Canada: how dominant public ownership of health care has undermined patient care
Lessons from Abroad for Health Reform in the U.S.
9 March 2009
Washington, DC
- View Conference Booklet (PDF) with submissions by all speakers, and speakers' biographies
The Canadian health care system, because it is an extreme example of one direction that health care provision can go, offers some clear lessons for other countries planning to increase the role of government in health care.
Canadian Medicare is a tax-financed, pay-as-you-go monopoly. Provincial governments are the monopoly providers of health care. They finance, govern, administer and evaluate the services they themselves provide. They define what constitutes “medically necessary services” and then pay for virtually all of them.
They forbid the provision of private insurance and negotiate payment schedules with the powerful provider groups. They set the budgets for nominally private health care institutions, appoint the majority of their board members, and have the explicit or implicit power to override management decisions.
Those who doubt the claim that government has all-encompassing power over health care should note this incident from several years ago from my home province.
The CEO of the nominally independent local hospital obtained almost all his budget from the provincial government. He had been given strict instructions not to run a deficit, and he got into some difficult labor negotiations. Then the phone rang and it was the premier of the province telling him to settle. The politicisation of health care thus strips responsibility and initiative from managers, because decisions will always be second-guessed by those in political power. It becomes pointless to act in a managerially rational way.
The only way to ease politics out of health care is by introducing competition and consumer choice, which transfers power to those whose decisions produce rewards for producers.
In a competitive environment, consumers are free to “vote with their feet.” They did so in the 1970s, when they abandoned North American cars for Japanese imports that were cheaper and better. Over the years, they have come to prefer calculators to slide rules, and e-mail to “snail mail,” even though in most cases the old dominant industry that was being abandoned was powerful, rich, and well-connected.
But in a regulated monopoly, the relative power of consumers and suppliers is completely reversed.
Before the advent of competition in the telephone industry, dissatisfied customers faced the massive indifference of a bureaucracy that could take their business for granted. Service was poor-quality and expensive even though politicians, answerable to voters, had theoretical oversight through powerful regulatory agencies.
The administrators of the Canadian health-care system also enjoy this monopolist immunity from dissatisfied customers. The only options for unhappy patients are individual complaints to politicians, letters to the editor, and calls to open-line shows.
The old public-sector monopoly model also confers huge power on ever-bigger hospitals and trade unions who, together, exercise a stranglehold on the production of medical services. Without alternative suppliers of services, provincial governments have little leverage over these giant provider organizations.
Poor service, lengthening queues, high prices, inadequate technology; what’s the alternative?
Unbundling functions
The key is to inject competition into what is essentially a sluggish public-sector monopoly. Saying government should ensure that no one goes without medically necessary services is not the same thing as saying only government should provide those services.
In fact, when government is everything – payer and provider, evaluator and regulator of health care services – service to the public suffers. It is therefore essential to unbundle these functions.
A proper separation of the payment from the service function would allow provincial governments to set strict performance requirements (like appropriate waiting times) and put the actual services up for contract bidding.
Since the province would no longer be evaluating the performance of its own institutions, but the performance of competing contracted providers, the cost of getting rid of poor performers is significantly reduced. Replacing an underperforming contractor is relatively straightforward.
And having many competing suppliers means greater opportunities for managerial innovation and experimentation. Such cost-saving experimentation is impossible when dealing with inflexible and highly unionized public-sector monopoly providers.
To win contracts, bidders would have to meet the performance level for access and results, as well as costs. There would be commercial penalties for non- performance in the contract. As Sweden, among other countries, has shown, this approach can result in significant cost savings and increased efficiencies while improving patient satisfaction.*
Critics would claim that such a system can never work, because patients do not have enough information to make rational decisions for themselves. This argument is increasingly untenable.
Virtually any kind of pharmaceutical product can now be purchased over the Internet from foreign providers who can evade our government’s controls. X-rays can be read just as easily by a radiologist in Boston or Bombay as in Toronto or Truro. Recently, the brain repair team at Dalhousie University, Halifax operated on a patient hundreds of kilometers away in Saint John, New Brunswick, using video and computer operated robotic arms. This increasingly common technology destroys the notion of a closed national health system in which people must take what public authorities decide they should have.
We frequently hear in Canada that we have the best health care system in the world. But the citizens of Canada – especially the poor and elderly – disagree.
A Harvard study several years ago compared the U.N. health care system rankings with the opinions of the population of each country; it found that Canadians’ level of satisfaction with their system was 12th in the industrialized countries, lagging a long list of countries with more formalized multi-tier access and a broader range of services covered by public insurance. Poor and elderly Canadians both ranked their country lower, at 14th.
In sum, much of our debate about how to run our health care system has little to do with the quality of care, and more to do with ideology. We cling to a system that outlaws private spending on publicly insured services, usually on the basis that parallel systems of care rob the public system of resources. By contrast, international rankings show that multiple tiers of access produce high-quality public systems with high levels of patient satisfaction.
