Health Economics CIA 2 Submitted to Prof P.M.

Mathew Department of Economics Christ University

Canada A Brief view about its health sector

- Sneha John 1114326 3rd PSEco

Canadians cherish their health care system. Health care is viewed as a right, and nobody is denied medical or hospital care because they are unable to pay. Research in the province of Manitoba reveals that even in the remote northern communities, over 80 percent of residents see a physician at least once a year. However, cuts are being made to health care budgets across the country, and there is a widespread perception that the health care system is in peril. The Canada Health Act of 1984 ensures universal access, comprehensive coverage, and public funding for 1997 hospital and physician services. Both patients and physicians experience substantial freedom of action within the system: patients are free to chose their doctors and to visit more than one doctor for the same complaint. Physicians are free to prescribe treatments and to admit patients to hospitals with little scrutiny. Although the Canada Health Act is a federal law, its administration is a provincial responsibility. Provinces provide annual block grants to each hospital, which then allocates funds to its programs and services. The majority of physicians are paid through a fee-for-service arrangement: a claim is fled with the provincial government for each patient service provided, and physicians are reimbursed according to fee schedules negotiated between provincial governments and medical associations. Although only hospital and physician funding are mandated by legislation, many provinces have expanded their public health insurance programs to cover prescription drugs, home care, and long term institutional care. Public administration with a single payer system has helped control costs in Canada. Part of the reason that the United States has the most expensive health care system in the world is the administrative costs of its huge private insurance system. For every dollar the American commercial health insurance industry spent on health claims in 1988, it spent 33.5 cents for administration, marketing, and overhead, while the U.S. Medicare system spent 2.3 cents and the public health care system in Canada spent 3 cents.

Canadian provinces finance health care through a combination of provincial revenues and federal transfers. The contribution from the federal government in Ottawa empowers it to enforce the Canada Health Act since it can levy financial penalties against provinces that contravene the Act. (An example of a contravention of the Canada Health Act would be permitting doctors to practice outside of the public system.) However Ottawa's contribution has gradually declined from the original 50/50 cost-sharing agreement to less than 20 percent of health care expenditures today. The pace at which this contribution has fallen has escalated in recent years as the federal government has focused on getting control of the deficit. In 1997-1998, cash payments from Ottawa to the provinces to assist with financing health, social services, and post-secondary education will be $6.6 billion less than in 19941995-an astounding 40 percent reduction. The decline in the federal contribution has had two major consequences. First, the provinces are scrambling to maintain the public health care system with substantially reduced resources. As a result, hospitals have had their budgets frozen or decreased, measures have been adopted to curtail physician fee payments, and media attention to these issues has generated public concern. Second, the provinces are less vulnerable to financial penalties imposed by Ottawa. Given the federal government's much smaller relative financial contribution, any further withholding of funds only serves to dilute its power even further. These two factors have enhanced the appeal of private sector health care. In Canada, the term "private health care" is generally care that is paid for by private sources: private insurance plans, employer-provided health plans, deductibles and other out-of-pocket expenses. Like the United States, Canada has both publicly and privately owned hospitals, clinics, and other facilities.

In Canada, one issue that tends to prevail arguably more than any other in Canadian public policy debate is the issue of health care and health care delivery. At the heart of this issue is the debate over public versus private health care. The purpose of this article is to provide an overview of public and private sector participation in health care. Generally speaking, Canada has a mixed public-private system a system where the private sector delivers health care services and the public sector is responsible for financing those services. The Canadian system, however, is not completely consistent with this model. Canadian governments exercise considerable authority over the delivery of services by the private sector. Moreover, while governments fund the large majority of services, the private sector does play an important, albeit secondary, role in health care financing.

Elements of the Canadian Health Care System

A basic defining characteristic of Canadas healthcare system is federalism. Canada is a federation, meaning that political power and authority is divided among and between levels of government. There is the federal government (the Government of Canada), empowered to enact laws for whole the country. Canada is further comprised of numerous sub-national or regional governments, referred to as provinces and territories. There are 10 provinces: British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Newfoundland and Labrador, Nova Scotia, New Brunswick and Prince Edward Island. Canada also has three territories: Yukon, Northwest Territories, and Nunavut. Under Canadian federalism, the federal and provincial levels of government enjoy their own jurisdictions or areas of public policy. In many cases, one level of government has exclusive authority

in a particular area of public policy. What does this have to do with Canadas health care system? Under the Canadian constitution, health care falls largely under the authority of the provinces. Only provincial governments have the power to pass laws governing the financing and delivery of health services to the majority of Canadians. This, in turn, has had important implications for the Canadian health care system. Instead of developing a national system that is centrally administered and uniform across the country, Canada has essentially developed several provincial health care systems which differ significantly in structure and operation. In sum, one cannot speak of Canadian health care as a single system, but as a patchwork of provincial regimes. This is not to suggest that the federal government plays no role in health care. Besides enjoying authority in some niche areas of health (such as providing Aboriginal healthcare and policing food and drug safety), the Government of Canada has exerted considerable influence through constitutional spending powers. The federal government is permitted to spend money in the area of health care, either through fiscal transfers to the provinces or directly to individuals and groups. The federal government spends tens of billions of dollars annual in support of provincial health care systems. The federal government uses this money to influence provincial policy-making in the area of health care. It provides money to the provinces if they implement programs and policies that are consistent with federal objectives. Conversely, if a province institutes policies that directly contravene federal goals, the federal government can choose to withdraw its financial support. The Canada Health Act, federal legislation that sets out a list of criteria that must be met by the provinces if they are to receive annual federal monies, clearly illustrates the extent of the federal governments leverage in the health care realm. The Canada Health Act includes the requirements that all provincial systems be publicly administered, comprehensive, universal, portable, and accessible. Health Care Delivery Within this patchwork of provincial systems, health care in Canada can be divided into two basic elements: delivery and financing. These distinctions are important when one turns to the question of public and private participation in the health care system, as each sector plays very different roles in the delivery and financing of medical services. Health care delivery refers to the manner in which medical services are organized, managed, and provided. Central to health care delivery are the professionals who provide medical services to Canadians. In 2009, the health industry was the second largest employer in Canada, employing approximately two million people. This represented almost 12 percent of Canadas total employment for 2009. The health care industry includes a broad range of professionals. A key group is doctors or physicians, who work mostly in independent or group practices. Some doctors also work in health centres, hospital-based group practices or primary health care teams (see below for definition of primary care), or are affiliated with hospital out-patient departments. Another important group is nurses, primarily employed in acute-care institutions (such as hospitals), but who also provide community and homebased health care services. Other key groups of health care professionals include dentists, optometrists, laboratory and medical technicians, therapists, psychologists, pharmacists, public health inspectors, and speech language pathologists and audiologists. In Canada, these health care professionals are usually organized into three types of services (Health Canada, 2007). The first are primary care services, which serve as the foundation of the Canadian health care system. Primary healthcare represents Canadians first point of contact for health services,

and are largely provided by independent family doctors or group-doctor practices (groups of family doctors in the same practice)community health clinics, or telephone health information lines. Generally speaking, primary health care serves two key functions. This includes the direct provision of first-contact services, such as the prevention and treatment of common diseases and injuries, and basic emergency services. The other function of primary care services: coordinating the movement of patients to other levels of care, such as referrals to medical specialists and hospital admissions. The second basic type of services are secondary care services. These include a broad range of specialized medical services not normally provided by family doctors or community health clinics such as acute emergency care, diagnostic testing, prescription drug therapy, rehabilitation services, counselling, and palliative care for those near death. While predominantly offered by hospitals, secondary health care services are also offered in specialized medical facilities and through home care. The third basic type of services are known as additional care services. These include medical services not usually covered under provincial health insurance plans, such as prescription drugs, dental care, vision care, medical equipment and appliances, and independent living for seniors and those with disabilities. It is important to note, however, that what may be included in additional health services can vary significantly from one province to another. Health Care Financing The second basic element of any health care system is its financing that is, how medical services are paid for. Generally speaking, in western industrialized countries, health care tends to be financed by two key sources: out-of-pocket payment and health insurance. Out-of-pocket payment occurs when the patient must directly cover costs associated with a medical service. This type of financing may be further distinguished by complete payment and cost-sharing. Complete payment occurs when the patient must bear the full cost of the medical service. This can result from having no health insurance or receiving services that are covered by the health care users insurance plan. Cost-sharing, by contrast, includes out-of-pocket payments where the patient is required to cover only a portion of his/her medical services. A common example is insurance deductibles, where a patient pays a fixed amount to his/her insurance plan before any payment of benefits takes place. Another example is user fees, requiring that the patient pay a small fee to the healthcare provider (e.g. the hospital) upon receiving medical service. The second key source of health care financing is health insurance. In broad terms, insurance is a means by which individuals pool the risk of incurring medical expenses. Instead of paying for their medical services directly from their own pockets, individuals or groups participate in a collective fund that covers their health care costs. Health insurance can be organized in different forms, with a basic distinction being public versus private insurance schemes. Public health insurance refers to schemes covering the community as a whole (or large segments of the community) which is imposed and controlled by a government unit. Private health insurance, by contrast, refers to schemes that are controlled and administered by non-governmental or private entities, and which usually cover only a small portion of the general population. Public insurance schemes can be further distinguished by the manner in which they are funded. One approach is through insurance premiums, where individuals pay regular premiums into a public insurance fund to receive benefits. This is commonly referred to as social security financing. Another approach is through taxation, where the insurance plan is funded by the government through taxes

paid by citizens and residents. Public insurance schemes can also take a mixed approach, funded by both premiums and general taxation. Private insurance schemes are usually funded through premiums, which may be borne by the individual and/or his/her employer. Moreover, private plans can be either non-profit or for-profit. In non-profit schemes, the private insurer only seeks to collect premiums and other fees necessary to cover the costs incurred by the insurance fund, such as payment of benefits and administration costs. In for-profit schemes, the private insurer operates the insurance fund as a business, seeking to generate a profit by generating revenues above what is necessary to cover costs. Public Sector in Health Care Generally speaking, public participation refers to the involvement of government or the state in health care. The term government can include a wide range of entities, from the national or federal government, provincial governments, regional authorities, and local or municipal governments. Public participation may come in many different forms. At a minimum, the state may regulate the health care system by imposing laws governing the delivery and financing of health care. The state may play a more extensive role, however, such as providing and funding health care services; this could include employing healthcare professionals, owning or controlling hospitals and clinics, or directly administering and financing public health insurance schemes. Private Sector in Health Care Private participation, by contrast, refers to the involvement of non-government entities in health care delivery. While the notion of non-government is quite broad, it generally includes for-profit businesses, charitable and non-profit organizations, as well as individuals and families. Private participation may occur in the delivery of health care services through private for-profit or non-profit hospitals and clinics and the financing of services through individual out-of-pocket payments and private health insurance. Mix of Private and Public Participation Most western industrialized nations do not have fully public or private health care systems. In other words, it is usually not the case that health care is completely delivered and financed by either the public or private sector. Instead, most can be characterized as being a mix of public and private participation, although they may differ significantly in the precise roles that the different sectors play.

Health Care Delivery in Canada

Health care delivery refers to the manner in which medical services are organized, managed, and provided. In this regard, Canada has a system with a strong mix of public and private involvement. In most cases, private individuals and organizations are responsible for delivering medical services to patients. Nevertheless, provincial governments exercise considerable authority over the manner in which these private entities deliver services. Physicians as Private Practitioners Physicians play a central role in providing medical services. Primary care, also known as first-contact clinical service, is provided predominantly by family or general physicians. Doctors are also central to secondary and additional-care services, providing specialized medical services in hospitals, clinics, and long-term care facilities.

Most physician services in Canada are provided through what is effectively a private, owner-operated small business. Physicians are not employed by the state, but operate as independent private practitioners, contracting their services to the state or general public. In this context, the vast majority of physicians work in a private office or clinic settings, either as solo practitioners or in group practices with other physicians.

Physicians by Type of Work Setting, 2007 Type of Work Setting Private Office or Clinic Community Hospital Academic Health Sciences Centre Emergency Department (in Community Hospital) University Faculty of Medicine Nursing Home/Home for the Aged Community Clinic or Health Centre Free-standing Walk-in Clinic Administrative Office Research Unit Free-standing Lab/Diagnostic Clinic Other Work Setting Percentage of Physicians 57.8 35.8 28.5 18.1 17.8 12.9 11.1 7.7 7.0 4.5 1.3 11.9

Large portions of physicians incomes stem from what is referred to as a fee-for-service mode of payment. This approach sees physicians paid a fee for the particular service they provide to a patient. In most cases, however, physicians are not free to set their own fees for their services. This is because basic medical services in Canada are exclusively covered by provincially-run public insurance plans. Moreover, provincial governments negotiate with physician associations in each province to set fee schedules for the province. Accordingly, physicians are thus only entitled to bill public insurance plans what has been negotiated in the fee schedule for the province in which they live. Private Participation in Health Care Facilities While most hospitals in Canada operate in this semi-private manner, some hospitals are completely private, operating on either a non-profit or for-profit basis. These are private hospitals that existed prior to the shift by the provincial governments to the role of health care stewards. As such, these private facilities have been allowed to continue providing medical services. Ontario, for example, has eight such private hospitals that are regulated by the provincial Private Hospitals Act and funded by the provincial government through annual budget allotments. Private participation in the health care system also occurs outside the hospital realm. For example, residential care for seniors is often delivered by private, for-profit entities. Private companies construct, own, staff and administer seniors care facilities, charging clients regular fees for their services. Additionally, many provinces have allowed the development of private, for-profit specialized medical facilities. These facilities do not operate as standalone hospitals, but offer specific services to complement those offered by traditional hospitals. One example is private, for-profit MRI (magnetic resonance imaging) clinics, which exist in British Columbia, Alberta, Manitoba, Ontario, Quebec and Nova Scotia. Patients may gain quicker access to MRI scans by paying for these private services through private health insurance or paying for them directly.

Public Sector Financing of Health Care The public sector accounts for the large majority of spending on health care in Canada. While all levels of government contribute to health care financing, the largest source of public spending are provincial and territorial governments. This is because the delivery and financing of health care falls under provincial jurisdiction. The next largest public contributor is the federal government, which provides annual fiscal transfers to the provinces and territories in support of their health care spending in addition to direct contributions for health programs and initiatives falling under its jurisdiction (i.e. Aboriginal and veterans health, health protection, disease prevention, health information and healthrelated research). Lastly, local and municipal governments provide small levels of financing for local health initiatives. Public health insurance plans also represent a significant avenue of public sector financing. Each province and territory in Canada has mandatory and universal health insurance plans, to cover basic medical services. These are public insurance schemes insofar as they are administered by provincial/territorial governments and funded almost exclusively through taxation. This includes general provincial/territorial taxes and the annual federal fiscal transfers. Provincial/territorial health insurance plans are mandatory and highly monopolistic. Canadians are required to participate in the public financing of these plans through general government taxation and health premiums. Moreover, private insurance is not available (or is very limited) for those services covered by public plans. It is important to note, however, that public health insurance is not completely comprehensive in its coverage. Also, while coverage differs from one province or territory to another, it tends to cover only basic or medically necessary services. This includes most primary and secondary care services, such as visits to the family physician and specialized hospital care. Another way the public sector finances health is through direct program funding. The largest of these initiatives tend to relate to hospitals and other health facilities. As discussed above, hospitals in Canada are typically operated by private community or voluntary boards. Their operating and capital costs are largely funded through annual government budgetary allotments. Governments also spend directly on other programs such as health protection (i.e. anti-smoking campaigns) and health research. Private Sector Financing of Health Care While health care in Canada is financed primarily by the public sector, the private sector also plays an important role. As discussed above, public health insurance plans are not completely comprehensive, tending to cover only basic or medically necessary services. As such, the private sector fills the gap, financing those additional care services not covered by provincial/territorial health insurance plans. The level of private participation in health care financing differs significantly from one province and territory to the next; this is because different jurisdictions cover different sets of services under their public insurance plans. Two key areas of additional care, however, tend to be financed largely through the private sector: dental and vision care. Other areas that often have large private participation include medical equipment and appliances and independent living for seniors and those with disabilities. Another important area of private sector participation is prescription drugs. It is necessary to distinguish between drugs prescribed and consumed in hospitals and those consumed outside a hospital setting. Drugs consumed in hospitals are covered by provincial and territorial governments, either through their public insurance plans or through direct financing of hospitals. Drugs consumed outside a hospital setting, however, are only partially subsidized by the public sector. Provincial/territorial drug plans are not universal, but tend to target vulnerable groups, such as those in the lower economic classes, the elderly, and the seriously ill. Moreover, drug plans often do not

necessarily cover the full cost of prescription drugs. In some cases, individuals are charged a copayment or deductible. The private sector assists, financing drug costs for those not covered by these provincial/territorial plans. Within these areas of health care, there are two key sources of private sector financing. The first is out-of-pocket payment, which includes direct payment of costs by individuals and their families. In many cases, individuals pay for dental, vision and drug costs directly themselves. The second key source of private financing is private health insurance plans. This includes plans which individuals and families have purchased independently, as well as employer-based plans which individuals participate in through their workplaces.

Changes to be made in the Health Sector1. The Canadian Health Care Systems Goal Is Not Well Articulated or Shared- There is little
agreement among Canadians on the desired health care goal. Some see it in terms of acute care hospital outcomes; others in how many people are serviced, or how much procedure waiting times are reduced. We need a clear and agreed-upon articulation of the goals. At the Summit, there seemed to be a general sentiment that the real goal should be to promote the health and happiness of individuals in our society. This is not necessarily achieved by focusing as strongly as we do on acute care and patient processing. 2. The Debate about Health Care System Funding Is Also a Debate about Where We Make Tradeoffs in SocietyRising health care costs and public funding for the existing system are limiting public investments in other areas that could make us a more effective, equitable, and successful societyparticularly among and between generations. Health care costs are rising toward 50 per cent of provincial budgets and are crowding out spending on other priorities. Interestingly, on the margin, health care services are not a major determinant of the health of a populationsocial and economic factors and resulting individual behaviours are the primary drivers. As such, an argument can be made that a dollar invested in improving the economic and social factors affecting population health has more impact than an additional dollar invested in our health care systemparticularly when the system remains focused on the acute care aspect of health care.

3.Not Everyone Means the Same Thing When They Speak About Sustainable Health CareAs with any enterprise, some individuals and groups are fully vested in maintaining the status quo the existing system. They wish the system to be durableto continue what it is doing, but with more resources. Others understand that putting more resources into the "system to maintain what exists will not lead to its true sustainability. They wish for the sustainability of health and health care; not for the existing health care system to be sustainable.

4. Ideology, Sometimes Promoted by Vested Interests, Is Preventing Real Transformation

There was little disagreement at the Summit with the assertion that we have tied our identity as Canadians to our health care system. We need to decouple our identity and values from the dialogue around health care services if we are to realize real change. A healthy society and health care access for all are values we can share. The notion that the system is largely funded through public resources is a choice we have decided to make. Public resources can, however, be channelled through public or private delivery mechanisms (for profit and not-for-profit) to achieve societal health care goals. The European experience demonstrates that private delivery of health care service within publicly financed health care systems can be beneficial. In the end, transforming the delivery of health care

services and creating greater innovation and flexibility in our health care system should not be viewed as an assault on our values.

5. If We Actually Do Have a Health Care System, That System Is Balkanized

If we had a pan-Canadian health care system, we would be taking full advantage of the benefits that can be captured when we share knowledge development, best practices, and purchasing power for key inputs across and within jurisdictions. Simply stated, we dont share enough in any of these areas. In addition, many speakers at the Summit cited examples where not enough knowledge was being stored or shared in the system to leverage efforts and treatments. While everyone agreed health care should be patient-centred, it was noted that we have been talking about this redesign for decades, but never achieve it as we pass patients through loosely connected health care workstations.

6. The Health Care System Is Locked Into a Model from the 1960sThis reflection, shared over and over at the Summit, does not mean that clinical procedures havent changed. Rather, it means that the functioning of the health care system is not configured or operated in a way that helps it achieve maximum effectiveness or efficiency. We are fighting to deliver modern health care within the constraints of multiple outdated systems: physical infrastructure, service delivery models, provider incentives, labour contracts, and the flow of information, to name but a few. The system, as developed in earlier days, was designed to protect citizens financially should they be hit by catastrophic health events where most of the treatment cost occurs due to acute medical interventions that takes place in hospital. The health care system, as it was designed then, did fairly well in delivering desired results for the first few decades. Much of the available care that once took place only in hospitals can now be delivered in the community and even in the home. However, the current system that was built in the 60s is ill-equipped to efficiently support this new delivery of health care.

7. The Health Care System Needs Total Transformation and Patients Should be Empowered and Trusted to Lead This Change
Health care is a service industry that exists to meet the needs of patients. However, the system is still stuck in a model from the past, in which providers made the rules and controlled all decisions. As societies evolve, citizens increasingly demand transparency and participation in decision-making. They also expect the system to respect their values and preferences and to facilitate access to health care services. Patients dont care about silos within the system; they want to have access to seamless services that meet their physical and emotional needs. To achieve this, we need to halt the paternalistic approach that assumes we know what patients need and shift to involving them as active participants in the redesign process.

8. System Transformation Requires Creating the Right Incentives and Holding People Accountable for Patient Outcomes
Health care should put less emphasis on counting transactions and interventions and more on knowing whether these interventions make a difference in patients lives. Improving the quality of health care services and increasing value for money requires a fundamental transformation in the culture, incentives, and working practices of health care providers and administrators. This shift in culture and practice should be supported by measuring outcomes and establishing accountability frameworks

tying these outcomes to performance targets. Globe and Mail columnist, Jeffrey Simpson, who presented at the Summit, asserted that the expenditure of many additional billions of dollars following the 2002 publication of the Romano Report did less to improve health care outcomes than it did to boost professional salaries