Health-care costs need more haggling
Must study how public funds flow through system
The whole idea of a doctors’ union is, on i ts face, preposterous. Doctors are not typically to be found among society’ s downtrodden, lacking marketable skills or bargaining power: on the contrary, they are among the highest- paid professionals in the country, and would be with or without a medical association to negotiate on their behalf.
More to the point, doctors are not civil servants. While some are paid a salary or per- patient “capitation” fee, most are in private practice, and charge for each treatment they perform. They are small business operators, really. And yet they are entitled to bargain collectively, like coal miners or factory workers, their fees set not by competition in the marketplace but in marathon negotiations with the government.
Just now in Ontario this arrangement would appear to have hit a wall. Having negotiated a four- year deal offering average annual fee increases of 2.5 per cent, the Ontario Medical Association executive was dismayed to find it rejected by nearly two- thirds of its members, who complain it does not make up for cuts in fees imposed last year. How things should have broken down to this extent need not detain us here. But it does perhaps point to the need to find another way.
Because doctors’ fees, as such, are not the issue. To be sure, they are part of the puzzle: at $11.5 billion annually, they are roughly one-fifth of Ontario’s health-care budget. But all the hard bargaining in the world isn’t going to rescue Canada’s health- care system from the fiscal cliff to which it is headed. Much more important than doctors’ fees are doctors’ decisions, as the gatekeepers dictating how resources are allocated within the system: how many tests are ordered, what procedures are done, and so on.
The problem is that decisions about treatment are too often divorced from decisions about budgets. Governments set a budget constraint at the macro level, which filters down through the various regional health authorities and local health networks the provinces have seen fit to establish. But doctors typically do not: they make whatever they can bill. And the incentives of feefor- service are to perform as many surgeries and other treatments as they can. Absent changes in those incentives, simply capping fees isn’t going to change much.
You can see why doctors felt the need to organize. Governments had set themselves up as sole purchasers of medical services. The idea was supposed to be that they could exploit that monopoly power to drive down costs. But it didn’t quite work out that way: politicians in need of re- election, it seems, do not make terribly tough negotiators ( who knew?). It was always easier to pass the problem on to the next government, or the next generation — or, as federal governments got in on the act, Ottawa. In consequence, health- care spending skyrocketed through much of the 1970s and 1980s.
Only with the onset of the early 1990s recession, and particularly the sharp cut in federal transfers as Ottawa tried to stabilize its finances, was there the first serious effort at retrenchment. But as the fiscal crisis eased, and particularly after the 2004 health-care accord, with its massive 10- year increase in federal transfers, whatever impetus for reform there might have been dissipated. Rather than “buying change,” most of the new money went to increases in provider compensation.
Even in the more recent wave of cuts following the last recession, these have been largely untouched. As documented in a new study by the C. D. Howe Institute (“Hold the Applause: Why Provincial Restraint on Healthcare Spending Might Not Last”), governments have largely resorted to the familiar public- sector strategy of starving the capital account to feed the operating account: while capital spending has been sharply curtailed, physicians’ fees have not.
This is not sustainable in the long run — as new doctors enter the profession, and most of all, as the population ages. As it is, provinces are now spending more than 40 per cent of their budgets on health care; by 2030, a recent Fraser Institute paper projects the number will have risen to nearly 50 per cent. Yet wait times continue to mount: at more than 18 weeks, on average, from GP referral to treatment, they are nearly twice what they were 20 years ago.
Clearly the answer does not lie in more money, least of all more federal money: for every additional dollar in federal transfers the Howe study’s authors find that provincial health spending increases by 36 cents. But neither is the answer ever stricter doses of austerity — any more than one would improve a car’s mileage by putting less gas in the tank. Rather, what’s needed is systemic reform, altering the way that public funds flow through the system, and how the different players within it are remunerated.
Traditionally, doctors have been paid per service, while hospitals have been funded on a block grant basis. The key to reform is to turn this around: giving groups of doctors a fixed amount per patient, with which to purchase services from hospitals, clinics and other providers, that is on a per- treatment basis. Paying doctors a lump sum localizes the budget constraint, forcing doctors to take account of costs in decisions on treatment; paying hospitals per service makes it possible for lower-cost competitors to undercut them.
In sum, rather than doctors and governments negotiating with each other at one gigantic bargaining table, what we need are lots of little bargaining tables, at which providers can haggle with each other.