EXECUTIVE SUMMARY
Healthy Incentives: Canadian Health Reform in an International Context
W. McArthur, C. Ramsay, M. Walker, eds., The Fraser Institute, 1996
THE 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.
IMPROVING 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.