The worst-run industry in Canada: Health care

The real crisis ruining universal medicare is bad
management. Here’s how to fix it.

2

If the Canadian health-care system were a corporation, it would be among the biggest in the world. Last year, the total amount paid into the system — or the revenues it pulled in, depending on how you look at it — topped out at a record $183.1 billion, enough to earn it third place on the Fortune 500, between oil giants Exxon Mobil and Chevron. And if it were a corporation, it would be in a state of dire crisis.

Of course, Canadians are used to hearing this sort of thing. No matter how it’s framed, the phrase “health-care crisis” is so often bandied about by politicians, media and the general public that it’s become old news. As costs and dissatisfaction mount, most Canadians believe that the problem is rooted in either insufficient funding, demographic overload or corporate profiteering. But according to a growing chorus of health economists, policy analysts and doctors, the real issue is mismanagement — horrible, pervasive inefficiency that is preventing the system from running even close to as well as it could. More than anything, they say, the failure to adopt even basic business management principles is what’s standing in the way of preserving universal health care for generations to come.

It may be our most cherished social benefit, but what the system needs, experts argue, is corporate sensibility: more rational and co-ordinated leadership, better information on health outcomes and a ruthless determination to eliminate duplication and waste. Because at present, says Robert Evans, a leading health economist and founding member of University of British Columbia’s Centre for Health Services and Policy Research (CHSPR), we’re spending far more than we need to on everything from drugs to doctors to hospitals. Meanwhile, as customers continue to pour money in, they’re increasingly disappointed with what comes out. Quite simply, says Duncan Sinclair, former dean of medicine at Queen’s University, “if [the Canadian health-care system] were a business, it would be out of business.”

None of the solutions to pull health care out of the red are impossible. But putting them into practice depends on overcoming entrenched interests and political inertia, major barriers to getting Canadians the health care they want — and, to a large extent, are already paying for.

For decades, Canadians have been told that aging baby boomers are going to bankrupt the system. Since 1975, per capita health-care costs have ballooned from $1,700 to $4,000 (in constant 1997 dollars). Last year, the health-care bill accounted for a record 11.9% of GDP, triggering a renewed wave of panic about the implications of the coming demographic shift. In August, a Canadian Medical Association (CMA) poll found that 80% of Canadians believe that the quality of health care will decline as aging boomers overload the system; nearly 75%, meanwhile, expect taxes to go up to meet added stress they impose. But this hasn’t yet come to pass, and the data show that it’s not likely to happen anytime soon, if at all. In a recent report published by the Canadian Federation of Nurses Unions, health-policy experts Hugh Mackenzie and Michael Rachlis demonstrate that over the next 25 years, the aging population will drive up health-care costs about 1% per year, compared to 0.6% annually between 2000 and 2010. “While the impact of aging is greater than in the recent past,” they write, “it does not add up to the looming financial crisis that many are forecasting.”

According to Evans, apocalyptic predictions about the coming crush of seniors is “crisis rhetoric” intended to “distract from focusing on what’s actually happening.” As advances in diagnostics and pharmaceuticals multiply treatment options, there isn’t the necessary governance, accountability and motivation to keep costs down.

Though the provinces are technically in charge of health care, it’s also partly funded by the federal government. Meanwhile, hospitals, doctors and nurses are responsible for delivery with few strings attached, resulting in “a merry-go-round of blame shifting,” says Colleen Flood, Canada Research Chair in Health Law and Policy at the University of Toronto. “It’s not clear who is actually accountable.” Just as well, perhaps, considering that it’s near impossible to tell where, exactly, the inefficiencies (or efficiencies, for that matter) lie. Though the system tracks health inputs, such as the number of doctors or surgeries performed, there is next to no information on patient outcomes, leaving basic questions like “how effective was the treatment?” unanswered. As such, says CHSPR associate director Kimberlyn McGrail, we simply don’t know “whether we’re getting much value out of the health-care spending we’re putting in.”

All of which kills the incentive to contain the bottom line.

There may be no better example of runaway spending than in the area of prescription medications. A few short moments with the Canadian health-care books is all it would take for an accountant, armed with a red pen, to flip to the section on drug costs, and begin scribbling wildly. For the past 20 years, prescription medications have been the fastest-growing segment of health-care spending: according to the Canadian Institute for Health Information (CIHI), from 1985 to 2007, the share of drugs in the total health expenditure increased from 9.5% to 16.5%; last year the drug bill totalled a whopping $30 billion.

But rather than seek ways to keep costs down, the evidence suggests that government has for years continuously and consciously overpaid. Part of the problem, it seems, is that drug coverage is fragmented — government picks up about 45% of the tab while private insurers and individuals pay the rest — which has acted as a disincentive. Instead of bargaining with pharmaceutical companies for lower prices, says Marc-Andre Gagnon, an assistant professor at Carleton University’s School of Public Policy and Administration, “the whole pricing system is based on the idea that we need to artificially inflate costs to create a more business-friendly environment.” (In exchange for higher prices, drug companies pledged to invest at least 10% of Canadians sales on research and development.) But as he argues in a recent paper, this practice has raised prices without prompting significant spinoff investment: Canada now pays up to 40% more for drugs than other industrialized countries. (He estimates that adopting a national pharmacare program would save an estimated $10.7 billion annually.) Though Ontario and B.C. recently slashed subsidies to pharmacies for generic drugs — a move that is expected to produce significant savings — Evans says the real question is why they didn’t do it sooner. “Everybody has known that money was on the table for decades,” he says. “Provincial governments simply didn’t pull themselves together to reach out and take it.”

There is also the matter of volume. A report released in September by the Health Council of Canada observed that from 1999 to 2009, the number of prescriptions filled at community pharmacies has gone up nearly 80%; two-thirds of those over the age of 65 now take five or more different medications. Yet, as the report observed, “Canada lacks a comprehensive system to link prescriptions for specific types of conditions to outcomes.” In the absence of objective information about the efficacy of new drugs — 900 of which hit the Canadian market in the past five years alone — Gagnon says the decisions doctors make are often influenced by pharmaceutical companies with massive promotional budgets. Though drug companies are prohibited from hawking their wares directly to patients in this country, he says they spend between $20,000 and $30,000 on marketing per year per physician, resulting in “prescribing habits that are sometimes just irrational.” The result: Canadians are consuming more drugs than ever before, with little indication that we are healthier, let alone more satisfied.

Any corporation would be lucky to count among its ranks employees as hardworking as Canada’s doctors, who train for nearly a decade and log overtime as a matter of course. But surely no corporation would compensate them in the completely open-ended way the health-care system does. When medicare was adopted in the mid-1960s, says Flood, “the idea was that whatever doctors wanted to do [government] would fund.” As such, wages are determined piecemeal, on a fee-for-service basis, allowing doctors to set their own hours, decide the number of patients they see and ultimately determine how much money they make. “The [health-care] delivery system that’s provided is made up of a whole bunch of individual businesses,” says Sinclair. “[Doctors] don’t answer to a single governance, so you don’t have policies that enable them to be co-ordinated.”

The fee-for-service model tends to reward rapid, technical procedures over the delivery of holistic care — which helps explain why the amount of money we spend on doctors (last year it was about $25.6 billion) keeps rising despite complaints about declining access. Contrary to popular belief, says Evans, in the past 20 years, the number of doctors per capita hasn’t really changed. The difference, he says, is that physicians are working fewer hours and, more importantly, billing a much larger proportion of diagnostic tests for aging patients. He has been examining the data in B.C. for his ongoing research project, “Anatomy of a Doctor Shortage,” and though the total paid out to doctors for fee-for-service billings has remained relatively stable, the distribution has shifted dramatically. While the number of primary care services billed for patients under 55 is actually going down, “the volume of diagnostic services for the elderly have just exploded,” he says, “which is why it feels like a shortage.” (It’s worth mentioning, as well, that there are significant questions about the efficacy of the tests themselves: according to the Canadian Association of Radiologists, as many as 30% of CT scans and other imaging procedures “are inappropriate or contribute no useful information.”) Though aging patients are part of the equation, says Evans, “the main factor is that we do more to them.”

When it comes to evaluating the services doctors provide, Evans says the value-for-money question is becoming increasingly difficult to answer. The fee-for-service model is problematic enough, but more and more, physicians’ incomes are coming from alternative payment programs (APPs) — service contracts provided by regional health authorities that are paid out to doctors on top of regular billings, and can cover anything from emergency services to setting up an on-call practice to working in more remote areas. In the past 15 years, APPs have gone from accounting for an average of about 5% of doctors wages to 25%. But whereas “we know something about the volume of activity for fee-for-service,” says Evans, there is no data on the volume of services provided through APPs. “A quarter of the system has just gone behind the veil,” he says. “We’re losing track of what [it's] doing.”

Part of the problem with the current compensation structure is that when access-to-care issues arise, the solutions are quick fixes that can produce unintended consequences. Several years ago, in response to long wait lists for cataract surgeries, Ontario lifted caps on billings for ophthalmologists. But while the strategy shortened the amount of time spent waiting for treatment, it came at an enormous cost: as The Globe and Mail recently reported, of the 259 doctors that billed the province more than $1 million last year, one-fifth were ophthalmologists. “We’re doing one-offs without trying to look at the realignment of the whole system,” says CMA president Jeffrey Turnbull.

The way hospitals are compensated can also “lead to inappropriate outcomes,” says Turnbull. Though there are exceptions, the majority of hospitals are funded with global budgets — a lump sum of money that’s not tied to specific targets. “It’s not really an evidence-based approach,” says CHSPR faculty member Jason Sutherland. “It’s largely based on ???What did you do last year? Here’s a little bit more.’” Though there are vast discrepancies between the funding individual facilities receive, the overall bill continues to climb: last year, $51 billion went to hospitals, by far the largest health-care expenditure. Yet without system-wide governance, says Turnbull, who is Ottawa Hospital’s chief of staff, these facilities aren’t functioning nearly as efficiently as they could be. Every year, his hospital cancels about 400 surgeries because patients who would be better — and more inexpensively — served in long-term-care facilities are occupying hospital beds. “Nobody has the oversight to build long-term care or to incent people to build long-term care,” he says.

Perhaps the biggest barrier to managing the health-care system, say experts, is a lack of information. In 2002, Senator Michael Kirby’s report on health care, known as the Kirby Commission, observed that “Conducting…a cost-benefit analysis is precluded at present by the system’s lack of the capacity to capture, record, share and otherwise manage health information.” Not much has changed since. Despite the fact that health care pulls in five times more money each year than Canada’s biggest bank, the data systems still pale in comparison. “The real criticism,” Kirby recently told Canadian Business, “rests with the reluctance of governments over the years to fund information systems.”

According to Richard Alvarez, CEO of Canada Health Infoway, the independent non-profit corporation that was created in 2001 to accelerate the adoption of electronic health records, the cost of applying information technologies across the system would be about $10 billion — just over 5% of total annual health expenditures. Since it was established, however, Infoway has received just $1.6 billion, a reflection, perhaps, of the fact that “there’s not much political payback in a politician cutting a ribbon in front of a computer,” says CIHI chair Graham Scott. A short-sighted decision, considering the savings it could generate. Fully funded, Alvarez says Infoway has the potential to produce annual savings on the order of $6 billion to $7 billion, not to mention more effective patient care. Infoway estimates that current investments in second-generation drug information systems, which have been rolled out in 32% of community pharmacies and 51% of hospitals, have increased productivity, improved medication compliance, reduced adverse drug events and cuts costs.

More than anything, says Alvarez, what’s needed is a cultural shift. “We’ve got to look at better ways to manage the system as opposed to throwing our hands up.” In many respects, that approach also applies to the wider view Canadians have of health-care spending. “The public really don’t understand the economics of health care,” says Flood. “If you spend money on one thing, you can’t spend it on another.” Though experts remain divided on how to fix the system, all agree that the time has come for Canadians — the major shareholders — to start making choices. Rather than leaving it up to doctors and patients to decide how many experimental treatments to pursue or diagnostics to order, “we have to enter into a conversation with the public and say, ???What type of health care do you want throughout your life?’” says Turnbull. “At the moment, there is no limit.” As Kirby sees it, the current framework is financially unsustainable: to keep it going, he says, Canadians will face higher taxes or a more robust parallel private system. But until we demand that efficiencies be built into the system, it is impossible to know what it’s actually capable of.

Most Canadians don’t like the idea of a free-market approach to health care because they believe it means that the best care will go to those with the most money to spend. But health care isn’t free. It’s a for-profit enterprise for everyone except the tax-payers who fund it. Making it run more like a business may be the only way to save the ideal of universality. “Health care is a service business pure and simple,” says Kirby. “It’s a service business that everybody ought to get served by, that’s the difference.”

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