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Overcoming challenges in health-care reform.

Canada's public health-care system (Medicare) offers top-notch care for legislatively-defined essential services, without charge, to all residents. Treatment quality and aggregate health outcomes are good, and the population values in particular the notion of fairness. However, pressure for health-care cost control is constant. Allocations of scarce health-care resources take place through supply-side restrictions, often in the form of waiting lists for elective services, as prices do not play any role. As a result of the historical development of Canada's health care system, some of the fastest rising costs, notably for pharmaceuticals and home care, are largely outside of Medicare. Despite equality of access to health care, there is some inequality of health outcomes, suggesting the need to pay greater attention to other (social) determinants of health. As in other OECD countries, constraints are set to tighten further, both in the medium term as post-crisis deficits are wound down, and more durably in the longer term, as an ageing population requires substantially more services, while growth in the tax base to fund them slows, and technology goes on expanding possibilities for life extension and life quality. The objective should be to complement top-down supply control by more accountability and use of price incentives at the micro level as the main means of promoting both efficiency and quality, and hence system sustainability.

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Canada boasts universal public health care offering high-quality services, though at high resource cost. Even though the health-care system is amongst the most decentralised in the OECD, with little direct federal involvement (apart from financing), Canadians attach great importance to it as a foundation for shared pan-Canadian values of a just society. As elsewhere in the OECD, health care has become a prime policy concern in the wake of persistent unplanned growth in health-care expenditures in relation to GDP. In the absence of adaptations, costs are expected to mount relentlessly in coming decades because of population ageing, technological progress and relative price developments, putting a potentially unsustainable burden on public budgets. Health care is thus highly germane to the fiscal issues discussed in Chapter 2. Reforms for sustainable health care by definition serve the goal of fiscal sustainability. The deteriorated budget situation may, in fact, provide an opening for fundamental reforms, which have so far eluded many Canadian provinces.

Achieving the multiple objectives of accessible, high-quality and affordable health care over the long run will require that macro budget control be complemented by micro incentives to supply and demand health-care services efficiently. Such reforms have been gaining traction in other OECD countries but are still viewed with apprehension by many Canadians who see them as violating equity goals. The following policy issues appear to be the most pertinent for Canada:

* Zero pricing. Health Care overconsumption and/or overpricing is encouraged by the lack of price signals in Medicare. The lack of any co-payments or deductibles for universal public health care differentiates the Canadian system from that of any other OECD country (with the exception of the United Kingdom). The solution has been to ration by means of long waits for treatment--widely regarded as the Achilles heel of the system- as budget considerations limit the possible increases in supply. There is growing interest in OECD countries in imposing some modest charges to encourage more responsible service use by patients and allay taxpayer concerns about sustainability (OECD, 2009a) However, in Canada, user charges for insured hospital and physician services contravene the Canada Health Act (CHA).

* Lack of cost-saving incentives. Greater cost savings could probably be had from competitive public purchasing of health services, forcing suppliers to be more efficient in order to win government business. Provincial laws sustain centralised public monopolies by blanket prohibitions of private funding for Medicare services, impeding their contestability. Doctors set their service fees in a bargaining duopoly with provincial governments while enjoying full autonomy in their choice of treatment and mode of organisation. There is still far too much historical-based budgeting of hospitals, doing little to reward efficiency. There has been controversy over the entry of private hospitals to alleviate wait lists and spur competition, despite the fact that the CHA does not preclude provinces from using private providers to deliver insured health services, as long as insured persons are not charged for insured services.

* Fragmented financing. All non-hospital and non-physician services--including pharmaceuticals, long-term/home care and therapeutic services--are outside Medicare. Despite provincial public safety nets and employer-provided private insurance for such services, gaps in coverage are frequent and out-of-pocket costs can be high. With sector-segmented finance, non-congruent incentives along the continuum of care may impede an optimal division of labour for a given patient and prevent efficient service integration for any given episode of illness. The affordability of bringing all truly necessary services under the Medicare umbrella is uncertain. Faced with this dilemma, government may need to devise a statutory (or decent minimum) care package determined by the public's willingness to pay the necessary taxes. As a rule, if measures are taken to increase access, then complementary measures will need to be taken to hold down costs.

* Gaps in information. Much progress has been made in developing nationwide health databases, notably through the efforts of the Canadian Institute for Health Information (CIHI) and Statistics Canada, and Canada has some of the best health data in the world. However, efforts to evaluate policies are hampered by an insufficiency of publicly available provincial performance data (e.g. on unit costs, volumes and quality), as well as of clinical data covering treatment outcomes. This is partly technical, as a lag exists, relative to both other sectors and countries, in adopting information and communication technologies (ICT) in health care. Ministries of health, responsible for nearly half of overall provincial spending, may lack the commensurate analytical capacity. But there are transparency issues as well: provincial health ministries may not be terribly keen to expose their systems' weaknesses, and doctors may not like being subject to scrutiny, unless pushed by effective checks and balances. The incentives for accountability should be examined.

This chapter attempts to identify solutions to these key challenges for Canadian health-care reform, building on a rich body of work in Canada as well as OECD crosscountry research and experience. Its outline is as follows. The first section describes the institutional framework for the financing and organisation of health care in Canada. The second section examines patterns in performance. The third discusses the main policy implications, and the chapter wraps up with key recommendations.

Policy and institutional framework

Health care is a primarily provincial responsibility, but financing is shared with the federal government (mainly via transfers), often giving rise to conflicts. Financing modes are sharply segmented across subsectors: for hospital and physician services (Medicare, about half the total), there is public universal access in the form of "first dollar" coverage; for all other services, a variable system of mixed public-private finance is provided. Canada thus emerges as a hybrid system in the OECD context, juxtaposing elements of a single payer and strong regulation against decentralisation, private funding and market mechanisms.

Canada in an international perspective

The universal public system (Medicare)

Medicare, the universal public health-care system in Canada, covers all eligible provincial and territorial residents for medically necessary hospital and physician services, and it is almost entirely financed by general government revenue (primarily personal, corporate and sales taxes). It appears to be unique among OECD countries in two important respects: i) coverage is restricted to medically necessary hospital and physician services whereas most OECD universal public systems provide more comprehensive coverage including prescription medicines and dental care; ii) conversely, there is no private cost sharing for covered services, which is deemed to be a violation of the accessibility principle of the CHA, whereas most other OECD universal public systems require patient co-payments for at least physician visits and allow private health insurance to cover such co-payments and/or to supplement the quality of public services (amenities, (1) choice of provider), and sometimes to bypass queues for public services (Table 3.1). Canadian Medicare coverage is thus "narrow but deep" (Marchildon, 2010).

These distinguishing features point to both major strengths and weaknesses of the Canadian system. A critical advantage is the high priority given to equity, insofar as no financial barriers to access to covered services can be said to exist. The health system is a major vehicle of resource redistribution, not only from healthy to sick as in any insurance scheme but also from rich to poor via progressive general tax financing. On the downside, covered services are limited to a traditional definition of care, which may distort the health-care market by favouring these forms of care over innovative alternatives. Zero pricing of such services aggravates moral hazard and increases the reliance on queuing as a rationing device. Finally, whereas most OECD countries manage to integrate private funding into the core public health-care system, Canada's package of public services are effectively firewalled from private finance influence, reinforcing the government's funding monopoly and strongly limiting contestability of public provision. (2)

European social insurance-based health-care systems, which tend to be less redistributive but embedded within stronger social safety nets, have by and large taken an eclectic approach to public health care and shown more willingness to experiment with US-inspired reforms to boost health-system productivity (Blomqvist, 2002). In past fiscal crises, Canada was willing to sacrifice health-system capacity but brooked no compromise with the principle of freedom from payment for services, whereas Finland and Sweden engaged the private sector in bearing a greater burden of health-system costs (Evans, 2001). As will be seen, European social insurance-based systems may provide more services while spending about as much as Canada (even less on an age-adjusted basis), while the United Kingdom and Japanese central planning systems have similar access problems but spend less. Canada could improve its position along this trade-off by taking some inspiration from other countries' experiences.

Canada's public health-care system (both Medicare and publicly funded parts of non-Medicare services; see below) is further distinguished by its virtually complete decentralisation to the provinces, which arises naturally under its strongly federal system of government. Among OECD health-care systems, only Italy's is so thoroughly decentralised, though there has been a clear OECD-wide trend toward decentralisation during the last 40 years or so of rapid public health-care spending growth. Such growth has surpassed that of GDP and squeezed the share of non-health spending in total government outlays. While there are many contributing factors (e.g. technology), decentralisation itself, despite its merits, could be another insofar as it gives rise to co-ordination problems manifested in soft budget constraints, which may be particularly important in health care, given its high visibility and political sensitivity; indeed, where subnational governments rely strongly on central transfers, health spending has grown briskly. However, Canadian provinces receive more modest federal transfers in relation to their total revenues, than in many other decentralised countries, i.e. the "vertical fiscal imbalance" is smaller (Crivelli et el., 2010). This may have helped to keep public spending growth in check, albeit levels remain high.

The contribution from private finance (non-Medicare)

Services lying outside Medicare, namely those not provided in hospitals or by physicians, are covered by a mix of provincial benefits, employer-sponsored, tax-deductible private health insurance for workers, and out-of-pocket payments. For these services, some people are left with little or no protection, for example the working poor, small business employees, self-employed or working-age persons and couples with no labour-market attachment, although many of them would have access to provincial supplementary benefits (e.g. for social assistance recipients) and individuals without employer sponsored health insurance can purchase private health insurance directly. Retirees who are not on old-age assistance often face out-of-pocket costs in provincial pharmacare plans of up to 50%. This raises not only equity but also efficiency concerns to the extent that people unable to afford treatment of incipient conditions may let them worsen to the point where they require acute-care services at high public cost. Pharmaceuticals, and especially other professional services performed outside hospitals by non-physicians (pharmacists, dentists, optometrists, therapists, caregivers and nurses supplying primary care) are thus relatively heavily privately financed (Figure 3.1), albeit to varying degrees across provinces. Overall, because of the relatively narrow scope of Medicare coverage, the share of private insurance is among the highest in the OECD, and the share of public financing is below the OECD average (70% versus 72%; Figure 3.2).

Fiscal federal relations

Canada's constitutional federalist arrangements devolve primary responsibility for health spending to the provinces and territories, but by agreement they are financed in part by federal transfers. In general, decentralisation has several potential advantages: it could make the health-care system more responsive to local needs and accountable to taxpayers, stimulate benchmark competition across jurisdictions as citizens "vote with their feet", and promote experimentation, compensating for centralised rigidities. Benchmark competition is not well developed in Canada due to lack of price and user information. At worst, though, decentralisation might result in institutional duplication, failure to achieve economies of scale, and weakened cost control and accountability when responsibilities overlap (Joumard et al., 2010). Provincial accountability is comparatively high in Canada insofar as there is a clear demarcation between federal and provincial spending assignments. A relatively modest vertical fiscal imbalance should likewise hold in check the tendency to blame problems on insufficient federal funding. On the other hand, accountability may still be attenuated by bargaining over federal transfers, as in some other federations where spending autonomy is not fully matched by financing responsibility (e.g. Italy; see OECD, 2007). Full provincial financing responsibility for health care, by contrast, would incentivise the search for efficiency gains in order to avoid the unpopular step of raising taxes, though it would accentuate the problem of heterogeneous relative fiscal capacity across provinces.

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The role of the federal government

The chief role of the federal government, with implementation vested in the federal health ministry, Health Canada, is to set broad principles expressing the nation's shared values and promoting its cohesion, and to share in the financial burden of provincial health-care provision by means of federal transfers to the provinces and territories as its main lever to enforce such principles. The 1984 Canada Health Act (CHA) sets the conditions for the Canada Health Transfer (CHT). These conditions--namely universality, comprehensiveness, accessibility (i.e. without user fees or extra billing), portability (coverage follows the person across provincial lines), public administration (i.e. of publicly funded insurance plans)--are expressions of the set of national principles, yet vague enough to be wide open to interpretation (see Box 3.2). Health Canada instructs Finance Canada to make deductions from the CHT for any province that it has deemed to have violated any of these conditions. Extra billing, i.e. charging the patient for a given service more than the established Medicare reimbursement rate, is one of the reasons for which the CHT payments have been withheld, and these mandatory penalties have been imposed as the result of self-reporting (namely, by British Columbia) or by other means. Noncompliance with federal policy on private clinics, i.e. charging facility fees for services where the physician fee is covered by the provincial health insurance plan, considered to be de facto user fees, was another (Boychuk, 2008).

Besides its duties in administering provincial health transfers and enforcing associated national health standards, Health Canada is directly responsible for the funding, administration and delivery of some services to First Nations living on reserve and Inuit. It also has major responsibility for population health (including a major tobacco-control initiative), product and food safety, and health data and research--the latter in support of Canada's objective to become one of the five leading health-research nations in the world. (3) Other federal departments and agencies also have health care duties toward specific groups such as the Canadian armed forces, the Royal Canadian Mounted Police, war veterans, refugee claimants and federal prisoners. (4) Pharmaceutical market regulation is another important field of federal activity (see further below).

The provincial role in health-care administration and provision

The ten provinces and three territories (hereafter referred to collectively as "provinces") are wholly autonomous and responsible for the financing (over and above federal transfers), coverage and organisation of health-care services for their residents. These include duties of data collection, performance monitoring, and manpower and immigration policies. (5) For Medicare services, a fair degree of coherence is enforced by the conditions of the CHA/CHT. Most provinces have implemented regulations upholding the five conditions of the CHA, while British Columbia has added a sixth, that of sustainability (as yet ill-defined). Provinces compete for health-care human resources, and patients can cross provincial borders to receive insured hospital and physician services under the portability criterion of the CHA, which is reimbursed by the province of residence, even if at a higher cost, although prior consent may be required. Hence, one can speak of 13 distinct and to some extent competing public health-insurance systems in Canada, though with many commonalities as well. Because of the high degree of policy interdependence, and also autonomy, there is considerable emphasis on mechanisms for federal-provincial collaboration, notably the federal/provincial/territorial health ministers' conference system, and pan-Canadian agencies for data and policy co-ordination (Marchildon, 2010). (6)

For services outside Medicare, provincial autonomy is greater as there are no national standards to enforce, allowing a variety of mixed public/private systems. Provinces and territories provide a range of additional services and benefits, beyond hospital and physician services, to their residents. These benefits are outside the scope of the CHA, and as such can be provided on the terms and conditions decided by each province and territory. These benefits generally include services such as prescription drugs (outside of hospitals), vision care and dental services, and may be targeted at specific groups, such as seniors or those on income assistance. Residents not covered by the additional benefits can obtain private health insurance, normally through their employer, or have to pay out-of-pocket for these services.

Provincial reforms

There have been two key reform phases. The first was during 1988-96, particularly during the early 1990s, a period of federal fiscal consolidation which resulted in cuts in transfers to the provinces and forced them to find health savings. It featured intensive human and physical capacity rationalisations, complemented by reforms to improve health-care quality and shift its focus away from costly hospital care and treating illness toward efficient integrated primary care and promoting wellness (Marchildon, 2005). This was accompanied by the creation of regional health authorities (RHAs) in the provinces, (7) along with the establishment of CIHI and investment in information technology. The RHAs became simultaneously owners of the hospitals and purchasers of their services. By effectively dismantling the power of local communities to block hospital closures, the creation of the RHAs demonstrated Canadian governments' ability to forge a consensus around the overriding issues of debt and deficit reduction (Church and Smith, 2006). Thus, the devolution of health care administration from the provincial to regional levels was accompanied by a re-centralisation of powers from the municipal toward the regional/ provincial levels. The major exception to this model has been Ontario, where local health integrated networks (LHINs), created only in 2005, have maintained separate governing boards from hospitals, i.e. a purchaser-provider split not found in the other provinces. In all cases, physician remuneration and prescription drugs remained under centralised control at the ministries of health, which restricted the RHAs' (and LHINs') scope for allocative action.

The second major reform phase began in 1997 with debt reduction and the improving fiscal situation and lasted at least up until the recession of 2008-09. In contrast to the first phase, this one was marked by strong growth in public health spending, with a tendency for ad hoc funding to "buy" reforms. Despite provincial reinvestments in human resources and equipment, earlier acute-sector capacity cuts were never made up, while demand grew faster than expected, especially for orthopaedic surgery and advanced diagnostic imaging, so that excess demand in these sectors emerged. Worries about system sustainability led to a series of reports in the 2000s at both the provincial and federal levels. The federal reports (headed by MM. Kirby and Romanow) recommended more spending as necessary and socially desirable, indicating a low priority on addressing the fiscal challenge at a time of rising surpluses (TD Economics, 2010). Generous new federal funding followed, but it effectively removed the urgency of cost containment and relieved pressure on the provinces to pursue health reform more aggressively (Boothe and Carson, 2003). Even avid reformers like Alberta and Saskatchewan put their health reforms (as respectively proposed in the Mazankowski and Fyke reports) in abeyance after federal funding increased. The Quebec pro-privatisation reforms (Castonguay report) were likewise initially shelved. (8)

Provincial health-care finance

In the aggregate, provincial health-care spending is financed roughly two-thirds by own general tax revenues and one-third by the CHT (federal cash transfers) and tax points (percentage points reduction in a federal tax that leaves room for provincial tax increases on the same base) (Figure 3.3 and Box 3.1). The cash transfer was cut by the federal government unilaterally in the context of its mid-1990s budget crisis, but restored by a federal-provincial Accord in 2004. The "stop-go" financing of health care damaged public confidence in government's ability to manage health care, and, as already noted, led to recurring concerns about the sustainability of the system and persistently long waiting times. Hence, the recession in 2008-09 led the federal government to announce early on that fiscal consolidation would not be on the back of the CHT, and that it would not be cut when it comes up for renewal in 2013. Budget 2010 confirmed that the Government will not cut major transfers such as the CHT, and that the CHT will continue to grow as legislated to 2013-14.

By far the main source of provincial own revenues is general tax finance. Cyclical variability in such taxes is transmitted into health spending. In some provinces, notably British Columbia, Ontario, Quebec (as of mid-2010) and formerly Alberta, a small part of health care (some 15% in British Columbia, for instance) is financed by a non-earmarked health-care premium, which is charged directly by British Columbia but via the income tax in Ontario and Quebec. The premium is less cyclical and less distorting than other taxes, though income tested. Structural differences in provincial tax capacity do not generally translate into health-care system disparities as measured by per capita spending levels. Part of this structural difference is compensated by equalising federal transfers (see Chapter 2), while cyclical fluctuations (highly correlated across provinces) are partly smoothed by the CHT, which depends mostly on population, and health care tax points include an element of equalisation as well. Nevertheless, the tax burden placed on persons and corporations to pay for national standards of health care is higher in the poorer, non-resource-rich provinces (Orr, 2010). Alberta, the richest province with also the highest per capita level of health spending, devotes 7% of its GDP to health care whereas Quebec, with the lowest level of per capita spending, nevertheless spends 12%, and PEI, the poorest province spends 16% (Table 3.2). One reason for large variations in per capita spending is differential rates of population ageing. Quebec and the eastern provinces are ageing much faster than provinces to the west.

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Box 3.1. The Canada Health Transfer (CHT)

The CHT is a federal block transfer only notionally tied to
provincial health spending. The original block transfer was created
in 1977 with the Established Programs Financing (EPF), which
replaced the previous 50% federal cost-sharing formula for
provincial hospital and physician service expenditures, as well as
for education. Roughly half of the former cost-sharing transfer,
which had been fully in cash, was replaced by the permanent
transfer of federal "tax points" (percentage points of the federal
take for corporate and personal income taxes raised in the
province). The remaining cash portion was to be no longer based on
actual health spending but on population plus an inflation
adjustment, adding predictability to the federal government and
accountability to the provinces (Deber, 2009). But whereas the
federal government counts the tax point transfer as part of its
overall health transfer, the provinces have tended to focus on the
residual cash transfer as a reduced entitlement. Furthermore, to
deal with the federal deficit, the federal government unilaterally
and repeatedly changed the conditions for the cash transfer: in
1986, the escalator was reduced to GNP growth minus 2%; in 1989, it
was reduced to GNP growth minus 3%; and in 1990, it was eliminated
altogether.

In 1996, the federal government decided to further reduce cash
transfers by some 15% through a new Canada Health and Social
Transfer (CHST), combining EPF with former social-assistance
transfers While the CHST had no escalator, the cash floor was
increased in 1998-97, and the transfer was enriched by a series of
cash supplements for health care and early childhood development in
2000, 2003 and 2004. In 2004, the CHST was split into the Canada
Health Transfer (CHT) and the Canada Social Transfer (CST), with
health now receiving a higher apportionment in the total block
transfer as based on provincial spending patterns. Since the
economy and fiscal situation had recovered, a CAD 16 billion Health
Reform Transfer to support reforms in primary care, home care and
catastrophic drug coverage was agreed to and confirmed in Budget
2003. After five years, the funding (i.e. CAD 3.2 billion annually)
was to be incorporated into the CHT with any earmarking removed.
However, the 2004 Accord confirmed these priority areas and the
Health Reform Transfer was incorporated into the CHT in 2005/06. In
addition, through the 2004 Accord, a 6% annual escalator based on
the CAD 19 billion CHT base for 2005/06 was agreed to for the
period of 2006/07-2013/14. Special funds were created by the
accords, notably the 5 year CAD 4.25 billion federal Wait Times
Reduction Fund and the 250 million annual Wait Times Reduction
Transfer (starting in 2009-10) which expires in 2013-14. The
recession and debt build-up in 2008-09, however, have cast doubt on
the federal government's ability to keep increasing the CHT at such
a rapid rate once the present accord expires, though the provinces
insist that it will be necessary.


Provider payment methods and incentives

Perhaps at least as much as the ultimate source of funding, the manner in which this money is transmitted all along the funding chain is crucial to the formation of accountability and efficiency incentives facing purchasers, providers and users of health care. Incentives embedded in provider payment methods, in particular, have major implications for the health-care system's performance.

Devolution of health budgets to RHAs/hospitals

Provincial ministries of health receive their health-care spending envelopes from, and are subsequently monitored by, finance ministries following the regular political process of prioritisation in the provincial budgets. They devolve part of these budgets to regional health authorities (RHAs), which goes mainly to pay for the non-physician portion (roughly half) of hospital operating budgets, capital investments and community health (polyclinics, home and long-term care, etc.). The size of the regional budgets in most provinces depends on historical spending plus an inflation factor (usually 2%). Much of the pressure for higher funding originates with the regions and is transmitted by the province back to the national taxpayer via lobbying for enhancing the CHT. RHAs in British Columbia, Ontario (LHINs), and New Brunswick have also been actively engaging the private sector in public-private partnerships (P3s) for hospital capital projects, the preferred model being "design-build-finance-maintain". As with any off-balance-sheet accounting, this carries significant risks of contingent government liabilities.

Hospitals receive their operating budgets typically on the basis of their own historical spending plus inflation, mirroring the RHAs' own budgeting procedure, with no contracting process to speak of. Ontario has followed a different route, using contracting made feasible by the purchaser-provider split in its regional structure: the LHINs draw up service contracts with each of the hospitals on their territory, specifying conditions governing prudent and effective use of Ontario taxpayer dollars. Ontario appears to be getting better results in terms of reduced hospital waiting times (see Table 3.8 below).

Several provinces have begun to experiment with regional population-based budgets, often adjusted for demographic structures. Formula-based budgets tend to be superior to those that are historical-based because they help circumvent the risk that budget allocations in the base year were inappropriate, perversely rewarding inefficient regions and penalising efficient ones. They also eliminate the perverse incentive to spend as much as possible (or hide efficiency gains) each year in order to safeguard the historical spending base. However, except for Alberta and Saskatchewan, these have been slow to take root. In British Columbia, a study showed that historical baseline spending overfunded the capital region and underfunded the other three, but the policy response has been to provide only incremental funding on a fairer population-based formula (Vancouver Island Health Authority, 2008). Another problem may be that risk adjustment by simple age and sex structures captures only a small part of actual need variations across regions, allowing inequities in the regional apportionment to persist (Deber et al., 2008). Doing proper risk adjustments, however, requires more information, expertise and perhaps substantial additions to administrative costs.

There has likewise been an incipient shift toward activity-based budgeting, notably in Alberta, British Columbia and Ontario, i.e. paying for services provided in the hospital on the basis of prospective unit costs, which is more in line with international trends. Such a method encourages efficient provision, though it increases budget risk unless capped within a spending envelope. Intensive investments in terms of measuring costs, determining case mixes, categorising treatment episodes correctly and measuring and monitoring performance are likely to be required, but, even so, strong risks of gaming the system (by reclassifying diagnoses) remain. The British Columbia experience is again indicative. Substantial incremental funding to its regions over the past five years has been tied to achievement of specific service objectives, in particular, cuts in waiting times for selected procedures. There is evidence that this has stimulated efficiency gains in the designated areas (as allocations are based on targeted volumes times standard cost), but at the cost of further reduced ability by RHAs to make resource allocations in accordance with local needs. Hence, needs crying out for resources in mental health and chronic care may have been neglected in favour of (too many) knee and hip surgeries and cataract removals (VIHA, 2008).

Moving toward performance-based budgeting ("paying for performance", or P4P) seems another ineluctable trend, as popularised by US and UK innovations in this domain. In the United States, there were 115 P4P acute-care programmes by 2005, while in the English NHS 25% of primary-care physician payments have been attached to performance criteria, while hospitals' performance results are now published. P4P typically rewards service providers on the basis of quality, rather than quantity as in the case of activity-based funding. Once again, this method requires intensive information and monitoring to work effectively. Hospitals and doctors may risk-select patients less likely to present complications and more likely to allow attainment of specified P4P goals. Process targets may be no less risky than output targets, as rigid adherence to treatment protocols may not be right for every patient and thus inhibit desirable innovations by providers on their behalf. These risks must be balanced against opposing benefits. Canada is treading cautiously, e.g. modest payments by several BC regions for timely processing of emergency-room patients and for moving toward integrated primary-care delivery models, as in other provinces. Publication of performance outcomes might be more effective by stimulating reputational competition among hospitals, as suggested by the US and UK experience.

Payments to doctors

In each province, doctors working in both primary and acute care bill the public health-insurance system for services rendered and receive payment directly from the health ministry. In most provinces, patients themselves never see any bills and thus have no idea of the cost of services they receive. Doctors, including those employed in hospitals, are paid predominantly on a fee-for-service (FFS) basis. The level of fees is determined by bargaining between the ministry and doctors' unions (often several, representing GPs and the different specialties). Doctors' bargaining power is enhanced by the attraction of high salaries and job opportunities in the United States, and strong public support. They generally bargain for income and managed to negotiate some generous fee increases during the late 1990s to late 2000s economic boom. Physician income is higher than the OECD average. However, doctors are also responsible for internalising Medicare constraints in more difficult budgetary times, and in this sense their fees can be considered to be regulated by the provinces. In the 1990s budget crisis, for example, most provinces capped aggregate doctor incomes with de facto claw-back provisions. By contrast, the normally utilised public contract model regulates fees rather than incomes, with the public funder taking the risk of excessive service volumes.

Several provinces have experimented with alternative payment methods, such as salary and capitation, given that FFS has been linked to supplier-induced demand (SID). These alternatives now constitute nearly one-quarter of total physician payments in Canada, but sufficient information for evaluation is lacking: whereas large incentive payments to encourage these schemes were made, in the absence of FFS billing, activity volumes were not recorded. It is unclear if the programmes will become self-sustaining in the absence of continued boosts to special funding. Doctors historically prefer FFS billing and were mainly motivated to take up capitation only when overall budget caps on aggregate FFS incomes were imposed. Now that these caps have been removed, it is uncertain how readily they will accept the risks of capitation. In any event, it will be important to keep track of volumes provided, by means of shadow billing records, to guard against possible underprovision of services under such schemes.

There has been strong pressure to modernise delivery and eliminate primary-care "silos" (i.e. atomised and very loosely co-ordinated delivery units, notably solo doctor practices and multiple system entry points, often involving losses of information and time, duplicate testing, errors, etc.), which are seen as impeding smooth delivery and efficiency (Deber, 2003). The push for integration of these silos is seen as a means of reducing hospital admissions and managing increasingly prevalent chronic diseases. However, with physician funding streams completely bypassing them, RHAs' ability to affect doctors' incentives in desired directions is limited. Furthermore, separate funding streams for other health professionals--who must often be paid privately if they do not work in hospitals-make it difficult to encourage team practices involving delegation of simpler physician tasks to lower paid health professionals.

Payment for and reimbursement of pharmaceuticals

Federal and provincial governments (except Quebec) subsidise employer-provided private prescription-drug insurance (which may also cover dental and vision care) by exempting it from personal income tax. (9) Such subsidies are regressive, since they disproportionately benefit richer and employed workers. Many firms provide such benefits in competing for workers, especially larger firms where risk-pooling under a group plan is more feasible. Provincial government coverage varies a great deal, but most provide public drug safety nets for the poor and aged and/or catastrophic drug coverage of the general population with a (high) ceiling on out-of-pocket costs as a percentage of income. Quebec's pharmaceutical plan is the only one that attains universality, via mandatory purchase of prescription drug insurance through an array of social and highly regulated private plans (somewhat along the lines of Switzerland's system). (10) Nationally, public programmes provide coverage for approximately a third of the population while approximately half of the working age population participates in private drug insurance plans as a part of employment-related groups (Morgan, 2008a). It is estimated that 10-20% of the Canadian population has no pharmaceuticals coverage whatsoever, while another large number may have inadequate coverage (Morgan, 2008a). (11) Since drug use in hospitals is fully covered by Medicare, this asymmetry gives doctors an incentive to keep their patients longer in hospital than otherwise warranted in order to benefit from free high-cost drugs (Morgan, 2008b).

At the federal level, the prices of patented drug products are regulated by the Patented Medicines Prices Review Board, based on the factors set out in the Patent Act. These factors include the prices at which the medicine has been sold in the relevant market in Canada, the prices of other medicines in the same therapeutic class, the prices at which the medicine and other medicines in the same therapeutic class have been sold in seven comparator countries (often limiting a drug's price to its median price in seven comparator countries), changes in the Consumer Price Index, and such other factors as may be specified in the Patented Medicines Regulations. If the domestic price is considered excessive, the Board may order the patentee to offset the excess revenues accumulated (by reducing the price of the drug or the price of another drug, or by making a payment to the federal government). New drugs must be federally approved for marketing based on an examination of their safety, efficacy and quality.

There are 13 individual provincial and territorial public drug plans, as well as federally-funded public drug plans. Decision-making for listing of drugs on public drug plan formularies is supported by the Common Drug Review (CDR), a federal/provincial/ territorial--sponsored process managed by the Canadian Agency for Drugs and Technologies in Health. The CDR conducts objective, rigorous reviews of the clinical and cost effectiveness of drugs, and provides formulary listing recommendations to the publicly-funded drug plans in Canada (except Quebec). The CDR helps inform and support drug plan decisions by providing equal access to timely evidence-based information and expert advice. CDR recommendations as to whether to list a drug on public drug plan formularies are not binding on the participating jurisdictions. Participating drug plans take into consideration CDR's recommendations in the context of their mandate, priorities, resources and jurisdictional needs before making a final benefit listing and coverage decision. Hospitals decide their own drug formularies and pay low wholesale prices (covered by Medicare), but account for a small part of total drug use. Private drug plans may provide wider coverage than the public plans, as part of a negotiated worker benefit package. Generics' prices are market determined but among the highest in the world (see below).

Until 2003 Canada had the longest delays for approval of new drugs for marketing in the OECD apart from Japan, but since then the situation has much improved with implementation of a federal policy to shorten the worst delays by means of objective setting (Paris and Docteur, 2007). However, some recent scandals have prompted concerns that the approvals may now be too hasty and overly influenced by industry clinical trials (Deber, 2008), though some others insist that it still does not allow fast enough access to new treatment options (Skinner and Rovere, 2009). There is also concern that the use of product groups to regulate patented drug prices might discourage innovation.

Funding for home care

The 2004 10-Year Plan to Strengthen Health Care identified home care as one of the three priorities for targeted federal financial support over the following five years. However, with home-care interest groups not particularly strong, physicians and pharmacare grabbed the lion's share of the funding--as its division among the three categories was left to the provinces--and hospitals able to access these funds after earmarking expired on 1 April 2009 (Motiwala et al., 2005). Each province has its own home-care programme. All provinces currently provide professional services (nursing and case management), homemaking (cleaning, cooking and the like) and personal support services (i.e. assistance for activities of daily living, ADL), normally by contracting out to private home-support firms or to self-employed professionals such as registered nurses (RNs) and licensed practical nurses (LPNs). Competition in home-support services should be possible because of their lower-skill nature (implying fewer barriers to entry). In Ontario's experience, RNs' wages have tended to rise in response to competitive contracting, suggesting a skills shortage, though these increases have been constrained by the presence of for-profit providers in the home-care market, while wages for lower-skilled LPNs have unequivocally fallen (Zarnett et al., 2009). Eligibility for professional support is based mainly on need, while most provinces income test eligibility for home-support services (Alberta charges beneficiaries a flat CAD S dollar per hour rate), and waiting lists are common.

As agreed to under the Plan, provinces have identified a minimum basket of publicly funded services for short-term acute home care, palliative/end-of-life care and short-term acute community mental-health care. Private spending by those who do not qualify for public support, or to supplement the public level of services they do receive, is prevalent. Home-care is one of the fastest growing components of health care, along with pharmaceuticals and medical technology. Post-acute care has risen strongly with hospital-bed closures and accelerated discharges, and the demand for long-term care is expected to expand sharply with rising disability rates and population ageing. Public policies accord no explicit funding or legal protection to home care as a recognised medically necessary service, and they implicitly cost-shift towards out-of-pocket and informal arrangements, inadvertently producing inequities in access, contrary to the objectives of the CHA. They further fail to take into account private and social opportunity costs of informal primary caregivers, many of whom have to renounce gainful employment, or the gender inequalities that this usually implies. Federal benefits for leaves of absence taken by workers to provide end-of-life care for family members are a step in the right direction but cover only a small subset of actual needs.

The role of the private sector in a publicly funded system

Canadian physicians are overwhelmingly self-employed, though 99% of their incomes derives from public sources. Most hospitals are nominally private, not-for-profit, though de facto public since they operate under mandates determined by government following creation of the RHAs (which replaced hospital boards). Private, for-profit, investor-owned corporations predominate in sectors such as pharmaceuticals and laboratory work. Recently, niche hospital services provided by private, for-profit specialty clinics have become available, but not without controversy.

There seems to be confusion about the legitimate role of the private sector under the CHA. The Act, in fact, places no limits on private provision of core services, and few conditions on private financing apart from the prohibition on charging fees in excess of those established by Medicare, so-called extra-billing and user charging. Yet, private, for-profit delivery of hospital services is hotly contested, and virtually all provinces have legislation proscribing dual practice allowing physicians to provide core services by a mixture of public and private insurance contracts. Whereas all but Ontario permit physicians to opt out of the public system and accept only privately paying patients, four of these provinces prohibit the use of private insurance to pay for these services, while two others limit allowable fees to those established by Medicare; the latter regulation is particularly stringent and greatly reduces the incentive to operate outside the public plan. These impediments to competition in financing restrict competition in provision (Box 3.2).
Box 3.2. The Canada Health Act and the private insurance/provision
debate

Provinces have interpreted the CHA narrowly to effectively limit
the scope for private funding of Medicare services by regulating
private insurance, billing practices and fees (Table 3.3). But,
according to Boychuk (2008), a careful examination of the CHA
reveals broad scope for private funding and insurance for health
services within the framework of the Act. The only forms of private
funding clearly prohibited are user fees and extra billing for
Medicare services. However, if the provider de-enrolls from the
provincial plan, then he or she can charge whatever fee they deem
appropriate. Also potentially permissible are enhanced service,
facility and annual registration fees charged by physicians
providing a mix of services, including those publicly insured and
where the capital has been privately provided. The CHA allows
private financing for services that are not insured health services
under the Act. It also allows physicians to receive public payment
for insured services and private payment for uninsured services, so
long as funding does not come from both sources for a particular
instance of the same insured service (which would amount to extra
billing). Such payment possibilities would be likely to encourage
the growth of private provision in clinical services, give
physicians greater scope to innovate and possibly put fewer demands
on the public insurance system while encouraging efficiency in
public provision.

Besides the absence of user fees, a singular feature of Medicare
systems in the Canadian provinces (with the notable exception of
Newfoundland) is that physicians are effectively prevented from
working in both the private and public sectors. According to Flood
and Archibald (2001), the primary objective of this prohibition is
not to make private practice illegal, but rather to prevent the
subsidisation of the private sector by the public sector (while
other single payers like the United Kingdom and New Zealand allow
physicians to top up their core public incomes by working in the
private sector on a FFS basis). The regulations governing private
payment of medically necessary physician and hospital services are
complex and varied:

* Opted out physicians continue to participate in, or are enrolled
in, a provincial health insurance plan but choose to bill their
patients directly. Direct billing refers to the physician practice
of charging patients directly for the entire amount of a service
insured by the public insurance plan. Patients can then seek
reimbursement from the provincial/territorial plan for services
received. Physicians may not charge fees exceeding the
provincial/territorial fee code rate. Because opted out physicians
are not allowed to extra bill their patients, there are very few
advantages to being an opted out physician.

* Non-participating physicians are those who choose to practice
wholly outside the provincial health insurance plan. The physician
cannot bill the provincial health insurance plan for the services
he or she provides, nor can the patients be reimbursed by the
provincial health insurance plan for those services. Because
non-participating physicians are not connected in any way to the
provincial health insurance plan, as a general principle, they can
charge their patients whatever they deem appropriate for their
services. Unlike opted out physicians, they are not restricted to
charging the amount set out in the authorized tariff of fees (the
one exception is in Nova Scotia which limits nonparticipating
physicians to the amounts prescribed in the authorized tariff of
fees). However, four provinces (Alberta, British Columbia, Quebec
and PEI) implement a legal ban on private insurance for publicly
insured services, so that patients wishing to receive services
outside the public plan must absorb their full cost. Hence, private
health insurance has not taken off even in the provinces where it is
in principle allowed, and only Newfoundland does not in any way
prohibit or discourage private health insurance cover of Medicare
services provided by non-participating physicians.

* Dual practice: The potential for private funding of
publicly-insured services is closely related to the ability by
physicians to combine both private and public income streams, i.e.
allowing them to have access to both private and public income
streams for services covered under the public plan. But most
provinces/territories prohibit such an option--so-called "dual
practice"--by legally requiring that physicians practice either
entirely within or entirely outside of the provincial health
insurance plan, though Ontario has prohibited doctors from
de-enrolling since 2004. As a general rule, physicians are not
currently permitted to exercise their right to de-enroll, or become
non-participating physicians, on a selective basis and to provide
publicly insured health services in and out of the public system at
the same time.

The 2005 Chaoulli constitutional court case posed a direct
challenge to the prohibition of private insurance for Medicare
services in Quebec when there are waiting lists for treatment.
Canada's Supreme Court ruled in favour of the litigant, saying that
the prohibition was in violation of Quebec's charter of human
rights. Quebec subsequently introduced legislation for care
guarantees as well as limited recourse to private health insurance
for some procedures, and the federal government has made care
guarantees one of its priorities. The 2008 Castonguay report for
health reform in Quebec (Government of Quebec, 2008) made mixed
physician contracts and private insurance for hospital and
physician services a cornerstone of its recommendation to relieve
pressure on the public system and increase its efficiency through
public-private competition. However, there has been no movement
toward mixed billing in Quebec or anywhere else in Canada. Some
observers expect that the CHA will eventually have to be amended to
allow such changes to occur via a sixth principle (on top of the
CHA's five) of patient accountability, allowing private payment if
limits on waiting times cannot be enforced (Monahan, 2006).

Underlying the CHA debate is concern about emergence of a "two-tier
system" if competing private provision and finance for core
services were to be unrestricted. It is frequently asserted that
the less costly patient cases would flow to the private, for-profit
hospital sector, boosting its profitability and ability to attract
talented doctors, leaving the hard, risky cases and weaker health
human resources to the public hospital sector, to which the poor
and very ill would be condemned to receive only low-quality care.
Likewise, private insurers could earn easy profits by cream
skimming the low risks and leaving the high risks to the public
sector (Deber, 2009). It is claimed that there is no evidence that
higher private spending cuts waiting lists but rather raises public
costs (Stabile, 2008), and an experience-based study in Manitoba
showed this to be the case (CHRSF, 2005). Most seriously, perhaps,
a successful private tier could undermine public support and
willingness to pay for the public tier. Union interests object
because profits may be generated by hiring non-unionised
health-care workers. Furthermore, some claim that in a situation of
penury of physicians such as in Canada, competition cannot work in
any event but will rather bid up wages.

Such arguments are debatable. The public sector may be the
appropriate locus for complex care because only it can afford the
requisite large capital investments, and highly talented and
ambitious doctors will always gravitate toward "hard cases" and
larger institutions offering richer professional interactions.
Cream skimming by for-profits, even if depriving not-for-profits
opportunities to cross-subsidise costly patients by profitable
ones, could still be beneficial from a system-wide perspective if
it leads to an optimal allocation of patients between full-service
hospitals and specialty clinics (Ruseski, 2009). Evidence from the
United States suggests that entry of specialty clinics into the
hospital sector more often than not increases non-for-profit
hospital cost efficiency via competition, without compromising
service quality (Ruseski, 2009). The Italian state of Lombardy saw
significant gains in public hospital efficiency and quality after
it put private and public hospitals on an equal footing by making
each equally eligible for public funds, forcing them to compete
(Stancati, 2010). OECD cross-country analysis shows that
inequalities in health status tend to be lower in the three
(non-US) countries with private insurance-based systems--Germany,
the Netherlands and Switzerland (Joumard et al., 2010), which is at
least suggestive of no serious problems with access under
well-regulated private insurance. It has also been asserted that
arguments against private insurance and provision claiming to be
"evidence based" actually present a highly selective reading of the
evidence, thus engaging values that have not been made clear (Yeo
et al., 2009). Finally, it should be recognised that opening the
door more widely to private sector involvement in clinical service
provision could help to stimulate the emergence of high value-added
health care clusters with enormous economic potential (TD
Economics, 2010).


Health-system performance

The performance of Canada's health system in terms of care quality and aggregate health outcomes is generally very good. Despite the lack of financial barriers to access for core services, however, timeliness of access is a sore point, and equity of outcomes is frustratingly elusive. Financial sustainability is a long-standing concern, even more so in the wake of the shrinkage of the tax base in the recent recession, while the demographic transition is approaching, even if later than in Europe and Japan.

Trends in spending growth

An OECD trend of note has been rapid growth of health expenditure up until the early 1990s, followed by a decade-long pause, then a resumption of high growth starting in the early 2000s (Figure 3.4). The interim period of stabilisation may reflect the progressive shift of many countries toward market-like reforms such as managed care in the United States. Canada's ability to actually push down the growth of health spending to below that of GDP, though, required the use of strong top-down control measures as described above. In either case, the cost slowdown did not endure, and in the final analysis, it seems that health spending was largely cyclically driven, despite huge differences in institutions and policies. Still, the United States and to a lesser extent Canada stand out as having relatively high growth and spending levels over the long run. In level terms, Canada's per capita health spending in 2008 was fifth highest in the OECD, somewhat above its rank in per capita income--considered the best single predictor of health spending--of eighth highest (Figure 3.S). With regard to public sector spending on health as a percentage of GDP (i.e. 7.3% in 2008), though, Canada falls within the middle of the pack of OECD countries.

[FIGURE 3.4 OMITTED]

Looking at the main components of health spending, the fastest rates of growth by far have occurred in pharmaceuticals and services of "other professionals" (non-physician medical personnel outside hospitals), especially those supplying home care. As both these categories lie outside Medicare, the share of spending on Medicare services fell sharply. As a share of GDP, Medicare spending by 2008 was hardly higher than it had been in 1975: a sharp dip during the mid-1990s was only slightly unwound during the 2000s. NonMedicare spending has risen considerably, however (Figure 3.6). Since 1997, a large part of non-Medicare spending growth has been public (catastrophic drug plans, etc.), as the private share of total health spending stabilised (Figure 3.7). It is noteworthy that spending on pharmaceuticals now exceeds that for physician consultations. Comparing the main expenditures across the OECD countries, Canada stands out with low per capita spending (along with Japan among the G7) on in-patient care, against relatively high spending on out-patient care (3rd highest, yet half the US level), drugs and durable goods (2nd highest) and public/preventive care (top) (Table 3.4).

The divergent Medicare and non-Medicare trends may suggest that centralised public administration of health-care is better at containing costs and therefore more sustainable than private insurance. However, this is not necessarily the case, as in some respects care has shifted away from Medicare-covered services to non-hospital care and pharmaceuticals (Skinner and Rovere, 2009). Furthermore, it is difficult to compare trends across very disparate services in Medicare versus non-Medicare and attribute differences to institutions alone. In that case it may be interesting to look at the United States, where hospital and physician services are supplied by the public (old-age Medicare) and the private (working-age) systems alike: it has been shown that long-run per enrolee cost control for comparable services was still better in the public system (Boccuti and Moon, 2003). This might corroborate the argument that features of the public single-payer system such as lower administrative costs and the ability to price aggressively for the services it covers have lent themselves to better health-care cost control.

[FIGURE 3.5 OMITTED]

[FIGURE 3.6 OMITTED]

[FIGURE 3.7 OMITTED]

Cost drivers and containment measures

Factors like income, population growth and age structure, patterns of disease and financial incentives for intensity of utilisation determine the level of demand placed on the health-care system. Policies in Canada have attempted to constrain demand mainly by preventive and public health approaches, as well as public insurance coverage restrictions (delisting) and gate-keeping arrangements. On the supply side, capacity constraints (numbers of doctors and hospital beds), cost and price of inputs (doctor pay, pharmaceuticals, administration), technological intensity of care and productivity (Baumol's disease of generally low public-service productivity against high wages, hospital organisation) have been the loci of budget policy control. Canada's (and other countries') experience shows that setting either overall budget constraints or more specific supply constraints is one of the best means of achieving cost control.

There is little concrete information on the extent to which cost growth has reflected volume or price rises, though excess demand pressure driven by zero prices at the point of service and supply constraints may have manifested itself in excessive input prices, as well as queues. According to the OECD's calculations, Canada exhibits the second highest national health deflator (relative to the GDP deflator) in the OECD, after the United States 0oumard et al., 2010). Insofar as Medicare services are not priced, this measure may give excessive weight to pharmaceuticals, though doctors' wages, a key input cost, are known to be high. According to a decomposition of public health spending growth per capita over the period 1981-2002 into the effects of age, income and a residual capturing both relative price and age-adjusted per capita utilisation, the residual explains 23% of the total in Canada, versus an OECD average of 28% (OECD, 2006). With long-run price growth presumably above the OECD average, this could suggest somewhat below average per capita volume growth in Canada. (12)

Demand-side determinants

Income and demographics: These are the major exogenous drivers, as they are not receptive to health-care policy influence except indirectly. Health care is a normal good, and so its demand rises at least as rapidly as income (basically reflecting the working age population, the employment rate, productivity and the terms of trade). Most studies find an income elasticity of health care spending of around unity (OECD, 2006). Strongly rising per capita incomes in recent years (thanks largely to terms-of-trade gains) were thus a major push factor for health care in Canada. Age structure also matters. Older people use health services, in particular pharmaceuticals and long-term care, much more intensively than do other age groups (per capita spending by Canadians over 65 years of age is on average six times higher than for those under 65). In Canada, this cannot be an explanation for the high spending level (as yet) as the population is still relatively young. More rapidly ageing countries in Europe and Japan, most of which spend less per capita on health care than Canada, have been more efficient in resource use, all else equal. However, ageing is set to accelerate notably in Canada (the elderly rate is expected to more than double from around 13% currently to 27% by 2050; see Hagist and Kotlikoff, 2005), and will affect spending growth significantly.

Patterns of disease: Canada shows the OECD's third highest rate of diabetes incidence, after the United States and Mexico and also one of the highest rates of cerebro-vascular disease, suggesting the burden of relatively high costs for chronic care (see Table 3.6). Obesity, a major risk factor for diabetes and other chronic diseases, is relatively high (together with the other English speaking countries and Mexico) among OECD countries, fast rising and a focus of policy concern (Figure 3.8). Drugs to treat chronic conditions such as high blood pressure and cholesterol, heartburn, depression, diabetes and asthma account for nearly three-quarters of drug spending (Morgan et al., 2008). Though disability rates have been stable so far, ageing is expected to increase disability numbers (Lafortune and Balestat, 2007). Preventive care, notably the diffusion of public information and incentives for healthy lifestyles, can be an important component of health care cost control. Canada's high rate of spending on public health and prevention suggests a salutary forward-looking policy to address the problem, on condition that it is well targeted toward populations at greatest risk of chronic disease, notably those at the lower end of the income scale, and does not deflect resources to serve political goals (e.g. unnecessary mass immunisations or screenings). A high rate of expected return for preventive policies is essential insofar as benefits are often not felt until far into the future while costs are immediate. British Columbia, a Canadian leader in promoting healthy lifestyles is also a leading province in terms of health outcomes and control of per capita public health expenditure growth (Table 3.2). Long-run cost savings are nevertheless not certain because by prolonging life, prevention exposes individuals to conditions they would otherwise not have incurred (Sassi et al., 2009). The goal is rather to enhance welfare by healthy life years gained, as efficiently as possible.

[FIGURE 3.8 OMITTED]

Adapting the health infrastructure to the diseases of ageing is another challenge. A major projected health threat is Alzheimer's disease and other dementias, which afflict about one third of all people beyond the age of 85. The number of affected people is expected to double in Canada over coming decades due to its high projected rate of ageing. This calls for investments in home and long-term care and mental health services for the aged as well as training of more geriatric specialists in primary care. While Canada is one of the few OECD countries without a national mental health strategy, work is being done at the provincial/territorial level and in 2007 the Government of Canada established the Mental Health Commission of Canada, an independent, arm's-length organisation mandated to act as a focal point on issues related to mental health. As part of its mandate, the Commission has been tasked with the development of a national mental health strategy. Developing one may require extensions of health insurance coverage for therapy, within a general rebalancing of priorities toward areas of high expected returns.

Intensity of resource utilisation: This category reflects residual factors driving the demand for health care over and above income and illness, notably advances in medical technology and financial incentives in treatment decisions by providers and demand decisions by users. Compared with other OECD countries, medical consultations per capita are not excessive, while hospital discharges are extremely low in Canada (Figure 3.9). This is likely to reflect supply-side constraints rather than (as sometimes argued) any lack of SID or moral hazard due to zero pricing. Patients' free choice of doctors is also constrained by the requirement for GP referrals to access specialist services, which appears to be more stringent than in many other countries (see Figure 3.12 below). On the other hand, per capita pharmaceuticals consumption is high (Table 3.4), despite often large copayments and limited coverage, which could reflect strong industry pressure on prescribers and consumers. (13) Doctors also have a financial incentive to prescribe drugs as a costless and convenient way to provide "closure" to a patient visit, in other words, cutting it short with a demonstration that they are "doing something" for the patient--but they are not paid to keep abreast of the literature on best drug prescribing practices (Morgan, 2008b).

Provincial drug plans are turning their attention to better demand control via evidence-based listing decisions and restrictions on access to high-price drugs. For expensive new cancer drugs, permission is granted on a case-by-case basis. Patients represented by vocal pressure groups (genetic diseases, cancer) have often been able to get such cover, which may prolong life for a few months at a cost of ten or more times average annual income as pharmaceutical companies exploit "your money or your life" pricing power, posing serious ethical issues (Deber, 2008). Private drug plans tend to place fewer restrictions on access, relying more on patient deductibles and co-payments, but are ultimately less effective in cost control because they lack the market power of large public payers. Unions usually press employers to pay these charges while offering broad insurance coverage in negotiated labour contracts, which creates de facto zero pricing, subsidised by tax policies.

Supply-side determinants

Physician services: The greater the supply of doctors, the greater the volume of services, though costs should rise less than proportionately (or could conceivably fall) if doctors' pay is sensitive to their numbers. In Canada, the number of doctors grew strongly in the 1970s and 1980s and then declined due to deliberate policy efforts (Box 3.3). Presently, physician density (2.3 per 1 000 population) is sixth lowest in the OECD and well below the OECD average (3.2). Among the G7 countries, only Japan keeps doctor density so low and similarly uses it as a strategy of cost control, though at the price of long waits for short physician visits and overworked doctors (OECD, 2009b). The United States has kept doctor supply almost as low but as a result of professional pressure to maintain high physician incomes (Japan, by contrast, holds down physician fees by tight regulation). Quebec, the province with consistently lowest spending per capita--despite having the "oldest" population and (uniquely) universal pharmacare--has more doctors per capita and lower doctor pay than in any other province, though part of the pay discrepancy may also be traced to its relatively high share of female doctors (over 40%), in addition to linguistic barriers to doctors' mobility (Be1anger, 2005). For the OECD in general, an inverse relationship between GP density and pay seems robust, but less so for specialists as many other institutional factors intervene (Fujisawa and Lafortune, 2008). In Canada, overall physician compensation relative to average wages is higher than in Japan, some European countries and much higher than in the Nordics (where societies are highly egalitarian and many specialists are salaried hospital employees), but still much below its US counterpart (Figure 3.9). While there is no clear relationship between doctor density and overall wage push, strong doctors' unions in Canada and the United States are likely to make for such a tendency.

[FIGURE 3.9 OMITTED]

Cost pressures may also arise from the presence of too many (highly paid) specialists in the doctor mix. Though a relatively good balance between GP and specialist numbers exists in Canada (Figure 3.9), specialisation is strongly preferred by recent medical school graduates in response to growing pay premiums and higher prestige accorded to specialising in a caring profession where technological knowledge is increasingly prized over intuition and relationship skills. Along with renewed expansions in medical school capacity (Box 3.3), this portends higher use rates and costs henceforth, though not necessarily higher system productivity as defined in terms of health outcomes: doctor-patient relations are thought to be essential to the diagnostic and healing processes alike, but increasingly neglected with the abandonment of family practice. The evidence has pointed to the importance of having a steady long-term primary contact, even in the context of integrated primary care teams, in order to save on long-run system costs.

Although fee-for-service payment should encourage physicians to seek high volumes, income effects arising from high compensation levels as in Canada, and high marginal tax rates, may conversely induce them to limit their effort, lowering productivity. Physician productivity may be further hampered by a relative lack of physical capacity, notably hospital operating space and diagnostic equipment (Figure 3.9). Having to deal with insurance paperwork can also be counter-productive, though much less so than in the United States, thanks to the single-payer system. Nurses are much more likely than doctors to suffer from non-productive working "out of scope". A survey in British Columbia showed that as much as 60% of nurses' time was spent on menial or administrative tasks, rather than those for which their training had prepared them, which in turn detracted from focussed patient care and seriously jeopardised hospital service quality (CNA, 2009). This suggests scope for efficiency gains in hospital organisation.

Hospital services: Falling bed numbers and shorter average lengths of stay have implied large hospital efficiency gains in Canada as in other OECD countries in recent decades, as seen in the downtrend in hospital costs relative to GDP (Figure 3.6). These gains have been made possible largely by technology, in particular less invasive procedures and better anaesthetics to allow for more rapid recoveries and same-day surgical care, and use of new drug technologies instead of hospitalisations and surgery to treat conditions. Also, the shift to activity-based hospital funding in many countries has encouraged shorter stays and other organisational efficiencies, reducing unit treatment costs significantly. In Canada, hospital discharge rates are at rock bottom, only half the OECD average, reflecting capacity restrictions: acute-care bed density is among the lowest in the OECD. On the other hand, average length of stay appears to be on the high side, though this statistic may not be directly comparable with other countries given the very low bed rate in Canada. Canada likewise invests comparatively little in expensive high-tech imaging machines (Figure 3.9). All in all, technological changes in the hospital sector were probably as fully implemented as in other systems with better incentives, thanks to the binding budgetary and supply side constraints.
Box 3.3. Manpower planning

An important complement to caps on hospital budgets and doctor
incomes has been the use of manpower policies to limit physician
supply. Since doctors' incomes are by far the largest component of
Medicare spending, the number of doctors is a key issue. The health
spending cuts of the 1990s were accompanied by the conviction that
there was a surplus of doctors following the major medical school
expansions and immigration waves of the 1970s and early 1980s,
themselves based on erroneous earlier projections of population
growth (Dumont et al., 2008). Barer and Stoddart (1991) argued that
health care is largely supplydriven, so that in order to decrease
health spending it is necessary first to decrease the number of
doctors, an argument which was seized upon by provincial
governments as intellectual cover for cuts (though the authors
later said that such conclusions were taken out of context and that
accompanying recommendations to greatly increase the supply of
non-physician professionals were ignored). Moreover, doctors felt
trapped in a zero-sum game under the imposed global budget caps on
their aggregate remuneration and came to see that having fewer of
them was the only way to maintain per capita incomes (Deber, 2009).
Doctors were also frustrated by extensive hospital-bed cuts via
province-wide hospital rationalisations, leaving them with less
capacity with which to work. Many more doctors and nurses than
expected took early retirement after being offered generous
packages by the provinces. Emigration, mainly to the United States
surged, and many emigrants never returned home. Medical-school
admissions in many provinces were slashed in order to reduce the
future stock of doctors, and immigration policies were tightened
sharply in order to limit doctor supply in the meantime (Dumont et
al., 2008).

But by the early 2000s, perceptions began to shift toward a looming
doctor shortage, believed to be the likely consequence of past
medical school enrolment reductions, imminent baby-boomer physician
retirements, changing doctor lifestyles toward more leisure and
higher future per capita demand for services by an ageing
population. A nursing shortage was already being acutely felt. The
idea of a doctor shortage also provided the moral cover for
increased current health-care spending in general, largely in the
form of higher doctor pay. However, some experts continued to
insist that there was no shortage, merely low doctor productivity
(Evans, 2004). Manpower policies subsequently shifted gears:
provinces have expanded medical-school slots and the federal
government has collaborated with provinces, territories and
regulatory bodies to help facilitate the integration of immigrant
doctors and nurses into the Canadian health workforce. Research
done for the United States, taking into account not only direct
training costs but also opportunity costs, against the marginal
benefits of extra health care, suggests that training more doctors
may not be all that good a social investment (Glied et al., 2009).
It is preferable to train many more lower-skill health workers who
are able to take over many of the doctors' more mundane functions.
This also suggests that the recommendations of the Barer-Stoddart
report may not have been completely off the mark.


Pharmaceuticals: Pharmaceutical spending has risen substantially almost everywhere in the OECD. New Zealand is a notable exception, where both hard price bargaining vis-a-vis international drug companies by a centralised public purchaser (with no domestic industry to protect) and conservative listing decisions reflecting its own tight budget have held drug costs in check (OECD, 2009c). Perhaps surprisingly, drug price inflation in Canada has been limited, even negative, as entry of generics for older drugs and their greater use has offset cost push by expensive new drugs. Such moderating price effects are expected to accelerate, at least in the near term, as patents on many "blockbuster" drugs developed over the last few decades start to expire. Retail spending on prescription drugs per capita, adjusted for general inflation, rose at an average annual rate of 6% between 1998 and 2007. Average prices paid for drugs fell slightly in all provinces (except Manitoba), as increased unit prices were more than offset by generic savings (the opposite occurred in Manitoba) (Morgan et al., 2008). Rapidly expanding volumes explain all of the cost push, and to a large extent they reflect population ageing and the diffusion of new drugs (OECD, 2009a). Canadians spend a large amount on drugs--50% more per capita than in the OECD on average--despite a relatively youthful population. Large variations in per capita consumption across provinces reflect varying age structures but also wide differences in consumption volumes and therapeutic choices (Morgan et al., 2008), price differences being less significant, as those for patented drugs are regulated at the federal level. This suggests possible efficiency gains by the adoption of best prescribing practice, for example as appears to be found in British Columbia.

Canada is one of a handful of OECD countries where generics have a large market share (around 50% in volume terms), which, all else equal, should lower costs. But Canadian drug-price levels are high in international comparative terms (Table 3.5). Patented medicines' prices remain substantially higher than in all European countries except Switzerland, though still much below the United States, which has a large weight in the reference price formula. The greater concern, however, is in generics, where Canadian prices are higher than in other countries by a wide margin--54% higher than in the United States, for example. This mainly reflects distortive effects of insurance, pharmacy kick-backs and certain public procurement policies, on market competition (Box 3.4). As public purchases grow, however, provinces are starting to exercise their monopsony power, albeit mostly independently of each other, as a market counterpart to the oligopolistic structure of supply, helping to drive down prices.
Box 3.4. Generics competition

Canada's inexplicably high genetics' prices deserve attention. If
they converged to international norms, significant savings would
ensue. Generics, unlike patented drugs, have nothing by which to
differentiate themselves except price. However, insurance makes
customers insensitive to price, and even if there are co-payments,
these are typically a flat fee and may be covered by private
insurance, while sick customers are less able to hunt for bargains
and more amenable to pharmacist influence although the many
Canadians with high out-of-pocket payments for drugs may be more
price-sensitive. Thus, generics manufacturers compete mainly by
purchasing shelf space in pharmacies by means of pharmacist rebates
(also known as professional allowances), with customers and their
insurers paying full list price. On top of the wholesale price plus
mark-up, retail prices include a dispensing fee, which may be
regulated.

Provinces have reacted in various ways in their struggle to control
rising drug costs, but in doing so have inadvertently added new
distortions. Ontario's public drug plan has imposed "minimum"
discounts from off-patent brands - initially 70%, now 50% - but
this approach merely sets a ceiling on list price at a still
relatively high level, where prices tend to cluster. Quebec's
public plan has responded by piggy-backing on other provinces with
its "most favoured nation" rule, which sets its generic list price
at the lowest level achieved in any other province but may
undermine others' efforts to negotiate low prices: for example,
Saskatchewan has implemented a transparent tendering process for
generics but has been unable to negotiate a price commensurate with
its lower costs (reflecting the fact that participating
manufacturers are not allowed to pay rebates to pharmacies),
because such a price would immediately become effective in Quebec
without covering its higher costs (as rebates there are still
permitted). More recently, Ontario and British Columbia have
attempted to capture the pharmacists' rebate by outlawing it and
then negotiating secret rebates with manufacturers for drugs, also
thereby circumventing Quebec's rule. As a result, the drug
manufacturers can post high list prices without losing sales to the
public insurer in these provinces, who obtains a very low and
non-transparent net price, with repercussions on private payers in
Ontario and elsewhere. Competition is distorted by such
sole-sourcing agreements, because they are "bought" by secret
rebates based on a firm's ability to charge high list prices,
rather than on its ability to produce at low costs as under a
normal tender. Ontario has announced in its 2010 budget its
intention to reduce generics prices to 25% of the branded
equivalent for both public and private purchasers by banning
pharmacy rebates, while raising dispensing fees for pharmacies in
rural or underserved areas. While this will greatly reduce
distortions, it should be noted that many generics prices in the US
market are still less than 25% of the branded equivalent (Rovere
and Skinner, 2010).

Governments have mixed objectives in setting prices, as they wish
to promote domestic pharmaceuticals industries (notably in Quebec
and Ontario) as well as save money on drug purchases and improve
access to drug therapies. The initial generics price should be high
enough to reward the first generic entrant, who typically must
incur heavy litigation costs and risks of challenging patents
(which rarely expire as patentees submit multiple new versions of
the same basic molecule, or may authorise their own generic
versions). Subsequent entry should lower the price, however, and
help reveal lower-cost competitors (e.g. from India). Hollis (2009)
recommends a staggered price-setting mechanism--e.g. 75% of the
patented drug price for the first entrant; 55% for the second, 45%
for the next three, and so on. Or, if once the patent has been
successfully challenged or found to be noninfringed many firms
enter simultaneously, they should pay the trailblazer a modest
royalty--far below the benefits to consumers--in order to reward
its "innovation" in the form of eliminating an inefficient
monopoly. Tendering mechanisms, which try to set a low price at the
outset and keep it there for the winner, may discourage future
challenges by generics firms, inadvertently killing off
competition. Yet tendering may have its place at a later stage of
generic competition (see Competition Bureau, 2007).


Baumol's cost disease: Despite increasing substitution for hospital and doctor services by pharmaceutical therapies, and technological complementarities as well, health care like all government services remains overwhelmingly labour intensive and therefore a low-productivity-growth activity in the aggregate economy context. Baumol's model of "unbalanced growth" has been tested for a cross-country sample of 19 OECD countries and found to be validated (Hartwig, 2008). Canada may suffer more insofar as the differential between nominal wage growth and total economy productivity growth (the "Baumol variable") is relatively large, given substantial terms-of-trade gains over recent history.

Quality

Quality encompasses both the effectiveness and subjective patient experience of health care. There are two main types of quality indicators, objective (output) and subjective (process). Among the objective indicators, Canada shows admirably high success rates in treating some of the chief cancers (Table 3.6). This likely reflects the high political priority given to cancer. It also scores very well on amenable mortality and avoidable admissions for asthma, considered to be indicators of the quality of primary and chronic care, respectively, where policy support is also high. More mediocre results for cardiovascular disease may reflect relatively weak efficiency incentives in hospitals, for example, low use of angioplasties (stent procedures) as opposed to surgically intensive bypasses (see Table 3.9 below), inconsistent use of beta blockers following heart attacks, (14) or scarcity of scanners to make rapid life-saving diagnoses following a heart attack or stroke (Wolfson, 2009). Looking at subjective indicators for seven OECD countries, Canada scores highly on health outcomes, but along with United States ranks below the median on other measures of patient satisfaction, in Canada's case most notably for quality and timeliness of care; ironically, these two countries are also the two highest spenders, suggesting weak efficiency (Table 3.7). Adverse medical events (e.g. drug reactions) may also signal quality problems, partly stemming from inappropriate and excessive treatment under unrestricted, free access (Deber, 2008 and Senate of Canada, 2007).

Quality depends on better information to guide the appropriateness of care, and stronger efficiency incentives. Provincial data submissions to CIHI are voluntary (only Statistics Canada has coercive power to collect data), and those provided are often too unprocessed and overly detailed to allow easy analysis and interpretation. Furthermore, there are no good indicators for the co-ordination of care. There is likewise almost no longer-term follow-up of patients, apart from standard cut-off points (typically 30 days) for hospital readmission, post-surgical infection or cancer, heart attack and stroke survival rates, so that knowledge of treatments' impacts on life quality is rudimentary, despite the image of a very sophisticated technology. Statistics Canada is engaged in generating the requisite micro data and, indeed, is a world pioneer in health data collection and indicators of health status, health resources and their use, and determinants of health (Marchildon, 2005). The US Medicare system has already produced much useful data on US hospitals, which incontestably show that high quality and cost efficiency go hand in hand - there is no trade off (Wolfson, 2009). Equally relevant are statistical process quality-control techniques long used by industry to achieve dramatic improvements in product quality, but not yet implemented in health care. Information technology can play a major role here. Canada has invested substantial public funding in e-Health. However doctors report low use of electronic medical records at the community level (Figure 3.10). This is largely due to the fact that, given the complexity and scope of Canada's federated health care system, the approach was to establish jurisdictional e-Health systems (called the "electronic health record") with a plan to connect clinical settings such as doctors' offices as a subsequent phase. Canada recently allocated significant new funding to support work in this emerging area.

[FIGURE 3.10 OMITTED]

Equity

Equity is an important aspect of quality, especially in Canada where it receives a large weight in social utility. OECD studies show that equitable access to general practitioners (GPs) and to hospital acute care is at least as good as in any other OECD country, with even a pro-poor bias in the latter, (15) suggesting a large degree of success in achieving the goal of equal access (Doorslaer, 2008). However, the 15% of Canadians lacking a regular GP are less likely to receive primary and specialist care, although the increase in the number of walkin clinics has much improved access to a GP, and there is a clear pro-rich bias in the access to specialists. Anecdotal evidence suggests that rich, educated patients are better able to elicit specialist referrals from GP gatekeepers, and they even appear to receive better care in hospitals. The ease of access to health services is likewise higher in more affluent areas where doctors prefer to live and work. However, this pro-rich bias is no worse than in many other OECD countries. Where Canada's policies seem to least favour the poorer parts of society is in the equality of access to pharmaceutical treatment. The Commonwealth International Health Policy Survey 2001 showed that three times as many poor as rich people are likely to report cost as an impediment to purchasing drugs, against only twice as many in the United States and other countries, implying the largest relative (though not absolute) income-related difference in Canada. In addition, those with private insurance were 40% less likely to report access problems because of cost. This suggests that incomerelated access to prescription drugs may be a result of the lack of universal coverage and unequal distribution of private insurance coverage across income groups in Canada (Doorslaer, 2008). It has also been shown that having private drug insurance increased physician visits (to obtain prescriptions) by 10% on average (Stabile, 2001). And, despite the high degree of equality of access, health outcomes in Canada are surprisingly sensitive to income level, even if very good in aggregate absolute terms (Box 3.5).

Waiting lists

The highest-profile quality problem in Canada is that of long waiting lists and excessive waiting times for treatment. The genesis of the problem is widely believed to be the 1990s budget cuts, which focused heavily on capacity reductions. The persistence, even lengthening of waiting lists despite increased funding reflects: i) improving technology that, in conjunction with the zero pricing policy, greatly increased the demand for certain elective procedures to repair worn body parts; ii) new money likely going into pushing up unit prices rather than increased service volumes, given unchanged provider incentives; and iii) persisting budget restrictions on doctor and hospital capacity.

[FIGURE 3.11 OMITTED]
Box 3.5. Inequality in health outcomes

Various indicators suggest a relatively high degree of inequality
in health status across Canadian social and income groups. The
dispersion in mortality by age across regions is the highest in the
OECD (that at the individual level is 8th highest in the OECD and
2nd highest in the G7). As this result does not seem to be closely
correlated with the regional distribution of doctors, it may be
inferred that inequality in access plays a minor role in explaining
inequalities in health status (Joumard et al., 2010, Figure 2).
There is a large difference between above- and below-average income
groups in the percentage of adults going without needed care due to
costs (OECD Factbook, 2009, p. 297). Taking into account morbidity
as well as mortality under a "health utility index" (HUI) to obtain
a richer measure of health status, there is strong evidence within
Canada of a profound impact of socio-economic position on health
(McIntosh et al., 2009): in fact, the resulting inequalities in
health status between the bottom 80% and the top 20% of the
population are equivalent to the entire national burden of cancer
as measured by premature mortality or healthy life years lost--though
much less policy attention is given to this problem than to
cancer.

Extending the HUI approach to international comparisons is
difficult because the morbidity component of the index is
necessarily based on subjective quality of life indicators, which
may vary from country to country. Nevertheless, attempts have been
made. Utilising the 2002 Canadian Community Health Survey and
similar surveys conducted abroad, Canada's estimated socio-economic
gradient (i.e. the extent to which health status, as measured by
the HUI, varies with income) is closer to that found in the United
States than in continental Europe, despite health social safety
nets closer to European than to US norms (Figure 3.11). Utilising
instead the 2003 Joint Canada/US Survey of Health microdata file to
generate more consistent cross-country health utility indices for
these two countries alone shows that the gradient may even be
slightly steeper in Canada for working ages, but milder for
over-65s, than in the United States (O'Neill and O'Neill, 2007).
Identifying the underlying causes of such inequities is necessary
in order to design an appropriate policy response. One study
pinpoints female gender (of working age) as a unique predictor of
unmet health-care needs in Canada, leading to the hypothesis that
working full time outside the home, under often precarious
conditions, and providing unpaid care to their families may impede
the ability of women to tend to their own healthcare needs (Bryant
et al., 2009). Thus, the crowding out of family support social
services (such as child care and after-school programmes) by health
spending could well be counter-productive.

Collectively, Aboriginal Peoples represent the most disadvantaged
group in several respects, and include those living on and off
reserve (First Nations, Inuit and Metis). Though accounting for a
small proportion of the population, the Canadian government has
committed to addressing historical injustices against these
peoples. Social indicators for them are still sparse, but available
mortality rates are significantly higher than in the general
population - 60% higher for men and double for women (CHRSF, 2010).
Indeed, a dire situation in basic living conditions and health on
reservations, with high rates of addiction, chronic illness, and
environmental poisoning, is often depicted in investigative
newspaper reports. The Health Council of Canada (2005) has made
developing an appropriate information base and reforming policies
for the First Nations a high priority. Health Canada is working to
improve the delivery of health care (for a part of which the
federal government has direct responsibility) through greater
self-governance.


Waiting is thought to occur on many levels, as bottlenecks cascade throughout the system. Finding a primary-care doctor is difficult in some areas, both rural and urban (some 30% of Calgary residents, for instance, are reportedly not able to get a family physician). Dwindling effective GP supply reflects several factors. On top of already existing capacity tightness due to low physician numbers and reduced average hours, GPs' scope of practice has narrowed, as many former duties have been taken up by specialists (e.g. obstetricians). (16) Patient access to such specialists, however, is itself hampered by the penury of GP gatekeepers. Even so, specialists are in high demand, as evidenced by long waiting times for specialist visits (Table 3.8). Waiting for primary care then spills over into demand for acute care. Emergency rooms (ERs) clog up as people without regular family doctors show up with aggravated untreated conditions, or simply because no doctor is available after regular office hours. Excessive ER waiting fills the rare hospital beds needed for non-urgent acute care, so that waiting for elective surgery then emerges. Hospitals on global budgets have a vested interest in maintaining long waiting lists for elective surgery. Also some patients are on more than one waiting list, and, apart from some successful pilots (below), there is a lack of co-ordination among specialists to manage and optimise waiting lists.

It is hard to judge the relative severity of the problem since there are no good internationally comparable data on waiting times, reflecting serious definitional differences (Hurst and Siciliani, 2003). Domestic data indicate that average waiting times for elective surgery are within recently established UK "war on waiting" targets (18 weeks between GP referral and treatment; 16 in Canada), though well in excess of the ER waiting time targets (a maximum of 4 hours; more than 12 hours in Canada). This surprisingly good result (apart from ER waits) may reflect the fact that waiting times have recently fallen in response to the 2004 federal Wait Times Initiative to assist provincial measures, such as centralised registries and prioritisation systems, in selected therapeutic areas. There remains, however, considerable variance across provinces, with corresponding scope for improvement, especially in the Atlantic provinces and Saskatchewan (Table 3.8). Furthermore, this may not be a sustainable solution, even if it were possible to keep paying for achieving targets. (17) Evidence shows that waiting lists can take on a life of their own: boosting the supply of services temporarily shrinks the list, which only encourages more demand, especially at a zero price and particularly for elective services, and the problem recurs (Hurst and Siciliani, 2003). Selective targets may distort the allocation of resources. High rates of the targeted procedures (except perhaps for hip replacements) now coexist with low overall hospital volumes (Table 3.9 and Figure 3.9). (18)

Sustainability

In historical perspective, total health spending has doubled as a share of GDP over the last half century, from around 5.5% in 1960 to 12% in 2009, and public health spending somewhat less so. Over the last decade of generally reasonable GDP growth, provincial public health spending per capita accelerated to over 7% p.a. (41/4 per cent p.a. on a real basis, using the government consumption deflator), whereas provincial own revenues grew by 6% p.a. on average (Table 3.2). Key sources of health cost pressure over this period were generous provincial wage settlements with nurses and doctors, and wider diffusion with increased public coverage of drug therapies. The difference was made up by rising federal transfers, the interest dividend on lower debt service, and slower growth in non-health spending, only part of which was cyclical. Provincial surpluses were largely spent on income tax cuts rather than prefunding (via debt reduction or asset build-up) of future entitlements. This weakened the tax base and left provinces exposed to future interestrate increases on their debts, not to mention unfunded liabilities in health care (Box 3.6).
Box 3.6. The future public burden of health care

Whereas public pensions (Canada and Quebec pension plans) are
considered to be on a more or less sustainable footing, very large
unfunded liabilities are implied by ageing and other pressures in
health care. Ageing is normally expected to increase average per
capita spending even if that for every age group individually
remains unchanged, as the weight of the higher-spending older age
tranches grows. However, this may be qualified by the fact that
"distance to death" imposes substantial non-linearity within the
old-age cohorts themselves. That is, as life expectancy keeps
lengthening, the year of death (when most lifetime health-care
costs are incurred) shifts out and is more heavily discounted. This
alleviates--but does not eliminate--the ageing impact in a dynamic
sense (Payne et al., 2007). According to OECD (2006) calculations,
which include distance-to-death as well as (optimistic)
healthy-ageing assumptions, Canada's public health and long-term
care spending as a share of GDP is set to nearly double by 2050
(from 7.3% in 2005 to 13.5%) if the long-run historical average
residual cost pressures (the part of health spending growth not
explained by GDP) were to persist, but grow by only around 50% (to
10.8%) if such pressures were to be brought under control by the
use of policy levers. Thus, even in the best case, extra room must
be found in provincial budgets to the tune of 3 1/2 percentage
points of GDP, but, in the absence of policy corrections, the
shortfall could be as much as 6 points of GDP or more. The burden
would be distributed unevenly because of different rates of
population ageing across provinces, with British Columbia and
Quebec finding themselves especially hard hit. Robson (2009)
corroborates such orders of magnitude with predicted public health
spending of 12% of GDP by 2050 (Table 3.10). He estimates that the
real discounted value of the public debt of the three government
levels is three times higher than the published figures, mostly
because of the huge unfunded liabilities related to health, and to
a much smaller extent those related to pensions. Some Canadian
experts dispute that ageing effects alone can drive unsustainable
fiscal trends, arguing that they are small thanks to ongoing
compression of morbidity (healthy ageing), and while underlying use
rates have driven cost trends thus far, complex systems have
unforeseen ways of adapting (Evans et al., 2001). However, Hagist
and Kotlikoff (2005) estimate that if benefit growth in countries
were to be immediately stabilised, Canada (along with Germany)
would have the highest present value of public spending as a ratio
of GDP among 10 OECD comparator countries because it: i) has
relatively high current benefits; ii) is slated to age very
significantly; and, most importantly, iii) has a very steep
age-benefit profile. (If past rates of benefit growth were to
continue for a while, the increase in health spending would of
course be larger, though Canada's relative position would improve
insofar as its own past average rate of growth has been milder than
in some other countries).


The key policy question therefore is whether the growing imbalance between health care and revenue sources is sustainable at current policy settings. The very real possibility that provincial health-care spending will outstrip revenue growth raises the prospect of enormous future fiscal deficits, requiring i) cuts in other spending, ii) tax increases, iii) delisting of public health-care services (privatisation), or iv) finding savings within health-care itself. Higher federal transfers, the historically preferred solution, do not seem likely given the federal government's own fiscal problems (see Chapter 2). None of these options is especially attractive as each is an object of fierce public opposition, so that the likely outcome is a compromise/mix of all four. They will now be briefly reviewed.

Crowding out. Even though its share in provincial spending has risen markedly (Table 3.2), health has not "crowded out" other social spending in an absolute sense (Landon et al., 2006). But it may yet do so, even in the medium term if current pledges to maintain annual health spending growth at some 3% in real terms (except for Ontario, which seeks to decelerate health spending) are honoured. The hazards of undermining the already fraying social safety net, not least from the point of view of health itself (see above), seem clear. But there may be less productive spending programmes that could be cut (see Chapter 2).

Tax increases. One way of looking at the issue is through the lens of declining income tax rates and social choices: the combined federal and provincial personal and corporate income tax cuts during the mid-2000s were, by 2004/05, estimated to be some 60% as large as all provincial health-care spending (Evans, 2004). The substantial 2007-13 federal tax cuts would have increased this ratio further. There is therefore room to raise taxes again, but there would be economic efficiency costs (which is presumably why taxes were cut in the first place). It is estimated that each CAD 1 raised in income tax displaces CAD 1.30 in GDP.

Privatisation. The sustainability debate is closely linked to concepts of fairness and the debate on public-private finance in Canadian health care (Matteo and Matteo, 2009). Some (e.g., the above-noted Mazankowski and Castonguay reports) have argued that, in order to solve the sustainability crisis, an increasing share of future funding for health care will have to come from private sources (Marchildon, 2010). To its opponents, however, privatisation represents a shift in Canadian social values aiming, like income tax cuts, at reducing opportunities for redistribution and enabling the rich to enjoy a better standard of health care. Rather than open up publicly insured services to private co-financing (Box 3.2), provinces have tended to cost-shift to the private sector via "delisting" decisions to terminate or limit public cover for selected services (of certain drugs, optometry, speech and physio-therapies, chiropracty), which have sometimes been arbitrary and unfair in their incidence (Stabile, 2008), and the process may continue in response to present budget difficulties. However, unsustainable private costs can end up as a public-sector liability. (19)

Value for money in health care. The extent to which public health-care costs (and therefore taxes and/or private burdens) will need to rise could be greatly limited by more efficient management of the resources that are already being spent. The very large (nearly 50%) share of health in total provincial primary spending demands examination of its efficiency, given the large economic deadweight losses associated with its tax financing and opportunity costs of foregone alternative spending. The rising demand for services created by improvements in health insurance cover and ageing should be met insofar as possible by rising productivity on the supply side. Indeed, with doctor and bed numbers already very low, and health professionals' wages high, this leaves "reform" as the only option. However, efforts to "make do with less" in health care faces formidable insider resistance to resulting job losses and income cuts. In virtually all OECD countries, the lack of measures of health outcomes and quality has encouraged ideology to flourish in health debates; in this setting, the medical profession has often blocked efficiency reforms that challenge their professional freedoms or economic interests. Thus, successful reforms have been informed by diagnostic data and analysis which often included international comparisons of health system performance, and their implementation required the co-operation of the professional monopolists who provide health services (Hurst, 2010). Since such co-operation has been typically secured through the payment of large bonuses, implementing health care reforms under a tight resource constraint, as the analysis in Chapter 2 suggests to be the case for Canada, may prove to be a particular challenge.

Reforms to enhance efficiency in support of sustainability

Recent OECD work (Joumard et al., 2010) has developed a set of indicators linked to health system performance. The efficiency and quality indicators for Canada nicely summarise many of the aforementioned features: above-average efficiency in terms of health outcomes, hospital bed use, primary care and prevention, but with room for improvement with respect to equity of health outcomes and some acute-care outputs. The institutional indicators reflect relatively narrow but deep basic public insurance cover, a large role for (segmented) PHI, provider choice but less use of price signals, high-volume incentives with regulation of capacity but not provider prices, and significant decentralisation but less consistency in responsibility assignments (Figure 3.12). Comparisons with OECD peers would suggest that Canada: extend the scope of the basic insurance package to address inequities in health outcomes; introduce price signals to constrain demand; soften regulation of workforce and equipment; and enforce greater coherence across federal assignments to deliver efficiency gains. As these recommendations accord with the analysis in this chapter, the following discussion will attempt to flesh out and extend them by drawing on the foregoing discussion of incentives and performance.

[FIGURE 3.12 OMITTED]

Steering demand for health-care services

Excessive waiting times suggest that supply is insufficient to meet demand at a zero price. Canada is very unusual in not requiring any form of patient payment whatsoever for core services. Some form of pricing could be introduced in order to better reveal and ration demand. It may conceivably encourage healthier lifestyles and thus prevent costly future chronic diseases by the reduction of insurance moral hazard. Patient user charges could provide the potential "double benefit" of reduced use and co-financing of public health care. Both the extent and health impact of such a benefit is an empirical question which has been poorly studied. However, the US Rand Insurance Experiment (Newhouse, 1993) suggested that a 25% co-payment reduced use by 15%, and a large-deductible plan reduced use by 25-30%, without compromising health outcomes, except for the very poor and sick (which was traced to a lack of initial screenings for blood pressure); the strongest demand response was found when cost sharing was increased from zero to a positive amount. An experiment in Saskatchewan likewise found undesirable impacts of co-payments on health outcomes for the poor and chronically sick (CHSFR, 2001). Most OECD public healthcare systems accordingly exempt such individuals from co-payments. However, since the use of health care is highly skewed, with a small minority of patients (possibly very poor and/or very sick) accounting for the lion's share of expenses, such exemptions could well limit the financial benefit, while also creating "poverty traps".

The impact of user charges on equity could be minimised, and on cost reduction maximised, by making user fees progressive via linkage with the income tax system. Fees could be calculated as a fixed percentage of the total cost of services used by the tax unit, subject to a stop-loss ceiling. The degree of cost sharing would rise with income in an equitable manner. Highly valuable services, notably preventive care, should be exempted from cost sharing, for example by allowing free annual check-ups, as many private plans already do. Aba, Goodman and Mintz (2002) recommend a 40% co-payment by individuals and families of all their hospital and physician costs up to an annual limit of 3% of income, after exempting the first CAD 10 000 (pharmaceuticals and other services would be excluded insofar as they remain outside the Medicare system). It would be administered by the income tax system, and some CAD 6.6 billion in revenues would have been generated in the year 2000. To this would be added CAD 6.3 billion savings in reduced use of services (assuming a very conservative 0.17 price elasticity of demand)--a total fiscal gain of CAD 12.9 billion, or 28% of Medicare spending in 2000 (CAD 46.7 billion), which could be used to cut income taxes and fund other health priorities (notably expanding Medicare to other essential services starting with pharmaceuticals; see below).

In Canada, any form of patient cost-sharing is traditionally seen as violating equity, and therefore rarely considered. It is certainly true that the introduction of user fees, if not graduated for income, would fall most heavily on the poor. However, health care is an inefficient vehicle for poverty reduction and might even be regressive in a life-cycle sense, insofar as life span is highly correlated with income. From both efficiency and income distribution perspectives, a substantial chunk of health spending might be usefully replaced by targeted anti-poverty spending, by dedicating a part of user fees for this purpose. This would leave the poor better off on balance, as they are likely to value better housing, nutrition, education, etc. more highly than health care itself, and an improved overall consumption basket could well have a more meaningful impact on their health status than yet more health spending. Furthermore, it should be acknowledged that the only real alternative to user charges is rationing, and both economic theory and evidence point to the inequities of the latter.

Canadians' attitudes may be undergoing a process of change, nevertheless. Quebec, so often a first mover in Canadian health reforms, has floated the idea of a possible future health deductible (CAD 25 per visit up to 10 visits annually per adult) via the income tax return, thereby taking capacity to pay into account (Government of Quebec, 2010). The purpose of the measure is to encourage citizens to take responsibility for their use of health care and for their own health, while giving the government a tool to orient users in desired directions by adjusting the amount of the deductible. The Quebec government has further indicated its intention to study European systems (e.g. Sweden's) that have implemented significant levels of consumer cost-sharing with success. A recent survey (Ipsos Reid, 2010a) has shown Canadians ready to accept tax-favoured Medical Savings Accounts (MSAs) akin to RRSPs or contribution-based accounts akin to the CPP, as respective vehicles for consumers to manage and "own" their deductibles up to a catastrophic insurance limit or to prefund future health-care needs via social contributions, more readily so than income-linked co-payments or higher general taxes. While MSAs are often considered inequitable and ill adapted to risk pooling, the use of social insurance has been recommended by some experts as an efficient way to finance universal pharmacare (Flood et al., 2008). Another survey (Ipsos Reid, 2010b) showed that nearly half of Canadians would allow controversial measures such as doctor visitation fees and two in three would be willing to accept a change in the health system that would allow them to buy private health insurance for treatment in private facilities not funded by tax dollars.

Encouraging contestability in funding and provision

Another goal is to make the supply side (provision) more efficient in order to satisfy as much demand as possible, while doing so appropriately (with minimal waste), at the given budget constraint. Medicare, despite being a single-payer system, allows for broad consumer choice of provider, private entry (in principle) and provincial autonomy in provision--factors that should be conducive to benchmark competition and innovation, hence productive efficiency. These opportunities are not being well enough exploited. Special new funding streams to reduce waiting times in select high-profile areas have been successful on their own terms, yet treated the symptoms rather than underlying causes of the problem. P4P payments are not only expensive but also tend to distort resource allocation and blunt intrinsic doctor motivation.

Allowing private health insurance (PHI) at the margin of the public Medicare system could impart it with much needed contestability and also encourage private provision. If even only a small portion of the population chooses to opt out of public insurance and purchase private insurance for core services (i.e. duplicate insurance, as in Britain and Sweden), the presence of competition from private plans would give politicians and managers of the public plan a strong incentive to operate more efficiently and reduce costs, since otherwise they would lose market share (Blomqvist, 2008). There is a first move in this direction in Quebec, which has conditionally allowed private insurance coverage for core services suffering from queues. To make such competition at the margin work, doctors should be able to serve either public or private paying patients, as recommended by the Castonguay report (Quebec, 2008). The prohibition of extra billing for core services should continue to hold, so as to force private providers to compete on the basis of efficiency, though allowances may be needed for recouping private capital investments. PHI, if it is to cover a broader array of services including those in the core, will need to be regulated (as it is in Quebec) to prevent it from competing on the basis of risk selection, rather than price and quality. Such plans should be able to operate nationally, i.e. across employment groups and provincial borders, so as to attain sufficient scale for risk pooling.

A similar issue arises concerning the purchase of private insurance against the cost of co-payments and deductibles (supplementary insurance, as in France and New Zealand). It has been argued that this imposes an additional burden on the taxpayer, since by effectively removing the incentive effect of the user charge they increase use of the public system. Since wealthier people would better be able to afford it, there are serious equity concerns as well. It would again be advisable to allow such insurance as a matter of choice and efficiency, but to tax it for the public externality that it imposes (rather than subsidise it in order to make it attainable for the less-well-off, which is expensive, as Australia and other countries have shown). Proposals to tax rather than ban private health insurance (Stabile, 2008 and Glied, 2008) as a way to internalise its negative externalities, suggest a move away from ideological extremes toward Pareto-efficient solutions. Regulation of PHI to discourage cream skimming and adverse selection is a further way to approach this goal. By the same token, regressive tax deductibility of employer sponsored PHI should be discontinued, and instead it should be taxed progressively.

Even in the absence of opting out and mixed physician contracts, a competitive process for public contracting out of health services, notably for private hospital services on an equal footing with public hospitals, could stimulate public-sector accountability as for any type of public procurement. A recent study of procurement of cataract surgery in Alberta suggests the following reforms. Instead of the current system where there are no incentives to hold down prices, no rewards for boosting quality and waiting lists are not rationalised, a new approach (having been proven effective elsewhere) would rely on independent gatekeepers to identify candidates for surgery, a competitive bidding process to hold down prices and warrantees to assure quality (Dranove at al., 2009). Hospitals should be shifted toward activity-based budgeting (as Alberta, Ontario and British Columbia are already partially doing with plans to generalise this approach), to raise their productivity and reduce incentives for waiting lists. Global budgets based on objective criteria like risk-adjusted populations to promote efficiency imply a fairer (needs-based) distribution of health-care resources than do historical cost-based budgets, but contain no incentives to better respond to demand.

In the same vein, contestability should be injected into public bargaining with physicians over fees or incomes. The objective should be to encourage doctors to order fewer (unnecessary) procedures and hospitals to become more efficient in supplying them. Many problems of the Canadian health-care system can be traced to the way that physicians are paid. To attain micro efficiency, physician payment should be decentralised from the provincial to the RHA level, which is less politicised and directly accountable for performance (Contandriopoulos and Brousselle, 2010). Paying doctors partially by capitation along with patient rostering should now be generalised, so as to discourage excessive services while maintaining competitive pressure on physicians to maintain patients on their lists by serving them well. Since payment by capitation creates incentives to over-refer to specialists and hospitals, as one's own effort is not rewarded at the margin, some form of cost sharing for referrals is advisable, for example as with GP fundholding in the English NHS, even though gate keeping is already relatively strong in Canada (Figure 3.12). There is good evidence that a blend of FFS and capitation balances incentives holds down volumes and improves quality of services (Leger, 2008), although the optimal weightings have yet to be worked out. A gradualist approach, designed to quell likely resistance from stakeholders, is to allow patients and physicians to choose between two alternative plans: a rostering/capitation/fundholding plan, typically in the context of a group primary practice (much like US managed care), or the fee-for-service status quo (Blomqvist, 2002). By accepting the restrictions of the rostering plan, patients could be relieved of co-payments and thus induced to opt into it, while doctors would be assured of steady incomes and hours. Consumers' freedom to choose their preferred mix of risk bearing and affordability is efficient. Canada is almost unique in the OECD in offering consumers so little choice in the area of health insurance.

Integrating services inside and outside of Medicare

Among the countries with universal health-care systems, Canada is highly unusual in not having universal coverage for pharmaceuticals. A compelling case can be made that Medicare needs to be updated to present-day notions of essential health care, allowing for both fairness in access and a more efficient, integrated approach to financing and delivery. This may require a reform of the CHA by more broadly interpreting "medically necessary". It would include basic drug and other selected, currently non-core services in an adequate yet comprehensive revised core package. To finance it in a sustainable way, private payment should be allowed for core services, as is already the case in other OECD countries (though in the English NHS to a smaller extent), and already argued above for efficiency reasons. Tough and unpopular prioritisation decisions based on effectiveness and costs will have to be made continually as technology advances.

Fragmented financing has led to fragmented care, which raises costs and reduces quality. It has hampered the delegation of physician tasks to other medical personnel, notably practical nurses who are not only less expensive than doctors but also often better able to deliver relationship-based and holistic care, though scope-of-practice rules may also be a factor. Ontario has already set up the first nurse practitioner-led clinics in some underserved remote areas, though this step has been criticised by doctors. To encourage this development, devolving both physician and hospital funding streams to the RHAs would help them achieve health-system objectives while making competitive contracting more feasible and allowing physicians to be paid under contract with the RHAs as argued above. By further integrating pharmaceuticals and home care into the core insurance package, RHAs' incentives for the prudent management of the various components of the total health-care budget would be well aligned, including the incentive to consider the total health effects of drug coverage policies. The integration of health-care delivery including pharmaceuticals in New Zealand, by way of example, has been one of the keys to its success in controlling pharmaceutical spending (Morgan, 2008b). The RHAs' budget allocations should themselves be based on risk-adjusted populations, rather than historical costs as currently in most provinces. To enhance their political accountability, RHA boards should ideally include a few locally elected members, and provincial ministers should exercise the power to remove appointed board members in case of RHA nonperformance (this seems to work well in other countries, such as Italy following the late 1990s decentralisation reforms). Hospital boards should ideally be separated from the RHAs, so as to let them focus on management in a de-politicised way. Ontario has led the way with its LHINs.

Some approximate figures (based on estimates by Marchildon, 2006 and updated to a 2009 health spending baseline) may help conceptualise the challenge. If all pharmaceutical spending were to be incorporated into Medicare and allowed to benefit from the same zero private cost-sharing policy, annual Medicare spending would be 40% higher, i.e. an increase from around 5 to 7% of GDP with an equivalent reduction in private and provincial public safety net spending, leaving total health spending unchanged at 12% of GDP (in 2009 prices). (20) This estimate, however, assumes that the generosity of the new benefit will be around the average of current provincial and private drug plans, whereas there would be likely political pressure to level up to the most generous plan (Marchildon, 2006). It also abstracts from likely demand effects of moving from large positive copayments for many provincial and private plans--and from 100% for the currently uninsured 10-20% of the population, and similarly for the underinsured--to zero. Lifting either of these assumptions would clearly increase public and total health spending in response to universal first dollar coverage for prescription pharmaceuticals. In an alternative scenario, maintaining the same level of private cost sharing as in the most generous provincial public drug plan today and applying that to hospital as well as out-of-hospital pharmaceuticals (to prevent cost-shifting), while also leaving existing employer-provided private drug benefit plans mostly in place, would reduce the final Medicare bill to some 6% of GDP (an increase of 25%), but again a likely lower limit. Thus, a third alternative must be contemplated, namely extending the modest rate of cost sharing for pharmaceuticals to all Medicare services in order to pay for universal public drug coverage inclusive of its likely demand boosting effects. On a rough estimate, the universal prescription drug plan with copayments augmented by a 10-15% demand increase in response to the expansion of coverage would cost some 1-2 percentage points of GDP. This amount could be fully financed by the predicted savings from the Aba, Goodman and Mintz (2002) basic Medicare copayment model. Of course, given Canada's extremely high rate of drug consumption already, it would be preferable to constrain its further growth and instead to use the balance of these savings to bring under the Medicare umbrella other important non-Medicare services like therapists, community nurses, etc. By promoting integrated models of primary care with long-run savings, such a package could even pay for itself.

Improving quality: the critical role of information

Some of the observed quality problems in Canada's health-care system are caused by misplaced incentives, but also by the sheer growth in medical knowledge against a limited human capacity to absorb and master it. Promoting higher quality and more cost-efficient health care by better information provision and diffusion of information technology (ICT) is increasingly a policy priority in Canada and other OECD countries. Making use of electronic health records (EHR) to handle information overflow and manage risk in healthcare delivery, comparable to that already achieved in finance and industry, seems an obvious solution, though also very costly, as complex data-management systems have to be set up and subsequently maintained by making substantial investments. Canada is providing funding for this purpose as best it can, though progress is often blocked by perhaps exaggerated concerns for privacy, legitimate as these may be, and there have been governance issues related to the need for transparent contracting of very large sums of money. The economic case for such investments appears sound. Preliminary estimates based on successes in similar health care environments suggest that Canada is on track to realise CAD 1-1.9 billion in annual benefits (depending on whether EHR is deployed by 50% or 100% of Canadians) through eliminating duplicative tests and, more importantly, reducing adverse drug events, a substantial payback on investment (Canada Health Infoway, 2007). But even if such large savings did not materialise, international experience demonstrates that the quality of care could be greatly improved.

But major challenges also exist with regard to lower-tech solutions, many of which could be implemented at comparatively low cost while offering high expected returns. Chief among these are: i) ensuring that Statistics Canada has the budget to carry out its important work in the health-care field (e.g. a project to build micro databases following up on health status of individuals for an extended period after treatment--but traditionally resisted by the medical community); and ii) encouraging provincial ministries of health to build up their capacity to process, analyse and share more data on health-system performance--as befits their responsibility for half of the provincial budget--perhaps by marginal conditional funding of federal transfers, as for example the CAD 16 billion Health Reform Transfer of 2004 (see Box 3.1). Better information on prices, volumes, access and quality would allow health-care researchers to study the impacts of policy changes and institutions like the Health Council of Canada to fulfil their intended role of publicly airing provincial problems and generating public discussions of health-system reform needs. Creating an independent, pan-Canadian agency to explicitly monitor health-care quality and provide advice on clinical and institutional best practice, or better yet, giving such a role to an existing one (e.g. CIHI), could importantly support this work.

Levying user charges as argued above will create the obligation to keep detailed records of each taxpayer's use of health-care services. This might be administratively burdensome, and indeed, the opponents of user charges have argued that the costs of processing would largely offset any ex ante gains. Such costs could be lessened by effective use of technology, e.g. smart cards as in the case of France's carte vitale. Furthermore, the need to keep track of costs of individual patient services should contribute to a better information base: the general lack of good cost data has been a significant obstacle to improved resource allocation in health care (Blomqvist, 2002). Major gaps exist in non-fee-for-service physician data, long-term care data and private health services data. Low administrative costs in single-payer systems are considered one of their most attractive features, but should not require skimping on data.

Managing Medicare

Scarcity is a normal condition in publicly funded health care, giving rise to calls for more spending. As the resource constraint must be satisfied in one way or another, public health care has been rationed by means of waiting lists and cost shifting to the private sector. Often these forms of rationing are arbitrary, inequitable and inefficient (e.g. first come, first served waiting-list management; all-or-nothing delisting decisions). Even before the above reforms are implemented, an economic approach to policy priority setting is needed. Such an approach would be based on the principle that change occurs at the margin, so that the relevant choice is how much of a service to provide, not whether it should be provided at all (Donaldson et al., 2002). Only when the benefits of new spending exceed the opportunity cost of its alternative uses should spending be increased. Targeting new health and social spending to disadvantaged populations, notably in areas like integrated primary care and mental health, is likely to yield the highest marginal benefits, hence improvements in overall health outcomes and health-spending efficiency as defined by the OECD. Clearly identifying the objective of health policy as health and well-being of the population (rather than in terms of health care outputs) could underpin a more holistic approach extending the prioritisation process to the entire budget, in which case, an emphasis on education and social equality could be accommodated. At the same time, rules for comparing marginal costs and benefits should be kept simple. Past attempts at economic-based prioritisation were often too resource intensive to work. The Common Drug Review (allocating pharmaceutical resources to where greatest clinical benefit can be derived) and the Western Wait Times Project (prioritising patients on waiting lists by objective criteria) are good examples of economic-based priority setting, hence "rational" rationing. Quebec is establishing an Institut national d'excellence en sante et services sociaux charged with improving health-care quality and informing prioritisation decisions, modelled on a counterpart institution in the English NHS. This could provide an example for other provinces, though ideally a pan-Canadian institution, with potential authority to make binding recommendations as is the case for UK and proposed US counterparts, is needed.

Fiscal-federal governance should also be strengthened. There has been a tendency for the CHA to inhibit provincial innovation and reform, including past attempts by provinces to introduce modest user charges or to allow private provision of core services. Whereas federal policy towards provincial health-care policy has been studiously hands-off, its potential influence as the ultimate guardian of the CHA is great. It should encourage a more liberal interpretation of the Act as part of a helpful coming wave of fundamental health-care reforms in a very difficult budget environment. Past squabbles about the "fair share" of federal transfers for health should be replaced by a transparent rules-based sharing system. Provinces should contemplate taking up tax room vacated by the federal GST cut, and the federal government could consider transferring more income tax points in lieu of cash, to strengthen provincial tax bases, in view of long-run ageing pressures to which they will be subject, and also to strenghten accountability. Cross-country estimates of a significant linkage between health care cost growth and central transfers to lower level governments (in particular if the latter can easily issue debt) suggest that significant savings could be realised with such a transfer of tax points (Crivelli, Leive and Stratmann, 2010). Regulations should be made more similar across provinces and vis-a-vis the federal government. For example, the Common Drug Review should uniquely inform provincial drug-listing decisions, and drug purchasing might be co-ordinated at the national level to enhance collective buying power and align policies.
Box 3.7. Recommendations for health-care reform

This Chapter provides a list of recommendations for promoting
access, cost and quality of the health-care system. Given the need
for fiscal consolidations, as outlined in Chapter 2, priority
should be given to measures promoting cost containment. Any
measures to promote access or quality that lead to additional costs
should be accompanied by financing or incentive measures to contain
these costs.

Promote cost containment

* Eliminate zero patient cost sharing for core services by imposing
co-payments and deductibles. If necessary, revise the Canada Health
Act (CHA).

* For provinces not already doing so, replace historical-based cost
budgeting of Regional Health Authorities (RHAs) by one based on a
formula (e.g. risk-adjusted population). Devolve integrated budgets
for hospital, physician and pharmaceutical services to RHAs to
allow optimising resource allocations.

* For provinces which have not already done so, introduce an
element of capitation or salary for doctor payment together with
fees regulated by RHAs, and strengthen gatekeeping by some form of
cost sharing.

* For provinces which have not already done so, move to
activity-based (e.g. Diagnosis Related Groups) budgets for hospital
funding, contracting with private and public hospitals on an equal
footing, with overall budget caps adjusted upwards to reward
efficiency.

* Base federal funding to provinces on rules and envision tax
points in lieu of cash transfers.

* Control prices for generic drags at internationally comparable
levels.

* Clarify the CHA to facilitate provincial experimentation with
private entry of hospital services and mixed public/private
physician contracts, so as to stimulate competition and innovation
in service delivery.

Promote access

* As finances permit (i.e. following the above cost-containing
reforms), include essential pharmaceuticals, and eventually, home
care, selected therapy and nursing services in a revised public
core package.

* Regulate private health insurance (PHI) to prevent cream-skimming
and adverse selection; remove tax exemptions for employer PHI
benefits, and consider taxing supplemental PHI progressively.

Promote quality

* Accelerate the applications of information and communication
technologies in health care, starting small-scale if necessary,
resolving privacy issues and changing provider incentives as
outlined above.

* Encourage provinces to provide better health-system analysis and
performance data, e.g. by marginal conditionality of federal
funding.

* Charge an existing pan-Canadian, independent agency with
monitoring and analysis of health-care quality.


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Motiwala, S.S., C.M. Flood, P.C. Coyte and A. Laporte (2005), "The First Ministers' Accord on Health Renewal and the Future of Home Care in Canada", Longwoods Review, Vol. 2, No. 4.

Newhouse, J.P. and the Insurance Experiment Group (1993), Free for All? Lessons from the RAND Health Insurance Experiment, Harvard University Press, Cambridge, MA.

OECD (2006), "Projecting OECD Health and Long-term Care Expenditures: What are the Main Drivers?", OECD Economics Department Working Papers, No. 477, OECD, Paris.

OECD (2007), OECD Economic Surveys: Italy, OECD, Paris.

OECD (2009a), Achieving Better Value for Money in Health Care, OECD, Paris.

OECD (2009b), OECD Economic Surveys: Japan, OECD, Paris.

OECD (2009c), OECD Economic Surveys: New Zealand, OECD, Paris.

O'Neill, J.E. and D.M. O'Neill (2007), "Health Status, Health Care and Inequality: Canada vs. the US", NBER Working Papers, No. 13429, National Bureau of Economic Research, Cambridge, MA, www.nber.org/papers/w13429.

Orr, D. (2010), "Why Do Some Provinces Spend More on Health Care Than Others?", Economic Insight, April.

Paris, V. and E. Docteur (2007), "Pharmaceutical Pricing and Reimbursement Policies in Canada", OECD Health Working Papers, No. 24, OECD, Paris.

Payne, G., A. Laporte, R. Deber and R Coyte (2007), "Counting Backwards to Health Care's Future: Using Time-to-Death Modeling to Identify Changes in End-of-Life Morbidity and the Impact of Ageing on Health-care Expenditures", The Milbank Quarterly, Vol. 85, No. 2, pp. 213-257.

Premier's Advisory Council on Health for Alberta (2001), A Framework for Reform: Report of the Premier's Advisory Council on Health, Premier's Advisory Council on Health for Alberta, Edmonton, www.assembly.ab.ca/lao/library/egovdocs/alpm/2001/132279.pdf.

Government of Quebec (2008), Report of the Task Force on the Funding of the Health System--Getting Our Money's Worth, Government of Quebec, Quebec, www.financementsante.gouv.qc.ca/en/rapport/pdf/ RapportENG_FinancementSante.pdf.

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Notes

(1.) Canada does allow the purchase of private insurance to pay for single rooms in hospitals.

(2.) The OECD classifies Canada's private health insurance system as "supplementary", suggesting a mix of private and public financing across a broad range of services (as in Sweden), but this is in fact only the case in sectors outside the legislated medically necessary services (see Stabile, 2008, who classifies it as complementary, or sector-segmented).

(3.) The federal government funds health research through the Canadian Institute of Health Research and collects data on a national basis through Statistics Canada (Marchildon, 2010).

(4.) The Department of National Defence provides regular force members and eligible members of the reserve force with specified benefits for medical, dental and operational reasons. The Royal Canadian Mounted Police is responsible for ensuring the provision of health care benefits for regular members and eligible civilian members. Veterans Affairs Canada offers health care benefits and services to eligible veterans and others who qualify under the terms of two programmes: the Health Benefits Program (medical, surgical or dental examinations; surgical or prosthetic devices or aids; prescribed drugs; treatment by health professionals) and the Veterans Independence Program (a national home care program). Citizenship and Immigration Canada's Interim Federal Health Program is a humanitarian program, the purpose of which is to provide temporary health care coverage for certain classes of migrants (now almost exclusively refugee claimants and Convention refugees) in need of assistance during their settlement period in Canada. The Correctional Service of Canada is responsible for providing federal inmates and some former inmates on parole with essential health care.

(5.) Spending on health human capital, i.e. doctor, nurse and other health professional education and training, comes mainly out of the education budget and is therefore not counted in health spending.

(6.) The major intergovernmental agencies are: the Canadian Institute for Health Information (CIHI) to collect and disseminate health data generated by the provinces; the Health Council of Canada (HCC) to provide assessments and recommendations for reform; Canada Health Infoway (a federal/ provincial/territorial effort) to accelerate development of electronic health records; the Canadian Patient Safety Institute to monitor medical errors and implement improvements in patient safety throughout Canada; and the Canadian Blood Services. Quebec and Alberta do not participate in the HCC (Marchildon, 2010).

(7.) In 2008, Alberta amalgamated all nine of its RHAs into a single Alberta Health Services.

(8.) See Senate of Canada (2002) and Commission on the Future of Health Care in Canada (2002) for the federal reports and Premier's Advisory Council on Health for Alberta (2001), Government of Saskatchewan (2001) and Government of Quebec (2008) for the provincial reports.

(9.) The projected total federal budget cost of these tax expenditures amounted to CAD 2.7 billion in 2009, and a further CAD 1.5 billion went to tax credits for disability and medical expenses (Department of Finance, Tax Expenditures and Evaluations 2009). Statistics on provincial tax expenditures are not published by all provinces, but assuming common provincial-federal tax bases and applying the same percentage tax expenditure to the provincial personal income tax take in 2009, these can be estimated at CAD 2.7 billion--altogether CAD 6.9 billion, some 0.35% of GDP. This compares with USD 200 billion, or 1.4% of GDP, for the same tax expenditure in the United States, reflecting the much larger role of private health insurance and correspondingly larger distortions/fiscal costs.

(10.) Insurance premiums are waived for a segment of Quebec residents (social assistance recipients, low income seniors, as well as children of persons covered under the public plan, if they are under age 18 or if they are 18 to 25, full-time students, without a spouse and live with their parents), who nevertheless receive full coverage of expenses under the public drug plan.

(11.) There have been no systematic studies of the extent of underinsurance (usually defined as private drug payments exceeding 3-4% of household income) (Morgan, 2008a).

(12.) A breakdown of total (public and private) health spending growth over the period 1980-2009 for Ontario finds that the utilisation factor explains one-quarter and relative health price inflation (proxied by growth in the overall government-spending deflator less CPI inflation) for another 8% (TD Economics, 2010).

(13.) Despite a Canadian ban on direct-to-consumer advertising, most Canadian consumers are exposed to such advertising from US television, which is apparently very influential in expanding demand for "blockbuster" drugs (Marchildon, 2005). The industry also may exert substantial influence over physicians and politicians by means of "detailing" (marketing) to the former and intensive lobbying of the latter. Presently, marketing activities account for a larger share of industry costs than does pharmaceutical R&D.

(14.) Beta blockers are relatively inexpensive drugs whose use is strongly associated with improved one-year mortality, but physicians have low incentives to prescribe them, as their own incomes do not benefit (Wolfson, 2009).

(15.) The pro-poor bias in acute hospital care, seen also in Switzerland, the United States, Germany, Belgium and Australia is poorly understood. It could reflect the fact that richer people tend to use outpatient hospital procedures more effectively, and that the poor lack proper primary care, making them more likely to visit an emergency room.

(16.) GPs are also increasingly seeking positions as "hospitalists", which involves serving hospital inpatients on a light schedule and good salary, thus abandoning family practice with its unpredictable hours.

(17.) Cutting waiting lists by extra funding merely addresses the tail end of the distribution, doing nothing to optimally allocate the much larger population all along the list. Patient guarantees, introduced by Quebec and now being developed in collaboration with Health Canada by other provinces, would be preferable because they give provinces an incentive to minimise waits.

(18.) CIHI research shows that non-targeted procedures did not decline as the targeted ones were increased in response to incentives. If so, this may reflect substantial previous hospital excess capacity even in the presence of waiting lists.

(19.) Some of these all-or-nothing decisions may end up increasing demand and costing more in the longer term. For example, eye exams were delisted by Ontario, but this may have resulted in eye diseases being caught later and costing much more to fix, while also adversely affecting health outcomes. Untreated tooth infections because of an inability to pay for delisted dental care can also have grave health consequences.

(20.) The scenario presented by Marchildon (2006) is that of a federal pharmacare programme on an equal footing with Medicare, rather than being an extension of Medicare itself. According to this author, a universal federal prescription drug benefit would help to control rampant drug cost escalation (the major threat to fiscal sustainability) by: resolving the present incoherence between a strong federal role in regulation of prescription pharmaceuticals with provincial responsibility for their administration and payment; allow a natural extension of federal authority to the regulation of generics prices; enable the substantial bargaining power of a single national purchaser to negotiate attractive prices with pharmaceutical companies, ideally making price regulation redundant; increase benefits in the "have not" provinces (notably in the Atlantic provinces) to one of the more generous provincial plans, acting as a national unifier, while allowing a separate yet harmonised (and more sustainable) arrangement for Quebec. Yet, as Marchildon points out, the risk of cost shifting from provinces to the federal government would have to be contained by adequate mechanisms for provincial-federal co-operation in health care.
Table.3.1. Public health insurance coverage and co-payments in
the largest seven OECD countries

2008-09

                  Acute in-patient care      Outpatient primary care
                                             and specialist contacts

Canada            No co-payment              No co-payment
France            Co-payment, 1-24%          Co-payment, 25-49%
Germany           Co-payment (small)         Co-payment, 1-24%
Italy             No co-payment              Co-payment, 1-24%
Japan             Co-payment, 25-49%         Co-payment, 25-49%
United Kingdom    No co-payment              No co-payment
United States
(Medicare 2010)   Deductible, USD 1000 (3)   Co-payment, 20%

                  Pharmaceuticals            Dental care

Canada            Co-payment, (1) 25-49%     Not covered
France            Co-payment, 25-491         Co-payment, 50-99%
Germany           Co-payment, 1-24%          Co-payment, 1-24%
Italy             No co-payment              Co-payment
Japan             Co-payment, 25-49%         Co-payment, 25-49%
United Kingdom    No co-payment (2)          Co-payment, 1-24%
United States
(Medicare 2010)   Co-payment (Part B, 20%)   Not covered

(1). Non-uniform provincial drug plans covering selected
populations.

(2). In England, a fixed charge of GBP 7.20 is payable per item.
However, patients under 16 years old (19 years if still in
full-time education) or over 59 years get prescribed drugs for
free and there are also exemptions for people with certain
medical conditions, including cancer, those on low incomes and
those prescribed drugs for contraception. In Northern Ireland,
Scotland and Wales, prescription charges are either abolished or
in the process of being abolished.

(3). For stays up to 60 days. Between 60 and 90 days, USD 275
coinsurance for each day, and USD 550 per day between 90 and 150
days, beyond which patient pays all costs. Source: OECD (2009),
Health at a Glance 2009 and US Department of Health and Human
Services.

Table 3.2. Total health spending and coverage by province

2008

                                               Health expenditure
                                               per capita

                        Population   GDP per
                          (000s)     capita     (CAD)     % of GDP
                                      (CAD)

                                                    Of which:

Newfoundland and              506     61 758     5 532       9.0
  Labrador
Prince Edward Island          139     33 159     5 224      15.8
Nova Scotia                   937     36 503     5 504      15.1
New Brunswick                 747     36 635     5 329      14.5
Quebec                       7753     38 979     4 654      11.9
Ontario                     12936     45 440     5 314      11.7
Manitoba                     1206     42 147     5 560      13.2
Saskatchewan                 1014     62 656     5 495       8.8
Alberta                      3596     80 997     5 795       7.2
British Columbia             4384     45 150     5 024      11.1
Yukon                          33     57 368     7 586      13.2
Northwest Territories          44    116 720     9 564       8.2
Nunavut                        32     50 659    11 561      22.8

                                        Average
                                        annual          Average
                        Percentage     change in        annual
                          public     public health     change in
                         financed     expenditure     own source
                                      per capita       revenues
                                     1998 (1)/2008   1998(1)/2008

Newfoundland and           76.9           7.6            10.5
  Labrador
Prince Edward Island       72.1           7.5             4.3
Nova Scotia                70.4           7.2             6.5
New Brunswick              71.1           7.3             4.2
Quebec                     71.4           5.8             3.4
Ontario                    68.2           6.3             3.0
Manitoba                   74.2           6.9             8.9
Saskatchewan               77.5           7.2             7.9
Alberta                    73.2           8.3             6.0
British Columbia           70.6           5.4             3.5
Yukon                      78.4           7.5             5.4
Northwest Territories      83.3           6.1            10.8
Nunavut                    93.7           9.0             7.6

                        Share of public health
                        spending in total
                        programme expenditures

                        1997 (2)      2008

Newfoundland and           33          39
  Labrador
Prince Edward Island       33          42
Nova Scotia                42          48
New Brunswick              34          42
Quebec                     39          45
Ontario                    49          52
Manitoba                   45          43
Saskatchewan               45          45
Alberta                    37          42
British Columbia           38          44
Yukon                      19          22
Northwest Territories      26          27
Nunavut                    24          29

(1). Fiscal years: 1999/2000 for Ontario, Northwest Territories
and Nunavut; 2003/04 for Manitoba; 1998/99 for British Columbia.

(2). 1999 for and British Columbia; 2000 for Ontario, Northwest
Territories and Nunavut; 2004 for Manitoba.

Source: Statistics Canada; CIHI (2009), National Health
Expenditure Trends, 1975 to 2009; Department of Finance (2009),
Fiscal Reference Tables, and OECD calculations.

Table 3.3. Private funding sources and CHA compliance

Mechanism              Provinces allowed/     CHA compliance
                       in use

Co-payments *          None                   Not CHA compliant

Extra-billing **       None                   Not CHA compliant

Private insurance      Saskatchewan, New      The CHA is silent on
                       Brunswick, Nova        provision/regulation of
                       Scotia, Newfoundland   private insurance for
                                              insured health services.

Allowing physicians    New Brunswick,         Dual practice is not
to bill both           Prince Edward          explicitly prohibited
publicly and           Island, Newfoundland   under the Canada Health
privately                                     Act, as regulation of
                                              physician practice is
                                              within provincial
                                              jurisdiction. However,
                                              should it result in
                                              diminished health human
                                              resources in the public
                                              system and thereby limit
                                              access to publicly
                                              funded health care
                                              services, it could
                                              undermine the
                                              accessibility criterion
                                              of the CHA. As well,
                                              physicians can practice
                                              both publicly and
                                              privately if the private
                                              care is for services
                                              that fall outside the
                                              insured services of the
                                              CHA, e.g. cosmetic-care
                                              services.

Facility fee (user     ***                    Charging facility fees
fee)                                          for medically necessary
                                              services is not
                                              consistent with the CHA
                                              and is considered an
                                              impediment to access.
                                              Equivalently, facility
                                              fees are CHA compliant
                                              (charged by private or
                                              public facilities) if
                                              the physician fee is not
                                              covered by the public
                                              plan.

Enhanced service fee   ****                   Charges for enhanced
                                              services are permissible
                                              under the CHA as long as
                                              there is no medical
                                              necessity attached to
                                              the product or service
                                              and that a non-enhanced
                                              service is available at
                                              no charge to the
                                              patient. As well,
                                              purchasing enhanced
                                              services must not
                                              provide preferential
                                              access to insured
                                              services, nor can it
                                              hinder access to insured
                                              services to those who
                                              choose not to purchase
                                              enhanced services.
                                              Physicians cannot deny
                                              access due to a service
                                              fee.

Annual registration    British Columbia       Annual registration fees
fee                                           charged by a physician
                                              providing a mix of both
                                              public and private
                                              services would raise
                                              concerns under the
                                              accessibility criterion
                                              of the CHA, if such a
                                              fee impeded access to an
                                              insured health service.
                                              As such it could be
                                              considered either a user
                                              charge or extra billing.

MSA corridor           None                   Medical Savings Accounts
                                              (MSA) do not currently
                                              exist in any province or
                                              territory. Depending on
                                              which health care
                                              services are covered by
                                              an MSA, it is possible
                                              that charges for
                                              services funded by a MSA
                                              could be considered as
                                              either extra billing or
                                              user fees.

* In Canada, the application of charges to patients (i.e.,
co-payment) for insured health services is a violation of the
user charges provisions of the Act. Provinces and territories
that allow user charges are subject to mandatory dollar-for
dollar deductions from their federal transfer payments.

** Extra billing occurs when an insured person is charged by a
physician in an amount in addition to that paid by the provincial
health insurance plan.

*** Facility fees are just one example of a user charge. User
charges are defined by the CHA as any charge for an insured
service, other than extra billing, that is permitted by a
provincial health care insurance plan and is not payable by the
plan.

*** Unknown. However, this is a common practice and fees
for enhanced service quality are probably in effect in all
provinces.

Source: Boychuk (2008) and information provided by Canadian
authorities.

Table 3.4. Expenditure per capita on different care aggregates in
OECD countries

2008 or latest available year, (1)  USD PPP

                        In-patient    Out-patient (2)    LTC/Home
                           care           care             care

Australia                 1 176           1 243             11
Austria                   1 344           1 029            497
Belgium                   1 081             915            758
Canada                      622           1 407            581
Czech Republic              523             598             51
Denmark                   1 015           1 112            724
Finland                     740           1 015            365
France                    1 075           1 020            407
Germany                     995           1 039            506
Hungary                     372             373             59
Iceland                     901           1 149            659
Japan                       652             920            407
Korea                       484             598             51
New Zealand                 666             914            467
Norway                    1 314           1 396          1 283
Poland                      375             325             83
Portugal                    431             983             71
Slovak Republic             367             534             13
Spain                       648           1 083            254
Sweden                      878           1 392            273
Switzerland               1 267           1 459            868
United States             1 392           3 331            667
OECD average of above
  countries                 833           1 083            412

                                    Prevention   Administration
                         Medical    and public        and
                        goods (3)     health       insurance

Australia                  584          67             88
Austria                    680          69            139
Belgium                    649          98            175
Canada                     809         276            147
Czech Republic             428          46             61
Denmark                    448          49             41
Finland                    511         162             64
France                     768          72            253
Germany                    739         135            196
Hungary                    510          55             18
Iceland                    537          53             62
Japan                      577          65             64
Korea                      463          42             56
New Zealand                288         156            192
Norway                     584          97             40
Poland                     305          27             19
Portugal                   508          39             25
Slovak Republic            621          49             68
Spain                      660          67             92
Sweden                     556         120             47
Switzerland                547         104            224
United States              984         266            524
OECD average of above
  countries                580          96            118

                                        Total
                                     expenditure
                        Investment    on health

Australia                  185          3 353
Austria                    213          3 970
Belgium                      4          3 677
Canada                     213          4 079
Czech Republic              44          1 781
Denmark                    151          3 540
Finland                    151          3 008
France                     101          3 696
Germany                    127          3 737
Hungary                     37          1 437
Iceland                     59          3 359
Japan                       42          2 729
Korea                      107          1 801
New Zealand                  4          2 683
Norway                     290          5 003
Poland                      80          1 213
Portugal                    94          2 151
Slovak Republic             86          1 738
Spain                       99          2 902
Sweden                     175          3 470
Switzerland                 _4          4 469
United States              374          7 538
OECD average of above
  countries                125          3 242

(1). 2006 for Portugal; 2007 for Australia, Denmark, Japan and
Switzerland.

(2). Out-patient care covers both hospital and non-hospital
settings. Also includes same-day care and ancillary services.

(3). Covers pharmaceuticals (and other non-durables) and durable
goods.

(4). No separate estimates of investment are available.

Source: OECD (2010), Health Database.

Table 3.5. Average foreign-to-Canadian drug price ratios

2005

                 Non-patented branded   Generic   Patented

Canada                   1.00            1.00       1.00
Australia                0.81            0.85       0.78
Finland                  0.75            0.49       0.88
France                   0.76            0.71       0.85
Germany                  0.91            0.84       0.96
Italy                    0.73            0.76       0.75
Netherlands              0.72            0.80       0.85
New Zealand              0.64            0.23       0.79
Spain                    0.59            0.58       0.73
Switzerland              1.34            0.99       1.09
United Kingdom           0.87            0.80       0.90
United States            2.46            0.65       1.69

Source: Institute of Health Economics (2008), IHE in your pocket
2008, Edmonton.

Table 3.6. Health care quality indicators

Age-sex standardised rates, 2007

                                                          Highest and
                                                             lowest
                         Rank (1)       Canadian data      in sample
Indicator               within OECD                        (per cent)

Breast cancer 5-year    3 out of 16         87.1%         (90.5; 61.6)
survival rates
(2002-07)

Cervical cancer         2 out of 14         71.9%         (76.5, 50.1)
5-year survival rates
(2002-07)

Colorectal cancer       6 out of 16         60.70%        (67.3; 38.1)
5-year survival rates
(2000-05)

In-hospital mortality
rate within 30 days,
stroke

Hemorrhagic stroke      9 out of 19         23.2%         (30.3; 9.5)

Ischemic stroke         17 out of 19         7.6%          (9.0; 2.3)

In-hospital mortality   13 out of 19         4.2%          (8.1; 2.1)
rate, myocardial
infarction

Reduction in
in-hospital case-
fatality within 30
days after admission
for stroke, 2002-07

Hemorrhagic stroke      4 out of 13          5.5%         (0.5; 33.8)

Ischemic stroke         2 out of 13          1.6%         (0.4; 39.8)

Asthma admission        2 out of 22     18 per 100 000     (17; 120)
rates (population
aged 15 and over)

Prevalence of           20 out of 22         9.2%         (10.8; 1.6)
diabetes (population
aged 20-79, 2010)

Amenable mortality      6 out of 19    76.8 per 100 000        --
(2)

(1). Number 1 means highest performance.

(2). Death from treatable conditions.

Source: Nolte, E. and C.M. McKee (2008), "Measuring the Health of
Nations: Updating an Earlier Analysis", Health Affairs, January/
February; OECD (2009), Health at Glance, OECD, Paris.

Table 3.7. Ranking of patient satisfaction

2010

                       Netherlands   United Kingdom   Australia

Overall ranking             1              2              3

Duality care                2              3              4

Effective                   3              1              2

Safe                        1              2              6

Co-ordinated                2              3              4

Patient-centred             6              7              2

Access                      1              2             6.5

Cost-related problem        2              1              6

Timeliness of care          1              4              6

Efficiency                  3              1              2

Equity                      1              2              4

Long healthy and
  productive lives          4              6              1

Health expenditure
per capita, 2008 (1)    USD 4 063      USD 3 129      USD 3 353

                       Germany   New Zealand   Canada   United States

Overall ranking           4           5          6            7

Duality care              5           1          7            6

Effective                 6           5          7            4

Safe                      3           4          5            7

Co-ordinated              7           1          5            6

Patient-centred           3           1          5            4

Access                    3           4          5           6.5

Cost-related problem     3.5          5         3.5           7

Timeliness of care        2           3          7            5

Efficiency                5           4          6            7

Equity                    3           6          5            7

Long healthy and
  productive lives        3           5          2            7

Health expenditure
per capita, 2008 (1)   USD 3 737  USD 2 683    USD 4 079  USD 7 538

(1). At Purchasing Power Parity, 2007 for Australia.

Source: The Commonwelath Fund (2010), Mirror, Mirror on the Wall:
How the Performance of the US Health Care System
Compares Internationally, 2010 update; OECD (2010), Health
Database.

Table 3.8. Median waiting times for specialist physicians by province

Weeks waited, 2009

                       Wait from GP
                       to specialist   Total (1)

Newfoundland               14.0           13.2
Prince Edward Island       14.5           12.2
New Brunswick              14.3           11.4
Saskatchewan               11.2           14.0
Nova Scotia                12.2           10.9
Alberta                    10.0            9.6
British Columbia            7.8            9.2
Quebec                      8.3            8.2
Manitoba                    6.3            8.0
Ontario                     6.7            5.8
Canada (1)                  8.2            8.0

                       Wait from specialist to treatment

                                   Of which:

                       Arthroplasty (2)   Cataract removal

Newfoundland                 20.0                8.3
Prince Edward Island         31.5                8.0
New Brunswick                24.0               15.0
Saskatchewan                 26.0               12.0
Nova Scotia                  60.0                7.0
Alberta                      20.0               14.0
British Columbia             20.0                8.0
Quebec                       16.0               10.0
Manitoba                     24.0                8.0
Ontario                      12.0                6.0
Canada (1)                   n a.               n a.

(1). Weighted average.

(2). Hip, knee, ankle, shoulder.

Source: Fraser Institute (2009), Waiting your turn, Hospital
waiting lists in Canada, Fraser Institute, Vancouver.

Table 3.9. Elective surgery

2008 or latest available year
                                   Canada   Australia   France   Italy

Per 100 000 population:
  Number of cataract surgeries      1 042      899       944      896
  Number of knee replacements         142      158       114       97
  Number of hip replacements          121      155       220      154
Revascularisation procedures (1)      187      282       220      455
Coronary angioplasty as % of           61       69        86       84
  total cardiac procedures

                                   Netherlands   Sweden   Switzerland

Per 100 000 population:
  Number of cataract surgeries         801        790         421
  Number of knee replacements          119        110         179
  Number of hip replacements           205        207         226
Revascularisation procedures (1)       199        218         175
Coronary angioplasty as % of           71          74          80
  total cardiac procedures

                                   United Kingdom

Per 100 000 population:
  Number of cataract surgeries          673
  Number of knee replacements           146
  Number of hip replacements            195
Revascularisation procedures (1)        138
Coronary angioplasty as % of             68
  total cardiac procedures

(1) . Coronary bypass and percutaneous coronary interventions
except for Sweden coronary bypass and stenting.

Source: OECD, Health Database (2010).

Table 3.10. Public health and long-term care spending: long-run
projections In per cent of GDP

                                    Total

                        2005                    2050

                                    Cost-pressure   Cost-containment
1. OECD cross-country
projections

Canada                   7.3            13.5              10.8
France                   8.1            13.4              10.8
Germany                  8.8            14.3              11.8
Italy                    6.6            13.2              10.7
Japan                    6.9            13.4              10.9
United Kingdom           7.2            12.7              10.0
United States            7.2            12.4               9.7
OECD average             6.7            12.8              10.1

II. Canada: domestic
projections

Robson(2009)             7.5 (1)         12                --
Lee (2007)               7.5 (1)        12.5                8

Brimacombe et al.      2.2% annual growth in real per capita
(2001)                 expenditure,  1999-2020 (2)

Matteo and Matteo      1.9-6.1% annual growth in real per capita
(2009, Alberta)        expenditure, 2007-30

TO Economics (2010,    6.5% annual growth in health expenditure,
Ontario)               of which 2% real per capita, 2010-30

(1). 2007.

(2). Between 1999 and 2008, real per capita expenditures (CIHI
definition) grew by 3.7% per annum.

Source: OECD (2006); Robson (2009); Lee (2007); Brimacombe et al.
(2001); Matteo and Matteo (2009); TD Economics (2010).
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Title Annotation:Chapter 3
Publication:OECD Economic Surveys - Canada
Geographic Code:1CANA
Date:Sep 1, 2010
Words:27735
Previous Article:Fiscal-consolidation strategies for Canadian governments.
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