Published in the Telegraph-Journal 23rd November 2012
Published in the Telegraph-Journal 23rd November 2012
Published in the Telegraph-Journal 19th October 2012
Canada’s publicly-funded health care system is poised to undergo its greatest reform since the signing of the Canada Health Act in 1984. The reasons for this pending transformation have much to do with health care’s financial unsustainability. A number of factors will drive changes in the total health care spending-to-GDP ratio over time. In New Brunswick, these factors include changes in the age demographics of the population because per capita health care spending increases rapidly beyond a mid-40s age threshold.
An additional challenge involves GDP growth that has effectively stalled while health care costs continue to rise by significantly greater than inflation. While New Brunswick’s fiscal deficit has been brought largely under control, government’s debt remains high. Historically low interest rates have helped to keep the government’s debt service costs low as well, but this is a temporary phenomenon. To compound the problem, global population aging is set to place upward pressure on long-term interest rates and therefore intensify debt service costs over the next fifty years.
Health care technology is one of the cornerstones of the cost challenge. Technology has increased efficiencies and dramatically improved the quality of medical services. Changes in medical technology and practices have had a material impact on health care spending. The introduction of more sophisticated tools has been shown to increase demand for health care services and raise costs. Pharmaceutical technologies have increased costs even more dramatically. In Canada, technology changes accounted for as much as 25 per cent of the growth in real per capita health care spending from 1996 to 2009.
Even with substantial health care reforms, a combination of initiatives will be necessary to cover rising health care costs. Individuals and employers may be faced with increased spending for government services in the form of fees or surcharges. However, the public may still see a reduction in government services. Increased taxes to finance the public share of health care spending may become necessary. Budgetary restrictions may lead to some form of co-payment spending by individuals on health care services that currently are provincially insured.
This could lead to the development of a privately funded health care system to provide better-quality care for those willing and able to pay for it. The UK and many European countries have this “two-tier” system, and New Brunswick already has elements of this system in place in the form of private clinics. The partial privatization of health care would have little impact on the rate of growth of total spending although it does alter the public-private split and has distributional implications. There is a greater risk that a weakening of the health care system will lead to a major degradation of publicly-insured health care standards such as longer queues, lower quality service provision and delisted products and services.
At the same time, technology will be one of the cornerstones of the transformation needed to realign health care with our fiscal reality. Over the course of more than 15 years, numerous attempts have been made to wield technology to introduce greater productivity into the health care system, but so far there has been little progress. Significant potential clinical and financial benefits would be achieved with the implementation and networking of health information technology (HIT), primarily through the widespread adoption of electronic medical records (EMR). By improving health care efficiency and safety, HIT-enabled prevention and management of chronic disease could significantly increase benefits.
However, in New Brunswick, these benefits are unlikely to be realized without related changes to the health care system. These changes amount to a full-scale transformation of health care, our fundamental assumptions about how it is provided and how we plan to pay for it.
Published in the Telegraph-Journal 16th October 2012
Health care is a sleeping dragon slowly wakening to a public that is wholly unprepared to battle it. Canadians have a short time frame in which to recognize the magnitude of the challenges that health care presents, in which financing is the most prominent.
In April 2011, the C.D. Howe Institute published “Chronic Healthcare Spending Disease: A Macro Diagnosis and Prognosis”, co-authored by David Dodge, a former Governor of the Bank of Canada and Richard Dion, formerly an economist with the Bank. Both are now senior advisors at Bennett Jones LLP, a Canadian business law firm.
They argue that even if policy reforms are “incredibly successful” in improving the efficiency and effectiveness of the health care system, Canadians will still face rising health care costs and necessary difficult choices about how governments and citizens will finance these costs.
In their analysis, the annual increase in nominal health care spending per capita is set to rise from about $250 in the last decade to $675 in the 2020s, bringing total annual spending per capita after inflation to approximately $7,400 in 2021 and $10,700 in 2031, up from nearly $4,900 in 2009. The implication of their analysis is that in the 2020s, “Canadians will be spending 31 cents of every dollar of increase in their nominal incomes on health care, thus bringing the average share of health care spending in GDP up to nearly 17 per cent”.
Their analysis points to the need for governments to make very difficult decisions. Governments will not only be held responsible for providing most of these services, but will inevitably turn their attention to how they can offload some of these costs onto individuals or employers.
Dodge and Dion reach conclusions that underscore the scope and scale of the health care system challenge in Canada and state grimly that the numbers don’t add up. “In addition to increased spending by individuals and employers for health services currently uninsured by provinces, some combination of increased taxes, reduced public services other than healthcare, increased individual spending on current publicly insured services, or a degradation of publicly insured health care standards – longer queues, services of poorer quality – is necessary to manage the growth in health care spending. None of these options is appealing; Canadians have no easy way to manage the chronic healthcare spending rise.”
Journalist and author Jeffrey Simpson characterizes health care as “the third rail of Canadian politics.” “Touch it and you die,” says Simpson in his recently published book “Chronic Condition: Why Canada’s Health Care System Needs to be Dragged Into the 21st Century”. He claims that Canadians urgently need a debate on how to ensure the future of the health care system. Simpson claims that people are unaware or unwilling to review the trade-offs, alternatives and sacrifices that may be necessary to keep the Canadian health care system from collapsing under its own weight. His argument is that politicians and bureaucrats fear honesty, having “hoodwinked people into believing future costs can somehow be paid for without affecting other government services or tax increases.”
Because there is no easy way to manage the chronic health care spending rise, none of the alternatives are politically attractive, as Dodge and Dion elaborate in their C.D. Howe study. In itself, the prospect that there are so many pitfalls with no identifiable winning political proposition places pressure on politicians and bureaucrats to delay the forces of reform, transformation and innovation that will be needed to address the challenge. But even if the prognosis is not good, health care’s financial challenges must be managed. Dodge, Dion and Simpson are in full agreement that it is now up to Canadians to have an “adult discussion” about how to manage it.
By Peter Lindfield, published in the Telegraph-Journal 13th July 2012
With the persistent issues of rising health care costs, homelessness and poverty, it is becoming increasingly apparent that the old paradigms of government aid and individual benevolence are inadequate to the future challenges that face us.
With budget pressures mounting at all levels of government, it will be critical to adapt to changing needs and expectations. Social impact bonds are being considered as a way to provide services in areas such as justice and corrections, mental health, homelessness and support for people with developmental disabilities. Bond issues have been directed to reducing crime and homelessness. These two challenges have interventions where there exists knowledge about what works and where costs can be reduced. They also have outcomes where measurements are possible in the medium term.
How social impact bonds work is deceptively simple. Private investors fund new services and are repaid their capital and an agreed-upon profit but only if social outcomes that are also agreed upon in advance are met. Social impact bonds are focused on outcomes rather than outputs, so governments – and the public – pay only if an initiative is successful. This pressure to achieve outcomes creates an incentive to innovate. Social impact bonds may fundamentally alter how some social service programs are structured, improving outcomes and reducing costs for government departments and social sector organizations.
The promises of improved outcomes and future cost savings are attractive propositions for governments. In the last federal government budget, Finance Minister Jim Flaherty said that the bond concept holds promise, stating that government was considering them. In his recent report, Don Drummond recommended that the Ontario government initiate pilot bond projects in a number of areas. Alberta’s Premier Alison Redford has committed to the introduction of social impact bonds in that province. In the U.S., Massachusetts is working to sign contracts to back $50 million in social impact bonds for two projects. The first is targeted to people exiting the juvenile justice system to make the transition to adult life, while the second will support housing for the chronically homeless.
This financial innovation is not without its detractors. The National Union of Public and General Employees (NUPGE) claims that the social impact bond funding scheme for public services introduces risks in the form of “higher costs, reduced accountability and privatization”.
“We will oppose these deals at every step,” said James Clancy, NUPGE national president. “Social impact bonds are just the latest quick fix funding scheme to catch the attention of governments. We urge governments to find the financial resources through a fairer tax system to invest in social programs and public services, instead of wasting time on more expensive and riskier ideas.”
The McKinsey Group points out that establishing rigorous outcomes-oriented management carries risk as well as reward. In a recent report on the potential of social impact bonds, McKinsey stated that it is easier to secure resources if a bond’s assessment provided evidence of significant impact, “but poor or misinterpreted results could lead to lower levels of financial support. Ongoing performance management, in which the nonprofit learns from what it is doing wrong and becomes more effective in achieving its mission, is crucial to long-term success”.
Social impact bonds are the latest example of two important movements in the delivery of social services. One is measuring outcomes rather than outputs while the other is financial reward for the achievement of that outcome. Both movements should be welcomed by beleaguered taxpayers.
In an effort to reduce the frequency of “middle-of-the-night telephone calls and unpalatable decisions” that characterized the early, nail-biting moments of the recession, President Obama has sent Congress a package calling for a new oversight council to study regulatory gaps and issues that don’t fit into the traditional framework. Eventually, this move will lead to the creation of an agency to oversee consumer financial products and will give Washington the tools to make accountable the shadow system of finance that has grown up outside the government’s oversight and will make it easier for regulators to head off problems at large, troubled institutions or take control of them if they fail. Balancing honest, vigorous competition and unregulated easy money is the overarching objective and although it will undoubtedly be framed as draconian by critics, ironically, this move may still not be bold enough.