Transfusion of Incentives and Competition Needed to Resuscitate Canada's Health Care System: International lessons show Canada's current reforms only Band-Aid solution
Release Date: 15 August 1996
Vancouver, B.C.>>> Canada's health care policy makers should begin reforming the incentive structure of the health care system, and not simply its management or administrative structures, according to a book released today by The Fraser Institute.
Healthy Incentives: Canadian Health Reform in an International Context makes recommendations for health reform in Canada which reflect an awareness of the emerging problems as well as the solutions which have been proposed, and in some cases implemented, in Europe and Australasia. (See attached Executive Summary.)
"Myths have come to define the Canadian 'health care crisis'," said William McArthur, MD, Visiting Fellow at the Institute, "and Canadian policy makers have bought into these myths. Reducing expenditures on health care, closing hospitals, cutting the number of hospital beds, restricting doctors' billing numbers, and prohibiting private clinics are unproven shoot-from-the-hip attempts at reform."
Official OECD data put to rest other well-worn but unfounded contentions, including that health expenditures are directly related to a population's health status; that there are too many physicians in Canada; that Canadians abuse their health care system by visiting their doctors too often; that hospital stays are excessive on average; and that privatization of certain aspects of health care will lead to a deterioration of the health system.
"Canadians need to take a hard look at their health care system," said Cynthia Ramsay, health economist at the Institute and co-editor of the book. "Too often we look at the weaknesses of the U.S. health care system, perceiving it as the only alternative to our own. There are many countries, including the U.S., which offer vibrant, practical, and affordable alternatives to much of what Canada does now."
Healthy Incentives documents some of the international efforts at effective health care reform, and the authors conclude that a Canadian health system should:
•separate the purchasers, providers and regulators of health care;
•allow both the public and private sectors to play a role in the provision and financing of health care;
•introduce incentives for both patients and providers to act in a fiscally responsible manner;
•emphasize the importance of individual patient choice and decision making;
•respect the advocacy role of health providers;
•encourage the health care sector to become an engine of economic growth; and
•ensure that no Canadians are deprived of appropriate care because of age or financial hardship.
To order a copy of Healthy Incentives, please contact David Hanley at (604) 688-0221, ext. 582, or visit our Web site at http://www.fraserinstitute.ca.
CONTACTS: Cynthia Ramsay, Health Economist, The Fraser Institute, (604) 688-0221, ext. 314; William McArthur, MD, (604) 688-0221, ext. 331.
EXECUTIVE SUMMARY
Healthy Incentives: Canadian Health Reform in an International Context
W. McArthur, C. Ramsay, M. Walker, eds., The Fraser Institute, 1996
ITHE INTERNATIONAL EXPERIENCE
What Can Europe's Health Systems Tell Us About the Market's Role?
European experience shows that there is no necessary relationship between the existence of a private health care alternative and a lowering of the quality of health care available to the average citizen. The Swiss health care system has always had a private alternative, and the health status of its residents of all social classes is superior to that exhibited in Britain.
Experience in Europe also puts to rest another common concern about the costs of heath care. Those European countries which have explicitly taken an aging population into account have not experienced an escalation in health care costs: citizens make investments in health care accounts that accumulate against the time when their advancing years will require higher expenditures. Here again, there is much to be learned for structuring a future Canadian health care model.
Britain's National Health Service
Canada's health system was modelled on that of the United Kingdom. If Canadian health reformers were to go to the U.K. in 1996 to look for models, they would find a system that is very explicit about the need to involve both public and private options; a system in which market forces are relied upon to maximise performance from health care providers; a system in which competitive incentives encourage more effective use of resources.
Sweden's Health Care System
Administrative responses to problems in the health care system have produced more problems than solutions. In Sweden, for example, attempts by both hospitals and counties to shed costs have led to residents of extended care facilities being constantly shunted back and forth between extended care and acute care hospitals, each of which is the responsibility of a different level of government. The main weakness of Sweden's health system is that the system is centred, not on the needs of the patients, but on the fiscal needs of government, the administrative needs of institutions, and the income requirements of health care providers.
Health Care in Germany
About 10 percent of Germans are covered by private insurance, and there is no evidence of any deleterious impact on the health care provided to those whose incomes are lower. The fact is that German doctors cannot usually run a practice on the basis of private patients alone, since they represent only one in 10 Germans.
Reference-Pricing in Germany and New Zealand
Germany and New Zealand provide evidence for another emerging Canadian health care policy: referenceÄbased pricing for pharmaceuticals. The objective of reference pricing is to reduce the cost of prescriptions without affecting the quality of care. The idea is that a government committee can designate one drug out of a range of drugs that are used for a particular purpose and make that one available in government subsidized pharmaceutical programs. The evidence from Germany is that the objectives of reference-pricing are thwarted by changes in prescribing practices by physicians and increases in such other health costs as increased visits to physicians and increased hospital admissions. Similar concerns surround reference-pricing in New Zealand.
IIIMPROVING HEALTH CARE FOR CANADIANS
Separating Purchasers from Providers
Some public sector involvement in the delivery and financing of health care should be maintained. In Canada, however, the government is purchaser, provider and regulator of virtually all medical services in the country. The problems facing our health system today are typical of those caused by monopolies: deteriorating quality of service, higher prices, delayed innovation, consumer (patient) dissatisfaction. Separating purchasers and providers, and creating regional purchasing agencies (RPAs), is the first step in bringing competition into the system. RPAs would purchase health care for the people of their region, develop contracts with providers, and monitor the services being delivered. Private providers and private insurers would also be permitted to operate.
Acute care hospitals in Canada consume 38 percent of total health spending. Most of them are so heavily regulated and controlled by government that they are effectively government institutions; institutions in which as much as half, or more, of the services could be provided more efficiently elsewhere. Canadian hospitals need to be reorganized. A substantial proportion of the now-publicly-owned hospitals need to be privatized. And, since labour costs account for 75 percent of hospital budgets, the structure of wages and the conditions of work in hospitals must be re-examined.
Fiscal Responsibility by Providers and Patients
Budget Holding
Budget holding enables the public purchaser to allocate funds to primary care providers for the provision of their patients' medical care. The allocated funds are used exclusively for the provision of patient services, none are used for direct provider remuneration, and any savings must be applied to enhance patient care. Patients are free to change primary care providers if the service with which they were provided was not satisfactory. Competition would force budget holders to maintain or even improve the level of service. The introduction of budget holding in the U.K. has improved the care available to patients, reduced waiting times for surgery, and improved access to diagnostic tests.
Medical Premium Accounts
An alternative to budget holding is for the government to allot funds for health care to the consumer directly in the form of a medical premium account (MPA), which is comprised of two parts: the cost of catastrophic insurance and the funds in an individual's account. In an MPA plan, patients pay for most of their care directly to their provider so that everyone is aware of the costs involved. Patients have an incentive to "shop around" for services, and health providers have an incentive to reduce their operating costs without reducing the quality of service, in order to attract patients.