Health care and Canadian provincial budgets

2010-07-21

in Canada, Economics, Politics

Earlier, I wrote about Peter Singer’s highly defensible view that how rationing medical care is both inevitable and desirable, when done properly. The demand for medical services will always exceed the share of society’s wealth we are willing to devote to keeping people healthy and alive. As such, the important thing is to make sure we get good value for our spending, and that the way in which health services are assigned to individuals is fair and ethical.

Because of economic and demographic trends, Canadian provinces are going to have to make some tough choices when it comes to health spending. A recent article in The Economist described the scope of the challenge:

Health spending, which is administered by the provinces, has increased from nearly 35% of their budgets in 1999 to 46% today. In Ontario, the most populous province, it is set to reach 80% by 2030, leaving pennies for everything else the government does, not counting tax increases or new federal transfers. The biggest culprit is prescription drugs, which have seen their share of public-health spending triple since 1980.

Clearly, provinces need to spend money on things aside from prescription drugs. Admitting that, however, leaves the problem of determining how health spending should be allocated.

Certainly, part of that needs to involve cost-benefit analyses that compare different courses of treatment. In situations where a superior treatment exists, but which is far more costly, it may be necessary to make only the cheaper treatment generally available, so as to more effectively serve overall health outcomes. Of course, such choices are unlikely to be popular. Other likely measures will include restricting which treatments are covered, increasing the co-payments that patients make, and continuing to employ measures like bulk purchasing to reduce costs. More controversial measures could include things like taxes on unhealthy foods and further efforts to discourage smoking and drinking, while encouraging exercise.

Medical technology will almost certainly continue to advance in the decades ahead (though issues like emerging antibiotic resistant pathogens could actually set us back in some areas). At the same time, an aging population will almost certainly increase the quantity of medical services demanded, while decreasing provincial tax revenues. Hopefully, the combination of technical improvements and necessary budget constraints will produce outcomes that at least remain consistent with those that exist today, and which hopefully improve over time.

The least ethical choice is probably to fund the medical expenses associated with the demographic transition by heaping yet-more debt on future generations. Between climate change, nuclear proliferation, and all the other frightening legacies we are passing on to them, I think they have been given quite enough to deal with already.

What else can be done to constrain the total cost of medical services, while ensuring that those that are purchased are deployed both fairly and effectively?

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{ 12 comments… read them below or add one }

XUP July 21, 2010 at 10:13 am

If we were getting value for money, the high cost of health care would be tolerable. But our treatment effectiveness rating is very low as is our ability to deliver timely health services. One of our problems is the decentralization of health care management. Each province has to do it’s own buying, administration, etc. A central administrator and purchaser would cost significantly less. Also, though provincial governments fund most healthcare services, approximately 30% of healthcare spending is covered under private insurers and patients’ out-of-pocket expenses – things like drugs, dental care, optometry. This adds significantly to the administrative costs of the health care system.
I also read something interesting recently that said a lot of healthcare money is wasted in Canada because we spend too much time talking to patients, conferring with patients and discussing treatment options and so forth with patients and family members. It would be more cost-effective and efficient if doctors could just do their jobs without having to listen to patients asking about a drug they say advertised or about what they discovered on Google about their symptoms; if doctors could just go ahead and do what they think is best. I don’t know too many people who would agree with such a system, but I can see how it would save money!

Milan July 21, 2010 at 10:24 am

I have often found doctors to be too quick to render their own judgments, and unwilling to take into consideration even very authoratative information from things like meta-analyses and Cochrane Collaboration systematic reviews. For instance, doctors are very loyal to treatments with which they are personally familiar, even if there is very strong medical evidence that others are superior.

Letting doctors make rapid treatment decisions with even less patient consultation definitely doesn’t seem advisable to me.

As for federal/provincial issues, my guess is that this is one area where the federal government actually won’t want to encroach too much on provincial authority. The growing cost of medical services is almost certainly something the feds don’t want to get exposed to any more than necessary.

Tristan July 21, 2010 at 5:36 pm

I don’t know if I’m impressed or enraged that you managed to make this post entirely neutral with respect to the pharmaceutical industry – which should be expropriated and nationalized.

Wellescent Health Forums July 21, 2010 at 5:51 pm

Another approach that recent research has revealed as being fairly effective is the use of incentives for prevention. Given that prevention is by far the most cost effective means to keeping the population healthy, using prevention techniques that compensate doctors to push patients to make smart health choices is a very valid approach. Likewise, providing incentives to patients directly based on proof of good lifestyle habits is another means to help control costs. While socialized medicine is a necessity in a humane society, it shouldn’t eliminate the place of personal responsibility. Thus using incentives is a means to encourage responsibility without limiting individual access to health care.

Tristan July 21, 2010 at 8:12 pm

I think it’s important to distinguish between the cost of “health care” and the cost of drugs. Our system is far more efficient than the American one at providing care. It’s also more efficient at providing drugs since we don’t have laws against the government using its bargaining power to barter down the price of pharmaceuticals. The high cost of drugs, however, is something we should look at changing.

oleh July 22, 2010 at 7:27 am

Funding health care is one of the biggest threats we face. As such it is hard to know where to begin.

Possible ideas include:

1. let’s consider a cap on what percentage of the provincial budget is to be used for health care. The present 46% of seems too much. Many other provincially funded programs suffer as a result. A percentage cap would force us to rationalize

2. let’s accept that the expensive care provide to prolong life when the quality of life is low should be lessened. Yes this would be harsh in terms of technology being available to extend life and we are talking about human lives. However we are dealing with a health care funding situation which is out of control.

3. A very difficult area is neo-natal care. Pre-mature babies are at extreme risk they are the most vulnerable in our society. As such we are prepared to expend significant resources per premature baby to try to allow that baby to survive. There are individual success stories; often there are not. I do not know the answer. I simply ask the question.

4. I find somewhat less difficult dealing with expensive end of life solutions in the elderly population. These are also very expensive. However, I see this situation as one where we are prolonging a poor quality of life after hopefully someone has had a rich one.

5. Regarding the doctor consulting discussion, I would encourage increased use and scope of nurse practitioners which would provide explanation and consultation at much less cost.

6. Finally I agree that people should take individual responsibility to care for their own health in ways that is not a burden to the health care system, for example controlling of weight to avoid diabetes and the costs associated with it.

These are just a few ideas.

. August 17, 2010 at 11:45 am

“The FDA may revoke its approval of Avastin, the world’s top-selling cancer drug, for treatment of breast cancer. Regulators are only supposed to compare the drug’s benefits to its risks, but many industry observers note that the real problem with Avastin is its astronomical price tag: A month’s supply costs approximately $8,000. Why are some drugs so much more expensive than others?

Because they fill an unmet need in the market. In the United States, the priciest medicines aren’t necessarily the ones that cost the most to develop, nor those that save the most lives. The most expensive drugs are those that have no competitors. When a truly novel blockbuster drug hits the market, there is very little to guide manufacturers and insurers in their negotiations. The largest constraint is public perception. Insurers fear that, if they refuse to fork over the dough, their sick customers will be outraged. Manufacturers don’t want the public or Congress to view them as price gougers. Negotiators eventually settle on a price between those two poles. Few drug makers are lucky enough to face this problem, though. Most debutant drugs find the market already crowded with similar products, and prices are set by the competition.”

. August 17, 2010 at 11:47 am

“You hear a lot about how expensive it is to bring a drug to market. All of that is true, especially for cancer drugs. It costs around $1.75 billion to develop the average cancer medicine. Only drugs for respiratory disorders, at $2 billion, can top that total. (AIDS drugs and anti-parasitics are the real bargains, at between $500 million and $700 million.) But there is no correlation whatsoever between the cost of developing an individual drug and its eventual price. Drug companies have to make a profit over the long term. Most of the chemicals that a company experiments with never make it to market. Of those that do, only 20 percent are ultimately profitable. They cover these losses—and then some—by squeezing as much money out of their few successes as possible.

Manufacturing costs play a role in pricing decisions, although a small one. Avastin belongs to a category of drugs called biologics, which are large molecules that usually have to be manufactured by DNA manipulation. Biologics cost more to make than traditional drugs, which usually are generated through cheaper chemical reactions. Still, manufacturing costs normally don’t exceed a few percentage points of sales revenue.”

. February 2, 2011 at 9:17 pm

Life should be cheap
How China and India can help cut Western medical bills

ACROSS the rich world, governments with ageing populations are worried about soaring health-care costs. In Britain this week David Cameron announced yet another reorganisation of the National Health Service (see article). But the problem is most severe in America. Medical spending per head has nearly tripled since 1990, yet most indicators of health have barely budged. And the rising cost of health care depresses wages—because many Americans receive health insurance from their employers, who therefore pay them less.

Help may be at hand. Frugal innovators in China and India are making medical devices that are cheaper—sometimes by an order of magnitude—than their Western equivalents. Companies such as China’s Mindray and India’s TRS serve home markets that include vast numbers of people for whom every yuan or rupee counts. So these companies focus relentlessly on reducing costs. They create products that are stripped to their essentials: scanners that cost $10,000 rather than $100,000; portable electrocardiographs that cost $500 instead of $5,000 (see article).

These devices are not merely cheap knock-offs of Western designs. Often they are just as effective as the gold-plated kit used in the West, yet they are rarely found in rich-world hospitals. Their absence helps explain the massive disparity in costs between Western and emerging-world treatments. A night in an American hospital typically costs 25 times as much as a night in an Indian, Brazilian or Chinese one; a night in a European hospital typically costs four times as much.

. March 1, 2011 at 10:04 pm

Doctors say federal leadership is needed to avert a looming health-care crisis and that better co-ordinated care, not drastic cuts or a move to private care, will ultimately make the public system sustainable. The Canadian Medical Association said Monday that public health care is in decline. Five million Canadians do not have a family doctor, emergency departments are congested, services for the mentally ill are lacking and many patients cannot afford the drugs they need or a bed in long-term care when it is the best option.

Jeff Turnbull, CMA president, called on the federal Conservative government to create a “Health Care Action Plan” to deal with health issues, much as it created an “Economic Action Plan” to tackle the downturn in the economy. Such a plan, he said, would make the system more effective and accountable.

With the health accord between the provinces and the federal government set to expire in three years, it is time for Ottawa to come off the sidelines and “show leadership once again to tackle the looming crisis in health care,” Mr. Turnbull said.

Faced with three years of deficits, Northumberland Hills Hospital, located about 100 kilometres east of Toronto, knew it had to carry out the unkindest of cuts – to some of its health services. But its president and chief executive officer, Robert Biron, wasn’t about to do it alone: He asked area residents for help.

This novel approach of creating a Citizens’ Advisory Panel on Health Service Prioritization started with a civic lottery of 5,000 citizens in Northumberland County and was narrowed down to 28 people charged with recommending to the hospital board what services it should shed in order to balance its $60-million budget.

The citizens panel spent five full days learning how the health-care system works and, last year, it listed areas of non-core services that could be divested to other agencies, including the hospital’s diabetes complication prevention strategy clinic. That recommendation, along with another to get rid of outpatient rehabilitation services, were among those followed by the board. This year, the hospital is expected to have a balanced budget.

. June 7, 2011 at 5:54 pm

The new law attempts to expand coverage and lower costs. The state will move forward in two steps. The first goal is to create a health exchange by 2014, as required by the national health reform. The second is to use the infrastructure of that exchange, such as a single system for paying claims, to introduce publicly-funded health care in 2017. An independent board will set payment rates for doctors and hospitals, as well as benefit packages for patients. Costs will be contained, Mr Shumlin says, by cutting administrative expenses, slashing fraud and rewarding doctors for the quality rather than just the quantity of care.

However, this progress may not proceed as hoped. Single-payer systems are not a panacea—health spending is growing at a faster clip in Britain and Canada than in America. Furthermore, the main aspects of Vermont’s plan have yet to be worked out. Most crucial, politicians have not decided how the scheme will be funded. In a study for the state legislature, William Hsiao of Harvard University recommended a payroll tax on companies and employees, rather than paying for it out of general taxation. But the governor’s office has until 2013 to present a plan. It is also unclear which health services will be covered and how to pay for Vermonters who seek care out-of-state. And the whole scheme will need federal approval.

Morley Evans June 23, 2011 at 11:38 pm

You should start with the assumption that the Canadian healthcare system is the worse in the world as a necessary remedy to incessant propaganda that it is the best. So-called modern medicine itself, wherever it is practiced, cannot lead to health and wellness — it leads instead to injury and death. http://morleyevans.blogspot.com/2011/06/depraved-hypercholesterolmania.html

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