Canada's Romance with Market Medicine

For-profit health care has failed in the U.S. So now its sponsors hope to export it north

by Arnold Relman

The American Prospect magazine, October 21, 2002

Canada of all places is having a highly charged national debate about whether to adopt the U.S. model of commercialized health care as part of its national health-insurance system. Health policymakers in Canada, particularly at the provincial level where most practical decisions are made, are being told a monstrous myth. Consultants and business people, often with little professional health training or experience but with ample conflicts of financial interest, are extolling the advantages of marketplace medicine and the benefits that an American-style entrepreneurial approach would supposedly bring to the stressed Canadian system. And yet the U.S. experience of the last two decades and the evidence on the performance of for-profit health insurance and medical care tell just the opposite story: Entrepreneurial markets have made a shambles of our healthcare system. Any nation seeking to follow the U.S. example risks the same failures now plaguing the United States.

A committee of the Canadian Senate and a special commission reporting to the prime minister have been holding hearings for more than a year. Their final recommendations are expected this fall. Meanwhile, the Canadian media have been full of heated debate about the sustainability of the present system and the proper mix of public and private involvement for the future.

Unlike the United States, Canada provides tax-supported insurance for all "necessary" medical care in hospitals and physicians' offices. The federal and provincial governments share these costs, though the provinces generally pay the larger share. Each province decides how its health-care funds will be spent, so long as its program conforms to the general principles of the Canada Health Act, which first established the national plan decades ago. These principles guarantee that all citizens get free access to necessary care, that the insurance will be managed publicly and that it will cover citizens traveling anywhere in Canada or abroad.

In Canada, physicians are generally paid, as in the U.S. Medicare system, on a fee-for-service basis; doctors' associations and health ministries negotiate fee schedules. But unlike their counterparts in the United States, Canadian doctors cannot also accept payments from private plans for services covered by public insurance. So private insurers seldom offer coverage of services already handled through the public system. All general hospitals are not-for-profit, and they are paid through budgets established by the provinces but may supplement their support through private philanthropy. Out-of-hospital services such as nursing homes, home care, dental care, ambulatory surgery and prescription drugs are not generally covered through public insurance, although some provinces provide partial benefits. Such services increasingly are being provided in Canada through investor-owned businesses. In total, public insurance covers about 70 percent of all health costs; the rest is paid out of pocket or through private insurance plans.

Until recently, Canadians have been relatively satisfied with this system. It has regularly received far more approval in opinion polls than our own hodgepodge. Most Canadians have appreciated the security and the egalitarianism of a system that offers one class of "medically necessary" care for all. They also seem to like the blend of care delivered mainly through private providers via a universal and public insurance plan.

Of course, the Canadian system has long had its problems, too. Appropriations have often been deemed inadequate by hospitals struggling to meet constantly rising capital and operating costs. Physicians have often been dissatisfied with the government fee schedules, leading on occasion to angry confrontations between provincial health ministries and the professional medical associations with which they negotiate. There are often waiting lists for elective procedures, causing some patients to seek care in the United States. And out-of-hospital services have grown far beyond what was envisioned when the Canada Health Act was first passed, so it is only natural that public payment for these costs is increasingly seen as inadequate. Nevertheless, major changes in the system have not been seriously considered until the recent crisis in costs and services.

Canada spends little more than half as much as we do per capita, or relative to gross domestic product, and its costs have been rising much more slowly than ours have. But this control has been achieved through fiscal restraints that have limited health services and added to waiting lists. There is now a pressing need for more money, and many conservative politicians fear that the cost will undermine their tight budgets. On a recent trip to Toronto to speak at a meeting of the Canadian Association of Retired Persons, I witnessed an extraordinary, un-Canadian shouting match between the new Ontario minister of health, a fellow speaker, and members of the audience. The seniors were incensed by his suggestion that the provincial government was not going to shoulder any more of the costs of home health care and outpatient drugs. Their shouts nearly drowned out the youthful minister, who soon lost his cool and was shouting back about the new realities of fiscal restraint.

Given this impasse, it was inevitable that privatization would seem the answer. The embattled Ontario minister was trying to argue for such a policy. In some provinces such as British Columbia, Manitoba and Ontario, such proposals are given particular credence by political parties ideologically disposed toward reducing the size and scope of government and celebrating the superior efficiency of private business. Everywhere in Canada, one now hears talk about the magic of "public-private partnerships," which typically means the delivery of health care by private investor-owned facilities and organizations, with payment by the public-insurance system. What actually happens is that the public pays and the investor-owned businesses make the profits-hardly a "partnership."

There are already many for-profit businesses in Canada providing out-of-hospital services not covered under the original Canada Health Act and paid for by private funds. The new idea is to allow businesses to provide services currently covered by the act and to pay them through the public purse. Many Canadian, U.S. and international firms are waiting in the wings to deliver these services-for example, care in specialty hospitals and ambulatory surgery centers, expanded home care and prescription-drug benefits-once laws are changed. There is even talk of allowing private for-profit insurance plans to compete with the public system for coverage of basic medical services, much the way Medicare in the United States has allowed private for-profit HMO insurance as an alternative to standard Medicare coverage. Under such arrangements, the public system guarantees a fixed cash allowance for purchase of private coverage but doesn't guarantee a fixed set of benefits.

In considering the possible advantages of partnering with for-profit providers and insurers, Canadian health policy makers naturally look to the United States. Over the past few decades, investor-owned businesses have taken over more than half the U.S. markets for health insurance, ambulatory services and facilities, nursing homes and specialty hospitals. In addition, about 15 percent of all general acute-care hospitals belong to for-profit businesses, including a few giant hospital chains. Helping these health-care businesses do their work are a plethora of new business-to-business companies, which provide such varied services as brokering, marketing, public relations, claims adjustment, utilization review, disease management, pharmacy management, financial and information services, and so on. Altogether, investor-owned health-service businesses and the businesses that serve them constitute a gigantic "medical-industrial complex" that I would now estimate accounts for nearly half of our S1.4 trillion health-care budget.

The myth about the privatized system in the United States- widely spread around the world by business consultants, health economists and conservative politicians-is that our experience demonstrates the superiority of private for-profit enterprise in providing health care. After all, doesn't the profit incentive spur productivity and efficiency and respond to consumer demand far better than bureaucracies or nonprofit organizations? And as the world leader in entrepreneurial health care, shouldn't the United States be the example for Canada to follow?

Knowledgeable Canadians have puzzled over these questions. If privatization is really the answer, they wonder, why are U.S. costs rising so rapidly and the number of uninsured and underinsured increasing? And why is there such universal dissatisfaction with our system-except among the insurance and health-care businesses that are profiting from it?

Some U.S. observers, including me, have been saying for a long time that privatization is a big part of our problem and certainly not the solution. At first, the argument was largely based on social and ethical considerations and on the many inherent reasons why market forces cannot be expected to work well in health care. Now, however, considerable empirical evidence supports the opposition to privatization: Investor-owned businesses are typically more expensive and sometimes deliver services of lower quality, according to comparative studies of hospitals, nursing homes and kidney dialysis centers published in respected, peer-reviewed medical journals. Investor-owned insurance plans have much higher overhead and administrative costs and spend less of their premium dollars on health care than do their not-for-profit competitors. They also make mischief by trying to target relatively healthier populations at the expense of sicker ones.

I have been invited to Canada four times in the past few months to discuss the U.S. experience with privatized health care. As I told my friends in Canada, we in the United States have much to learn from their success in providing universal coverage for medical care in hospitals and doctors' offices at a relatively modest cost. Turning over more of their system to private enterprise would be a serious mistake. It would inevitably increase overhead and administrative costs-as has occurred in the United States-and it would increase total costs, reduce the benefits received by patients or both. And there is no reason to believe it would improve quality of care; in fact, quite the opposite is more likely.

The most hopeful approach to controlling rising costs in Canada is through reform of the organization and funding of the delivery of care. Both our countries need to learn how to organize and pay for our physicians in ways that provide better incentives for high-quality, cost-effective care. At present, both Canada and the United States primarily rely on solo practice and fee-for-service reimbursement of doctors-arrangements bound to encourage excessive use of expensive technology and to discourage critical and unbiased assessment of medical needs.

If Canadian policy makers follow logic and the evidence, they will not turn to the market. But that would mean that they are more resistant to the financial enticements and the political influence of the medical-industrial complex than their U.S. counterparts have been. We must also hope Canadian leaders are too sensible to be tempted by the spurious appeal of "free" money from health-care businesses. If Canadians are gullible, they will pay dearly for their mistake just as we in the United States have been paying for ours.

ARNOLD RELMAN, M.D., is the former editor of The New England Journal of Medicine.

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