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The Fiscal Sustainability of
Ontario’s Health Care
HLTH 405 / Canadian Health PolicyWinter 2012
School of Kinesiology and Health Studies
Course Instructor: Alex Mayer, MPA
Announcement• There are still a dozen people or so who have not
registered their iClickers on the iClicker website. You must do this if you would like to receive your grades on a weekly basis via Moodle.
o When registering, use your Queens email as your ‘student ID’
In the News• “Premiers’ working group a hopeful sign”
- The Guardian (Jan 21)
• “Prevention gets left out of health-care debate” – The Toronto Star (Jan 20)
• “The Harper government is taking action to improve efficiency in health care”
- press release, Canadian Newswire (Jan 20)
The Fiscal Sustainability of
Ontario’s Health Care
Topics for today’s lecture:
• How much does Ontario spend on health care?
• Components of health spending
• Key drivers of spending growth
• What action has been taken so far…
And where work remains to be done.
• Don Drummond’s recommendations
Every year, Ontarians pay taxes on income earned…
What is the Fiscal Sustainability
Problem?
… on goods and services purchased…
What is the Fiscal Sustainability
Problem?
What is the Fiscal Sustainability
Problem?
… on properties we own… etc.
• All other things being equal, this tax revenue rises or falls in tandem with the province’s economic activity (GDP).
What is the Fiscal Sustainability
Problem?
Year Real GDP growth
Revenue
2011 $71.3B
2010 +2.95% $64.9B
2009 -3.26% $68.9B
2008 -0.64%
So the ‘fiscal sustainability problem’ is simply this:
Y/Y% growth HC spending > Y/Y% growth
revenue
Or similarly…
Y/Y% growth HC spending > Y/Y% growth
GDP
What is the Fiscal Sustainability
Problem?
Share of Ontario’s Total Program Spending
Health; 46%
Edu-cation
& Other; 54%
2010
Share of Ontario’s Total Program Spending
Health; 60%
Education & Other; 40%
2020
Share of Ontario’s Total Program Spending
Health; 80%
Education & Other; 20%
2030
So how does one bend the cost curve?
Follow the money
Big revelation #1:
• About 1/3 of the health care budget goes to hospitals.
oUntil 2011, MoH sent global funding envelopes ($$$)
o Then, ‘Excellent Care for All’ kicks in
Follow the money
Global FundingHospital is paid based on historical budget trends, with small year-to-year adjustments based on input costs.
Pros
• Provides budgetary predictability
Cons
• Disincentives for discharging patients to post-acute care and increasing volume (i.e. exchanging relatively less expensive patients for relatively more expensive patients)
• No incentive to improve quality or efficiency
Excellent Care for All Act (2011)
• Introduces activity-based hospital funding in
Ontario as of April 2011.
• Reimbursement rate based on types, volumes
and quality of care provided.
• CEO pay is tied to performance (meeting
concrete targets).
• If all goes well, model will become funding model
for CCACs, long-term care homes, CHCs, as well.
Pros
• Rewards volume, quality and efficiency, which will
incentivize greater specialization (i.e. centres of excellence)
and high throughput (i.e. more efficient discharge; no more
stranded ALC patients).
• CEO incentives are aligned with hospital’s performance.
Cons
• Rural hospitals risk may be penalized if performance
standards (e.g. ‘quality premiums’) are set too high or if
some component of basic global funding is not retained to
offset operating costs.
Activity-Based Funding
Follow the moneyBig revelation #2:
• More than ½ of health care spending
involves paying people for services (e.g. medical, admin, clerical).
oBig ticket items: Physicians, nurses, CEOs
Physician Remuneration
• Payment models come in many different shapes and sizes:
o Fee-For-Service
o Blended Models: FHT MDs can choose from Blended Capitation (FHN or FHO) or Blended Salary
• Average payments to physicians have moved from $200,000 to $400,000 over 1992 - 2009.
• MDs are being gradually weaned off of Fee-for-Service based models through $$$ inducements from other payment models (FHGs in 2003, FHOs/FHTs in 2006).
Physician Remuneration
Blended Capitation Model
• Base funding of about $125 (avg.) per patient added to a physician’s roster (accounts for 60% of income)o teen male = $60; 90-year old female = $440
o $60 extra if patient has diabetes or serious mental illness, $125 extra if patient has experienced heart failure
• Shadow billing provides small FFS component (only 10-15% of normal OHIP fee for the procedure)
• Population health bonuses and incentives:o E.g. If 50% patients get colorectal cancer screening, $2200 bonus
If 70% patients get colorectal cancer screening, $4400 bonus
FHTs and Blended Capitation Payments
Pros
• Incentivizes cost-effective primary care (i.e. prevention)
• Does NOT incentivize volume (desirable for quality care)
• MDs lose out on bonuses if low acuity patients seek ER care;
this incentivizes 24/7 access to primary care (e.g. extended
hours, THAS)
Cons
• Rewards beneficial activity but not health outcomes!! (yet!)
• FFS MD practices still alive and kicking despite their
obvious drawbacks (BC payment model not imposed across
the board)
Health Human Resources
• If you were to design the system from the ground-up, with MDs costing $250k to $500k, how would you organize different health professionals to provide accessible, cost-effective care that emphasizes prevention above all?
Big revelation #3:
• Drug expenditures account for 10% of public health care costs and 33% of privately-borne health care costs.
Follow the money
Pharmaceutical Drugs• Ontario had some of the highest per capita drug costs of any
jurisdiction in the world until recently.
• Due to:
1. Generous Ontario Drug Benefit program
e.g. No matter if a 68-year old made $45,000/yr. or $45M/yr., she would still have access to basically “free” pharmaceutical drugs (small annual deductible of $100).
2. Overutilization of new, expensive brand-name drugs
90-95% of new drugs provide no clinical benefit over generics.
3. Relatively high prices for generic drugs
Highest of any jurisdiction in the world, until recently.
• Defeats cost-effective provision of health care in a few ways:o Age criterion does not align provision of
benefits with financial needo High cost of pharmaceuticals facing non-ODB
patient leads to high rates of clinical non-adherence; patients show up sicker downstream
Pharmaceutical Drugs
• In 2010, new regulations were introduced into the Ontario Drug Benefit Act. o Prices for generics bought under the plan would be capped
at 25% of the cost of their brand-name equivalent, down from 50%.
o Similar price reductions for drugs purchased out-of-pocket or through private insurance to be phased in over 3 years.
Result:
• Whereas ODB program cost growth used to go up by 9.4% per year, it only went up by 5% in 2010.
Pharmaceutical Drugs
Class Exercise:
Don Drummond’s 10 Prescriptions for Sustainable
Health Care
Recap• How much does Ontario spend on health care?
• Components of health spending
• Key drivers of spending growth
• What action has been taken so far…
And where work remains to be done.
• Don Drummond’s recommendations
Fill-In-The-Blank…• What is the %growth in Ontario’s HC spending for
2011?
• What does this say about our odds of having a fiscally sustainable health care system under McGuinty?