The Real Crisis in Medicare

Canada needs (and can afford) complete national health care
December 1, 2012

Contrary to the alarm raised by Canada's premiers, the Harper government's abdication from its leadership role in health care does not constitute a crisis. Canada's health care system has been under provincial jurisdiction since the Constitution Act, 1867, and the federal share of health care funding has now dwindled to 20% from the initial 50/50 sharing.

The real crisis of Canada's health care is its deteriorating quality vis-a-vis rising health care spending -- as highlighted by recent surveys by the OECD, World Health Organization, and others. The Conference Board of Canada gives Canada's health care system a B grade and the 10th rank among 17 peer countries, even though our system covers only about 70% of health-related expenses, compared to the more than 90% coverage provided by our peer countries. In short, this means Canada is paying more for inferior care. Embarrassingly, the UN ranks Canada 24th in infant mortality -- an important indicator of a country's level of health care -- below Portugal and South Korea.

Paul Martin's 2004 $41 billion health care accord was supposed to cut back wait times, afford 7/24 access, provide electronic records for everyone, and improve drug coverage and home care. None of these goals has even been half-fulfilled. A recent Wait Time Alliance Report reveals that nationwide wait times have soared -- most precipitously in Nova Scotia, Manitoba, and P.E.I. Nationally 31% of sick children wait too long for surgery.

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The optimal resolution of this health care crisis needs reforms, in particular the introduction of an integrated national health care system that would replace the current 14 decentralized publicly-funded health authorities (i.e., a federal and 13 provincial/territorial jurisdictions) and the privately-funded health care which accounts for about 30% of our health care expenses that are currently paid either by private insurance or out-of-pocket money.

A national health care system would establish pan-Canadian standards and programs; eliminate redundancy and wasteful inter-regional competition; and help optimal health care planning and resource management. This would enhance access and the quality and efficiency of care.

Canada's premiers/ territorial leaders are fully cognizant of this alternative system. The Working Group created by the premiers in January 2012 was given the task of"identifying the [required] innovations in health delivery." Premier Clark of British Columbia added, "We need to not just innovate, but also be sure that we are sharing those innovations all across the country." In the words of Premier Brad Wall of Saskatchewan, "Here is a great opportunity for us to be able to collaborate together."

Unfortunately, the Working Group's Report emphasized the need for change, but shied away from examining the causes of health care's poor performance and the necessary remedial changes.

The two overwhelming obstacles against developing a national health-care system have been 1) the difficulty in forging an agreement among the provinces, and between the provinces and the federal government, and 2) the procedural difficulty in amending Canada's constitution to empower the federal government to introduce a national health care system. A national health care system collaboratively put together by the provinces, however, does not need any constitutional change.

Since the 1970s, many regional governments started to subsidize, fully or partly, some of the health care services not covered by Medicare, such as out-of-hospital drugs (especially for seniors and the poor); nursing care; dental and vision care; addiction treatment; mental health services; ambulance service; and long-term care. These were moves in the right direction, but a truly national health care system would effectively promote the maintenance of health and the prevention of illness for all Canadians, and provide, when required, equitable access to a seamless continuum of high quality care. This range of services goes far beyond what is currently insured and provided by Medicare.

The challenges facing a proposed National Health Care System include: 1) Canada's distinctive geography and demography; 2 )Canada's history and social conditions; 3) the accelerating rate of growth of Canada's health care spending; and 4) its sustainability.

Canada's geography and demography

The population of Canada (estimated to be 34.8 million in 2012) is highly urbanized, with approximately 81% of citizens living in and around large cities. The rest are scattered in small communities separated by long distances, often with problems of access.

The Working Group's report identifies several field-tested, team-based models of health care delivery that have the potential to provide 24/7 access to primary and emergency care in remote communities. To be effective, these models must ensure delivery of primary care through Primary Care Centres instead of the current practice of delivering primary care via expensive emergency rooms (ERs) and tertiary care hospitals. Primary Care Centres should be staffed by doctors, nurses, psychiatrists, pharmacists, and other public health workers, and be the centres of interaction among different disciplines of medicine, health promotion, and preventive and community medicine.

Outside office hours, the Centres should be staffed by practising nurses and paramedics, who might consult designated doctors or refer patients to ERs. Tele-medicine has made effective medical intervention from a distant location feasible and, in many jurisdictions, almost routine.

Our aging population

Canada's population is aging fast, but the process of aging, by itself, is not an important cost-driver in health care. Nevertheless, as the percentage of octogenarians and older people increases in Canada, the challenge will be todevelop innovative models of care for delivering a continuum of hospital care, ambulatory care, home care, and other forms of long-term care, as well as terminal care.

Marginalized Canadians

Historically, certain segments of Canada's population, such as the First Nations, have been receiving grossly inadequate health care. The First Nations' health care problem is complicated by their high levels of poverty and unemployment. Several studies show that health is closely linked with poverty, unemployment, and the income gap between rich and poor. A 2011 OECD report also shows that Canada's income gap is well above the 34-country average, and is still increasing.

The models for health care delivery to Canada's marginalized communities must therefore focus on the betterment of their social conditions and the availability of more and better jobs.

Health care spending growth

From 1975 to 2011, Canada's public health care spending shows an initial growth phase till 1991; then comes a short period of downturn (1992-1996), followed by another growth phase (1997-2011). A report by the Canadian Institute for Health Information (CIHI) estimates a slight decline in health care spending in 2011, from the historic peak of 11.9% of GDP in 2009 and 2010 to 11.6% of GDP in 2011. This debunks the myth that the rate of growth of Canada's health care spending is out of control and in need of some form of privatization.

Nevertheless, cost-efficiency does improve the quality of care. The money saved could be spent to help fund other essential social programs. But clearly, with rare exceptions, the rate of growth of Canada's health care expenditure must be brought down to the level of the rate of growth in the country's economy.

Cost cutting is the single most effective tool for enhancing efficiency. Another recent CIHI report has identified three major cost-drivers in Canada's health care. The factors that contribute to these cost-drivers and indicate the possible methods to control them are 1) doctors' services, 2) hospital costs, and 3) the costs of pharmaceutical drugs.

Doctors' services

Between 1998 and 2008, doctors 'compensation grew by 6.8% annually in Canada, outpacing the growth of hospital and pharmaceutical spending. The trend continues, with doctors' services now accounting for 14% of total health care spending: about $28 billion in 2011. The contributory factors include a 3.6% annual rise in doctors' compensation; an increase in the number of practising doctors; competition among jurisdictions for recruiting and retaining doctors; and increased demand on doctors' services.

The continuation of the status quo is not a choice because Canada needs more doctors for optimal care delivery; and because Canadian doctors' average compensation is already higher than the OECD average. Furthermore, the rate of increase in doctors' compensation in Canada is faster than that for other health care workers (3.3% per year) and the labour market in general (2.7% per year).

The options for controlling Canadian doctors' compensation includereplacement of the present fee for service (FFS) system, (which encourages seeing more patients within a given period and is open to supplier-induced demand) by appropriately structured salary systems or capitation fees. Another alternative is to put an income cap or close check on the volume of doctors' patients. The Ontario government's imposition of a two-year freeze on doctors' compensation last May is in line with this option. A better alternative is linking compensation to performance (i.e., patient outcome), as many jurisdictions in the U.K. have done.

Hospital costs

The costs of operating hospitals represent 29.1% of total health care spending: $58.4 billion in 2011.

The factors that contribute to the rise of hospital costs include: 1) increase in the compensation of hospital health care providers (which accounts for 60% of total hospital budget); 2) increase in the number of hospital workers in Canada (between 1999 and 2008, their number grew by 21%, mainly to meet the need for new services; and 3) introduction of new and expensive diagnostic and surgical tools (e.g., robotic systems, hyperbaric surgery); computers, electronic health records, and tele-health).

The options for containing hospital cost include replacing the current system of hospital budgeting with regional population-based budgeting, as in Alberta and Saskatchewan, or paying for services provided on the basis of unit costs (this is the current international budgeting trend); or pay for performance budgeting, as in many U.K. jurisdictions; integration of Regional Health Authorities; reducing the rate of increase of the compensation of hospital health care providers to that prevalent in the general labour market; and cutting down the size and compensation of hospital administration.

Cost of prescription drugs

The cost of prescription drugs represents 16% of total health care spending: $32 billion in 2011. Canada's overall expenditure on prescription drugs grew by an average of 10.1% per year during 1998-2007.

The factors that contributed to the increasing spending on prescription drugs include:

  1. The increase in the volume of drugs sold. This is the single largest cost driver of drug spending in Canada. The increase is driven by mainly three classes of drugs: drugs to control high blood pressure, drugs to lower cholesterol, and drugs for diabetes and the gastrointestinal system such as antacids and laxatives. The consumption of these drugs can be significantly curtailed by cessation of smoking, physical exercise, a healthy diet, and control of obesity.
  2. The high price of drugs. Data from the Patented Medicine Prices Review Board reveal that Canada had the highest generic drug prices and, together with Germany, the second highest patented drug prices among comparable countries. However, since 2010, most provincial governments have revised generic drug pricing policies, with maximum allowable prices ranging from 25% to 56% of brand name products.

The approval for clinical use of new (and very expensive) anti-cancer and immunosuppressive drugs is adding to the expenditure on prescription drugs.

Options for controlling spending on prescription drugs include: stopping multiple-prescription and over-prescription; purchasing prescription drugs in bulk at discounted prices; encouraging the use of inexpensive but equally effective generic drugs; and by public and political pressure on the giant international drug companies (Big Pharma) to lower the price of patented drugs and stop unethical practices.

One of the causes of the high price of prescription drugs is price-fixing by Big Pharma, which first inflates the "official" price and then allows varying amounts of rebates to bulk-purchasers. The large provinces get the most favourable rebates because of their bargaining clout, but the uninsured single purchasers do not get any rebate because they have no clout.

It is worrying that the European Union is secretly negotiating with the Harper governmnet to extend patent protection. These negotiations must be made public. The justification for extended patent protection is that this would enable Big Pharma to invest more in research and development in Canada. But this has proved to be just wishful thinking.

It is interesting that both China and India are now allowing local copycat production of patented drugs after paying a reasonable licensing fee to the patent-holders. This arrangement appears to be identical with the "compulsory licensing" arrangement that Canada used to have until the Chrétien and Mulroney governments replaced it with an agreement for 20-year patent protection for prescription drugs.

The big pharmaceutical companies use many tricks to protect their profits, such as abrupt discontinuation of the production of those drugs that are not very profitable, either because of price control or the small size of the drug's market.

One way of countering the stranglehold of drug manufacturers is to start manufacturing some of these drugs in the public sector. This would develop and maintain a nucleus of local expertise in drug development that can be expanded whenever necessary, such as with the sudden discontinuation of a drug or the unforeseen inability of a single-source supplier to provide the necessary quantity of a drug. This would also stimulate research and create jobs. Several provinces have the necessary experience in this area.

Among the OECD countries that have a public health care system, Canada is unique in not having universal coverage for prescription drugs. It does not make sense to spend billions of dollars diagnosing a disease and then leave many thousands of people without the financial ability to buy the medicines needed to cure the disease. Canada' 3.5 million poor people can neither afford drug insurance nor buy prescription drugs. Because Medicare does not pay for prescription drugs outside hospitals, the poor suffer until the gravity of the disease calls for hospitalization, by which time it is often too late for effective treatment.

There must be a pan-Canadian pharmacopeia, a pan-Canadian drug-purchasing agency, and a pan-Canadian accessible Pharmacare program with no deductibles or co-payments.

As for the sustainability of such a aational Pharmacare Program for Canada, it should be kept in mind that about 75% of Canadians already have some form of drug coverage, and that the proportion of those in need of coverage is comparatively small. Because of the substantial savings that might accrue from controlling the price of drugs, it is possible that Canada might actually save as much as $10 billion a year or more by implementing a national Pharmacare program. Most provinces already have some sort of provincial pharmacopeia, pharmacare programs, or fair drug-pricing methods to cap the price of drugs.

Health care's sustainability

The savings from rationalizing the compensation of doctors, other health care workers, and administrators; cutting the cost of prescription drugs; and delivering care via Primary Care Centres with multidisciplinary care teams would suffice to cover the additional cost, if any, of the proposed Pan-Canadian Health Care system. Several OECD countries cover as much as 90% of their health care expenses with less money than Canada does.

Canada's Medicare expenditure (in contrast to Canada's total health care expenditure) appears to be one of the most cost-effective health care delivery system among the OECD countries. This re-emphasizes the cost-effectiveness of publicly administered, single-payer health care models because of their low administrative cost, transparency, and accountability. Canada's national health care system, built on such a model, could further cut costs and improve the quality of care by eliminating redundancy and waste, including over-treatment and unnecessary care.

Finally, there must be close monitoring of Canada's approximately $200 billion-a-year health care budget, which is insured by several levels of government. The large volume of money that flows through the health care system, often without adequate transparency and accountability, has created a culture of irresponsibility and greed. Swindlers are known to travel from province to province (from Ontario to Alberta in a recent case) to serially plunder health care funds. This must stop, and health-fund robbers must be adequately punished.

The health care crisis has given Canada's premiers and territorial leaders the opportunity to build a Pan-Canadian Health Care system that promotes the health of all Canadians, prevents illness, and provides universal access to a seamless continuum of high-quality care.

This opportunity should not be missed.

(Tarun Ghose, MB BS, PhD, FRC Path (London), is Professor Emeritus in Pathology at Dalhousie University in Halifax, and chair of the Health Policy Committee of the College and University Retiree Associations of Canada (CURAC/ARUCC).