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Prepared for EvidenceNetwork.ca by Alex Peden

The Chaoulli and Day cases and the public-private provision of health care

Backgrounder: Court Challenges to the Canada Health Accord

Public and private health care in Canada

Two court cases with strong implications for the future of the Canadian health care system have been frequently mentioned in the news. The 2005 case, Chaoulli v. Quebec applies only to Quebec; it affirmed the right of Quebec residents to purchase historically restricted private health insurance policies to cover the costs of hospital and physician procedures and services that are already covered publicly, whenever the public health system fails to deliver those services in a timely fashion.

The Cambie Surgeries Corp. v. British Columbia case (often called the ‘Day case,’ referring to Dr. Brian Day, the founder of Cambie Surgeries) was initiated in 2010 and addresses specific restrictions to the private financing of health services. Many experts believe this court decision could have far-reaching consequences for the health system across the country should the challenge be successful in the British Columbia provincial court and move to the Supreme Court of Canada. A trial date was set to begin in 2012, but was adjourned until March 2015 so that the parties could resolve their dispute out of court and reach a settlement.  It now appears such a resolution has not been reached and the court proceedings resume in September 2016.  We will add more details as they become publicly available.

Understanding the Chaoulli and Cambie Surgeries cases involves clarifying the difference between public and private health care in Canada. Background information on the subject is provided here. To summarize the issues, it is important to distinguish between how care is paid for (financing) and how it is delivered (i.e., who provides health care services in what settings).

“Privatization” of health services has two distinct meanings: the expansion of private funding of care (more user payments or more private insurance) and the expansion of private delivery.

Private delivery of health care is very much part of the Canadian health care system. The vast majority of physicians work privately, and many hospitals are run as independent, non-profit organizations. Unlike some other countries where hospitals are owned and operated by national or state governments, when the Canadian provinces opted into the federal program for public hospital and diagnostic services insurance in the late 1950s, they took over responsibility for funding the operating costs of existing hospitals (owned and run at the time by religious charities, municipal districts and other groups), as well as providing capital for new hospitals. They left the day-to-day running of these hospitals to the existing organizations. In order to receive public funding, these independent hospital boards had to follow the rules set down by their respective province. In recent decades, many of these hospitals have become part of regional health authorities, although often they retain independent boards.

Delivery, however, is distinct from the financing of health care. Financing refers to how we raise the funds to pay for health care. In general, for those deemed to be ‘insured persons’ (which includes effectively all Canadians), almost all hospital care and physician services in Canada are financed through public sources. To receive full federal funds, provincial/territorial public insurance plans must fully cover all insured persons for medically required hospital and physician services, with no co-payments (costs to the patient) permitted. The federal government has not always been diligent in preventing such additional fees.

There is no requirement under the Canada Health Act for the public financing of other important health care services provided outside hospital walls, including medication costs for patients outside of hospitals, eye and dental care, laboratory services (when not included in medicare fee schedules), professional services such as physiotherapy, occupational therapy, home care and long term care. Although there may be some public financing for these services depending on the province or territory, much of this care is financed privately, either through private insurance (usually through one’s place of employment) or through out-of-pocket payments by patients. Public coverage of such services is often based on income-testing special populations or programs for specific diseases or conditions.

Once care moves outside of the hospital setting, the Canada Health Act permits charges to patients for non-physician services. However, although it is legal in most provinces for outpatient clinics to offer services to patients paying privately, there are several laws in place that strongly discourage this practice. These laws, and the accompanying restrictions, vary by province. For example, some provinces prevent physicians from operating in both the public and private pay streams for procedures that are publicly insured, and some ban clinics from charging more to privately-paying patients than the fees offered in the public system. Since most physicians prefer to be able to serve the vast majority of patients who are covered by the public system, the growth of private, for-profit clinics in Canada has thus far been quite small, though some for-profit clinics are operating in several provinces.

The Chaoulli Case

In 2005, the Supreme Court of Canada ruled with a four to three decision that the Quebec government’s ban on the purchase of private health insurance for publicly-insured health services was an infringement of the Quebec Charter of Human Rights and Freedoms. The ban did not reverse the previous law, but rather applied only in situations where “the government is failing to deliver health care in a reasonable manner.” Specific definitions for what constituted a reasonable or unreasonable manner or wait time were not provided.

Although this ruling is only applicable to Quebec, it has become part of a growing number of calls for increased privatization of health care across Canada.

Since the Chaoulli ruling in Quebec, a tiered health care system has been slowly developing in the province. There are some physicians who are paid by the provincial insurer (RAMQ) for health services, yet because of loopholes in the pay structure, they may also charge additional fees to the patient by offering care in private clinics rather than in public hospitals. These costs are described to patients as equipment and diagnostic testing expenses. Since there are few regulatory controls on these fees, the costs tend to be higher than the actual costs incurred. What makes these private clinics attractive to patients is that they are often able to offer faster service with more readily available equipment than hospitals in the public system — for those who can afford to pay.

Those who are able to pay can skip the wait lines at the publicly funded hospitals where services and equipment are free but wait times may be long. Patients in the public system may be encouraged, by some physicians who work in both the public and private facilities, to go to private clinics with reduced wait times, thus driving business to their for-profit facilities. However, there is some disagreement about how rapidly the Quebec system is changing.

The Day Case

Dr. Brian Day, the founder of Cambie Surgeries Corporation, a private company that owns a for-profit clinic in Vancouver, originally had his case adjourned until March 2015 to allow the parties to resolve some of the issues in dispute.  While the case was originally set to be heard by the BC Supreme Court in September 2014, but was adjourned until March 2015 so that the parties could resolve their dispute out of court and reach a settlement.  It now appears such a resolution has not been reached and the court proceedings resume in September 2016.  We will add more details as they become publicly available.

Dr. Day’s clinic currently provides health care to privately-paying patients in violation of the province’s laws concerning ‘extra billing.’ In B.C., these laws forbid charging patients higher prices than those permitted by the public fee schedule. In particular, Day claims that the province’s laws inhibiting the private financing of health care are unconstitutional, and have resulted in excessive wait times for many procedures. Day is challenging laws concerning extra billing, as well as those banning physicians from operating in both the public and private sectors.

If a Supreme Court of Canada challenge by Day were to be successful it would act as a precedent in all other provinces and fundamentally impact the Canadian health care system through the development of a parallel private health care financing system. If Day were to win such a challenge, there would no longer be laws banning the sale of health insurance or services to patients for health services already funded through the public system. Public health care would still be available to Canadians in hospitals and physician offices paid for by the government.

Private health care and its effect on wait times

There is currently a contentious debate surrounding how private medical financing would affect wait times for publicly insured medical services and procedures in Canada. One of the primary assertions in Day’s case surrounds the rights of Canadians to be able to pay for prompt health care when there are significant waiting lists for the public system. It is also argued that having a parallel private system would have an added benefit to those waiting in the public system, because it would remove from the wait lists those who are willing and able to pay, or pay more, for immediate care – thus, reducing wait times for everyone.

Although at first glance allowing patients to move out of the publicly funded system to receive privately funded care would seem likely to improve wait times for everyone, considerable evidence suggests that a parallel private pay system could, in fact, make wait times in the public system longer rather than shorter. Once physicians can bill for more money for the same services under a privately funded system, doctors and nurses may be drawn away from the public system, resulting in decreased personnel delivering services in the public system. With fewer health care professionals working in the public system, wait times for many procedures may actually increase. A 2005 study in Australia found that areas with higher proportions of patients in the private pay system were associated with higher wait times in the public system for a variety of procedures.

Evidence also suggests there is the danger of providing an incentive for physicians who are permitted to work in both public and private systems to limit their work in the public system and direct patients to their more lucrative private pay practice, thus increasing public wait times. In Manitoba, when private sector cataract surgeries were offered for a $1000 fee, private sector patients had a short wait of approximately five weeks, while patients whose surgeon operated exclusively in the public sector had somewhat longer waiting times (8-10 weeks). However, the longest waits involved public sector patients operated on by surgeons who operated in both the public and private sectors; such patients were forced to wait 16-25 weeks for surgery in public hospitals.

Similar patterns were found in Alberta in a 1994 survey of cataract surgeons and surgery options. A 1998 survey in Alberta compared wait times in three cities. In Edmonton and Lethbridge, where the vast majority of surgeons were in the public sector (public hospitals), average wait times were between four and seven weeks. On the other hand, in Calgary, where all surgeons operated out of privately owned day surgery facilities, average wait times were between 16 to 24 weeks, despite having the most surgeons per capita of the three cities. This study also found that many of the private clinics were aggressively marketing “upgraded” lens implants to patients at significantly marked up prices.

One frequently voiced concern with privately financed health care involves equity within the Canadian health care system. The evidence suggests that a parallel system will not improve overall wait times, but will have a significant effect on who receives their care in a timely manner. Currently, the Canadian health care model strives to treat all patients equally regardless of their ability to pay, with family physicians acting as the gate-keepers to specialists, and the government paying for this care out of tax revenue. Instead, with a parallel private pay system, well-off patients (and employers) will be able to circumvent wait lines by paying for their own private health care, leaving only those without the ability to pay in the public system. In other words, the trade-off for having shorter wait times for those who access the private system involves leaving fewer physicians and resources in the public system and leaving less well-off patients with much longer wait times for their procedures. In the end, this would mean that access to timely health care would become based on one’s ability to pay as opposed to one’s specific health needs.

Private health care and its effect on costs

With the possibility of Day’s case changing the Canadian health care frontier, it is also important to understand what expanded private finance for health care would mean in terms of costs. While it is argued that competition between providers will drive down prices, the evidence suggests this would be unlikely to occur. Physicians’ primary goal of moving their services to the new private financing opportunities system would be financial, meaning that charges in that sector would need to be higher than the current public fees to attract physicians.

Across the system, one would expect costs to rise overall as some portion of health services performed in the country move to the more expensive private sector and public insurers are faced with paying higher fees to maintain access for public patients. In the National Health Service (NHS) in England, costs rose substantially throughout the 1990s as private health care reforms were implemented. However, the volume of services performed did not increase greatly, implying that few additional services were being performed.

Where private clinics have claimed to offer a lower price than that incurred by the publicly funded hospitals for a particular service, research indicates it is most often due to ‘cream-skimming’ — a process where the least complex and most profitable procedures are performed in the private system, while the most expensive and difficult patients remain in the public system. ‘Cream-skimming’ gives the illusion that the private sector has lower costs. There are also more opportunities for add-on fees beyond the scrutiny of regulators.

The Dutch health care system is often cited as an example of an efficient, universally-accessible system that has a strong competitive market component. It avoids cream-skimming by establishing a Health Insurance Fund supported by Dutch employers (7.75% of an employee’s income). This fund is then used to compensate insurers for accepting higher-risk individuals.

Another potential downside of an increased parallel private pay health care market involves higher administration costs due to the necessity of conducting business with many more parties (as well as additional costs for advertising and marketing). Currently, for services covered by a provincial government, there are minimal transactions and negotiations. Bilateral monopolistic negotiations between provinces and medical associations determine the rates for service, while service providers simply bill their province or health region for payment.

Administrative costs have been cited as a key explanation for why the American health care system spends considerably more than Canada (7.1% of American health expenditures go towards administration compared to 3.3% in Canada). However, it should be noted that New Zealand has considerably lower administrative costs (4.1%) than the U.S. despite maintaining a parallel private system, showing that there is considerable variation even among those countries that maintain private systems.

Experts available for interview

Damien Contandriopoulos, PhD
Université de Montréal
Financing; Privatization; Primary Care Delivery
514-343-6111 ext. 35176 | damien.contandriopoulos@umontreal.ca

Raisa Deber, PhD
University of Toronto
Healthcare Financing, Organization and Management
416-978-8366 | raisa.deber@utoronto.ca

Herb Emery, PhD
University of Calgary
Health Care Finance, Sustainability, Innovation, Chronic Disease Prevention
403-220-5489 | hemery@ucalgary.ca

Colleen Flood, LLB (Hons), LLM, SJD
University of Ottawa
Healthcare Law, Policy and Finance
416-697-4594 | colleenmarionflood@gmail.com | @ColleenFlood2

Alan Katz, MBChB, MSc, CCFP
University of Manitoba
Primary Care Delivery and Disease Prevention
204-789-3442 | alan_katz@cpe.umanitoba.ca

Theodore R. Marmor, PhD
Yale University Emeritus
US, UK, Holland, and German Systems
646-918-6159 or (c) 203-376-7739 | theodore.marmor@yale.edu

Kimberlyn McGrail, PhD
University of British Columbia
Variations, Aging, Outcomes
778-998-3821 | kmcgrail@chspr.ubc.ca

Marie-Pascale Pomey, MD, PhD 
Department of Health Administration, Université de Montréal
Quality & Safety of Care, Waiting Time Strategy, Pharmaceutical Policy
514-343-6111 ext. 1364 | marie-pascale.pomey@umontreal.ca
(Available for interviews in French/English)

Amélie Quesnel-Vallée, PhD
McGill University
Impact of Public Coverage & Private Health Insurance Regulation on Health Inequalities
1-514-398-2758 | 1-514-758-2269 (c) | amelie.quesnelvallee@mcgill.ca
(Available for interviews in French/English)

Anne Snowdon BScN, MSc, PhD (Canadian Based)
Academic Chair, International Centre for Health Innovation, Ivey School of Business,
Western University
UK Healthcare System & Canadian Healthcare System
1-519-661-2111 ext. 82022 | asnowdon@ivey.uwo.ca  

Charles Wright, MD
Consultant in Academic and Medical Affairs Appropriateness/Need for Medical Care
University Health Network, Toronto
416-824-5407 | cjwright@rogers.com

Our Backgrounders that address private funding:

Our Commentaries that address private funding:

Videos that address private funding:


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