Defining the Medicare "Basket"

by Colleen Flood | Jan 01, 2008

Key Implications for Decision Makers

Canada’s publicly funded healthcare system (medicare), and the decision makers that work within it, are coming under increased pressure and scrutiny financially, legally, and politically. Medicare is the victim of its own success. We are living longer and healthier lives, medical treatments have advanced, and the overall quality of care is significantly higher than it was 20 years ago. However, significant tensions are straining medicare. Concerns about quality and access (particularly timeliness) on the one hand are straining against concerns about sustainability and cost on the other, particularly given government commitments to reducing taxation rates. Without adequate resolution, these tensions could undermine both political and public support for the basic values of medicare.

The Canadian system rests on two foundational principles: 1) that access to “medically necessary” hospital and physician services are based on medical need, not ability to pay; and 2) that services covered by medicare are funded almost exclusively through general taxation revenues. We conceptualize Canada’s current model for financing healthcare as a “concentric circle” model. The “medicare basket” currently refers to the core of exclusively and universally publicly funded services that comprise the centre of the circle, in accordance with the Canada Health Act. Moving out from the core is an intermediate ring of goods and services that are not covered under the Canada Health Act, but for which public funding is provided with limits on eligibility and co-payments (such as prescription drugs and homecare). Occupying the outermost ring of the circle are those services which are entirely privately funded (such as cosmetic surgery and in vitro fertilization). This research investigates how the concentric circle model works in practice, articulates a set of criteria against which to evaluate the practical operation of the model, and offers some suggestions for revisions to the current approach.

Our findings suggest that the concentric circle model needs to be elaborated in the following ways:

  • Improve decision-making about services to be included in the exclusively publicly funded core, at both macro- and micro-levels, based on transparent rationales which take into account scientific evidence, cost-effectiveness analysis, and public values.
  • Ensure that certain goods and services currently included in the intermediate ring (with partial public subsidy limited by restricted eligibility and/or co-payments) are covered for all through a mix of public funding and regulated private insurance. The principal example here is out-of-hospital pharmaceuticals, based on the model of the Quebec plan.
  • An additional category of coverage should be considered, on a limited and experimental basis, for enhanced alternatives to services within the public core, offered on a private basis within a closely regulated framework.

The results of this research have the potential to profoundly impact health services policy in the medium to long terms. This project has generated information and recommendations to allow evidence and values to guide the allocation of healthcare funding without restrictions on the locus of delivery or the type of provider.

Executive Summary

The results of this research have the potential to profoundly impact health services policy in the medium to long terms. Currently, technical evidence is not used consistently to make healthcare decisions, and few mechanisms exist to ensure the accountability of decision makers for decision-making to the public. This project generated information and recommendations to allow evidence and values to guide the allocation of healthcare funding without restrictions on the locus of delivery or the type of provider. An increased understanding of existing processes and barriers will allow decision makers to better anticipate and circumvent obstacles so that positive change can occur.

What will positive change look like? In our view, the starting premise should be that similar needs be treated similarly and we should not make distinctions between services on the basis of the kind of service or treatment or the kind of provider. Judgments about services and treatments to be included in the publicly funded basket should be based on medical need, evidence of efficacy, and costs. All decisions should be guided primarily by these factors. In some specific cases, other factors may need to be considered, such as the need to service small or marginalized populations. Decision-making should be transparent such that all factors can be articulated and subjected to the sunlight of public scrutiny.

Moving to a system in which funding decisions are based on treatment efficacy and cost-effectiveness could be politically laden. Physicians are accustomed to billing their respective provincial plans for nearly all services they provide; patients in turn are used to receiving all services from their physician free of charge, largely independent of any assessment of efficacy or cost-effectiveness. Few politicians would want to announce the de-listing of an ineffective or substandard cancer therapy to the public, or a frequently used medical service to physicians, even if the resources so freed would be used to fund other necessary care. But the current idiosyncratic decision-making creates its own value and political dilemmas. For example, essential drugs received on an out-patient basis may not be funded publicly, yet the same medication dispensed on a hospital in-patient basis may enjoy full public funding. Essential drugs, like insulin, are not funded on first-dollar basis across the country, yet annual medical check-ups are. Tough decisions not to fund new cancer drugs of limited therapeutic benefit are based on cost-effectiveness analyses, forcing the patients who want these drugs to purchase them in private clinics or outside Canada. In contrast, we have little rigorous evaluation of the range of physician services that attract 100-percent public funding.

Canadian medicare has long sustained the myth that all physician and hospital care, of any clinical benefit, falls under the public insurance program. The result has been that rationing occurs implicitly rather than explicitly, resulting in concerns about deteriorating levels of quality, particularly in terms of growing waiting lists. Patients are demonstrating their concern by challenging governmental limits on access to care and (in the Chaoulli1 case) the restrictions of private options in the courts. Governments can expect more litigation in the future and should be prepared to defend their resource allocation decisions by being transparent about limitations on public funding and the principles that guide their decision-making. The task of re-educating the public about the limits to what medicare can cover on a first-dollar basis is daunting but not impossible. Success may be more likely if the discussion is framed in conjunction with positive statements of entitlement. For example, in response to the Chaoull1 decision the Quebec government is setting forth waiting time guarantees (minimum levels of entitlement to timely treatment in the public healthcare system).

WHAT ARE THE IMPLICATIONS OF OUR FINDINGS FOR THE CONCENTRIC CIRCLE MODEL THAT UNDERLIES CANADIAN HEALTHCARE FINANCE? WE MAKE THE FOLLOWING RECOMMENDATIONS:

1. Improve decision-making about services to be included in the exclusively publicly funded core, at both macro- and micro-levels, based on transparent rationales which take into account scientific evidence, cost-effectiveness analysis, and public values.

We believe that there are important reasons to maintain a core of services, exclusively publicly financed on a universal, first-dollar basis. The Canadian single-payer model not only provides universal public coverage but protects the public system against erosion. The weight of the evidence suggests that allowing a parallel or duplicate private tier will reduce the ability of the public tier to meet its objectives. Allowing a duplicate or parallel private tier will change the incentives faced by providers, the risk pool in the public system, the cost of delivering services in the public system, and overall demand for healthcare services. All of these mechanisms result in negative fiscal consequences for the public system. Other nations have taken a different approach to drawing the boundary between public and private finance. Nations like Germany and, until recently, the Netherlands, for example, have established side-by-side self-contained public and private systems incorporating both providers and patients, without jeopardizing the functioning of the public system. Moving to such a system in Canada would be a drastic across-the-board change that is neither feasible nor necessary.

This having been said, a need clearly exists to improve decision-making about what belongs in this exclusively publicly funded core to ensure that a comprehensive range of high- quality, cost-effective services addressing essential healthcare needs in a timely way is available to all regardless of ability to pay. Using the criteria we recommend in this study, some services would migrate into the publicly funded core, while others would migrate out. Under our model, not all physician and hospital services would continue to be publicly funded in a static way.

2. Ensure that certain goods and services currently included in the intermediate ring (with partial public subsidy limited by restricted eligibility and/or co-payments) are covered for all through a mix of public funding and regulated private insurance. The principal example here is out-of- hospital pharmaceuticals, based on the model of the Quebec plan.

Although some services need to be exclusively publicly funded to protect the public system from erosion, universal access can be achieved for other services, such as pharmaceuticals, through a combination of public and private financing. The low marginal cost and flexible supply of many pharmaceuticals limits the potential for privately financed coverage to adversely affect the publicly financed program (although there may still be concern over risk pools). Thus universal coverage for pharmaceuticals could be achieved through a mixed model, involving some expansion of public coverage, public subsidies to those unable to afford private insurance, and regulation to require employers to provide coverage. To avoid perverse incentives for both insurers and employers, regulators would have to define the package of benefits that private insurers must cover.

3. An additional category of coverage should be considered, on a limited and experimental basis, for enhanced alternatives to services within the public core, offered on a private basis within a closely regulated framework.

The result of employing cost-effectiveness analysis in decisions about what hospital and physician services attract 100 percent public funding is that certain services may be listed but covered only within limits. Beyond those limits there may be some aspects of care that patients are willing to pay for and providers are willing to supply. Examples include diagnostic imaging for conditions beyond the range for which it is cost-effective; services of enhanced quality (such as higher-quality prosthetic joints) that do not meet cost-effectiveness criteria; or access to services faster than the time limit offered by the public system. Allowing such enhancements to listed services to be provided privately, however, risks creating the very incentives that would erode the public system in the ways described above. In theory, it is possible to address these risks through regulatory and tax measures. Indeed, the protections currently in place for the publicly financed system in Canada are due to regulations placed on the private sector. Important regulations employed in most provinces include requirements that physicians who are paid by the public system cannot simultaneously receive payment for the supply of medically necessary services in the private sector. Other countries employ different kinds of regulations.2 Future research should evaluate the effects of such regulatory measures and the extent to which they are sufficient to ensure adequate capacity in the public system.

An interesting test case for less severe regulation on privately financed services may be taking place in Quebec, which is experimenting with allowing private insurance to cover a very limited range of services provided privately in a more timely manner than can be guaranteed in the public sector, subject to the provision that providers must operate either wholly inside or wholly outside the public system, and subject to the monitoring of any effects on the public system. Given experiences in other nations with parallel private alternatives to publicly funded services, we are sceptical that such measures can be effective in any but limited circumstances.

In summary, a more rigorous approach to the definition of coverage for physician and hospital services within the central core will inevitably lead to demand for some enhanced alternatives. The extent to which pressure builds to expand the range of services included within this new regulated public/private option category will very much depend upon how successful reforms are in ensuring access to a comprehensive range of effective services available in a timely fashion. Ideally, demand for enhanced alternatives will be a marginal feature of the funding system. This kind of change will create a novel set of political and economic dynamics, the consequences of which cannot be predicted. Any contemplated increases to the scope of the intermediate circle of the public/private mix should be approached with great care and caution, closely monitoring any effects on the public system.

We show the implications of our recommendations in a revised concentric circle model (Appendix I, Figure B). The revised model implies that not all physician and hospital services that presently attract 100 percent public funding would continue to do so; other services or treatments will attract full or partial public funding more frequently. The model also implies that the present system for determining the range of physician services must be aligned with decision-making around these other services. New treatments and technologies, absent increases in public budgets, must be funded through de-listing or changes to funding of existing services. Any increases to the overall budget for healthcare as a result of an expansion in the menu of covered services will need to be rigorously justified through evidence of effectiveness and cost-effectiveness and made in a much more transparent, open, and less arbitrary manner.

We also note the limitations of excessive benefit definition. One size does not fit all. Physicians, nurses, and other medical professionals must have discretion to allocate resources to needs as they are presented. Thus while benefit setting at the macro level is an important initiative, most critical resource allocation decisions will continue to be made by physicians, nurses, and others on the front lines. Our review of the potential for different physician reimbursement models to accommodate clinical judgment within an overall resource-allocation framework suggests that a blended model holds the most promise. Notwithstanding the substantial body of research in this area to date, the implementation of particular “blends” and balances of remuneration modes needs to be subject to continuing research, monitoring, and evaluation.