Trend points to belt tightening in health-care system

Posted on October 29, 2015 in Health Delivery System – News/Politics
Oct. 29, 2015.   André Picard

For 40 years now, we have been meticulously tracking health spending in Canada.

In that period, year-over-year spending has never gone down. Ever.

In 1975, we collectively spent $12.2-billion on health care. In 2015, it will be roughly $219-billion. Or, to be more precise, in constant 1997 dollars, spending has climbed from $36.7-billion to $145.6-billion – a fourfold increase.

Taken as a share of gross domestic product, health is now 11 per cent, up from 7 per cent in 1975. Health is now a bigger part of the Canadian economy than the energy sector.

These data come from the National Health Expenditure Trends report (NHEX, for the numbers junkies), published annually by the Canadian Institute for Health Information.

Aside from constant increases, the CIHI data remind us that the way we spend our health dollars has remained remarkably constant over time.

The top three spending categories – hospitals, physician services and drugs – account for 60.7 per cent of all spending today. In 1975, the big three accounted for 68.6 per cent of the total.

The most significant change is in hospital spending: Four decades ago, it accounted for 44.7 per cent of the total health bill; today, it’s 29.5 per cent.

Drugs, which accounted for only 8.8 per cent of spending in 1975, now consume 15.7 per cent of the total.

For all the talk of physician costs spiralling out of control, they have remained remarkably stable, accounting for 15.1 per cent of costs in 1975 and 15.5 per cent in 2015.

The same is true for most our health outlays: We spend about the same, proportionally, on dental care, nursing homes, home care, vision care and administration as we did in the disco era.

Some of these data challenge common assumptions and stereotypes. For example, it is stated often, as fact, that health bureaucracy is ballooning. In reality, health administration costs (which in the CIHI’s books means the cost of running ministries of health and public insurance plans) have held steady at just under 3 per cent.

Most administration costs are hidden within other budgets. But in hospitals for example, we know that administration costs are about 4.5 per cent. That’s not immaterial, but not excessive either.

Despite the rhetoric holding that all money should go to patient care and the front lines, large institutions and programs do not run themselves. If anything, our health system is undermanaged.

But back to the numbers.

Perhaps the most intriguing and informative aspect of the review of spending patterns over four decades is that it shows there have been four distinct periods of growth in health spending: 1975-1990, when there was unfettered growth; 1991-97, when there was notable restraint, to the point where spending was essentially frozen; 1997-2009, when a lot of money was pumped back in to catch up; and 2010 to the present, when we are going through another era of restraint.

Now, those who know their socio-economic history will immediately recognize that the periods of restraint coincide perfectly with periods of recession.

“A slowdown in the economy is reflected directly in health-spending decisions,” said Brent Diverty, an economist and vice-president of programs at the CIHI.

That makes sense because health spending makes up a huge proportion of public spending: about 38 per cent of all provincial budgets on average.

But the important message to take from this trend is that, as the economy continues to sputter, we are going to have to tighten our health-care belts.

And, in health care, the only way to achieve savings, or even keep costs in check, is to control labour costs, which make up an estimated 60 to 70 per cent of overall costs.

(That figure is frustratingly vague, which points to one of the shortcomings of the CIHI data – it does not always measure the right things.)

So, the bad news for health-care workers, from physicians through to nurses and personal support workers, is that they can expect to continue to take it on the neck.

But history also tells us that, when the economy picks up steam, workers can expect to make up for their losses, and then some.

While the numbers, and the trends, are fascinating, they do not tell the whole story. We know how we spend, but we do not know if we spend smartly, if we are getting value for money.

Increasingly, health systems are embracing the “triple aim” philosophy, referring to the three goals that must be pursued simultaneously to ensure that we are delivering care effectively and efficiently: improve the patient experience, including quality and satisfaction; improve the health of the population; reduce per-capita costs of health care.

To meet those aims, we need to commit to a philosophy in which the quality of care is paramount. But we also need better data to tell us how we are doing now, and to chart how we improve.

That, in addition to tracking spending, is the challenge for the CIHI for the next 40 years.

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