American College of Physicians: Internal Medicine — Doctors for Adults ®


Trouble in Canadian health care: money woes plague a popular system

From the July/August 1997 ACP Observer, copyright 1997 by the American College of Physicians.

By Deborah Gesensway

For as long as most people can remember, every Canadian town in the prairie province of Saskatchewan has had its own hospital. No longer. In 1992-93 alone, the government closed 52 hospitals, prompting doctors to learn how to treat patients during much shorter hospital stays. More hospitals have shut their doors since.

In the metropolis of Toronto, meanwhile, Canadian internists—who function almost entirely as consultants and only rarely as primary care physicians—joined their colleagues from other specialties during one-day strikes and other job actions over the last few months to protest the government's proposed new fee caps, a form of pay cuts known as "clawbacks" and plans to financially penalize new physicians who don't work in rural areas.

And from coast to coast, physicians who have long prided themselves on working in a system that doesn't micromanage their clinical decision-making are watching as British Columbia experiments with strict drug formularies for the poor and elderly. So far, the program has trimmed drug costs, but physicians who want to deviate from the formulary now have a lot of begging and pleading to do.

All signals indicate that health care in Canada—a single payer system often mentioned as one model for health care reform in the United States—is undergoing significant change of its own. Besides attacking costs in the acute care setting, the country is forming regional authorities to better manage resources and is flirting with ideas of how to privatize payment for certain health services.

Meanwhile, it is getting tougher and tougher for doctors north of the border to make the same good living they always have. Explained C. David Naylor, FACP, chief executive officer of the Institute for Clinical Evaluative Sciences in Ontario and one of Canada's most eminent health policy analysts, "Physicians are continuing to survive on the fee-for-service treadmill, but many of them are starting to wonder whether it isn't time to look at alternative payment plans," such as salary or capitation.

While health reform in Canada may be proceeding fast and furiously, many of the changes are far from radical. Canadians overwhelmingly favor their single-payer national health care system, but they also want to cut the country's enormous deficit, and, as in the United States, there is great opposition to increased taxes. So, when Canadians speak of health reform, they are largely talking about how to cope with the federal government cutbacks in funding for medicare, cuts that many Canadians now feel may have gone too far. In large part, they are not talking about fundamental changes to the system.

The big exception may be the "privatization" movement, because that puts at stake one of the five principles of the Canada Health Act: public administration. (see Flirting with privatization: Canada rethinks its options). The other principles are universality, accessibility, comprehensiveness and portability.

"The pressure is always to alter [these principles] as a way of dealing with financial difficulties," said Jock Murray, FACP, an internist in Halifax, Nova Scotia, and Immediate Past Chair of ACP's Board of Regents. "If health care in Canada is going to continue to be strong, those five principles must be maintained."

In fact, explained Allan R. Ronald, FACP, of Winnipeg, ACP's Governor for the midwestern provinces of Manitoba and Saskatchewan, poll after poll has shown that when you ask citizens what it means to be Canadian, a large majority name the health care system as key to their identity. "It sounds strange, but they say the number one reason to be a Canadian is the health care system," he said.

How it works

To follow the current debate, it's important to understand how the Canadian health care system works. First, health care is a provincial concern, not a national one, and Ottawa's role is simple: It legislated the five principles and backs them up through federal transfer payments to each of the provinces. The idea is to encourage each of the 10 provinces to create health care systems that conform to the five principles.

Until recently, the system worked well. Thirty years ago, federal transfers accounted for half of the program's costs. Over the years, however, those transfers have been cut back. Today, they only account for about 10% to 15% of the cost of health care.

"The government is saying that we are going to keep the Canada Health Act, which puts severe restrictions on the kind of system the provinces can have, but that we are going to cut down our transfer of payments," explained David N. Ostrow, FACP, of Vancouver, ACP's Governor for British Columbia. "At some point the provinces are going to say, 'Why would we want to be constrained by the Canada Health Act if you're not giving us any money?' "

Second, there's the complex role of Canadian physicians, who are considered part of the system but technically work outside of it. Although the Canadian government acts as a public payer for health care, the care itself is provided by private practitioners. This is not socialized medicine. The doctors are not employees of the government; they run their own private offices, can work however they want to, and then simply bill the government for whatever they have done on a fee-for-service basis.

Because of their relative independence, physicians have traditionally been viewed as an important check and balance in the Canadian health care system. Now, however, that role is being questioned as nearly every province begins to form integrated regional authorities or health districts to spur efficiency and help cut costs.


"Regionalization," as this funding reorganization is called, works this way: Provinces allocate a lump sum of money on a capitated basis to regional health authorities. The authority determines how to use that money to cover the health care needs of the region. Since money saved by closing and merging inefficient hospitals can be spent on other health services such as community clinics, home care and public health activities, regionalization is effectively driving the dramatic number of hospital closures. When Canadians talk about regionalization, they are generally talking about hospital downsizing.

Doctors, however, continue to work outside the regional authorities. They continue to bill the provincial health ministries and are paid fees for each service according to a schedule negotiated by each province's medical society and health ministry. They do not have to work within the region's global budget.

"The question is, at the end of the day, what kind of a system are we going to have if physicians remain outside these increasingly integrated health systems?" Dr. Naylor said. "In most provinces—with Quebec being an exception because it has a large number of salaried physicians in its community health centers—physicians are still plugging away using the independent entrepreneurial model of yesteryear."

Physician fees remain outside the authority of the regional authorities, but they still represent a major cost to the provinces, which is why attempts are being made to control how much money is spent on physician services. As a result, most Canadian physicians have been forced to cope with a growing range of price controls and salary caps.

In Ontario, for instance, according to the Toronto Globe and Mail newspaper, the provincial government has held total spending on doctors' fees to the 1993 level of $3.8 billion, even though actual billings were much higher. Officials accomplished this by cutting back on the amounts paid after the doctors had already provided and billed for the services.

Explained Jay D.H. Silverberg, FACP, ACP's Governor for Ontario: "We are allowed to bill the government for any services that we do. The government says 'Fine' and pays us. But at the end of the fiscal year, they say, 'By the way, the cap was $3.8 billion but doctors have billed $4.2 billion,' so they take 5% or 10% off all our billings for the next six months or a year, whatever is necessary to make up for the overdraw. It's called a clawback. ... Doctors work hard because they say 'I'm going to be clawed back anyway so I better see more patients.' This ensures that doctors continue to see patients, yet get paid less. It's very crafty."

The province's physicians, led by the Ontario Medical Association, spent much of the past year fighting proposals that would have tightened the salary screws further. In the end, they appear to have won some important concessions, so much so that public opinion has begun to turn against the physicians as not shouldering their fair share of the pain of health care reform.

One result of the nasty political battles over fee limits is that, for the first time, a number of Canadian physicians are expressing an interest in alternative payment systems such as American capitation or British fund-holding. At Sunnybrook Health Centre, where Dr. Silverberg works as an endocrinologist, for instance, an alternate payment plan team is now negotiating with the government to see what kind of deal can be worked out.

Increased demand

One thing is already clear: Canadian internists have had to quickly learn how to do everything during shorter and shorter hospital stays. "We have to see patients faster and on shorter notice and get them on their way faster," Dr. Silverberg said. "This has created problems with people who feel they are not ready to go home. Some are feeling a little belligerent toward their doctors because they feel they are being churned through the system too quickly."

For Rosana Pellizzari, MD, a family physician in Toronto, hospital downsizing has meant that she has had to treat more conditions in the office setting. As a result of increased patient demand, she and the other family doctors at the community health center where she works are now having to close their practices to new patients.

"There has been a lack of resources, so it seems as if Canadians are starting to experience problems accessing needed services," Dr. Pellizzari said. "There's a perception among Canadians that the system has deteriorated."

There are signs that there may in fact be a real increase in people experiencing difficulty getting access to care. In his work for the province of Ontario, Dr. Naylor has noticed that waiting lists are creating problems. "In some areas of Ontario," he said, "you can wait up to three to four months to see an orthopedic surgeon unless you have a very clearly urgent problem. In some parts of the province, you will wait six to eight weeks to see a cardiologist unless you have an urgent problem."

The severity of the queuing problem, Dr. Naylor said, varies from province to province and procedure to procedure. Adding to the confusion is the fact that for most procedures and services, there is no centralized monitoring of queues.

Despite problems with waiting times, many argue that the lack of private health insurance helps make the system work. Pressure from the public keeps the queues from getting too long—and endangering patient health. "If the elective services get queued up, the people and the providers go public, the media has a heyday and the politicians open the treasury," Dr. Naylor said.

"One of the frequent arguments [against privatization] is that if we were to open up to a two-tiered system," Dr. Naylor explained, "we would lose the individuals who can forcibly bring to public and political notice any deterioration in the public system." If the middle and upper classes were able to get their care outside the public system, the public system would be left to serve only those poorer and less educated people who are less able to advocate for a high quality system.

This tight control has helped Canada create one of the most efficient and high quality health care systems in the world. While the country spends 10% of its gross national product on health care—only the United States spends more—it has been able to keep the annual rate of growth down to below 1% during the 1990s. Meanwhile, Canadians made 19% more visits to their doctors than U.S. patients.

"It's all about diminishing marginal returns and tradeoffs," Dr. Naylor said. "What you're looking at in Canada is an overall cap on the available funds for health care based on a societal perspective that there are alternative uses for those funds, major debt and deficit problems that the whole country is recovering from and an unwillingness to pay more taxes."

As Canadians struggle with how to save and improve their health system, one type of reform is clearly being rejected—the American experiment with for-profit managed care.

Canadians, Dr. Naylor said, are looking to HMOs in the United States as models for health information systems and for ideas about how to do more population-based funding and risk sharing to promote local integrated delivery systems. They do not at all look to the U.S. model of "investor-owned, profit-oriented conglomerates," he said.

"I think the Canadian view is that you want to capitalize on the best of the management practices in the United States without also getting yourself into the physician autonomy issues and the constraints on practice that we think American systems have," explained Steven Lewis, CEO of the Health Services Utilization and Research Commission in Saskatchewan.

"There are no constraints on which doctors Canadian patients can go to, ever. There are no gatekeepers," Mr. Lewis said. "We have a system that is far less managed than yours, but it's cheaper and our administrative overhead is a fraction of yours. And we think we can stop paying for inefficient, ineffective health care without interfering with physician autonomy."

Flirting with privatization: Canada rethinks its options

Talk to Canadians about their medical system, and the conversation immediately turns to the principles that guide Canadian health care.

All five—universality, accessibility, comprehensiveness, portability and public administration—are under siege, but public administration is facing the most scrutiny. Frustrated by waiting lists for surgical procedures, MRIs and other high-tech services, some provinces have begun to consider allowing privatization.

"The pressure is to say government can't afford to give us all the things we want, so why don't we privatize it?" explained Jock Murray, FACP, an internist in Halifax, Nova Scotia, and Immediate Past Chair of ACP's Board of Regents. "Why don't we have a parallel private system like the British?"

So far, no province has allowed private insurers to offer a full range of medical services that would allow Canadians to get their care privately—and avoid long queues. "But there has been flirting," said David N. Ostrow, FACP, of Vancouver, ACP's Governor for British Columbia.

Until now, privatization has only happened in limited instances, most notably in the "wild west" province of Alberta, which is known for having a more free marketplace-oriented government. For instance, some ophthalmologists there have been allowed to set up private surgical centers for eye surgery. Canadians can choose such centers over private physicians who participate in the national health care system. Patients who use these parallel private clinics pay for their care out of pocket or with private insurance.

This spring, Alberta went even further and backed the creation of the country's first private hospital in Calgary, a move than has incensed many legislators in Ottawa and in other provinces. A company called Health Resource Group Inc. wants to take over Calgary's former Salvation Army Grace Hospital, which was closed last year, and use it to offer privately a number of non-emergency services.

Privatization is being driven by large employers and unions that want their workers to jump long queues so they can return to work and save money for the workers' compensation system. No wonder, then, that hospital officials expect the Workers' Compensation Board to be first in line to get clients in for surgery faster than in the public system, according to reports in the Calgary Herald newspaper.

According to the Canadian Medical Association (CMA), Canada already has more "passive privatization" than many think. Its physician survey, for instance, found that 31% of Canadian physicians currently bill patients directly for services that have been "delisted" from the provincial health care plans to meet budget caps-services such as routine physicals for young people or cosmetic surgery. And despite the absence of private health insurance, the CMA reported, private-sector funding has grown to more than 28% of total health care spending in the country.

Moreover, observers say, evidence of growing public support for a two-tiered system has started to emerge in the last few years, with that sentiment being even more pronounced among doctors. A 1995 CMA poll of 3,600 Canadian physicians found that 73% of the respondents said that a complementary, private health care system to cover non-core, non-essential services would be "very or somewhat acceptable."

Nonetheless, privatization remains a political hot potato. C. David Naylor, FACP, chief executive officer of the Institute for Clinical Evaluative Sciences in Ontario, explained it this way: "Talking about two-tiered health care until now had been the third rail of Canadian health care politics. You touch that and you're dead."

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