Shared Enterprise: Working Together to Improve Public Health Care in Canada

June 17, 2002

Good afternoon and thank you. Canada’s business leaders have been strong supporters of Canada’s universally accessible public health care system, and we too are worried about its future. The cost and quality of health care has real implications for the competitiveness of our enterprises and for our country’s ability to attract people and investment.

In Volume Five of this Committee’s report on health care, you noted that much of the debate over the roles of the private sector in health care has been counterproductive and diverted attention and energy away from the vital task of systemic reform. The Canadian Council of Chief Executives agrees, and on behalf of the Council, I would like to thank the Committee’s members for creating a more constructive framework for discussion, one in which ideas can be debated on the basis of their merits.

As the Committee has observed, the private sector already is a vital partner in the delivery of public health care. Most doctors are small business owners. Health care institutions look to private sector leadership and corporate donors to support their work. Most innovative technologies and treatments are brought to market by for-profit firms. Hospitals contract out a wide range of services such as laundry, security and meal preparation. For-profit companies provide most laboratory services to the public system and in a few cases, specialized clinical services as well.

In order to achieve the best possible outcomes for the tax dollars being spent, the public system will need to draw on the strengths of the private sector to an even greater extent in future:

• In commercializing, adopting and deploying cost-effective new technologies and treatments;
  
  
  
• In building badly needed infrastructure through public-private partnerships that tap private sector capital and expertise to share risks and cut costs;
  
  
  
• In achieving economies of scale in corporate services such as procurement, information technologies, human resources administration and property management; and
  
  
  
• To a limited extent, in expanding access to clinical services.

In addition, Canadian enterprises can help to reduce demand for public services through community investments and human resource policies that contribute to improved population health.

The potential for a greater private sector contribution is recognized in the 20 principles outlined in Volume Five. While I would be happy to respond to questions about any of these principles, I would like to focus my initial remarks on two of the key issues the Committee has raised: sustainability and the need for incentives.

First is the issue of sustainability. This Committee has concluded that the existing public health care system is not sustainable and therefore needs new sources of revenue. We would agree with the projections that health care costs are likely to rise faster than both inflation and the size of the population. It is pointless, however, to discuss the concept of sustainability only in terms of the capacity of governments to finance the public portion of the health care system. Whether Canadians pay their bills for health care directly, through private insurance or through their taxes, the money has to come out of the same paycheques. The essential difference between public and private funding lies in the distribution of these costs within society.

The central issue of sustainability, in other words, is not whether Canadians will have access to a universal public health care system. The issue is how good that system will be. Every day, dedicated researchers and innovative companies are coming up with new ways to help people live longer and more active lives. But around the world, per capita national incomes and total per capita spending on health care go hand in hand. More than ever, our standard of living in raw economic terms will in effect determine our standard of health care.

Canada cannot sustain high quality public health care by borrowing from the future through deficits or by throttling growth through excessive taxation. Nor, as the Committee has pointed out, can governments hope to sustain health care by allowing schools to fall apart, by running down infrastructure, by allowing the environment to deteriorate or by weakening the social safety net. Such public investments all have a significant impact on population health and therefore on the future demand for health care services.

That said, we do not support the Committee’s view that "any additional funding from federal sources will have to come from ‘new’ money, and not from revenue transferred into the health envelope from existing sources." The fact is that despite all the tax cuts of recent years, the total revenue being collected by all levels of government remains near an all time high as a share of the economy at more than 44 percent of GDP.

The Committee has acknowledged that Canadians will not support an expansion of the public health care system until they regain confidence that the existing system is working as well as possible. We would suggest that Canadians will not support a significant net tax increase for health care unless they also are convinced that no stone has been left unturned in efforts to redirect wasteful or ineffective existing spending into the health envelope.

While the Committee has talked about a new tax such as a national health care premium as a means of "diversifying the revenue sources", the fact is that health care premiums are just another form of tax that comes out of the same pockets in the end. Whether a new tax for health care is based on ability to pay, on use of the system or on a flat, per-person charge, any net tax increase would have some impact on economic growth.

In considering tax policy, however, we must remember that not all taxes are equal in terms of their economic impact. As the Department of Finance has estimated, an extra dollar of revenue raised through corporate income taxes may do nine times as much damage to economic growth as a dollar raised through sales taxes. The more Canada chooses to spend on health care through the public system, therefore, the more it will have to shift its tax mix toward a consumption base in order to remain competitive.

With that, I would like to turn to my second major theme, the need for better incentives to use available resources more efficiently. We strongly support the Committee’s view that an appropriate mix of incentives would encourage constructive competition between health care institutions; more effective use of human capital, of financial capital and of new technologies; and better use of available services by patients.

We also agree that the first step toward such a system of incentives must be the separation of the three key functions: insurance, delivery and evaluation. In terms of insurance, we agree that the single public funder approach provides significant advantages both in terms of administrative efficiency and in terms of fairness. We support the need for independent, Canada-wide evaluation of the performance of the health care system not only in using inputs but in generating improved population health. But we see an urgent need to encourage greater diversity, flexibility and competition in the process of delivering health care to Canadians.

The Council recently recommended to the Commission on the Future of Health Care in Canada that provincial governments reinforce the strengths of regional health authorities by considering the conversion of much of the provincial health care bureaucracies into Crown corporations. The primary benefit of such a change would be the separation of the political issues of who, what and how much to cover publicly from the management issues of how to deliver these services most efficiently. The value of protecting health care delivery from "the daily parry and thrust of the political fabric" has also been pointed out by Jeffrey Lozon of Saint Michael’s Hospital and other witnesses before this Committee.

The Council has put forward this concept with a significant caveat. Canada’s political landscape is littered with the stranded debt and other legacies of badly run Crown corporations, and ensuring public accountability without political interference is a never-ending challenge for any government-owned venture. Effective governance therefore will be critical to the success of such enterprises in health care. Given the critical importance of public trust in this area, a high degree of transparency also will be vital.

A Crown corporation is by its very nature a compromise, not a silver bullet. But health care is one field in which its mix of public ownership and corporate discipline could be especially effective in combining the strengths of the public and private sectors to drive forward an ambitious agenda of health care reform.

In addition to separating the funding and delivery functions, the Crown corporation model would offer a number of advantages in the struggle to improve efficiency. These include the ability to raise capital as required at competitive rates, to encourage competition for capital within the system and to allocate capital to projects with the greatest marginal benefit. By improving the continuity of management and consistency of decision-making, a corporate structure could achieve economies of scale in corporate services to all institutions and build expertise in complex areas such as the management of public-private partnerships. More generally, this is the best way to foster new incentives for the optimal use of resources across the full spectrum of care.

While multi-year contracts with an arm’s-length corporation would address the issue of predictability of funding, this structure also would drive the kind of operational reforms recommended by this Committee, including a change in hospital remuneration from a budget-based to service-based model.

As the Committee has observed, a service-based model also means that the ownership of institutions within the system becomes irrelevant as long as price, quality and evaluation are consistent. Like the Committee, the Council does not expect widespread private investment in health care delivery for profit, but the potential for such competition by itself acts as an incentive for existing institutions to improve efficiency.

A Crown corporation would have the authority not only to contract with institutions but with health care professionals. While it is clear that the structure of physician compensation will have a powerful impact on use of resources, we agree with the Committee that a blended approach is likely necessary to motivate, recruit and retain talented health care professionals. To the extent that doctors, nurses, technicians, managers and others working in the health sector can contribute to better patient outcomes while containing or reducing costs, they all should have opportunities to profit from their initiative. In the public and private sectors alike, what gets rewarded gets done.

With respect to patient incentives, the Committee has recommended against user fees. While user fees would help to reduce demand for care and reflect the principle of personal responsibility, we acknowledge that such fees can cause unfairness and create administrative costs that offset the resulting savings. Furthermore, the international evidence suggests that countries that impose user fees plough any resulting savings into broadening the range of services included in the public system. In this sense, user fees may be worth considering as a trade-off for broader coverage, but should not be seen as a means of cutting costs.

However, this still leaves room for more effective patient incentives than simply government promotion of healthy lifestyles. Existing tax rules, for instance, provide for special taxation of some products linked to higher health care usage. But to be provocative, what incentives for population health are implied by a GST that is applied to hockey sticks and roller blades but not to fatty foods? And why is it that employers can provide insurance for supplementary health care as a non-taxable benefit, but not subsidies for health club memberships? As the Committee contemplates ideas for new taxes or the dedication of taxes to the funding of health care, it might also wish to consider whether the tax system is in fact providing consistent incentives to Canadians.

Let me conclude these initial remarks by touching on another central concern of this committee, and that is the federal role in both sustaining and encouraging innovation in the health care system. I think it is fair to say that past federal policy has been seen primarily as a defence of the Canada Health Act, and in practical terms, an inhibitor of innovation. The Council would suggest that the priority for the federal government is to turn this perception around.

We agree that the federal government, having fostered a national medicare system through cost-sharing agreements, does have a responsibility to provide as much stability as possible in its continuing funding arrangements. But instead of using the Canada Health Act as a stick to restrict provincial initiative, we suggest that the federal government should use any incremental funding as a carrot for innovation. In short, the primary federal role should shift from one of protecting the status quo to one of acting as an agent of change. We already have seen examples of such an approach, such as investment in better evaluation through the Canadian Institute for Health Information and the development of Canada-wide Electronic Health Records through its $500-million contribution to Canada Health Infoway Inc.

Here too there are legitimate concerns about governance, accountability and transparency when tax dollars are spent through arm’s-length institutions. But given the constitutional reality of provincial jurisdiction, the most effective way for the federal government to encourage innovation may well be through independent agencies.

Sustaining and improving health care is part of the broader challenge of building a prosperous and sovereign country within a highly integrated global economy, and I would like to conclude by repeating three key observations. First, to sustain the highest possible quality of care, we have to get the economy right. Second, to get the best value for the money taxpayers put into public health care, there is a need for significant structural changes that will provide real incentives for innovation and efficiency. And third, in this shared enterprise of providing universal access to high quality and timely health care, business can help.