week 3 - fiscal sustainability of ontario's health care system

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?