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September 30, 2010

The truth about Ontario's heath care costs

Reuel S. Amdur

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If we don't make changes in financing our health care system, then by 2030 health care will eat up 80% of the Ontario provincial budget. That's the scary picture presented by a Toronto Dominion Economics report. But, it isn't necessarily so, says Natalie Mehra, Director of the Ontario Health Coalition, and she has some pretty impressive statistics to prove it.

To begin, she attacks TD’s assumptions. 

TD assumed low economic growth, maximum heath care expenditures, and all other government expenditures flat-lined.  In short, TD’s assumptions led to an answer that may well have been pre-determined. 

However, Mehra provides an analysis of data to show that Ontario’s health care expenditures are hardly outrageous.  In 2009, they took up 46% of the provincial budget, but at $3458 per person, Ontario’s expenditures were second lowest among Canadian provinces.

As a percentage of gross domestic product (GDP), total Ontario 2009 expenditures were 16%, while for the rest of Canada the figure was 19%.  As well, Ontario’s situation needs to be seen in the context of tax cuts, deeper in Ontario than in the rest of the country.  In 2005-2006, Ontario cut corporate taxes by $8.3 billion and personal income taxes by $12 billion.

The lower expenditures on health care in Ontario meant that, in 2009, private insurance and out-of-pocket health care spending amounted to $1817 per person, the highest in the country. 

Ontario spent (2008) 7.9% of GDP on hospitals, at the middle of the pack provincially.

It is not hospital costs that are driving up health care costs excessively. The biggie in health care expenditures has been drug costs. 

In 1981, public expenditures in Ontario on drugs were $187 million, while most recent figures are a whopping $3.8 billion!  So the push for a national drug purchasing system makes good sense.

In order to curtail hospital costs, Ontario’s McGuinty government is moving to a pay-by-results (PBR) system.  It is, in effect, a fee-for-service approach, which will force hospitals to specialize on services that they can prove that they can provide more cheaply.  As a result, one hospital will focus on knee and hip surgery another on cataract surgery, and so on.  This approach has some clear disadvantages.

This system moves care away from the patient.  Services are to be integrated in a way, but at the patient level they are fragmented.  Specialization takes place at the level of the Local Health Integration Network (LHIN), which covers a large area, for instance from Fort Erie to Hamilton, and transportation from one location to another is not included. 

Another problem with PBR is that costing involves huge increases in administrative costs.  The cost of removing a cataract includes everything from janitorial services through equipment purchase and maintenance and nursing and physician time.  The increase is from 6% to 15 or 20% of total hospital costs.

The movement to PBR also opens the door for for-profit competition.  Some private entrepreneurs will look at the cost for knee surgery, for example, and say, “We can do it cheaper.” 

The cheaper service may involve cutting costs on cleaning.  The urge to cut costs may well lead government to out-source in this way, but the private provider will simply do the more routine cases, leaving the more complex ones to the public hospitals.  Their costing for the procedure will then be found by the accountant to be higher than the private provider.  The complex cases do not lend themselves to meaningful cost accounting.

To see the consequences of PBR, one need only look at what has happened to home care in Ontario. 

Existing non-profit services have often been out-bid by private providers.  The ongoing drive to the bottom has meant that front-line personnel have been pressed to accept low wages and heavy caseloads. As a result, clients face staff turnover both because of low pay and because of changes of service provider. Clients receive curtailed services, as health care workers rush from one client to the next.  This kind of result is not accounted for in PBR.

We have lived through a process of hospital consolidation, with accompanying closures.  The immediate consequence was major costs for construction, as some of the remaining hospitals received substantial additions. 

Bottom line: The cost of health care in Ontario is not in the kind of crisis that many politicians like to claim.

Ontario is stingy in its level of health care funding, compared to other jurisdictions in Canada. One reason is the drive to cut taxes.  The chosen program (PBR) for cutting hospital costs is actually counterproductive, creating very expensive administrative costs.  PBR fails to deal with complex cases and short-changes the patient.  And keep your eye on drug costs.

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