How the productivity of Canada’s health care stacks up to the U.S.
NationalPost.com – business/FinancialPost/Executive
Jun 18, 2012. Last Updated: Jun 19, 2012. Tim Shufelt
The debate over Obamacare in the United States saw the Canadian health-care system maligned as an inefficient socialistic enterprise.
But using Canada as a cautionary example to steer U.S. reform ignores the facts offered by a simple comparative analysis.
Canadians pay much less per capita on health care than do Americans, while ranking higher among the most common measures of human health.
Against the United States, Canada’s productivity gap in the business sector is perpetually upheld as a source of national shame. Last week’s release of the OECD’s latest report card on Canadian productivity revealed Canada’s productivity remains low among industrialized nations — an outcome of poor practices in taxation, post-secondary education, R&D funding and competition policy. Yet, health care may be the one area in which Canada has an advantage over its southern neighbour. Can it be said that Canada’s health-care system is more productive? Possibly. But the answer would first require the economic value of health care to be measured.
It remains a mystery why there is “no serious attempt” to measure the economic contribution of health care, William Nordhaus, a Yale University economics professor said in a 2003 paper.
“The techniques used to measure the price and quantity of health care are highly defective, and there are no attempts to account for improvements in the length of life into current measures of living standards,” Mr. Nordhaus said.
The obvious proposal would be to simply include health care output in productivity measures, through an accounting of expenditures, which is easy enough. By simply measuring health care’s portion of national GDP against the size of the sector’s labour force, productivity in health care and social assistance declined in Canada by 0.7% between 1987 and 2006.
Little should be taken from the apparent productivity loss, said Andrew Sharpe, executive director of the CSLS. Using expenditures, or inputs, as a measure of health care’s output is misleading.
“You can spend all sorts of money needlessly,” Mr. Sharpe said. “If you raise salaries, you might be spending more, but you wouldn’t be getting any more output. Or you could be spending on procedures with no value at all,” he said.
As various studies demonstrate, this approach tends to underestimate the value of health care to an economy.
Over the same 20-year time span that health-care productivity declined marginally, life expectancy in Canada rose from 77 years to 80.4 years, while infant mortality declined from 7.3 deaths per 1,000 live births to 5, according to OECD figures.
Yet, nothing in the national productivity estimates reflects the economic utility of those improvements to the health of Canadians.
Productivity improvements can also be directly observed in the delivery of health care, Mr. Sharpe said.
It makes more sense to measure health-care output not through expenditures but rather something like number of procedures, he said.
But the true economic contribution from a successful surgery must be greater than that of a failed surgery. “The issue there is whether you adjust for outcomes or not. Procedures aren’t really productivity,” Mr. Sharpe said.
There is simply no easy way to monetize the most common measures of health outcomes, like life expectancy and infant mortality. Still, getting a gauge on the sector’s performance is crucial, given the rising importance of health care to the Canadian economy, a trend that is not set to change given demographic pressures.
Between 1975 and 2011, total expenditures on health care rose to 12% of GDP from 7%, according to the Canadian Institute for Health Information. Adjusted for inflation, health-care spending increased to $4,100 from $1,700 for each Canadian over that time frame.
Is that a lot? Is the money being used well? Is the sector relatively productive? Is productivity improving?
Canada’s major health outcomes measure at about the OECD average, while our spending tends to be substantially higher than average.
However, in both categories, Canada largely outperforms the United States. In at least one sense, then, it can be said the U.S. healthcare system is much less efficient than Canada’s.
“Overall, the U.S. is hopelessly more inefficient than us, mostly because of their administrative costs, which are just massive,” Mr. Sharpe said.
But again, the problem of output measurement precludes sweeping conclusions about U.S. health care.
“If you’re talking about delivering high-quality health care, they exceed Canada and everybody else,” said Dale Orr, an independent economist who has long studied Canadian productivity. “If you’ve got serious problems, you go off to the Mayo Clinic, or the Houston Heart Institute. They deliver very high quality,” Mr. Orr said.
The “biggest problem” in the U.S. system is that “15% of its people have no meaningful coverage,” he explained.
Likewise, the case for the superiority of Canada’s system is undermined by problems many have in finding a family doctor, and in relatively long wait times, among other considerations.
“People might wait in emergency rooms for six or seven hours,” Mr. Orr said. “Then there’s those people who need a hip replacement; they’re told to wait for three or four months. In the U.S. it would be three or four days.”
If there is to be an aggregate economic measure of national healthcare sector, surely all of these factors must be considered.
That statistical challenge has largely kept national accountants from including any measure of health in living standards.
The building pressures on health-care spending alone, however, demand a better accounting of the sector’s economic effects, the CSLS report said.
“To achieve efficient allocation of resources in the health-care sector, accurate measures of health-care output and productivity are essential.”
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