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How this happened, and what we can do about it

A version of this commentary appeared in iPolitics.ca and the Winnipeg Free Press

The recent release of National Health Expenditure Trends by the Canadian Institute for Health Information (CIHI) puts total health expenditure in Canada at a whopping $192.9 billion in 2010 and $200.5 billion in 2011 — annual increases of 5.9 and four per cent respectively. This year’s release was also accompanied by a report titled Health Care Cost Drivers, which finds the period from 1998 to 2008 was one in which public health care spending grew at an average of 7.4 per cent annually — double the rate of government revenue.

Physician spending was highlighted as one of the fastest-growing public-sector health categories of recent years, with half of the growth attributable to increases in physician fee schedules.

Economists are not surprised that physicians were able to negotiate generous fee increases given the general perception of physician shortages. However, it should be noted that the period since 2003 has seen a marked increase in the number of physicians after a period of relative stability, due largely to sharply higher medical-school enrollment.

The average number of physicians per 10,000 people in Canada is now rising markedly in most provinces after the small decline of the 1990s.

Governments are often conflicted when it comes to public health care. While more physicians means more services and access for the public, it also means more public spending. With health care sustainability once again moving into the forefront of policy discussion in Canada, physicians and their role as health-system gatekeepers will be coming under scrutiny.

If we are going to spend more on physician services, we need to ensure that we can measure outcomes and assess whether we are getting better care.

Indeed the cost and effectiveness of many procedures will likely be an area of examination.  As well, we can expect to see even more pressure to move away from fee for service models of physician reimbursement and towards models that pay physicians set salaries or fixed payments per enrolled patient — though there is no certainty that these will help control costs.

There is surprisingly little evidence on whether or not alternate payment systems for physicians generate large differences in health care costs and health outcomes.

One of the arguments used to restrict medical-school admissions in Canada in the early 1990s was that physicians were a primary cost driver in the health system because of their role as gatekeepers. Reduce the number of physicians and replace them with nurse-practitioner teams and it was felt cost savings would automatically ensue.

However, the 1990s saw a perception of widespread physician shortages though only a handful of provinces had declines in the per capita number of physicians (Ontario, BC, Alberta, PEI and Nova Scotia), and by 2010 these declines have turned into marked increases in most of these provinces.

Moreover, after a short pause, health-care spending still continued to mount, driven also by drugs, diagnostic technology and public-health initiatives. The recent increase in physician numbers more than makes up for the small decline of the 1990s but is being accompanied by expenditure increases.

While physician spending is an important cost driver, the drivers of public health-care spending are also a complex interaction between physician decision-making, new diagnostic and drug technologies, population growth and aging, and the cost and deployment of other health human resources used in treatment.

Indeed, a positive correlation between physician numbers and health spending is not automatic. In other words, a high per capita number of physicians is not always associated with high per capita health spending. Quebec, for example spends the lowest amount per capita on public health care spending and yet has one of the highest number of physicians per capita.  Manitoba, on the other hand has the second highest per capita public health spending in the country but is one of the lowest in terms of physicians per capita.

Two lessons emerge from this.  First, public health-care spending is complex and care needs to be taken that cost-control approaches to health-system sustainability use a balanced approach rather than setting simplistic goals that target only one aspect of the health care system.  Although physicians are a health cost-driver, they are not alone but operate as part of a system that also drives costs.

Second, the federal government needs to coordinate information sharing and exchange amongst the provinces so that they can learn from each other on a best practice basis how to balance any increases in physician numbers and access to services with measures to keep health spending costs under control.

Livio Di Matteo is professor of economics at Lakehead University.  He is also an expert advisor to EvidenceNetwork.ca. 

February 2012

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