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Getting Better Value for Our Health Care Dollar

by William McArthur, MD

Evidence of the deterioration in Canadian health care is everywhere. Hospitals beds are being closed across the country, and one result of this is that surgical waiting lists are getting longer.¹ Doctors and nurses are leaving the country,² new technology and equipment is falling behind that in other countries,³ in some provinces the sick and elderly are being deprived of top quality medications,⁴ and more and more people who can afford it are heading to the US for treatment.⁵

One ominous trend is that physicians are increasingly constrained by bureaucratic edicts which limit their professional discretion to do what is best for their patients. In British Columbia, for example, the Medical Service Plan will not pay for the simple PSA test which doctors order to detect prostatic cancer. Tests for high cholesterol and other blood lipids can only be billed to MSP under certain tightly controlled circumstances, and in all provinces there is a drug formulary which often does not include some of the latest and most effective pharmaceuticals. In many locations general practitioners do not have access to the now-routine procedures of CT Scanning and MRI examination. This shifting of diagnostic decision making to remote bureaucrats prevents doctors from doing what their many years of training have taught them is best for their patients.

Under the present system, health costs will escalate as the population ages, and government will be less and less able to meet the demands. The likely result will be that physicians will be increasingly prevented from exercising their sound professional judgement, and patient dissatisfaction will increase.  Eventually private sector competition will be permitted and encouraged, but until that happens, the immediate challenge is to modify the existing system to improve the way in which diagnostic and treatment services can be made more readily available to the public within the constraints of the Canada Health Act. Is it possible to introduce competition to socialized health care?

Fortunately there are proven ways of doing this. Two countries that preceded Canada in the provision of universal health care, Great Britain (UK) and New Zealand (NZ), have introduced some of the benefits of competition to their state-run systems. The objective of these changes has not been so much to reduce health care spending, but rather, to improve the value for money spent. This was done by removing the heavy hand of central bureaucratic decision-making from individual patient care, and placing it instead in the hands of patients and their family physicians.

General practice fund holding

The system known as general practice fund holding (GPFH) in Britain, and budget holding in New Zealand, empowers patients and doctors by moving fiscal responsibility to patients and their physicians. This is done by creating budgets for small groups of primary care doctors from which they provide service to their patients. The budgets form the basis of a contract between the doctor and the payer (government) and it then becomes the responsibility of the doctor to spend the allocated resources wisely. This creates incentives that can lead to prudent decision making. For example, an attending doctor may choose to treat a simple ear infection with an effective 11 cent-per-dose antibiotic instead of the latest $3.00 per-pill option. The same principle applies to laboratory tests, x-rays, and other procedures, making the ordering of these tests more focused, more precise, and more responsible. Another important feature is that careful use of these procedures and treatments saves money which ensures that they are more readily available when truly needed.

The budgets are tailored according to the number and type of patients, their needs and the availability of services for each practice or group of practices, and the result is a contract and budget which is unique for each practice. As a result of these considerations, the budget for a practice in Sioux Lookout, Ontario would probably be quite different from one for a practice in urban Toronto. The experience in the UK and NZ has been that when budgets are based in part on previous practice expenditures, there is usually a surplus at the end of the year. By law, this fiscal dividend neither goes back to government, nor into the doctors' pockets. Instead, it must be used to improve the service to patients. For example, a group of doctors with a rural practice in Lancashire, England, spent the saved money hiring two nurses to perform screening house calls for frail elderly patients, leaving the doctors to visit only those who really needed to see a physician. The end result was more and better care for more sick, elderly people.

Budget holding will not create a panacea for all that ails Canadian health care. But provided it is introduced through carefully evaluated pilot projects, it will produce better care than is offered by the present, centrally-controlled system. Both the UK and NZ schemes have their supporters and their critics.⁶ Predictably, family doctors and their patients tend to praise budget holding because it facilitates better decision making for individual patients, hospital administrators and government bureaucrats tend to be very critical of it because their power is reduced, and politicians sensitive to their constituents' wishes generally support the program.

On balance, fund holding has resulted in shorter waiting times for surgery, lower costs for pharmaceuticals, and greater patient satisfaction. Of particular note is that this program is quite unrelated to the way doctors are paid. In the UK, fund holding doctors are paid on a capitation basis, while in New Zealand they are generally paid on a fee-for-service basis, although the trend in that jurisdiction is to move toward capitation.

General practice fund holding is a method of paying for what doctors do. It requires trial and evaluation in the Canadian environment. One or more of the provinces should immediately set up limited and very carefully evaluated pilot projects to assess it. This will not reduce health costs by a large margin, but it will result in better value for the money spent with a consequent increase in patient satisfaction. This outcome should appeal to all politicians regardless of their political stripe.

Notes

¹ Cynthia Ramsay, Waiting Your Turn, Critical Issues Bulletin, The Fraser Institute, Aug. 1998.

² E. Ryten, A. Thurber, and D. Buskel, "The Class of 1989 and Physician Supply in Canada," CMAJ 158(6):723-8, March 24, 1998.

³ OECD Health Care Data, CD Rom, August 1998.

⁴William McArthur, "Reference Based Pricing—A Dangerous and Costly Mistake," Fraser Forum, Jan. 1997, pp. 24-25.

⁵M. Korcok "Excess Demand Meets Excess Supply as Referral Companies Link Canadian Patients, US Hospitals," CMAJ, 157(6)767-70, Sept. 15, 1997.

⁶There is an extensive literature relating to fund holding and budget holding. An up-to-date bibliography will be published on The Fraser Institute's internet site (www.fraserinstitute.ca). Anyone who does not have access to the internet may contact the author at The Fraser Institute (604) 688-0221, ext. 332 for a copy.

William McArthur, M.D., is Senior Fellow in Health Policy at The Fraser Institute. He is a practising physician specializing in palliative care, and he has a special interest in pharmaco-economics.

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