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.