.06Physicians 246.23 335 15.70 19.48 1 .35 2.07Dentists 85.81 110 5.47 6.38 0.47 0.68Other 20.74 51 1. 32 2.96 O. 11 0.32Drugs/Appliances 194.25 146 12.39 8.47 1. 07 0.90Rx Drugs 85.83 115 5.47 6.71 0.47 0.71OTC Drugs 73.64 Ill! 4.70 1111 0.40 1111Eyeglasses 25.86 30 1.65 1. 76 0.14 0.19Other Appliances 8.92 1111 0.57 Ill! 0.05 tillOther Personal HealthExpenditures 45 2.59 0.28Other Costs 189.63 217 12.09 12.59 1. 04 1 .34Prepayment 20.89 106 1. 33 6.16 O. 11 0.66Public Health 65.96 48 4.21 2.80 0.36 0.30Construction 69.25 33 4.42 1. 91 0.38 0.20Research 14.05 30 0.90 1 .74 0.08 0.19Miscellaneous 19.48 1. 24 O. 11'''I- Included in category above.SOURCES: Canada, Health and Welfare Canada, (1987) ; Waldo et a1. , (1986) .describing themselves as "private hospitals" are in fact long term careinstitutions, providing personal or intermediate care. Some patients insuch institutions may in fact be receiving care at a level similar topatients in extended care hospitals or extended care wards in acute carehospitals - a growing phenomenon - but this is not their primary function.There are also very few strictly public hospitals. The largeprovincially run mental institutions are being shrunken or closed whereverpossible, and the military hospitals are few and small. There is noseparate veterans' hospital system - the veterans' facilities have all been24absorbed into the universal public system.The residual category would appear to be "private, not-for-profithospitals," and indeed from one perspective this would appear to describevirtually all the hospitals in Canada. They are run by Boards of Trustees,who appoint the administrators and the chiefs of the medical staff,determine the by-laws, and generally take responsibility for the operationof the hospital, even if they do not manage it themselves.But this is far from the whole story. The operating budget of thehospital comes almost entirely - 90 to 95 percent - from the provincialgovernment. Capital investments have to be approved by the government, andpart or all of the funding comes from the same source. (Operating budgetsdo not reimburse the "user cost of capital" - in particular depreciation ­so the hospital does not in general have much of its own money to invest.)Depending on the province, the government may appoint some of the Boardmembers. And again, depending on the province, the governing legislationgives the provincial cabinet - not the legislature, but the "Lieutenant­Governor in Council" - the power to insert a trustee or trustees to takeover the functions of the Board or other hospital officers, at pleasure(i.e. not subject to judicial review).The degree of control which the Board can exercise is thus strictlylimited. They specifically could not, for example, close the hospitaland/or sell it off to some other organization, as they could in the Unitedstates. Thus in a very real sense the hospitals are operating divisions ofa province-wide public utility run by the provincial ministry of health.There will usually be a provincial capital plan for hospitals, for example,and expansions and conversions of facilities must be fitted into that plan.And unlike the U.S. situation of planning without teeth, the provincialministries of health have all the economic and legal teeth they need to25determine hospitals' behaviour. What they may lack is the politicalmandate or courage to manage hospitals, which are politically very potentin each of their regions. But that is another story.One is left, then, without any clear label or unambiguous descriptionfor Canadian hospitals. They are certainly not-far-profit, but whetherthey are public or private really depends on the nature of the decision orbehaviour in question. They are neither as "private" as Americanhospitals, nor as "public" as hospitals in the U.K., but an intermediateclass of institutions.13. What is the nature of the physician's employment contract and methodof payment? (See also question 8)Physicians in Canada are reimbursed through fees for their services,at rates established from time to time in negotiations between provincialgovernments and provincial medical associations. These rates are appliedto all physicians in the province. There are also a certain number ofphysicians on the salaried staff of hospitals, but these are predominantlyin training as interns or residents, the latter working towardqualification as specialists. Some hospitals or other clinics employphysicians on a sessional basis. Emergency room specialist physicians, inparticular, are likely to be salaried or sessional. In addition, largeteaching hospitals will generally have salaried chiefs of particularservices. But the vast majority of all physicians' services, whether in orout of hospitals, are reimbursed by fee-far-service.The "contract", then, is not with the individual physician, but withthe medical association which bargains on behalf of the physicians. Thisspells out not only what services are reimbursed, at what rates, but also aset of rules for payment which define the circumstances under whichspecific fees are payable. In particular, the agreement places limits on26who may bill for diagnostic services. In some provinces, laboratory andradiology services for ambulatory patients are provided through thehospital system; correspondingly physicians are not allowed to bill forsuch services. In other provinces, these services are in the fee schedule,but a distinction is drawn between the professional and the technicalcomponent of the fee. The former reimburses the physician's own time andskill, the latter the costs of the equipment, reagents or films, andtechnical personnel. But the province may restrict the right to bill forthe technical component, thereby limiting the number of such facilities.These limitations are themselves the subject of negotiations. But ingeneral, "heavy equipment" such as CT or MRI is effectively restricted toparticular hospitals, and prevented from "escaping" into private officepractices, by the restriction on the physicians' right to bill for thetechnical component of costs.AS noted above, the reimbursement of physicians has generally beenopen-ended in the sense that once the fee schedule was established in aparticular time period, physicians could bill for as much as they likedunder that schedule. But there have in fact been certain restrictions, andthese are growing in extent.The basic restriction, historically, has been the tendency for theministries of health to bargain fee schedules which provide limitedopportunities for physicians to bill without themselves putting in extrahours of working time and effort. They cannot bill for the services ofauxiliaries working under their direction - although of course they can beassisted by office personnel. The laboratory and radiology services areexceptions to this, but as noted the right to bill for the technicalcomponent of such services is restricted. The schedule itself has arelatively restricted range of classifications of services, making it more27difficult to expand billings by merely reclassifying services from lower tohigher fee items. And more generally, if any fee item or combination turnsout to be a "loophole" through which physicians in a particular provinceare expanding their billings, that item is likely to be on the table, witha price tag attached, at the next round of fee negotiations.More recently, however, attempts by provincial governments to limitthe escalation of billings have taken new directions. These include limitson individual billings, limits on global outlays, and limits on the numberof practitioners permitted to bill the plan.Limits on individual billings have been applied in the province ofQuebec for over ten years. The reimbursement agreement defines quarterlyceilings for the gross billings of physicians, separate ceilings forgeneral practitioners and for specialists. Every dollar of billings in agiven quarter which exceeds the ceiling is reimbursed at only twenty-fivecents on the dollar - a rough estimate of the marginal overhead costs ofthe practice. Similar schemes have been suggested in other provinces,Alberta and British Columbia in particular, but have not been applied. Inboth the latter provinces, the suggestion has come from representatives ofphysicians' organizations, presumably to stave off policies which theythought might be more comprehensive.No province has yet adopted a policy of contemporaneous pro-rating,which would involve the definition for each time period of a fixed fund forreimbursement. In such a scheme, the value of a billing dollar would floatabove or below one, so as to equate total billings to the pre-setreimbursement fund. The fee schedule would become a relative value scale,with the conversion factor determined endogenously - as is done in some ofthe west German plans. Several provincial ministries have considered amore complex version of such a plan (Evans, 1988) but this contemplation is28still at a rather early stage.On the other hand, the fee negotiations themselves have always beencarried out with a close eye on their implications for total outlays (theprovincial view) and incomes (the physician association view). Someassociations take the public position that the negotiations are about feesonly, and incomes are irrelevant, but this is strictly for publicconsumption. Accordingly, shifts in patterns and overall amounts ofutilization, or billings (for measurement purposes, the same thing) are ofincreasing concern to provincial governments.Quebec, in the mid-1970s, began to negotiate fee increases which camein over time, in several steps, with the proviso that if utilizationexceeded some pre-determined trigger amount, the subsequent fee increasewould be scaled down or eliminated. British Columbia has used variants ofthis approach since the early 1980s, and by now most provinces are buildingsome explicit utilization increase factor into the overall contract. Thusutilization increases affect, not the current period's fees, but those inthe next period. This relationship has always been implicit in a roughform in the negotiation process, but it is becoming increasingly explicitand formalized.The most radical departure has been in the province of BritishColumbia, in which the provincial government has tried to limit the rate atwhich new physicians set up practice in the province. B.C. receives a veryhigh rate of immigration of physicians from the rest of the country, andhas an above-average doctor to population ratio, even though its medicalschool is below average capacity relative to the rest of the country.Responding to this, the provincial government began in 1983 torestrict the issuance of billing numbers to new physicians. A physician29could still be licensed to practice in B.C., but without a billing numbercould not be reimbursed by the provincial insurance plan. Nor couldhis/her patients. And there is, of course, no private insurance. Thescheme had a very chequered legal history, detailed by Barer (1988). InJuly, 1988, it was declared unconstitutional by the B.C. Court of Appeal,and the Supreme Court of Canada denied leave to appeal later that year.This, however, means that the ultimate constitutionality of such a plan hasnot been determined (denial of leave is not equivalent to judgement) andother provinces might introduce similar legislation. No evaluation of itsimpact has been carried out, partly because (for legal reasons) the policyhas been such a moving target.The overall conclusion is that the nature of the physician's contractis in some degree of flux, as negotiators on both sides struggle to dealwith the issues raised by an ever-increasing manpower supply, and thepartly related and partly independent shifts in utilization/billings. Theoutcome will almost certainly be some form of fee-for-service, as in thepast, but with more explicit linkages between fees per item, and overallutilization levels, but the form of the linkage is still evolving.14. Are there examples of partnership schemes between public and privateproviders?Since the concept of a "private provider" is rather obscure in theCanadian system, there are obviously no examples of public/privatepartnership which would parallel European experience. A couple ofhospitals in Ontario have contracted with multinational hospital managementfirms (AMI and Extendicare, respectively) to provide administrativeservices, but this initiative is now several years old and shows no sign ofspreading. In any case, it is more akin to contracting out laundry ordietary services to a private firm - which is quite common. Hospitalboards of trustees are free to contract out services to the private sector30as they see fit; but the hospital itself cannot be run by a for-profitorganization - at least none are.There are some examples of private, corporately owned "urgent carecentres", meaning in fact walk-in clinics in shopping malls or other hightraffic areas - like the U.S. "doc-in-a-box" or "Kentucky-fried-doctor"outlets. In these, the premises can be corporately owned, and the supportpersonnel hired, by a purely private organization, but in strict law, thatorganization cannot hire a physician. That would be corporate practice, byan unlicensed provider - the firm. The organization contracts withphysicians, who in turn are the providers of services, but pay the firm foruse of premises and personnel. There is some unease about the possibleimpact of such organizations on overall utilization rates, but here againdefinite conclusions are few and far between. The phenomenon bears furtherwatching, especially if such organizations become heavy generators oflaboratory testing - potentially highly profitable/expensive.1.3 Outcomes15. What data are available on mortality and morbidity rates?Data on morbidity and mortality in the Canadian system are very goodin specific areas; almost non-existent in others. A national compilationof provincial vital statistics records has created a national deathregistry, giving causes of death. But the principal data sets come fromthe hospital system. Each patient separated from a Canadian hospital (aseparation is a discharge of a live patient, or a death) generates aseparation record. This includes age, sex, and residency information,length of stay, and information on diagnosis and procedures performed. Thespecific content of the records changes over time, for example with changesin the editions of the ICD used to classify diagnoses, and also with rulessuch as admitting diagnosis or diagnosis responsible for most of days stay,31so there are the usual problems of detail, but overall this data set is anexcellent, and inadequately exploited, source of morbidity information forpatients who contact the hospital system.In some provinces (Manitoba, Saskatchewan), physicians' claims forreimbursement for fee-for-service procedures also include diagnostic data.This broadens considerably the available information on morbidity, and hasbeen used very constructively by researchers at the University of Manitoba.But it is still restricted to morbidity as reflected in contacts with, andinterpreted by, the health care system itself. And in most provinces, eventhat data is not available On ambulatory care.Health status surveys have been conducted by the federal government in1950/51 and 1978/79. For the intervening years there are no systematicallycollected, population-based data. Since 1980, the federal government hasconducted a number of smaller, special-purpose surveys, but the informationis not all out yet, much less analysed. There will, however, over the nextfive years, be a good deal more information becoming available on broadmeasures of well-being and disability in the population, as opposed to inthe health care system.TO date, however, there has been little progress on the issue of how,if at all, such information can be used in the management of the healthcare system itself. Historically, provincial governments have taken theview that their task was not to manage the health care system, but only tofund it. Providers strongly agree; the argument has been only over thelevel of funding provided, and over whether providers should also bepermitted to tap the resources of the patient. But increasingly therecognition has been spreading that overall funding decisions cannot bemade without some managerial responsibility; and the absence of informationon morbidity and mortality, as indicators of both needs and outcomes, is32becoming more obvious. Canada is still some distance behind the U.K. inthis respect, however - the RAWP process seems to have focused attentionwonderfully on the questions of underlying need.II SUPPLY SIDE COMPETITION16. Is there competition between health care providers? (Describe recentdevelopments and/or proposals/debates.)&17. If there is competition, in terms of what characteristics of theservice does it take place, e.g. price, quality, etc.?The competition among providers, particularly physicians andhospitals, takes a rather different form in Canada from that envisioned inthe usual textbook model. (But then, of course, that is true in everycountry, it is simply that in some countries economists manage to maintaina robust ignorance of the fact!)First, and most obviously, since physicians are reimbursed on uniformfees, hospitals on global budgets, and patients do not pay, there is nocompetition over price. On the other hand, the knee-jerk distress of thehabitual economist needs to be tempered by the observation of dentistry inCanada. There is no universal public program of reimbursement indentistry; dentists are free to set their fees as they like. There areprivate insurance programs, but they are far from covering the full market.Yet dentists have been able to use the professional legislation andcollective pressure to achieve a high level of compliance with feeschedules set by themselves, unilaterally, and there is no evidence ofprice competition in this sector. One cannot therefore conclude that, inthe absence of the public insurance program, there would be pricecompetition in medical care - at least at the level of individual fees.(For that matter, price competition in the American market is much more33evident to neo-classical economists than it is to patients, or in theaggregate price data!)There are, however, several levels of potential competition. Sincethe hospital system is de facto cash limited, and the medical care systemis moving in that direction, providers are in competition for shares of anincreasingly circumscribed block of public resources. (Hospitals have alsorecently begun to compete for charitable contributions, but this is forcapital only, and is still a small scale phenomenon, although it bearswatching.) This competition could take several forms.First, the ever increasing physician supply could mean that physicianswere competing to attract patients. As the patient to doctor ratiocontinues to fall, each doctor might be more and more jealously guardinghis/her little pool of patients, and trying to raid others. This, however,does not appear to be happening. Physicians' workloads have not beenfalling, with the increasing supply. Even more surprising, the reportednumbers of patients per practitioner seems to be holding up, even thoughthe population per practitioner is falling. This is in part due to arising proportion of the population seeing a physician in anyone timeperiod, but the major source of the phenomenon appears to be an increase inthe numbers of physicians seen by each person contacting the system. Thesame person shows up as a larger number of patients, by being included onmore physicians' practice rolls (Roch et ai., 1985).Thus physicians appear to be dealing with the "patient shortage", notby increasingly intense competition for patients, but by sharing thepatients among themselves. This is particularly apparent among elderlypatients, whose average number of physicians contacted is rising fastest.Nor is this merely a matter of increasing numbers of referrals - thoughthat is happening - but also of increasing numbers of general practitioners34seen per elderly patient.Whether this process is driven by physicians themselves - pinballmedicine - or by increasingly active elder1)' «shoppers", is still open fordebate. But it appears that the profession's response cO increased supplyof providers has not been through increased competition for patients - atleast not so far. Rather there has been successful cooperation to sharepatients, and in the process, to maintain individual physician billings.There are a couple of exceptions to this generalization. Firstspecialists may have to compete, not for patients, but for referrals. TheCanadian reimbursement systems deliberately discourage patients from self­referring to specialists, and discourage specialists from accepting them.The consultation fee is only paid if there is a referral, and a report backto the referring physician. In some provinces the specialist seeing a non­referred patient is entitled to a fee part way between the consultation feeand the GP office visit fee - the non-referred specialist visit fee - butis paid only the GP fee by the plan. S/he is entitled to bill the patientfor the difference, despite the general ban on direct charges, presumablyon the theory that non-referred specialist visits are not "medicallynecessary". Furthermore, a specialist who tried to build up a directpractice would run a serious risk that the general practitioners in thecommunity would cut off his/her referrals.But while dependent on the GPs for referrals, the specialists are alsoin competition with them for the overall quantity of funds available. Thiscompetition shows up most clearly within the physicians' associations,prior to fee schedule bargaining with the provincial governments. Thedecision as to whose fee claims to advance, GPs or specialists, is highlydivisive and places strains on the cohesiveness of the associations whichare becoming increasingly apparent. In Quebec, the GPs and the specialists35now bargain separately.These strains are becoming more severe as bargaining over utilizationbecomes more explicit. The specialties tend to be more procedure oriented,and to have more opportunities for expanding their service output on agiven input of time and effort. Thus when GPs try to get a larger share ofthe overall increase in payments to physicians by negotiating a largershare of the fee increase, specialists may "unwind" such gains byincreasing their servicing rates. The combination of "capped" totalpayments, increasing physician numbers, and fee-for-service reimbursementwill test the political unity of the profession increasingly severely, andgoes far to explain the bitterness with which the profession has fought toexpand the overall flow of resources into health care by charging patients.Hospitals are also in obvious competition for new technologies andprograms. But the dynamic of this competition is strongly contained by thefact that operating budgets do not provide any reimbursement of capitalservices. So hospitals cannot spend "their own" money on expansion; theymust compete for access to the capital funds made available by theprovincial government. Thus one does not have the American phenomenon ofhospitals driven to duplicate services so as to draw in physicians who willin turn bring patients to fill empty beds. Faced with bankruptcy, Americanhospitals must spend more both on advertising to patients - especiallythose who are not very sick and are well-insured or well-endowed - and onattracting doctors with the latest equipment. In the Canadian system thecompetition is politicized, and it is a struggle to demonstrate greaterneed for service/equipment upgrading or replacement.Such political/budgetary competition does not generate the extremeinefficiencies of the American "quasi-market" competition, but it does notgenerate pressures for efficiency either, except insofar as overall36budgetary limits encourage people to think harder about what it is theywant to do.The positive effects of such constraints should not be under-rated.There E£g some quite specific examples of efficiency-enhancing changeswhich have taken place in Canada in response to budgetary pressures - thedevelopment of surgical and medical day care in British Columbia, forexample, pre-dated its adoption in the U.S. and Britain by nearly a decade.But there are no automatic mechanisms to encourage the dispersion of suchinnovations within and particularly across provinces. Effective systemcontrol requires much more active management by those actually supplyingthe funds, which so far has been lacking.There has been some interest in Canada, particularly in Ontario, inthe development of "public sector competition", blending the concepts ofthe American competitive Health Maintenance Organizations (HMOs) withuniversal public coverage (Stoddart and Seldon, 1984; Muldoon and Stoddart,1989). Although the overwhelmingly predominant mode of reimbursement forphysicians' services is through fees paid to private practitioners, thereare two other recognized and reimbursed forms of organization in thatprovince - Health Service Organizations (HSOs) and Community Health Centres(CHCS). The latter are reimbursed by fixed, negotiated budgets, forproviding a defined pattern of care usually to a "non-mainstream"population. But the former, often set up by groups of physicians, are paidon a capitation basis for caring for a defined roster of patients.The reimbursement formulas also include ambulatory care incentivepayments calculated to reflect estimates of hospital days "saved" throughthe presumed more conservative practice styles of such organizations. Inaddition, since no restrictions can be placed on the patient's choice ofprovider, capitated organizations lose the capitation amount for each37person-month in which a member of the roster received services from anoutside physician (capitation negation).The interesting question is whether such organizations could spread incompetition with traditional fee-for-service practice, in an environment inwhich patients can freely choose between a capitated practice and a fee­for-service practice. Could one build in incentives for patients - reducedpremiums? additional services like dental care or discounted prescriptiondrugs? - so that any savings from capitated practice could be shared withthe patients and thus used to build market share? On the other hand, wouldreactions by other practitioners, or "cream-skimming" by HSOs lead to costsbeing actually higher in an environment with a limited HSO sector?This topic is, however, mostly an area for academic debate. The HSOsand CHCs are an established part of the Ontario scene, and there are a fewother such capitated or budget-reimbursed practices scattered around theCanadian countryside. In Quebec, of course, the CLSCs (Centres Locales desante Communitaire) provide a substantial share of primary care alongsidethe fee-for-service profession. But there is no active policy of promotinganything which would look like market competition between these alternativeforms of care, and the traditional model.In part, this is due to the obvious fact that, since all residentshave "free choice of practitioner", and pay no user fees, there is noimmediate basis for price competition. But it is probably more importantthat, outside the academic economist community, there is no significantideological commitment or even pragmatic sympathy for competitivemechanisms as a way of managing health care. Experience to date,reinforced by observation of the American disaster, has been that inpractice collective control works, not perfectly, but a good deal betterthan the "competitive" policies which have been tried elsewhere. Thus38there is a strong background of scepticism about competition, not alwaysarticulated, or even fully conscious, in the minds not only of providers,but also payers, politicians, and the general public - to the extent thatthey think about it at all. On the evidence so far, in and out of Canada,they are probably right.18. What evidence is available about the effect of competition on - unitcosts? aggregate expenditure on health care? standards and quality ofservice? health outcomes? access to services of different groupswithin the population? range of choice facing users?Any evidence which we can marshall on the effects of competition onsystem performance measures has to corne from Canada/U.S. comparisons, sincewe have no experience with market-type competition at horne. In general,however, we would conclude that competition as it has currently beenexpressed in the American context has resulted in higher unit costs ofcare, and higher overall expenditures both because of its effects on unitcosts and because of its encouragement of excessive and wastefulprocedures.On standards and quality of service, we have some impressions andsuspicions, but not a lot of hard evidence. Competition seems to encouragethe provision of a much wider range of standards and quality levels,according to the profitability of the market being served. It is difficultto reconcile with "one-class" medicine, to which there is a strong Canadiancommitment at all political and social levels. American medicine, forexample, appears to us to present both some of the world's best care, andsome of the world's worst. The latter is beneath the standards of anycivilized country.The effect of both competition and regulation on health outcomes isvery much in debate in the United States at the moment; we in Canada havevirtually nothing to add to that debate. Nor do we have much information39on the relation between competition and access by different groups. Ourexperience is that the political process is in fact quite sensitive to theinterests of disadvantaged groups. It does not, by any means, respond to adegree that those groups find satisfactory, but they do get a hearing. Onthe other hand, our impression is that, precisely because they aredisadvantaged, such groups are not well served in a competitiveenvironment. "There is remarkably little competition to serve those whocannot pay." But it must be confessed that these are rather moreestablished opinions, than propositions securely based on evidence. It isinteresting, however, that while the commitment to the principles of theCanadian system is very strong across the whole society, it is strongestamong those in the lower income levels.19. How is the issue of consumer choice perceived in current policydebates? What mechanisms, if any, are being developed (or planned) toincrease choices?At present, the Canadian system provides "free choice" ofpractitioner, subject to the constraints imposed by the professionalregulatory legislation. The debates over greater "choice" are focused, noton choice among different modes of organization, but on the access to themarket by different types of practitioners. Conversely regulatory"competition" takes the form of established practitioners using theregulatory framework to try to keep out competitive practitioners.A leading example of this is midwifery. There is a small butenergetic, clearly consumer-based, demand for midwifery services, sometimesin combination with home birthing. Midwives have no legal recognition;midwifery is illegal practice of medicine. A number of British trainedmidwives work as nurses in hospitals, providing obstetrical care under thedirection of physicians, but they cannot legally care for "their own"patients. There have been a number of proposals to change the professionallegislation to recognize midwifery in some form or other, and/or to40legalize home births - at present it is unethical practice for a physician(deliberately) to attend a home birth. (This is a decision of thephysicians themselves, not a statute, but it has statutory force.)Physician organizations have consistently opposed such sharing of theirmarket.Other bitter battles have been fought out between dentists and dentalmechanics/denturists, with the latter mostly winning, and betweenphysicians and chiropractors, naturopaths, and other forms ofpractitioners. Dentists have tried to gain access to hospitals to admittheir patients, physicians have generally fought them off. But all thecompetition has been political, insurgent professional groups trying togain the right to practise and then secondarily to share the benefits ofpublic support through getting access to the public insurance plans, and/orthe hospitals. To the extent that consumers have been involved, it hasbeen as political pressure groups, rather than as makers of choices in themarketplace.The powers of the self-regulating professions are much greater thanthey are in the United states; the situation is, as in so many other areas,somewhat more European. Again, however, one would be quite wrong toattribute this difference to the constraints imposed by the hospital andmedical reimbursement system. Dentists have been at least as successful asphysicians in mobilizing to suppress potentially competitive professionalgroups - with the one exception of denturists. Canadians have completely"free choice" among the providers approved by the legislatively entrenchedprofessions, and little or none beyond, at any price.Indeed dentists in Ontario are at present attempting to use theregulatory process to prevent the development of competitive capitateddental insurance plans - HMOs with teeth. Such plans, developed by private41employers in conjunction with private insurers - the public universalinsurance plans, as noted above, do not cover dentistry - have thepotential to trigger off genuine competition over both prices and theeffectiveness and efficiency of care provided. They might provide a clearexample - relatively easy to evaluate - of successful market forces. Assuch, they could be devastating to the economic interests of dentists, andthus their survival is very much in question.In general, there are no serious plans to increase choices. Providerswho currently control the market hope to expand their product line byoffering and billing for a wider range of services, so as to expand totalexpenditures in line with their increasing numbers. But they are reallyoffering only more of the same - quite deliberately. To the extent thatthey project the issue of "choice" into the broader public debate, it isover "freeing" patients to buy more of their own services, and particularly"freeing" patients to pay them higher prices for the same services - extrabilling again.The supposed beneficiaries of this choice, the general public, have sofar been massively reluctant to take up the offer, although as always thereis a relatively well-off, and well, portion of the population who ratherlike the idea of being able to buy special treatment. If such a "market"were ever opened up again, the "competition" would probably take the formof product differentiation and alleged amenity enhancement, since the wholepoint would be to justify increased prices, not to trigger off decreases.(Interestingly, Brook and Kosekoff (1988) make exactly the same predictionfor the U.s. system.)42III DOCTORS AND MANAGEMENT20. How are hospital doctors and nurses involved in managing resources?Is there experience of clinical budgeting? Has use been made of DRGs?The sharp distinction between hospital doctors and GPs which ischaracteristic of many European systems does not exist in Canada. Mostdoctors, whether specialists or GPs, work as private practitioners but haveadmission privileges in hospitals. At present the medical workforce issplit roughly fifty-fifty between GPs and specialists, and the ratio hasbeen relatively stable for a number of years.The physicians who have admitting privileges at each hospital areorganized as its medical staff, with their own by-laws and rules ofprocedure. They, like the hospital administration, are formallyresponsible to the Board of Trustees of the hospital; and these threegroups share the management of the hospital. There will usually be asalaried post, the chief of the medical staff, as well as salaried chiefsof the major clinical services if the hospital is large enough. The actualpower in the hospital will depend very much on the personalities involved.The administrator is hired and fired by the Board, and his positionobviously depends upon maintaining good relations with the medical staff,who have their own channels of communication with the Board, as well as thegeneral public and the political system.But the admitting physicians do not have direct control over theallocation of resources. There is little or no experience with clinicalbudgeting, and while an experiment is currently going on with DRGs (inKingston, Ontario), this is a hospital-based experiment, supported withAmerican research funds, to compare care patterns for similar patients.Some ministries have expressed interest in DRGs (known in Canada as CMGs)as a way of making comparisons among hospitals for budgetary purposes, butthere is no interest in moving from the controlled, global budget approach43to a "volume-based" system of paying hospitals by the case, with or withoutDRGs. Payers in any system are very suspicious of open-ended forms ofpayment; and while the Prospective Payment System looked more closed-endedto Americans, in comparison with cost or charge based reimbursement, itlooks distinctly open-ended to Canadians.21. How is medical work managed in hospitals? Do hospital doctors managetheir own work or is this managed by general managers? Describe thesystem of medical management.Within the hospital, each patient "belongs" to the admitting physicianand the specialists s/he has called in as consultants. The admission mayhave been made by the GP, or by the specialist to whom the GP referred thepatient. Thus each physician "manages" his/her own work, subject tohis/her ability to get access to beds and other facilities. The diagnosticservices will be managed by the pathologist and the radiologist,respectively; in a large hospital there will be a substantial professionalas well as technical staff in these facilities, and there may well besubdivisions. But there will not be general managers responsible forclinical activities. Administrative staff look after the provision offacilities, equipment, and supplies; clinicians decide how they are to beused.In addition, of course, there is a separate administrative hierarchyfor nursing, reporting to a director of nursing who is more frequently nowbeing called a vice-president for patient care. But while "nurseclinicians" are increasingly in evidence, the overall direction of the careof the patient is still firmly in the hands of the physician. In Canada,even yet, "Hospitals do not have patients; they have doctors. Doctors havepatients".4422. How is medical audit and peer review arranged? Is there a nationalsystem or are these issues left to local discretion?Medical audit and peer review are of concern only to the individualhospital, with certain exceptions. Each province has some form ofcommittee, housed either in the ministry of health, the college ofphysicians and surgeons (the statutory body regulating physicians) or themedical association (the physicians' trade association), respon~;.ble formonitoring the patterns of practice of individual practitioners. Thesepatterns, in turn, are observable from the provincial billing records,since all medical services are reimbursed by the same agency, and eachclaim leaves a computer track.These committees, however, identify statistical outliers relative tothe means and standard deviations of "peer" practitioners; they do notattempt to evaluate the practices of the group as a whole. "Normality" isdefined by the distribution of actual practice, whatever that turns out tobe. Furthermore, the outlier bounds are very wide, so that a very smallproportion of practitioners is ever turned up as unusual and potentiallyproblematic. The system may identify and weed out a handful of egregiousbad apples, and thus serve a useful public relations function for bothgovernments and the medical profession, but it is not a serious attempt tomaintain the quality of medical practice.Indeed, professional organizations are quite ambiguous about theirrole in "quality control". Their public stance is that they exist toprotect the public. But once a professional has achieved licensure, theprofessional colleges - who have a statutory responsibility to the public,not to the profession - do relatively little to monitor quality standards,let alone to try to improve performance. Nor have the courts generallybeen very supportive of such efforts as they have made.4523. What use has been made of guidelines and standards in clinical work?Are there examples of guidelines changing clinical practice?Correspondingly, not much use has been made of guidelines in clinicalpractice, although in fact there are one or two examples of guidelineexercises. The federally-sponsored Task Force on the Periodic HealthExamination, now about ten years old, brought together a group of clinicaland epidemiological experts to assess the evidence on the efficacy ofvarious forms of periodic health examination, and to issue recommendationsas to appropriate forms of examination, by age and risk status of patient,type of investigation, and repeat frequency.The findings of this group, periodically updated as knowledgeimproves, have been disseminated to the practitioner community throughprofessional journals. But in fact little effort has been made tocommunicate with the general public, and none at all to determine ifpractitioners are following the guidelines (and if not, why not). Whiletechnically a competent exercise, the Task Force appears to have missedmuch of its potential because of the resolutely non-directive nature of thefederal, and the provincial, governments in dealing with clinical matters.An outstandingly successful example of guidelines was in large part aone man crusade, by David Sackett of McMaster University, to extend thediagnosis and treatment of hypertension. A provincial committee developed,on the basis of up to date epidemiological evidence, standards ofappropriate treatment, and these were to a large extent taken up by themedical community.This example of success, however, has two important, and ratherworrying, features. First, it was a clear example of a recommendation topractitioners to do more of a new thing, a thing which as it happens wasefficacious. Responding to the guidelines was both professionally and46economically advantageous to practitioners. In contrast, the Task Force onthe Periodic Health Examination discouraged activities like routine annualphysicals on the grounds that research evidence showed them to be whollywithout medical benefit. But practitioners had been doing them, andgetting paid for them, for a long time. They were satisfying to do - onecould report wellness with a clear conscience - and the patients were happytoo. Against these powerful forces, the observation that the activity hadllQ positive benefit, even probabilistically, was a readily contestabledetail.Second, of course, the pharmaceutical treatment of hypertensioncreates a massive market for the drug industry, for drugs which §£geffective, but have non-trivial side effects. There is a counter­literature, which presents evidence that modifications to diet andlifestyle can reduce blood pressure without drugs, but in the nature of thealternatives, it is much more difficult to carry out a rigorous test oftheir effectiveness, as through a randomized trial. Thus they can bedismissed as "unscientific". A hierarchy of evidence is converted into aneither/or, yes/no dichotomy. "Drugs are proven; there is no evidence forthe alternative." This is not quite true ... but the evolution of therapyproceeds as if it were.The winners and losers in this process are fairly clearly defined; andthere is now some concern that the treatment of hypertension may have gonebeyond the point of optimum, even in terms of drugs. Whether or not thatis true, the hypertension example suggests that it is much easier to leadthe parade in the direction it is already going, or finds it rewarding togo. Messages saying "Slow Down!" or "stop!" are harder to hear, as hasbeen demonstrated by the failure to date of efforts to curb the excessive(relative to professionally determined criteria) frequency of Caesariansection (Anderson and Lomas, 1989).4724. Is there any interest in accreditation? Is there a nationalaccreditation agency? Is accreditation compulsory or voluntary?For hospitals, there is a national accreditation agency, which isvoluntary. For physicians, licensure is mandatory, and is carried out atthe provincial level, although there are common nation-wide licensureexaminations and inter-provincial movement is relatively easy - forphysicians. Dentists and lawyers are more protective of their local turf.Specialization by physicians is national; there are education requirementsand special national examinations for fellowships in the specialtysocieties. But these are administered by the professional bodiesthemselves, and have no statutory underpinning. In a sense, there is onlyone level of licensure as a physician; specialization is merely a form ofcertification by a private association, or club.Indeed, under the Canadian constitution, the national Parliament wouldhave no authority to create statutory requirements at the national level.Matters pertaining to health fall exclusively in the provincialjurisdiction. Thus any form of national accreditation, whether ofindividuals or of institutions, can only be voluntary. Of course theprovincial payment agencies can impose qualifications for reimbursement,and can if they wish (and the medical associations agree) specify thatcertain fees will be paid only to qualifying specialists. And particularhospitals may establish rules as to who qualifies to do what, and how, ontheir premises. Finally the medical malpractice system, both the insurersand the courts, may impose further restrictions - the GP who carries outbrain surgery may be in a sticky situation if sued. But subject to theselimitations, a licensed physician is a licensed physician. The medicalpractice acts, which define his/her exclusive field of practice, do notsub-divide it.4825. What role do GPs play in managing resources? Are there financialincentives to GPs to contain costs and limit hospitalisation? Do GPshave freedom of referral to hospital? Do GPs have fixed budgets?The reality, however, is that the limitations on general practitionersare important, and becoming more so all the time as the numbers ofspecialists expand. The GP/specialist mix is not changing much, but bothare rising much faster than the population. A natural reaction byspecialists is to try to move intruding GPs off their turf, and they havedone so. On the other hand the GP plays an important role as "gatekeeper"in the system; a role which is recognized both rhetorically and in moreconcrete terms, such as the fee differentials mentioned above whichdiscourage specialists from seeing non-referred patients. (In thisimportant respect, practice in the Canadian system is actually closer tothe United Kingdom than to the United States.) Moreover, this role mayexpand in future as the competition between GPs and specialists becomesmore acute.The changing role of the GP (like everything else in Canada) isconditioned by geography. The population concentrations required tosupport specialized medical services have been attained only in urbancentres, so that in earlier decades, rural GPs carried out a wide range ofpractice activities. Some became de facto specialists in, or at leastquite experienced at, surgery and/or anesthesia, and most includedobstetrics. But in recent years, the population has become increasinglyconcentrated in urban centres, and the rural population has fallen. At thesame time, improvements in transportation have made urban centres morereadily accessible to rural people, and the increased supply of specialistshas led to some moving out to smaller cities and towns. Correspondingly,GPs have reduced their activity in areas competing with specialists, andnow spend more of their time in first contact and "triage" - deciding whogoes on for consultations or diagnostic services.49In this role, GPs face a sharp conflict between their individual andtheir collective interests. As an individual practitioner, a GP has aconsiderable incentive to refer frequently. The fee per visit is fixed, sothe rate of reimbursement per minute is higher if the visit is kept short,and terminated with a referral. The consultant will write a letter back tothe GP, occasioning another visit, and fee, to interpret the results. Theincentive to refer for diagnostic testing is similar. On the other hand,the GP who decides to do a careful history, and take his/her time insorting out the case on one visit, will put in more time, get the same feefor that visit, and will not get the follow-on fee.Thus in its own way, fee-for-service medicine creates incentives torefer just as does capitation payment. Nor is this incentive only afunction of the negotiated and controlled fees. Even if physicians couldeach set their own fees, there is no basis for assuming that practitionerswould set the fee proportionately to their time and effort, and no marketforces exist to bring these into line.Of course, there is some risk that the consultant may "keep" thepatient, providing the follow-on care before sending the patient back tothe GP. But in a well-functioning practitioner community, all partiesrecognize that they are engaged in a non-zero-sum game. The specialistdoes not poach patients, because s/he hopes that the GP will send more.This is not to say that all GPs in fact respond to this financialincentive; only to point out that it exists. As an individual, the GP hasno reason to hold the gate particularly tight, and to bar access tospecialists. There may of course be professional reasons; referring tooeasy cases may bring down the scorn of the specialist. But that too maychange as the specialist to population ratio increases.50At the collective level, however, all this changes. As noted above,if GPs as a group have a high propensity to refer to specialists, this willincrease billings by specialists. Insofar as the provincial government istrying to contain overall outlays on physicians' services, such increaseswill feed back, negatively, into next period's fees. As the messagebecomes clearer that overall budgetary outlays are limited, it becomesequally clear to GPs that what the specialists take out of the fixed pot isnot available for them.At present this realization is still in the process of sinking intothe practitioner community, and some of those who realize it are stillcherishing secret or not so secret hopes that somehow they can avoid theobvious implications by regaining access to patients' resources - extrabilling - and thereby building automatic expansion back into total outlays.But so long as this does not happen, one can safely predict that GPs willshow an increasing interest in their "gatekeeper" role - as a way ofprotecting their own incomes.Furthermore, while hospital budgets are not part of the medical carefee negotiation process, they §£g part of the overall budget of theministry of health. Thus the stiffness of the government's negotiationposition on fees and utilization rates is clearly, if slightly indirectly,linked to expenditure in hospitals. These expenditures, in turn, interactwith the billing opportunities of physicians, but in different ways fordifferent physicians. Surgeons, and medical subspecialists using "hightech" equipment, need access to hospital space and facilities to providetheir services. Hospital spending is complementary to their incomes, atany given fee level. But for most general practitioners, fees for hospitalvisits and surgical assistance are a small part of their economic base.For them, money spent on hospitals is, again, money which does not go intoany pot to which they might have access.51Thus, although GPs do not have a fixed budget to allocate, either fortheir own services, or for related specialty or hospital services, thepressures of a fixed overall cash limit are slowly pushing them to think asif they did. At this point, however, the firmness of this "fixed limit"varies considerably from one province to another, and is still subject toconsiderable political testing. British Columbia and Quebec are a gooddeal farther down the road towards the general acceptance that the pot isfixed, than is, say, Ontario. Thus it is still too soon to say withassurance that the medical sector in all the provinces of Canada is in factcash limited, much less that this will have major implications for the wayGPs behave.But it is quite intriguing that, reading the tea leaves, one can seeboth the development of incentives to become much more aggressive asgatekeepers, and the first stirrings of this understanding. One may nothave to assign fixed budgets, to induce more careful generation ofspending. The specialists have good reason to be worried. Whetherpatients should be worried or relieved, by a more activist and controllingrole by GPs, is quite unclear. That turns on one's judgements as to therelative effectiveness of different forms of medical care, and thereliability of the GPs' triage decisions. One is then led into the broaderquestions of evaluation of outcomes, on which the Canadian system like most(all?) others, suffers from a severe lack of information.52ReferencesAnderson, G.M. and J. Lomas (1989), "Recent Trends in Cesarean SectionRates in Ontario", Canadian Medical Association Journal 141:1049-1053Barer, M.L. (1988), "Regulating Physician Supply: The Evolution of BritishColumbia's Bill 41", Journal of Health Politics, policy and Law 13(1):1-25Barer, M.L., R.G. Evans and R.J. Labelle (1988), "Fee Controls as CostControl: Tales from the Frozen North", The Milbank Quarterly 61(1):1-64Brook, R.H. and J.B, Kosekoff (1988), "Commentary: Competition andQuality", Health Affairs 7(3):150-161Canada, Health and Welfare Canada (1987), National Health Expenditures inCanada 1975-1985, Ottawa: Health and Welfare Canada, NovemberCanada (1985), The Report of the Commission of Inquiry on thePharmaceutical Industry, (Eastman Commission) Ottawa: Ministry of Supplyand ServicesCulyer, A.J. (1988), Health Expenditures in Canada: Myth and Reality, Pastand Future, Toronto: Canadian Tax FoundationEvans R.G. (1986), "Finding the Levers, Finding the Courage: Lessons fromCost Containment in North America", Journal of Health Politics, policy andLaw 11(4):585-616Evans, R.G. (1988), Squaring the Circle: Reconciling Fee-for-Service withGlobal Expenditure Control, HPRU 88:8D, Health Policy Research unit,University of British Columbia, VancouverDivision of National Cost Estimates, Health Care Financing Administration(1987), "National Health Expenditures, 1986-2000", Health Care FinancingReview 8(4):1-35Kane, R.L. and R.A. Kane (1985), A Will and a Way: What Americans Can LearnAbout Long Term Care from Canada, RAND Note N-2154-HJK, The RANDCorporation; Santa Monica, CaliforniaLomas, J., C. Fooks, T. Rice and R.J. Labelle (1989), "paying Physicians inCanada: Minding Our Ps and QS", Health Affairs 8(1):80-102Muldoon, J.M. and G.L. Stoddart (1989), "Publicly Financed Competition inHealth Care Delivery: A Canadian Simulation Model", Journal of HealthEconomics 8(3):313-338Roch, D.J., R.G. Evans and D.W. Pascoe (1985), Manitoba and Medicare: 1971to the Present Winnipeg: Manitoba HealthSchieber, G.J. and J.-P, Poullier (1989), "International Health CareExpenditure Trends: 1987", Health Affairs, 8(3):169-177Stoddart, G.L. and J.R. Seldon (1984), "Publicly Financed Competition inCanadian Health Care Delivery: A Proposed Alternative to IncreasedRegulation?", in J.A. Boan (ed.), Proceedings of the Second CanadianConference on Health Economics, Regina: University of Saskatchewan, 121-143Waldo, D.R., K.R. Levit and H. Lazenby (1986), "National HealthExpenditures, 1985", Health Care Financing Review 8(1):1-21Wolfson, A.D. and C.J. Tuohy (1980), Opting Out of Medicare: PrivateMedical Markets in Ontario, Ontario Economic Council Research Study #19,Toronto: University of Toronto Press


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