Tuesday, June 1, 2010

Soaring costs force Canada to reassess health model - Yahoo! News

Pressured by an aging population and the need to rein in budget
deficits, Canada's provinces are taking tough measures to curb
healthcare costs, a trend that could erode the principles of the
popular state-funded system.

Ontario, Canada's most populous province, kicked off a fierce battle
with drug companies and pharmacies when it said earlier this year it
would halve generic drug prices and eliminate "incentive fees" to
generic drug manufacturers.

British Columbia is replacing block grants to hospitals with fee-for-
procedure payments and Quebec has a new flat health tax and a
proposal for payments on each medical visit -- an idea that critics
say is an illegal user fee.

And a few provinces are also experimenting with private funding for
procedures such as hip, knee and cataract surgery.

It's likely just a start as the provinces, responsible for delivering
healthcare, cope with the demands of a retiring baby-boom generation.
Official figures show that senior citizens will make up 25 percent of
the population by 2036.

"There's got to be some change to the status quo whether it happens
in three years or 10 years," said Derek Burleton, senior economist at
Toronto-Dominion Bank.

"We can't continually see health spending growing above and beyond
the growth rate in the economy because, at some point, it means
crowding out of all the other government services.

"At some stage we're going to hit a breaking point."


In some ways the Canadian debate is the mirror image of discussions
going on in the United States.

Canada, fretting over budget strains, wants to prune its system,
while the United States, worrying about an army of uninsured, aims to
create a state-backed safety net.

Healthcare in Canada is delivered through a publicly funded system,
which covers all "medically necessary" hospital and physician care
and curbs the role of private medicine. It ate up about 40 percent of
provincial budgets, or some C$183 billion ($174 billion) last year.

Spending has been rising 6 percent a year under a deal that added C
$41.3 billion of federal funding over 10 years.

But that deal ends in 2013, and the federal government is unlikely to
be as generous in future, especially for one-off projects.

"As Ottawa looks to repair its budget balance ... one could see these
one-time allocations to specific health projects might be curtailed,"
said Mary Webb, senior economist at Scotia Capital.

Brian Golden, a professor at University of Toronto's Rotman School of
Business, said provinces are weighing new sources of funding,
including "means-testing" and moving toward evidence-based and pay-
for-performance models.

"Why are we paying more or the same for cataract surgery when it
costs substantially less today than it did 10 years ago? There's
going to be a finer look at what we're paying for and, more
importantly, what we're getting for it," he said.

Other problems include trying to control independently set salaries
for top hospital executives and doctors and rein in spiraling costs
for new medical technologies and drugs.

Ontario says healthcare could eat up 70 percent of its budget in 12
years, if all these costs are left unchecked.

"Our objective is to preserve the quality healthcare system we have
and indeed to enhance it. But there are difficult decisions ahead and
we will continue to make them," Ontario Finance Minister Dwight
Duncan told Reuters.

The province has introduced legislation that ties hospital chief
executive pay with the quality of patient care and says it wants to
put more physicians on salary to save money.

In a report released last week, TD Bank said Ontario should consider
other proposals to help cut costs, including scaling back drug
coverage for affluent seniors and paying doctors according to quality
and efficiency of care.


The losers could be drug companies and pharmacies, both of which are
getting increasingly nervous.

"Many of the advances in healthcare and life expectancy are due to
the pharmaceutical industry so we should never demonize them," said U
of T's Golden. "We need to ensure that they maintain a profitable
business but our ability to make it very very profitable is
constrained right now."

Scotia Capital's Webb said one cost-saving idea may be to make
patients aware of how much it costs each time they visit a healthcare
professional. "(The public) will use the services more wisely if they
know how much it's costing," she said.

"If it's absolutely free with no information on the cost and the
information of an alternative that would be have been more practical,
then how can we expect the public to wisely use the service?"

But change may come slowly. Universal healthcare is central to
Canada's national identity, and decisions are made as much on
politics as economics.

"It's an area that Canadians don't want to see touched," said TD's
Burleton. "Essentially it boils down the wishes of the population.
But I think, from an economist's standpoint, we point to the fact
that sometimes Canadians in the short term may not realize the cost."