The Health of Canadians – The Federal Role

Final Report

Volume Six: Recommendations for Reform



Hospital Restructuring and Funding in Canada

With few exceptions, Canadian hospitals exist as not-for-profit entities.[1]  Ownership usually resides with community-based not-for-profit corporations, religious organizations, or (rarely) with municipal governments or universities. Apart from psychiatric hospitals, provincial/territorial governments rarely own hospitals.  In all cases, however, the vast majority of hospital revenues come from a single funder – the provincial/territorial department of health.


(As a Percentage of Total Health Care Expenditures) 







British Columbia






New Brunswick

Nova Scotia

Prince Edward Island




















































Average Canada






Source: Calculations done by the Economics Division, Parliamentary Research Branch, Library of Parliament. Based on data from the Canadian Institute for Health Information, “Health Expenditure by Use of Funds, By Source of Finance, Province/Territory 1975-2001,” National Health Expenditure Database (NHEX).
Note :   Hospitals include all hospitals approved by provincial governments providing acute care, extended and chronic care, rehabilitation and convalescent care, and psychiatric care, as well as nursing stations and outpost hospitals. “Average Canada” represents the unweighted average for the provinces.

Provincial governments spent some $32.1 billion on hospitals in 2001.[2]  This represented almost a third of total provincial/territorial government expenditures on health care.  Hospitals represent the largest category of health care spending in Canada.  However, their share has been declining significantly.  For example, in 1986, spending on hospitals, as a percentage of total health care spending, averaged roughly 41% among the provinces.  By 2001, this share fell to an average of approximately 33% (see Table 2.1).  This sharp decline is due primarily to changes in knowledge and technology that increasingly permit diagnoses and therapies to be provided safely out-of-hospital and to consequent hospital downsizing and restructuring across the country.  As the proportion of health care spending devoted to hospital care has decreased, that allocated to home care and other forms of community-based care has increased.

In Volume Five, the Committee enunciated a number of principles regarding the funding of hospitals.  Principle One stated that Canada should keep its current single funder/insurer model for financing hospital services, and that this single insurer should be government.[3]  Principle Eight stated that the current methods used for remunerating Canadian hospitals should be replaced by service-based funding.[4]

The Committee believes that service-based funding will achieve a number of important objectives, including: measuring in an appropriate manner the cost of specific hospital services; improving overall hospital efficiency; enabling the public to compare hospitals based on their performance; enhancing hospital accountability; fostering competition among hospitals; reducing waiting lists and encouraging the further development of centres of specialization.

Text Box: The Committee believes that service-based funding will achieve a number of important objectives, including: measuring in an appropriate manner the cost of specific hospital services; improving overall hospital efficiency; enabling the public to compare hospitals based on their performance; enhancing hospital accountability; fostering competition among hospitals; reducing waiting lists and encouraging the further development of centres of specialization.

The Committee also acknowledged in Volume Five that modifications to a pure service-based funding model may be necessary for teaching hospitals and possibly for very small community hospitals.  We also believe that the federal government should consider contributing to the capital investment needs of Canadian hospitals, particularly academic health science centres (or teaching hospitals) and hospitals located in areas of  exceptionally high population growth.

This chapter provides information on hospital funding in Canada, summarizes the testimony received on this issue and reiterates the Committee’s view of the merits of service-based funding.  The chapter is divided into seven sections.  Section 2.1 reviews and compares current methods used for funding hospitals in Canada.  Section 2.2 describes service-based funding and reviews relevant international experience.  Section 2.3 details the Committee’s rationale for recommending service-based funding for hospitals in Canada and highlights the various challenges posed by this mode of hospital remuneration.  Sections 2.4 and 2.5 examine in detail the particular issues raised with respect to academic health science centres and small and rural community hospitals.  Section 2.6 examines the issue of capital needs of Canadian hospitals.  Finally, Section 2.7 provides the Committee’s view on public versus private (for-profit and not-for-profit) hospitals.


2.1     Funding Methods for Hospitals in Canada: Advantages and Disadvantages[5]

Provincial/territorial governments use a variety of approaches to finance hospitals.  There is no one model that can accurately portray the financing of hospitals in Canada.  Furthermore, provinces/territories do not use a single method to distribute funds to their hospitals.  Most rely on a primary funding approach to allocate the majority of funds and a number of secondary methods to apportion lesser amounts.

Methods of hospital funding used in Canada, both primary and secondary, include: line-by-line, ministerial discretion, population-based, global budget, policy-based, facility-based, project-based and service-based.  As Table 2.2 shows, provincial governments rely on seven of these methods to finance the operating costs of hospitals.  Funds for capital purposes (to pay for hospital construction, major building renovations, and high-cost equipment purchases) are provided in all provinces using a project-based method.





of Hospitals

of Beds  
per 1,000

































Line-by-Line and Pop.-Based



Ministerial Discretion

Global Budget

Global Budget

Line-by-Line and Pop.-Based

Ministerial Discretion

Ministerial Discretion

Ministerial Discretion











Source:  McKillop et al. (2001), Table 1.1 (p. 9), Table 3.2 (p. 46) and Table 3.5 (p. 53).  Population data from Statistics Canada, CANSIM II, Table 051-0001.
(1)  Policy-Based, Facility-Based, Population-Based and Service-Based.
(2)  Population-Based and Policy-Based.
Note:    Number of beds for Nova Scotia includes acute care only.

More specifically, two provinces (British Columbia and New Brunswick) use a line-by-line method.  Four provinces (Manitoba, Prince Edward Island, Nova Scotia, Newfoundland) use a ministerial discretion method.  Two provinces (Alberta and Saskatchewan) have primary operating funding approaches with a population-based method, while two others (Ontario and Quebec) use global budgets.  The policy-based method is the most commonly used secondary funding approach in four provinces (British Columbia, Alberta, Ontario and Quebec).  Two provinces (Ontario and Quebec) also use a population-based method in combination with the primary method.[6]  At present, only Ontario uses a service-based method for financing selected hospital services.


2.1.1   Line-by-line

Line-by-line budgeting used to be the most popular method of hospital financing in Canada.  This method involves negotiating amounts for specific line items (or inputs) such as in-patient nursing services or medical/surgical supplies.  The total budget allocation for an individual hospital, then, is simply the sum of the line items.  British Columbia and New Brunswick still rely on line-by-line budgeting (combined with a population-based method) as their primary budgeting approach.

On the positive side, line-by-line budgeting allows provincial ministries of health to link specific activities with policy objectives through direct spending.  For example, a province that wishes to promote day surgery could increase the line funding available for this activity by a factor greater than that applied to the in-patient nursing line.  Line-by-line funding also gives hospitals a higher degree of financial predictability than some other methods.

However, this method has a number of disadvantages which have caused several provincial ministries to move away from the approach.  On the one hand, the line-by-line method prevents reallocation among lines and thus reduces flexibility in managing funds.  On the other hand, the approach is not related to performance and therefore does not encourage efficiency.  In addition, line-by-line budgeting provides information only on the cost of inputs, not on the cost or quality of outputs.  Moreover, the effort involved in scrutinizing line-by-line budget detail is significant.  The most serious disadvantage, however, it that it tends to diminish the capacity of hospital boards and managers to link the hospital’s activities directly with the needs of the community it serves.


2.1.2   Ministerial discretion

With this method, funding is based on decisions made by the provincial minister of health in response to specific requests by the hospital concerned.  This method is used as the primary funding approach in Manitoba, Nova Scotia, Prince Edward Island and Newfoundland.

Although the ministerial discretion method is highly subjective, it offers a number of advantages.  From the government’s perspective, this method is extremely flexible; ministerial decisions are not constrained by formulas or other predetermined budgeting methods.

The major drawback of this funding approach is that it risks being myopic, inconsistent and overtly “political.”  Significant changes in funding can and do occur with a new government or a change in policy.  Furthermore – and this is critical from the Committee’s point of view – this method clearly lacks transparency.  Witnesses told the Committee repeatedly that there is a need to depoliticize hospital financing.  For example, Mark Rochon of the Ontario Hospital Association stated that:

We need to consider and promote mechanisms that (…) insulate, as much as we can and are able to do, decisions concerning the provision of health services from politics.[7]


2.1.3   Population-based

Population-based methods use demographic information such as age, gender, socio-economic status and mortality rates to forecast the demand for hospital services.  Matching the predicted demand for certain health services with the estimated cost of providing these services yields a spending forecast for individual hospitals (or for regional health authorities).  At present, Alberta and Saskatchewan use population-based funding as their primary methods, while British Columbia and New Brunswick use it in combination with a line-by-line budget approach.  Newfoundland, Nova Scotia, Ontario and Quebec are currently considering adopting a population-based approach as their primary funding method.

The Committee learned that a population-based method, employing formulae strictly to distribute funds, can be objective, equitable and accommodate the needs of particular regions and hospitals.  In addition, the CEO of the Calgary Health Region, Jack Davis, told the Committee that in Alberta, the population funding system had helped to depoliticize the allocation of resources.[8]

However, ensuring that a population-based formula accounts for all the factors that affect the health care a population requires is complex and difficult to implement.  Such a method requires good information systems that are resource-intensive (equipment, databases, staff).

This budgeting method may become too complex and create a lack of transparency with users unable to understand or predict how funding amounts have been determined.  According to Les Vertesi, Chief of the Department of Emergency Medicine at the Royal Columbian Hospital (Vancouver), a population-based funding model can only provide an estimate of where health care resources will be needed; it will not provide incentives for better service.[9]


2.1.4   Global budget

Global budget methods adjust previous spending (such as last year’s base allocation) to derive a proposed funding level for the upcoming year.  The focus is on the total hospital budget rather than on individual service activities or cost centres within the hospital.  Adjustments can be made to the base amount using a multiplier (such as the rate of inflation) or a lump-sum amount to establish the funding level for future periods.  Quebec introduced global budgets as its primary funding approach in 1994, while Ontario has used this method since 1969.[10]

The Committee learned that because hospital activities change little from year to year, provincial governments find it much easier to simply repeat the previous year’s allotment with an adjustment for inflation or population growth.  Therefore, global budgets are straightforward to calculate for the provincial government and predictable for the hospital.  Dr. Vertesi explained that global budgets gained popularity mainly because they allowed governments to control costs while at the same time granting hospital management a great deal of discretion in the allocation of funds among a hospital’s various operations.[11]

Similarly, in its brief, the Canadian Healthcare Association made the argument that global budgets encourage efficiency by permitting hospitals to distribute savings from one area of operation to another area of need.  The Association further argued that global funding allows the delivery of comprehensive, integrated health care, which, in the long run, can reduce overall health care costs.[12]

Despite these advantages, many witnesses expressed the view that global budgets have numerous drawbacks and that, according to Dr. Vertesi, this mode of hospital remuneration is “an archaic funding model.”[13]  First, the Committee was told that funding under a global budget is unrelated to the services that are actually provided by a hospital.  Second, we also heard that any inequities that exist between hospitals are perpetuated through global budgets.  Third, witnesses stressed that global budgets do not encourage hospitals to improve performance; indeed, they can perpetuate and reward inefficient hospitals and penalize more efficient ones.  Fourth, the Committee learned that funding under a global budget cannot accommodate changes in population and management structures.  Last, but perhaps most important, witnesses raised the fact that there is a progressive and permanent loss of information under global budgets about what specific hospital services cost; hospitals have no incentive to measure such unit costs.

Overall, the majority of witnesses agreed that after years of global budgets in a number of provinces, no one knows how much anything costs any more and that, as a result, it is difficult to know even approximately what the public is getting for its spending on hospitals.  The Committee believes that the lack of costing data with respect to hospital services is inconsistent with our vision of what a twenty-first century service sector ought to be: that is, a sector capable of providing timely and high-quality care on the basis of strong evidence-based decision making, and held accountable as a result of governments (and the public) knowing which services in which hospitals are provided efficiently, and which are not.

Text Box: The Committee believes that the lack of costing data with respect to hospital services is inconsistent with our vision of what a 21st century service sector ought to be: that is, a sector capable of providing timely and high-quality care on the basis of strong evidence-based decision making and held accountable as a result of governments (and the public) knowing what services in what hospitals are provided efficiently and those that are not.


2.1.5   Policy-based

Under this method, funding is distributed to achieve specific policy objectives.  Unlike the ministerial discretion approach, where the health department (or minister) responds to individual requests for funding, a funding decision under the policy-based method has an equal effect on all institutions that provide the services encouraged by a particular policy (such as a 48-hour postpartum stay in a family birthing unit).

From the government’s perspective, this method provides the department with a mechanism to ensure that policy initiatives are embraced by hospitals.  Nonetheless, many hospitals consider that this method of funding interferes with their operations and provision of services.  Furthermore, it is not a very predictable source of funding, since funding patterns will change if governments or policies change.


2.1.6   Facility-based

Facility-based methods use characteristics of the hospital, such as size, amount of teaching activity, occupancy and distance from nearest tertiary facility (specialized care centres, etc.), to estimate operating costs.  This approach recognizes that the structure of different hospitals can influence the cost of providing identical services.

Funding under a facility-based approach attempts to accommodate differences in organizational structure (rural versus urban hospitals, teaching versus community hospitals, and so on).  It is, however, insufficiently responsive to changes in demographics or in disease patterns.  Furthermore, facility-based funding does not reward utilization efficiencies.


2.1.7   Project-based

Project-based methods distribute funds in response to proposals for a one-time need.  This method is often used by provincial/territorial governments to finance significant capital expenditures (such as building a new hospital wing).  Project based budgeting is distinct from policy-based budgeting: the former method directs funding to an individual hospital for a specific identified need, while the latter apportions a pool of money among various hospital to effect policy initiated by government.


2.1.8   Service-based

Service-based funding for hospital services is often referred to as a “case-mix-based approach” in Canadian and international literature; both concepts are used interchangeably in this chapter.

Case-mix-based or service-based methods use the volume and type of cases treated (such volume of dialysis, bypass surgery, knee or hip replacement, etc.) by a hospital to determine funding.  More precisely, case-mix measurement requires two essential components: 1) the classification of patients into clinically meaningful groups that use similar levels of hospital resources, and 2) the attachment of a weight to each group to estimate relative resource use.  These weights usually reflect the average cost of treating the patients in each group; they are used to construct individual hospital case-mix indices that measure average patient resource intensity, usually relative to a national norm.  A higher case-mix index indicates greater patient resource intensity.  Therefore, under service-based funding, hospitals are reimbursed for the episode of care for which the patient is admitted and based on the type of service or procedure performed on the patient.

The current literature on case-mix-based approaches seems to suggest that such methods fund hospitals more equitably than other methods.  A particularly attractive characteristic of case-mix-based approaches is that they encourage efficiency and performance.  International evidence indicates a clear trend toward such approaches.

Ontario used a service-based funding method in the summer of 2001 to distribute $95 million of additional lump-sum funding to hospitals.  The new funding methodology was developed by the Joint Policy and Planning Committee (JPPC).  The JPPC recommended that this methodology be implemented gradually over the next three years and that its impact be monitored.[14]


2.2     Service-Based Funding: Review of International Experience

2.2.1   United States

As in Canada, hospitals represent the single largest category of health care spending in the United States.  The organization of the American hospital sector is, however, one of the most complex in the world with a heterogeneous collection of hospitals, payers and funding methods.[15]  In 1998, 28% of hospitals were classified as public (state or local government) hospitals, 58% as private, not-for-profit hospitals and 14% as private for-profit hospitals.[16]  Financing for hospital services comes from a number of private insurers, out-of-pocket costs and from the Medicaid and Medicare programs.[17]

In 1983, the Health Care Financing Administration (now Centers for Medicare and Medicaid Services) introduced the Prospective Payment System (PPS), under which hospitals were paid according to a case‑mix-based approach, the Diagnostic Related Groups (DRGs) classification.  Eighty-one percent of hospitals are now remunerated using the DRG system.[18]  The rates that are paid to hospitals are based on the average costs of a specific treatment and are independent of a patient’s actual length of stay in hospital.[19]  These rates may be adjusted upward if a hospital services a population with a disproportionately high number of low-income residents.  While most hospitals use a common rate-setting methodology, actual rates are determined by each individual state.  All rates are reviewed annually by the United States Congress.  Private insurance companies and managed care plans are free to set their own hospital rates according to state guidelines, if any.

The wide variety of payers and payment rates under the DRG classification has led hospitals to develop detailed information systems that are equated with high administrative costs.  Nonetheless, DRGs allow for the comparison of resource use across American hospitals and, as a result, encourage competition among institutions.  Appearing before the Committee, Dr. Duncan Sinclair, former chair of the Ontario Health Services Restructuring Commission, said:

it is not a bad idea to have hospitals paid basically on the basis of DRGs and the volume related to those, much along the line of what is common in the United States.  That is a very good idea.[20]

The literature suggests that “DRG creep” (or “up-coding”) has become a common problem among American hospitals.  This problem occurs when hospitals attempt to maximize their reimbursements by choosing diagnostic codes that result in higher payments that may not be medically justified.[21]  However, the Committee was also told that close auditing of the DRG category into which a patient is put has substantially reduced the amount of DRG creep, particularly since there have been some high-profile cases when health care firms and their executives have been convicted of fraud associated with this practice.


2.2.2   United Kingdom

Britain’s major reform of the National Health Service (NHS) came in 1991 when it introduced internal competition by separating the “purchaser” from the “provider” of health services.  Hospitals were set up as independent “trusts” and were expected to negotiate contracts with purchasers – Fundholding doctors and District Health Authorities.  To accommodate this model, case-mix systems were introduced as the method of payment.  The NHS reforms were severely criticized because they led to significant increases in administrative costs.

More reforms took place in 1997, substituting cooperation for the previous emphasis on competition.  But hospital funding has remained the same.  Currently, District Health Authorities are financed based on their populations.  Hospitals are then funded by the District Health Authorities based on case-mix methods.


2.2.3   France

The hospital sector in France is split between public hospitals, which handle roughly 75% of hospital activity, and private hospitals, responsible for the remaining 25%.  The two types of hospitals are remunerated differently.  All public hospitals receive global operating budgets that are based on the previous year’s amount and increased annually by a rate determined by government.  Private hospitals, on the other hand, are paid through a combination of a per diem rate for the number of cases handled.

France is currently considering a move towards case-mix financing for public hospitals.  For almost 20 years, the French hospital sector has been developing DRG-style case-mix information systems.  In 1996, the Programme de Médicalisation du Système d’Information (PMSI) released for the first time reliable patient data, designed specifically for French conditions.  When used to measure the performance of French hospitals, the PMSI data revealed significant disparities in performance and capabilities among institutions and regions.  French analysts feel that the present system of global budgets perpetuates these disparities.


2.2.4   Denmark[22]

Most hospitals in Denmark are public hospitals owned and financed by county councils.  Fewer than 1% of the total number of beds are in private for-profit hospitals.  In the Copenhagen area, the municipally owned and financed hospitals are organized as a public company, the Copenhagen Hospital Corporation.  The corporation is controlled by a board, with members appointed by the municipalities and the national government, including representatives from the private sector.

Until recently, the predominant method for allocating resources to hospitals was through prospective global budgets fixed by county councils.  Large capital investments are decided jointly by county councils and hospitals and provided through project-based funding.

While global budgeting proved effective in controlling hospital expenditures, it provided limited economic incentives to increase efficiency at the point of delivery, and limited incentives to increase activity in relation to demand, thus contributing to increasing waiting lists for some procedures.  In response to these inefficiencies, funds were allocated to the counties in 1997 to allow them to experiment with service-based funding.  To increase the incentives to treat patients from other counties, in 1999 the national government decided to introduce full DRG payments for the treatment of such patients.  The use of deliberately high DRG rates was expected to increase competition between hospitals.

In 2000, the national government formally introduced a system combining global budget and DRG rates with negotiated activity targets for each hospital.  Under the new scheme, each hospital receives an up-front budget corresponding to 90% of the DRG rates related to the case-mix in the negotiated activity target, with the remaining 10% allocated according to the actual activity performed.  Hospitals that provide more treatments than their negotiated target receive extra funds.  The national government plans to encourage experiments in which more than 10% of a hospital’s income is activity based.


2.2.5   Norway[23]

Fewer than 1% of all hospital beds and 5% of outpatient services in Norway are private.  Norway’s counties are responsible for financing all public hospitals, with the exception of one regional hospital owned and operated by the national government.

Between 1980 and 1997, Norwegian hospitals received global budgets from their counties.  While it was agreed that this system allowed governments to control costs and the distribution of resources, a Royal Commission, appointed in 1987, found that global budgets encouraged some hospitals to restrict their services in order to keep within their budgets.

As a result of the commission’s recommendations, counties, on behalf of hospitals, were remunerated by the national government by a combination of cost per case, based on the DRG system, and global budgets.  The reform, introduced in 1997, was intended to increase hospital in-patient activity, raise productivity and shorten waiting lists.  The new payment method was introduced gradually: in 1997, 70% of grants to counties were according to a needs-based formula while the remaining 30% were paid based on the previous year’s in-patient activity, using national standard DRG rates.  In 1998, this was changed to 55% formula-based and 45% activity-based and finally moved to a 50-50 split in 1999.  Since 1999, day care surgery has been financed based entirely on the DRG system.  Teaching hospitals receive two additional grants: one to cover teaching and research, and the other to finance the treatment of complex and costly patient cases.


2.2.6   Review of international experience by the Comité Bédard

In June 2000, the Quebec Department of Health established a task force to examine the financing of hospitals in the province.  This task force, the Comité sur la réévaluation du mode de budgétisation des centres hospitaliers de soins généraux et specialisés, was headed by Denis Bédard.  The Comité Bédard released its report in December 2001.  One section of the report reviewed hospital budgeting in the United States, United Kingdom, France, Belgium and Norway.  The Comité Bédard made a number of interesting observations based on this international review:

·        Population-based approaches are widely used and recognized as an equitable mode for funding hospitals.

·        There is a move away from global budgeting and a trend towards deploying information systems based on the DRG model.

·        Countries are looking for mechanisms that can link information on hospital use and hospital delivery of services.

·        There is a trend toward the development of more sophisticated methods for assessing hospitals’ financial performance.

·        More emphasis is placed on quality of care in the delivery of hospital services.

Overall, the Comité Bédard recommended a budgeting method for Quebec hospitals based on DRGs and performance.  It was recognized that adjustments would have to be made for teaching hospitals.  The Comité Bédard also recommended that the Quebec Department of Health build on the work of the Canadian Institute for Health Information (CIHI) rather than attempting to develop its own database on case-mix groups (CIHI’s work is discussed in more detail below).


2.3     The Rationale for Service-Based Funding in Canada

It has been recognized both in Canada and internationally that detailed information on the use of hospital (and other) resources is essential to the efficient delivery of desired outcomes in health care.  With current approaches to funding hospitals in Canada, decisions are not usually based on detailed costing information, since funding is either decided politically or based on historical trends and, in any case, the necessary information is just not available.

As explained in Section 2.1 above, provinces have tried recently to improve their decision-making ability by introducing funding models that depend on more and better information, such as population-based funding.  However, this method for determining budgets can provide only rough estimates of what a hospital’s needs might be.  Moreover, depending on the efficiency of the facility, there is no guarantee that the hospital will successfully and effectively turn these resources into the desired services with the desired outcomes.  Therefore, the Committee believes that current hospital funding mechanisms, where these are based on funding inputs and not on final outcomes, must be revised to focus on performance in delivering hospital services.

Text Box: The Committee believes that current hospital funding mechanisms, where these are based on funding inputs and not on final outcomes, must be revised to focus on performance in delivering hospital services.

The majority of the witnesses that appeared before the Committee supported the idea of moving to service-based funding for hospitals.  For example, Michael Decter, former Deputy Minister of Health in Manitoba and Ontario and currently Chairman, Board of Directors, Canadian Institute for Health Information (CIHI), stated:

The right way of funding hospitals, in my view, is to fund them for what they do, for what they actually accomplish in outcome terms.[24]

The following advantages of service-based funding were brought to the attention of the Committee:

·        Better Information – Witnesses told the Committee that service-based funding increases the need for better information, something the Committee considers essential to measure the performance of the health care system in terms of quality and outcomes.[25]  In fact, the lack of critical information currently hobbles health care providers and government decision-makers alike.  In its brief, the Canadian Healthcare Association indicated that: “Our members fully support the need for costing services and improving performance measurement and benchmarking.”[26]

·        Transparency and Accountability – Witnesses stressed that, because the service-based approach relates funding to the actual services provided by a hospital, accountability for the use of public funds and transparency of costs would be substantially improved.  For example, the submission of the Ontario Hospital Association to the Committee stated that “the public would see the direct connection between the level of funding and the number and types of procedures that are performed, thereby opening up health care funding to public scrutiny.”[27]

·        Equity in the Distribution of Funding – With its “price times volume” approach, many witnesses considered service-based funding to be a more equitable means of funding hospitals than through current methods.[28]  In addition, by attaching a price to specific hospital services, service-based funding enables the funder to influence change by changing the value attached to specific services.

·        Investment in Capital – Dr. Les Vertesi informed the Committee that the health care system in Canada is “under-capitalized.”  He blamed this on the use of global budgets, which do not attract capital.  He argued that service-based funding, on the other hand, attracts outside capital to build facilities.

·        Independence – Many witnesses believed that a move to service-based funding would result in hospitals becoming more independent from government.  This would help to de-politicize decision-making with respect to hospital services.  The Canadian Healthcare Association disagreed with this point, arguing that service-based funding would most likely lead to greater rather than less micromanagement by governments.[29]  The Committee does not share this view.  Along with the majority of witnesses, we believe that service-based funding will provide hospitals with the needed flexibility to allocate financial and human resources according to principles of best practice, efficiency and locally-determined needs.

·        Reduction in size of Provincial Health Departments – Indeed, the Committee believes that service-based funding will enormously reduce the amount of top down, control and command micromanagement of hospitals which now characterizes all provincial departments of health. The reduction in the role of these departments should lead to a corresponding reduction in the number of their employees.

·        Patient-Oriented Service Delivery – Dr. Vertesi stated that by paying hospitals for the services they actually provide, patients become a source of income rather than a burden to the facility.  Service-based funding creates incentives for providers to increase efficiency, service volumes, and patient satisfaction, precisely what is needed currently.[30]

·        Efficiency and Performance – Current hospital funding mechanisms do not provide the right incentives and often produce perverse results with respect to financial management.  In fact, a 1998 study by the Ontario Joint Policy and Planning Committee showed that with global budgets there is no correlation between hospital deficits/surpluses and cost-efficiency in the Ontario hospital sector.  More precisely, the study concluded that there are a number of inefficient Ontario hospitals that run budget surpluses and an even greater number that are considered cost-efficient but have deficits.[31]  Service-based funding changes the financing perspective from paying hospitals a specific amount to meet their anticipated needs to paying them according to what they actually do.  As elsewhere in the economy, this fosters both efficiency and performance.

· Multiple Ownership Structures – The combination of a single funder/insurer, service-based funding and the separation of funder and provider means that the funder is neutral on the issue of who owns a hospital.  The funder/insurer would purchase the service from that institution offering the best price, provided that it met the necessary quality standards.  Such an institution could be either publicly owned or owned by a private not-for-profit or for-profit organization.  As indicated in Volume Five, the Committee believes that the patient and the funder/insurer will be served equally no matter what the corporate ownership of a health care institution maybe, as long as the two following conditions are met: 1) all institutions in a province are paid the same amount for performing any given medical procedure or service; 2) all institutions, no matter their ownership, are subjected to the same rigorous, independent quality control and evaluation system. The Committee emphasizes that it is not pushing for the creation of private, for-profit, facilities.  But we do not believe that they should be prohibited, just as they are not now prohibited under the Canada Health Act.[32]  Indeed, we fully expect that the overwhelming majority of institutional providers would continue to be, as they are now, privately owned, not-for-profit institutions.[33]

Text Box: The Committee emphasizes that it is not pushing for the creation of private, for-profit, facilities.  But we do not believe that they should be prohibited, just as they are not now prohibited under the Canada Health Act.

·        Flexibility in Changing Priorities – Service-based funding allows government to change priorities with respect to particular procedures and services by altering the amount it will pay for them.

·        Competition to Provide the Best Services – Service-based funding will lead to particular services being provided at hospitals which are most efficient and perform the greatest number (highest volumes) of these services.  Competition in the provision of services will improve quality and force those hospitals that wish to continue providing particular services to do so even more efficiently.

·        Centres of Excellence – The Committee heard many times that a service-based funding method would lead to the development of centres of specialization – or “centres of excellence”, as they were referred to by a number of witnesses – for the provision of certain treatments or surgeries.  Such change in the delivery of hospital services should be encouraged because of the efficiencies it brings. This would also contribute to improving the quality of services.  Indeed, recent articles in the New England Journal of Medicine have shown that the best indicator of quality, whether it is surgery or a diagnostic procedure, is volume.  The advantages of specialization for selected hospital services were acknowledged by provincial premiers and territorial leaders who agreed, at their January 2002 meeting, to share human resources and equipment by developing “Sites of Excellence” for a number of complex surgical procedures.[34]  There are, obviously, desirable limits to the Centre of Excellence concept that are reached when accessibility to services is compromised by virtue of the fact that the hospital offering a particular service is far away.  A balance thus needs to be struck between the quality and cost-effectiveness/efficiency principles and that of ready accessibility.[35]

While most witnesses stated that they supported a move to service-based funding for hospitals, the Committee was cautioned that there are a number of substantial challenges in the implementation of such a funding model.  These challenges are summarized below.


2.3.1   Appropriateness of service mix

Service-based funding is attractive to hospital managers because they are responsible for choosing which services their institution will provide and at what levels.  With this discretion available to management, hospitals will adjust their service mix in order to earn the highest possible returns consistent with meeting the needs of the population they serve.  Hospitals will be encouraged to specialize in those services they can do best, and those for which the rates of remuneration are most attractive; they will reduce to the point of not providing those low-volume services that are not, for them, appropriately funded.  In highly populated urban areas, this would lead to facilities specializing in the provision of certain services.  However, the Committee was told that in smaller, rural communities, particularly those located some distance from a major urban centre, preserving accessibility to particular services may well claim priority.  In this case, hospitals may choose to continue to provide needed services despite relatively low rates of remuneration.  It is, therefore, essential that rates be reviewed and revised on a regular basis.  The concerns with respect to small and rural community hospitals are discussed in Section 2.5.


2.3.2   Over-servicing and up-coding

With a hospital’s finances dependent on the volume and mix of services it provides, incentives are created to encourage efficiency and to increase productivity.  There is concern, however, that remunerating hospitals for each service performed could lead to over-servicing and, possibly, improper billing (“DRG creep”).  The issue of over-servicing arises with physicians who are paid on a fee-for-service basis.  The Committee believes that this method of payment has led some physicians to concentrate on the number of patients seen rather than quality of their care.  The Committee was told, however, that while the possibility of over-servicing always exists with hospitals, it is less likely to occur given that many “players”, such as referring and consulting physicians and, of course, patients themselves, are involved in every decision to provide a given person with a specified service in hospital.

In the opinion of Dr. Duncan Sinclair, former Commissioner of the Ontario Health Services Restructuring Commission:

[t]he danger is very much less in hospitals, given that the hospital itself is not the gatekeeper.  However, one would have to be careful to avoid collusion between those who are the gatekeepers of hospital function and the hospitals themselves.[36]

Some witnesses stressed that over-servicing is especially dangerous in a system such as that in Canada where hospital-based specialists are also paid under a fee-for-service scheme.  This problem can be greatly alleviated, however, by having hospital-based specialists paid under a different remuneration scheme, as in Sweden and the United Kingdom.

Under a service-based funding system, cases are given weights in relation to their severity and the corresponding use of resources:  the higher the case weight, the greater the remuneration.  Therefore, hospitals have an incentive to up-code, that is, to report the highest weight for each case, whether this classification is justified or not.

Michael Decter raised the concern of improper billing or up-coding with respect to service-based funding:

I think service-based funding is the right way with a couple of caveats. You must have a system that is well enough documented and data strong enough you do not get gamed. As you will remember, a major hospital chain in the U.S. – HCA Columbia – was litigated by the government of the United States for cheating them to the tune of hundreds of millions, if not billions of dollars, by having their thumb on the scale on the coding.[37]

Audits, fines and penalties will have to be put in place to prevent abuse of the payment system.  A detailed and accurate set of costing rates will also reduce the incentives to up-code.  Having an independent system of evaluation, as recommended in Chapters One and Ten, would alleviate this problem to a great extent.


2.3.3   Rates, information and data

Before service-based funding can be implemented, reliable case costing information and methodologies must be developed.  Sharon Scholzberg-Gray, President and CEO of the Canadian Healthcare Association, informed the Committee that shifting to an entirely service-based funding system requires costing data that do not yet exist.  In its brief, the Association also indicated that:

The costing data that has been developed in Ontario has taken 10 years to develop. While it has been an important and necessary initiative, there are still significant operational issues to deal with including: the fact that this process only covers 50-60% of hospital services (it does a good job of inpatient services and surgeries, but not outpatient services); there is a need to add “complexity factors” (such as recognizing the unique situation of remote hospitals and teaching hospitals); and the tendency to allocate administrative costs to services that are not covered by the process, thus appearing to be very efficient. Given the ongoing challenges of establishing an Ontario system, one can imagine the magnitude and complexity of issues that need to be resolved when developing a pan-Canadian costing system.[38]

Currently, the Canadian Institute for Health Information (CIHI) is responsible for the collection, establishment and revision of service case rates.  The work on collecting costing data in Canada began in 1983, when the Hospital Medical Records Institute undertook to develop a Canadian database on case‑mix groups, which is now maintained by CIHI.  At the time of implementation, the lack of comprehensive Canadian case‑mix costing data resulted in the importation of American cost data (New York State and Maryland) that were adjusted for Canadian lengths of stay.  Now, CIHI uses data from selected hospitals in Alberta and Ontario to estimate the case-mix weights.

Kevin Empey, Chief Financial Officer of University Health Network in Toronto, stressed that more hospitals must submit costing data if accurate remuneration rates are to be established.  He indicated, for example, that in 2000 only 2 of the 13 teaching hospitals in Ontario and 3 of the province’s 69 community hospitals, along with a small number of Alberta hospitals, provided costing data for the establishment of Canadian case rates.[39]  In order to develop sufficiently current and detailed rates, it is essential that the majority of hospitals be required to produce and submit costing data.  Kevin Empey also stressed that:

We need a system which either creates an incentive or a penalty to motivate institutions to provide data and to participate in the inputting of it.  This would end up with a better structure and better data.[40]


2.3.4   Innovation

In its brief, the Canadian Healthcare Association argued that service-based funding, with its focus on providing services at the lowest cost, would discourage innovation, both with respect to new procedures and new technology.[41]  This is especially a concern for Academic Health Sciences Centres and teaching hospitals.  Teaching facilities must be able to try new and highly specialized, but very costly, procedures without being put at risk by a rate-based system.  It is therefore important that case-mix funding approaches not create perverse incentives by discouraging innovation of this (or any) kind.  The concerns raised with respect to teaching hospitals are discussed in Section 2.4.


2.3.5   Comprehensive health care

Members of the Canadian Healthcare Association pointed out that service-base funding focuses on “procedure-driven” health care instead of the provision of comprehensive and integrated care.  In other words, service-based funding would simply encourage health care providers to respond to sickness and to concentrate less on a broad continuum of services, including health promotion and disease prevention.  They felt that funding under global budgets helped to provide more extensive care than service-based funding would be able to.  Indeed, Mark Rochon of the Ontario Hospital Association, who supported the idea of a move towards service-based funding, also made the comment:

I think we need also to recognize that there are some aspects of service that perhaps ought to be funded with other than a service based approach.  I am thinking, for example, of services that relate to health promotion and prevention.  Perhaps the argument could be made that stand-by services such as emergency rooms could also be funded on a global basis.[42]


2.3.6   Escalation of costs

In the opinion of the Canadian Healthcare Association, it was precisely this type of procedure-driven care – one that would be fostered by service-based funding – that has resulted in an escalation of costs:

The cost escalations currently being experienced within our health system are almost entirely related to “cost of procedures” related to physician services and drug costs. Service based funding would encourage a continuation of these current practices.[43]

The Committee does not support this opinion.  As stated in Volume Five, we believe that service-based funding fundamentally changes the incentives, with the result that cost escalation will be reduced in the long run.[44]


2.3.7   Lack of simplicity

Many witnesses told the Committee that if service-based funding were to be implemented, a number of adjustments would have to be made to the rates in order to accommodate institutions such as teaching hospitals and smaller, rural hospitals.  Sharon Sholzberg-Gray, President and CEO of the Canadian Healthcare Association, observed that while the vast majority of the witnesses supported service-based funding, each witness suggested modifications that, in aggregate, could lead to an extremely complex funding system:

What we noted in reviewing some of the testimony of people who came before this Committee to speak about service based funding is that (…) they all wanted special complications formula – that is, if you are a teaching hospital, one formula; if you are in a remote area, a different approach; if you do certain things, another approach.[45]

The Committee has already acknowledged in Volume Five that some adjustments would be necessary to service-based funding to accommodate the variety of hospitals.[46]  The adjustments that would have to be considered for teaching centres and for small rural hospitals are discussed in Sections 2.4 and 2.5 of the present volume.


2.3.8   Committee commentary

The Committee concurs with witnesses that, as much as possible, hospitals should be funded for the specific services they provide, that is, according to service-based funding.  Service-based funding is the most appropriate method for financing the operational costs of hospitals, though we recognize that additional investment may be needed for capital purposes in many Canadian hospitals (see Section 2.6 below).  The Committee believes that service-based funding has numerous advantages over the methods currently used to finance hospitals in Canada.  In our view, Canadians will greatly benefit from service-based funding in terms of quality and timeliness of hospital care, as well as in terms of transparency, accountability and performance reporting.

Text Box: The Committee believes that service-based funding has numerous advantages over the methods currently used to finance hospitals in Canada.

The Committee recognizes that hospital funding is a provincial matter; nonetheless, the federal government could be of considerable assistance in promoting of service-based funding.  In our view, the federal government, as part of its role in supporting the health care infrastructure and the health info-structure (see Volume Four)[47], should provide some of the funding necessary to enable the provinces to implement service-based funding.  This federal funding should be part of the federal investment in health information systems that this Committee recommends in Chapter Ten.  Furthermore, the Committee believes that CIHI can play a major role in the estimation of case-mix groups and their relative weights, both of which are needed to implement service-based funding.

If Canadians are to derive the most benefits from publicly funded or insured hospital services, service-based funding must be implemented.  Moreover, hospitals also will gain a lot from service-based funding.  This mode of remuneration will allow them to identify inefficient practices and hence help improve their productivity.  As a result, hospitals will be able to compete on the basis of quality of care.

The Committee acknowledges that the implementation of service-based funding will take time.  Following the experience in European countries, the new payment method should be introduced gradually; at the early stages, hospitals should be remunerated by a combination of service-based funding and their traditional funding methods.  The portion of funding allocated through service-based funding should grow each year and that allocated by the traditional methods should shrink correspondingly, until at the end of the implementation period hospitals are remunerated entirely by service-based funding.

For instance, similar to the Norwegian experience, the funding split might begin with hospitals being remunerated 70% by traditional methods and 30% through service-based funding.  The funding mix might then progress to a 50-50 split, to 70% service-based funding, and then finally to 100% service-based funding.

Therefore, the Committee recommends that:

Hospitals should be funded under a service-based remuneration scheme. This method of funding is particularly well suited for community hospitals located in large urban centres. In order to achieve this, a number of steps must be undertaken:

§         A sufficient number of hospitals should be required to submit information on case rates and costing data to the Canadian Institute for Health Information;

§         The Canadian Institute for Health Information, in collaboration with the provinces and territories, should establish a detailed set of case rates to reduce incentives to up-code.

§         The federal government should devote ongoing funding to the Canadian Institute for Health Information for the purpose of collecting and estimating the data needed to establish service-based funding.

§         The shift to service-based funding should occur as quickly as possible. The Committee considers a five-year period to be a reasonable timeframe for the full implementation of the new hospital funding.


2.4     Academic Health Sciences Centres and the Complexity of Teaching Hospitals

Teaching hospitals in Canada form part of what is known as Academic Health Sciences Centres (AHSCs).  AHSCs consist of a teaching hospital, a university faculty of medicine, and other health-related research and health care institutes (see Appendix 2.1 for a list of the 16 AHSCs in Canada and their affiliated hospitals).  Because these centres are responsible for not only patient care but also teaching and research, they are much more complex than community hospitals.  They also offer the newest and most highly sophisticated services and treat the most difficult, complex cases.

Text Box: AHSCs consist of a teaching hospital, a university faculty of medicine, and other health-related research and health care institutes. Because these centres are responsible for not only patient care but also teaching and research, they are much more complex than community hospitals.

Hospitals with teaching/research activity have higher costs per weighted case than community hospitals.  This is due to the required teaching infrastructure, specialized programs, higher utilization of diagnostic testing, and the use of resources needed for more innovative and aggressive treatment procedures:

Studies have shown that procedure costs at academic health science centres are higher than in community hospitals. This is not only due to the costs of the complexity of care provided or the introduction and evaluation of leading-edge practice. To fulfill its teaching and research mandate, some clinical procedures cost more than average and result in lengths of stay that may be longer than average. Additionally, a major research and education centre incurs facility and operating costs as a result of providing space and supporting the medical staff in these endeavours.[48]

Because of the educational and research aspects of AHSCs, funding comes traditionally from at least two separate provincial government departments and, within those departments, from a variety of sources.  While it is almost impossible to distinguish precisely the academic mission from the health care delivery mission, government funding can be placed into three broad categories.[49]

First, the department of education provides operating grants to universities that in turn provide budgets for health faculties, including salaries for their academic staff.  Second, the department of health provides hospitals with budgets for clinical education to pay the salaries of post-graduate trainees and partial support of the incomes of clinical faculty.  Third, hospitals receive operating grants from provincial health ministries to help pay for the added cost of research and training activity.

As a result of this complexity, service-based funding poses a number of problems particular to AHSCs.  Patients of AHSC often require very sophisticated treatment, the cost of which may not be accurately captured in case-mix measurement systems.  For instance,.Kevin Empey, Chief Financial Officer, University Health Network (Toronto), stated:

(…) both pacemaker and defibrillator implants are included in the same [case-mix group] and thus would be assigned the same case weights and funded identically. This weighting, and any rate-based funding would not reflect the dramatic differences in the costs of the devices implanted. The cost of a typical defibrillator implant procedure is approximately 2.5 times that of a pacemaker implant.[50]

Similarly, it is estimated that the cost of one multi-organ transplant costs $213,000 per patient.  However, due to the complexity and the uniqueness of the treatment, rates have not been determined in Canada for the transplants.  As a result, teaching hospitals in Toronto receive funding at the same rate as for single-organ transplants, which is a fraction of the true cost of the multi-organ treatment.[51]  For these reasons, Dr. Hugh Scott of the McGill University Health Centre stated:

if you want to put it in a formula, there has to be multiples.  Any time we try to put cardiac surgery and psychotherapy in a magic formula, there will be problems.  When you then add in a teaching environment and so on, you will have even more problems.  I look forward to simplicity and elegance, I think sometimes multiple factors have to be taken into account.[52]

Dr. Jeffrey Lozon from St. Michael’s Hospital (Toronto) discussed the complexity of financing teaching hospitals given the variety of activities they perform:

The most appropriate funding vehicle is the one that most closely aligns the accountability of the academic health sciences centre and its outputs in a fair funding system. Our centres are accountable for their outputs. However, it must be understood that our outputs are going to be different than what they would be in a community hospital or in a rural environment. They will be more complex.  We have different levels of output: we have output around the knowledge that we create; and we have output around the numbers of students that were educated.

We would probably be uncomfortable with a one-size-fits-all funding formula that might suggest my hospital be as low cost as a hospital in Yorkton, Saskatchewan. The hospitals do different things and so the cost varies. We need to measure the things we do and we need to be held as accountable as the hospital in Yorkton. However, it is a more complicated endeavour than strictly counting up the dollars.[53]

The AHSC experts who appeared before the Committee supported the service-based funding methodology as long as case-mix groups and weights are established for AHSCs, distinct from those developed for community hospitals.  Such a funding methodology for AHSCs should take into account a variety of factors, including the complexity of procedures and treatments, the introduction of new technologies and the use of costly drugs.  Experts also stressed that consideration should be given to funding the cost of teaching and research infrastructure out of a different envelope with its own set of incentives for efficient delivery.

In their recent paper “Academic Health Sciences Centres Laid Bare”, Jeffrey Lozon and Robert Fox stated that AHSCs should be considered a national resource in the health care system and that the federal government should enhance its role in the funding of AHSCs.  The authors argued that “no longer can the AHSC struggle to arrange funding from a variety of providers and without the support of the federal government.”[54]

The Committee agrees with the witnesses that Academic Health Sciences Centres are distinct from community hospitals in that they perform a wide range of complex activities ranging from delivery, to teaching and research.  Accordingly, the Committee recommends that:

Service-based funding should be augmented by an additional funding method that would take into account the unique services provided by Academic Health Sciences Centres, including teaching and research.

Text Box: The Committee believes that AHSCs constitute a national resource in the Canadian health care system. The federal government is particularly well positioned to sustain AHSCs across the country.

Moreover, the Committee strongly believes that, since they play an essential role in teaching, performing research and delivering sophisticated care, AHSCs constitute a national resource in the Canadian health care system.  They are a crucial part of the health care infrastructure in Canada.  Thus, the federal government is particularly well positioned to sustain AHSCs across the country, through its well-recognized roles in financing post-secondary education, funding health research, supporting health care delivery, financing health care technology and planning human resources in health care.  These issues are discussed in subsequent chapters in this report.


2.5     Small and Rural Community Hospitals

Because larger and medium-sized community hospitals do not face the same set of challenges as small or rural community hospitals, problems might arise if the same funding formula were to be applied to both types of hospitals.  For example, Raisa Deber, Professor at the University of Toronto, stated that:

(…) on issues related to service-based funding, particularly for hospitals in smaller provinces or smaller communities, (…) such funding will not be enough to cover the infrastructure costs of running the organization.[55]

In addition, the Canadian Healthcare Association indicated in its brief that:

Service-based funding would be difficult to implement in rural and remote areas, particularly if there is only one provider and/or organization available to provide services.[56]

The review of the testimony provided to the Committee suggests that, for the most part, small and rural community hospitals are faced with problems of:

1.      Limited economies of scale – Small rural hospitals are often faced with fixed overhead costs and low or unpredictable patient volumes.  This leads to higher costs per patient. 

2.      Isolation – A hospital in rural Canada is considered to be isolated if the next closest hospital is more than 150 km away.  That hospital then becomes the primary provider of health care for an entire geographic area.  A hospital that is responsible for a large region must be able to provide a greater range of services despite low and sporadic patient volumes.

3.      Remoteness – Remoteness refers to the distance between a hospital and the closest tertiary hospital care centre.  Hospitals can be remote but not isolated (a number of hospitals may serve a particular region but be at a considerable distance from a tertiary hospital care centre).  However, much like isolated hospitals, remote hospitals often have higher fixed overhead costs and must provide a wider range of health care services compared to community hospitals located near tertiary centres.  All these factors result in higher costs per patient.

4.      Special needs population – Many remote hospitals must care for special needs populations such as residents of First Nations reserves.  The health status of these residents is often below the provincial average, which leads to higher admission rates.[57]

Therefore, the funding formula used for larger community hospitals is often not suitable for small and rural hospitals.  As a result, the funding formula must take into consideration the particular challenges faced by smaller, rural and remote hospitals.

A number of the witnesses were concerned about the effect of a service-based funding method on the mix of services offered by rural and smaller community hospitals.  For example, Mark Rochon of the Ontario Hospital Association stated:

We also need to consider that service-based funding should not create incentives for providers to stop offering necessary services in communities. The needs of specific communities must be considered as well as the adequacy of service provided in those communities.[58]

Kevin Empey, of University Health Network, added that:

Some providers, when it becomes a full rate based or service based system, will choose to specialize a little more or get out of something. Certainly in small communities you cannot afford the major providers, that is, the hospitals, to get out of something just because of the rates.[59]

The Committee agrees with the witnesses that, in order to preserve access to commonly required services, service-based funding should be adjusted to reflect the particular circumstances of small and rural community hospitals.  Therefore, the Committee recommends that:

In developing a service-based remuneration scheme for financing of community hospitals, consideration be given to the following factors:

§         Isolation: hospitals located in rural and remote areas are expected to incur higher costs than those in large urban centres. An adjustment should reflect this fact.

§         Size: small hospitals are expected to incur higher costs per weighted case than larger hospitals. An adjustment should recognize this fact.


2.6     Financing the Capital Needs of Canadian Hospitals

As indicated in Section 2.1.7, provinces and territories use a method for funding hospital capital expenditures that is different from the method used in relation to funding operating costs.  All provinces and territories use a project based method as their capital funding approach.  The project based method is well suited to large-scale, one-time projects.

The Committee was told that the capital needs of Canadian hospitals are significant.  We heard that the current level of capital investment by provincial and territorial governments, along with hospitals’ well established fundraising infrastructure and charitable giving, is not sufficient to ensure the sustainability of the hospital sector in Canada.  Information provided to the Committee revealed that:

·        Between 1982 and 1998, real public per capita spending on new hospital construction decreased from $50 to $2, or a reduction of 5.3% annually.[60]

·        Since 1998, real public per capita expenditures on new hospital machinery and equipment has fallen by 1.8% annually.[61]

As a result, there is a substantial gap between the need for new and renovated physical plant and equipment and a hospital’s ability to finance capital investment.  For this reason, several witnesses proposed that the federal government provide some funding.  The Association of Canadian Academic Healthcare Organizations told the Committee that there is precedent in this regard:

It should also be noted that there is a precedent when it comes to the role of the federal government in this area. In 1948, the federal government introduced the Hospital Construction Grants Program – which was funded on a cost-sharing basis with the provinces.[62]

The Canadian Medical Association stated that, in addition to government investment in hospital capital, it may be necessary for hospitals to develop innovative approaches to financing capital infrastructure.  According to the Association, there is a need to explore the concept of public-private partnerships to address capital infrastructure needs as an alternative to relying solely on government funding.[63]

While the Committee has supported the consolidation of the hospital sector that has taken place in recent years in all provinces, we are very concerned that the number of beds in some hospitals may not be sufficient to respond to the significant increase in demand for hospital services that exists in a few areas in Canada where there is high and fast population growth.  Indeed, we learned that there are a few regions of the country in which population growth has been so great that more hospital beds are needed now and many more will be needed in the coming years.  This is particularly true of some metropolitan areas of Alberta (Calgary), British Columbia (Abbotsford, Vancouver), Nova Scotia (Halifax), Ontario (Oshawa, Toronto), Quebec (Montreal), and Saskatchewan (Saskatoon).[64]

Accordingly, the Committee believes that the federal government should get involved once again, as it did in 1948, in financially supporting hospitals with the greatest capital needs.  Such federal participation would not involve ongoing financing but should rather be considered a “catch-up” measure.  Even though it would be a one time measure, federal funding for any given project could be spread over a period of several years.

Specifically, the decision to provide federal support for hospital capital should be made on the basis of a formula that would indicate that, when population growth in a particular region exceeds the provincial average by 50%, the federal government would make one-time only funding available on a cost-shared basis with the province for capital investment in hospital expansion.  Such federal investment could work as follows: the hospital should be able to take the federal commitment to pay a fixed amount per year over a 10-year period to a financial institution and borrow against that commitment so that construction could begin right away.

The Committee also believes that provincial/territorial governments should give consideration to public-private partnerships as a means to obtain additional investment in hospital capital.  Therefore, the Committee recommends that:

The federal government provide capital financial support for the expansion of hospitals located in areas of exceptionally high population growth; that is, areas in which the population growth exceeds the average rate of growth in the province by 50% or more. Such federal financial support should account for 50% of the total capital investment needed. In total, the federal government should devote $1.5 billion to this initiative over a 10-year period, or $150 million annually.

The federal government should encourage the provinces and territories to explore public-private partnerships as a means of obtaining additional investment in hospital capacity.

Capital investment is also of concern for AHSCs.  The Association of Canadian Academic Healthcare Organizations informed the Committee that building replacement is underfunded and depreciation is not fully recognized by the federal and provincial governments for funding purposes.  Furthermore, most capital investment decisions appear to be based on short-term responses to needs rather than a long-term planning horizon.  In some cases, additions or renovations are made to poor structures, when full reconstruction might have been a better policy decision.

While there are variations in the capital requirements of teaching hospitals, it is clear that significant investment is needed.  For example:

·        The Montreal University Health Centre has undertaken an evaluation of existing facilities (in which some buildings are 40 to 100 years old) and determined that it will cost $475 million to upgrade its facilities.

·        The University Health Network of Toronto estimates that its capital requirements for the next 10 years will be over $500 million (i.e., in excess of $50 million per year).

·        The St. John’s Healthcare Corporation (Newfoundland) recently completed the development of a Children’s and Rehabilitation Centre at a cost of $70 million.

Based on the information made available to the Committee, the Committee concluded that the federal government should contribute some $4 billion for the infrastructure renewal of the 16 AHSC sites.  We believe that such federal funding should be provided in response to requests initiated by AHCSs themselves, subject to review by a group of independent experts. This, in our view, would ensure transparency.

More precisely, AHSCs should be required to accompany a request with a sound rationale for additional resources. Each application should be evaluated on its own merits by an independent expert group that would report to the Minister of Health. Moreover, in order to ensure accountability, successful applicants should report on their disposition of the funds received.

Therefore the Committee recommends that:

The federal government contribute $4 billion over the next 10 years (or $400 million annually) to Academic Health Sciences Centres for the purpose of capital investment.

Academic Health Sciences Centres be required to report on their use of this federal funding.


2.7     Public Versus Private Health Care Institutions

In Section 2.3 above, the Committee underlined many advantages to service-based funding for hospitals, one of which relates to the ownership structure of health care institutions.  We indicated that service-based funding means that the insurer (the government) would be neutral with respect to the ownership of a hospital.  The funder/insurer would purchase the service from an institution, provided that it met the necessary quality standards.  Since comparable institutions would be paid the same amount of money for a given procedure, and since all institutions would be subject to the same independent and rigorous quality control and evaluation system, the ownership structure would not be a matter of public policy concern.  For this reason, the Committee is neutral to the ownership question.

Text Box: Service-based funding means that the insurer (the government) would be neutral with respect to the ownership of a hospital.

As indicated in Volume Five, the Committee believes that the patient and the funder/insurer will be served equally no matter what the corporate ownership of a health care institution may be, as long as the two conditions enumerated above with respect to pricing and quality control are met.  The Committee wants to emphasize that it is not pushing for the creation of private, for-profit, facilities.  But we do not believe that they should be prohibited, just as they are not now prohibited under the Canada Health Act.  Indeed, we fully expect that the overwhelming majority of institutional providers would continue to be, as they are now, either public or private not-for-profit institutions.

Text Box: The Committee wants to emphasize that it is not pushing for the creation of private, for-profit, facilities.  But we do not believe that they should be prohibited, just as they are not now prohibited under the Canada Health Act.  Indeed, we fully expect that the overwhelming majority of institutional providers would continue to be, as they are now, either public or private not-for-profit institutions.

Furthermore, the Committee recognizes that there is no reason why the private for-profit provision of publicly funded health services would result in a so-called “two-tier” health care structure, as long as the funding of services remains publicly based and referrals to institutions continue to be determined by clinical need.  This situation with respect to hospitals is no different from the provision of primary health care, most diagnostic services, and some day surgeries – services that are currently delivered in Canada by private for-profit entrepreneurs and facilities.

Currently, within Canada’s health care system, only 5% of hospital care is delivered by the private for-profit sector.  For example, the Shouldice hospital in Ontario is a private for-profit facility; its status was grandfathered when Medicare was enacted in that province.  Facilities like this one are regulated on a rate of return basis, to reduce the risk of overcharging patients.  In Alberta, private for-profit facilities are allowed, under provincial legislation (Bill 11), to compete with public and private not-for-profit hospitals for the provision of a set of publicly insured surgical services.  Canada also has a number of private for-profit health care facilities (“private clinics”) that treat only patients who pay privately for the services they receive.

Text Box: The Committee recognizes that there is no reason why the private for –profit provision of publicly funded health services would result in a so-called “two-tier” health care structure, as long as the funding of services remains publicly based and referrals to institutions continue to be determined by clinical need.

Despite the presence of these private for-profit health care institutions and facilities in Canada, which appear to provide the same quality of care as not-for-profit and public institutions, an intense debate continues about the potential role and impact of for-profit hospitals and clinics in the health care system.  This debate culminated in May 2002 with the publication of a meta-analysis study by P. J. Devereaux et al. in the Canadian Medical Association Journal.  This study found, based on a review of 15 different observational studies, “that private for-profit ownership of hospitals in comparison with private not-for-profit ownership in the United States results in a higher risk of death for patients.”[65]  The authors concluded that the profit motive of private for-profit hospitals may result in limitation of care that adversely affect patient outcomes:

Why is there an increase in mortality in for-profit institutions? Typically, investors expect a 10%–15% return on their investment. Administrative officers of private for-profit institutions receive rewards for achieving or exceeding the anticipated profit margin. In addition to generating profits, private for-profit institutions must pay taxes and may contend with cost pressures associated with large reimbursement packages for senior administrators that private not-for-profit institutions do not face. As a result, when dealing with populations in which reimbursement is similar (such as Medicare patients), private for-profit institutions face a daunting task. They must achieve the same outcomes as private not-for-profit institutions while devoting fewer resources to patient care.[66]

When he appeared before the Committee, Dr. Arnold Relman, Former Editor-in-Chief of The New England Journal of Medicine, expressed similar views:

(…) most, not all of the current problems of the U.S. health care system, and they are numerous, result from the growing encroachment of private for-profit ownership and competitive markets on a sector of our national life that properly belongs in the public domain. It is no coincidence that no health care system in the industrialized world is as heavily commercialized as ours, and none is as expensive, inefficient, inequitable, or as unpopular. Indeed, just about the only people happy with our current market-driven health care system in the U.S. are the owners and investors in the for-profit industries now living off the system.[67]

On the basis of this evidence, many observers have noted that it is plausible, if not likely, that the results of the American experience can be generalized to the Canadian context should Canada decide to “open the door” to private for-profit hospitals.

The Committee learned, however, that the Devereaux et al. study has a number of caveats.  First, Brian J. Ferguson, Professor at the Department of Economics at the University of Guelph (Ontario), informed the Committee in a recent paper that the authors of the meta-analysis specifically excluded public hospitals from their study, on the basis that Canadian hospitals are technically private not-for-profit institutions behaving more or less like American private not-for-profit hospitals.[68]  Professor Ferguson argued, however, that private not-for-profit hospitals in the United States do not operate at all in the same environment as Canadian private not-for-profit hospitals: American private not-for-profit hospitals work in a very competitive context and have considerably more freedom in terms of decision-making than their Canadian counterparts.

In this regard, Professor Ferguson contended that Canadian private not-for-profit hospitals are much more like American public hospitals than they are like American private not-for-profit hospitals.  In his view, including public hospitals in the Devereaux et al. meta-analysis could have led to very different results.[69]  In fact, a number of studies have shown that public hospitals in the United States have higher risk-adjusted 30-day mortality than for-profit hospitals, which in turn have higher mortality than not-for-profit hospitals.[70]

Second, Professor Ferguson also criticized the methodology used by Devereaux et al. on several grounds: criteria for the inclusion of pertinent literature; selection of particular results for inclusion in the analysis; choice of the dependent variable; omission of some variables; etc.[71]  Finally, in a different paper, Professor Ferguson indicated that it is almost impossible to derive proper conclusions on the potential role of private for-profit hospitals in Canada from the American literature.[72]  The health care system in the United States is made up of several public and private insurers, involves a multiplicity of public and private (not-for-profit and for-profit) providers, and operates under intense competitive pressures – a situation that is unlikely to happen in Canada with our single insurer system.

Moreover, the regulatory framework for the provision of hospital care in the United States is different from that in Canada.  This explains why we cannot simply transpose what is happening in the United States to Canada.  For example, Dr. Arnold Relman told the Committee:

Throughout the American health care system there is inadequate regulation of private, for-profit health care, as well as private not-for-profit health care. In the for-profit system, there is so much money in for-profit nursing, hospital care, ambulatory services, and pharmaceutical services that the regulatory agencies have been co- opted, at times you might say intimidated, by the political and financial influence of the owners.

(…) In the United States, there is a huge amount of money involved in providing for-profit health care. That money in part is used to ensure that regulation is weak. It applies to the Food and Drug Administration. It applies to all sorts of regulatory agencies. I served for six years on a state agency studying the quality of care in Massachusetts hospitals. It is very clear to me that financial concerns play a major role.

(…) If we did have good, aggressive, unbiased regulation, many of the problems I have talked about in terms of quality would be solved. However, we do not.[73]

The findings of the Devereaux et al. analysis also contrast with those a Canadian study published in 1999 in the Canadian Medical Association Journal which compared the quality of care in licensed and unlicensed homes for the aged in the Eastern Townships of Quebec.[74]  For example, this study found the quality of care provided to elderly residents by large unlicensed (private for-profit) long-term care facilities to be comparable to that of large licensed (private not for profit) facilities.[75]  In addition, the study found that the majority of both licensed and unlicensed long-term care facilities (no matter what their size) were delivering care of relatively good quality.

Overall, the Committee acknowledges that the literature on the comparative costs, quality, effectiveness and general behaviour of private for-profit and private not-for-profit facilities is quite extensive.  We also recognize that these studies reach mixed conclusions.  Some of them suggest that for-profit facilities perform better, while others conclude that not-for-profit facilities or public hospitals do so.  Still, other studies have found no difference in the performance of the two.

Given the evidence in the literature, the Committee believes that leaving the Canada Health Act as it currently is – which means permitting private for-profit hospitals or clinics to operate under Medicare (since such institutions are not currently prohibited under the Act) – will not, as some critics maintain, weaken or destroy the health care system as we know it now.  Other advanced countries, with perfectly well functioning universal, publicly funded and organized health care systems (such as Australia, Denmark, Germany, the Netherlands, Sweden and the United Kingdom), already permit private for-profit hospitals to exist; their presence has not caused any insurmountable problems or difficulties.

Text Box: The Committee believes that leaving the Canada Health Act as it currently is – which means permitting private for-profit hospitals or clinics to operate under Medicare (since such institutions are not currently prohibited under the Act) – will not, as some critics maintain, weaken or destroy the health care system as we know it now.

The debate surrounding public versus private not-for-profit versus private for-profit health care institutions does not seem to arouse the same kind of passion elsewhere.  As a matter of fact, the Committee reviewed the operation of the health care system of seven different countries (see Volume Three) and visited three countries (Denmark, Sweden, United Kingdom), and found that there are no articles or studies in European countries and Australia comparing the quality or outcomes of for-profit and not-for-profit or public hospitals.  In this sense, this debate is uniquely North American.

The Committee believes that it is unlikely that, as a result of the introduction of service-based funding, Canada would see the emergence of full-scale private for-profit hospitals, such as those that operate in Australia or the United Kingdom: in both countries, private health care insurance runs parallel to the public system, and physicians are permitted to have large-scale private practices, a system that seems unlikely to develop in Canada.  It is more likely that private clinics would remain small and specialized.  Such clinics would emerge in niches where their founders expect to be able to make a profit by operating at lower cost than the public system does, either by taking advantage of economies of scale or, as seems more likely, by taking advantage of economics of specialization.  These clinics would bring additional capital into the health care system, since they would be funded privately.  This is another reason it is unlikely that they would develop into full-scale general hospitals: private funding for so ambitious, and also risky, an enterprise would be much harder to come by than would funding for specialized clinics.

The Committee strongly believes that there is a need to improve hospital performance and to develop hospital report cards in Canada, regardless of ownership.  This can be appropriately done through the independent evaluation process recommended in Chapters One and Ten of this report.  Requiring that a single regulatory process apply to all health care institutions would contribute much to ensuring high quality of care no matter where it is provided.

Appendix 2.1
Academic Health Sciences Centres in Canada and their Affiliated Hospitals and Regional Health Authorities


1.          Memorial University of Newfoundland and Labrador  
Healthcare Corporation of St. John’s
The General Hospital
St. Clare’s Mercy Hospital
Janeway Children’s Health and Rehabilitation Centre
Waterford Hospital
Dr. L.A. Miller Centre
Dr. Walter Templeman Health Centre


2.         Dalhousie University  
Capital Health
IWK Health Centre
Queen Elizabeth Health Sciences Centre II
Dartmouth General Hospital
East Coast Forensic Hospital
Eastern Shore Memorial Hospital
Hants Community Hospital
The Nova Scotia Hospital
Twin Oaks Memorial Hospital
Musquodoboit Valley Memorial Hospital
Atlantic Health Sciences Corporation*
Saint John Regional Hospital
St. Joseph’s Hospital
Sussex Health Centre
Charlotte County Hospital
Grand Manan Facility


3.         Université Laval  
Centre Hospitalier Universitaire de Québec  
Hôpital Laval, Institut Universitaire de Cardiologie et de Pneumologie


4.         Université de Sherbrooke  
Centre Universitaire de santé de L’Estrie  
Sherbrooke Geriatric University Institute


5.         Université de Montréal  
Centre Hospitalier de l’Université de Montréal  
Hôpital Sainte-Justine  
Institut Cardiologie de Montréal  
Hôpital Maisonneuve-Rosemont  
Hôpital du Sacré-Coeur de Montréal  
Institut Universitaire de Gériatrie de Montréal


6.         McGill University  
Montreal University Health Centre
Jewish General Hospital
St. Mary’s Hospital
Douglas Hospital


7.         University of Ottawa  
Sisters of Charity of Ottawa (SCO) Health Services
Ottawa Hospital
Children’s Hospital of Eastern Ontario


8.         Queen’s University  
Kingston General Hospital
Hotel Dieu Hospital
Providence Continuing Care Centre


9.         University of Toronto  
University Health Network
St. Michael’s Hospital
The Hospital for Sick Children
Sunnybrook Health Sciences Corporation
Mount Sinai Hospital
Toronto Rehabilitation Institute
Baycrest Centre for Geriatric Care
Centre for Addiction and Mental Health


10.        McMaster University  
Hamilton Health Sciences Centre
St. Joseph’s Hospital


11.        University of Western Ontario  
London Health Sciences Centre
St. Joseph’s Health Centre


12.        University of Manitoba  
Winnipeg Regional Health Authority
St. Boniface General Hospital
Health Sciences Centre


13.        University of Saskatchewan  
Saskatoon District Health Board
Royal University Hospital
Saskatoon City Hospital
St. Paul’s Hospital
Regina Health District
Regina General Hospital
Pasqua Hospital 

14.        University of Calgary  
Calgary Health Authority
Rockyview Hospital
Foothills Hospital
Alberta Children’s Hospital
Peter Lougheed Hospital


15.        University of Alberta  
Capital Health Authority
Royal Alexandra Hospital
University of Alberta Hospital
Grey Nuns and Misercordia Hospital


16.        University of British Columbia  
Provincial Health Services Authority
Children’s and Women’s Health Centre
BC Cancer Agency
Vancouver Coastal Health Authority
Vancouver Hospital and Health Science Centre
Providence Health Care/St. Paul’s Hospital 

Source: Based on information provided by Glenn Brimacombe, Chief Executive Officer, Association of Canadian Academic Healthcare Organizations.

*AHSC functions as main New Brunswick campus for Dalhousie University and Memorial University of Newfoundland and Labrador.


Devolving Further Responsibility to Regional Health Authorities

In Volume Five of its study on health care, the Committee advocated major restructuring of the hospital and doctor system, leading to the devolution of operational responsibility for health care spending from provincial governments (ministries of health) to regional health authorities (RHAs).  Under such reform, RHAs would become responsible for purchasing health services from hospitals and other health care institutions on behalf of the populations they serve.  If a province so wished, RHAs could also become responsible for purchasing primary health care and prescription drugs.[76]  Devolving responsibility for the full range of health services from provincial ministries of health to RHAs would lead to a better-integrated, more coordinated and truly patient-oriented system of health care delivery.

This type of reform, which has already been implemented in varying degrees in a number of countries, including Sweden and the United Kingdom, was also proposed in the report of the Premier’s Advisory Council on Health in Alberta (the Mazankowski report).[77]  The Committee believes that RHAs have done a commendable job of integrating and organizing health services for people in their regions during the last decade in Canada, and that they should be given more responsibility and authority for delivering and/or contracting for the full range of publicly insured health services.

Text Box: The Committee believes that RHAs have done a commendable job of integrating and organizing health services for people in their regions during the last decade in Canad,a and that they should be given more responsibility and authority for delivering and/or contracting for the full range of publicly insured health services.

The Committee also believes that such reform would foster competition among health care providers (both individual and institutional) and encourage cost-effectiveness and efficiency in service delivery.  As stated in Volume Five, the Committee is aware that reforms of this type will have to be adapted to the particular circumstances that prevail in different parts of the country in order to take into account the number and type of health care providers that operate in each region, as well as factors such as the urban/rural mix.  We also acknowledge that the goals intended by this reform will have to be achieved through other means in Ontario, the Yukon and Nunavut, since there are no RHAs in these jurisdictions.[78]

This chapter is divided into five sections.  Section 3.1 provides a general portrait of RHAs across Canada in terms of their current structure, size, scope of responsibility and funding.  Section 3.2 reviews the objectives for which RHAs were established and summarizes RHAs’ achievements in light of those objectives.  Section 3.3 discusses the barriers which currently prevent RHAs from fulfilling their responsibilities to their fullest potential.  Section 3.4 describes how reforms based on some “internal market” approaches have the potential to address these concerns through the devolution of further responsibility to RHAs.  Finally, Section 3.5 enunciates the Committee’s position on the role of RHAs in Canada.


3.1     RHAs Across Canada: A Portrait[79]

In Canada, regional health authorities are playing an ever-increasing role in health care.  In the past 14 years, all provinces (except Ontario) and the Northwest Territories have devolved responsibility for the management of substantial parts of the health care system from provincial/territorial governments (ministries of health) to RHAs.  The common definition for RHAs in Canada is as follows:

Regional health authorities are autonomous health care organizations with responsibility for health care administration within a defined geographic region within a province or territory. They have appointed or elected boards of governance and are responsible for funding and delivering community and institutional health services within their regions.[80]

Despite this common definition, RHAs across Canada differ greatly in size, structure, scope of responsibility, and number per province/territory.  Table 3.1 provides information on the current number and approximate date of establishment of RHAs in each jurisdiction, as well as data on the population served.  Regionalization of health care is a fairly recent phenomenon in many provinces.  While some provinces have recently reduced the number of RHAs (for example, British Columbia went from 52 to 6), others have increased the number (by 1 in New Brunswick and from 4 to 9 in Nova Scotia).  In addition, the size of the population served by a RHA varies widely both between and within provinces.






(range or average)

British Columbia






Nova Scotia

New Brunswick

Prince Edward Island



Northwest Territories




























320,000 to 1.3 million

20,000 to 900,000

30,000 to 50,000

7,000 to 650,000



34,000 to 384,000





386 to 17,897


Source:  Ontario Hospital Association, Regional Health Authorities in Canada – Lessons for Ontario, Discussion Paper, January 2002 (

Table 3.2 provides information on the scope of services for which RHAs are responsible in each province/territory.  The scope varies significantly.  Hospital services are common to RHAs in all provinces.  In addition, in some provinces, laboratory services, long-term care, home care and a variety of other health services are provided by RHAs through contracts with private not-for-profit and private for-profit organizations.  RHAs in Quebec have been particularly successful in integrating a wide range of health, social and mental services.  However, physician services, prescription drugs and cancer care have not been devolved to regions and continue to be administered and funded centrally by all provincial/territorial governments.





Long Term Care

Home Care

Public Health

Mental Health


Social Services

Local Ambulance



































































































Source:  Ontario Hospital Association, Regional Health Authorities in Canada – Lessons for Ontario, Discussion Paper, January 2002 (

RHAs differ in the degree of their decision-making authority.  In some provinces, RHAs operate within specific, provincially determined administrative and fiscal constraints (Nova Scotia, Manitoba, British Columbia), while others have greater autonomy (Alberta, Saskatchewan, Prince Edward Island).  Only in a few provinces do RHAs have an elected board of directors (in Alberta, for example, RHAs have a partially elected board).  And only a few boards include representatives from health care providers (as in British Columbia).  None has any role in raising revenue, but all are responsible for local planning, setting priorities, allocating funds and managing services for better integration and greater effectiveness and efficiency, within provincially defined policy guidelines.  Many also have some direct role in delivering services, or at least employing health care providers other than physicians.

RHAs receive funding from the provincial/territorial government, usually through global budgets that are based on historical spending levels for the population served.  Some jurisdictions (such as Alberta, British Columbia and Saskatchewan) have moved to needs-based per-capita funding (adjusted for population, age, sex and need indicators).


3.2     RHAs: Goals and Achievements[81]

Initially, the objectives of devolving health care decisions to the regional level were multiple.  According to the Canadian literature, they included: 1) cost containment;
2) responsiveness to local needs; 3) local control of decision-making; 4) coordination and integration of services; 5) efficient use of health care resources; 6) improved access; 7) effective management; 8) greater accountability; 9) emphasis on population health and wellness; and
10) better health outcomes.

There have been few evaluations of regionalization to determine the extent to which these goals have been or are now being met.  However, the testimony received by the Committee and the evidence available from the literature suggest that RHAs have been very successful in many respects:

·        RHAs provide health services at reduced administrative costs.  For example, the Capital Health Region located in Edmonton devotes less than 3% of its total budget to administrative costs.

·        RHAs have a strong focus on illness prevention and public health and ensure interactive relationships with their communities.

·        RHAs are well suited to the integration and coordination of the institutions and organizations providing health services.  In doing so, they deliver greater efficiencies, higher quality of service and continuous quality improvement.

·        Better integration and coordination at the regional level allow for the use of the least costly providers commensurate with accessibility and quality of care goals for each individual consumer.

·        Integrated health service delivery at the level of RHAs enhances the ability to respond to service demands, such as Emergency Department pressures, through integrated responses using home care, continuing care and acute care resources.

·        RHAs have greater flexibility in reallocating and consolidating clinical services between health care providers and institutions.

Text Box: The Committee views RHAs as key players in the reform of Canada’s health care system.  They offer tremendous opportunities for renewing and sustaining health care in Canada.

Overall, RHAs are pivotal to the health care system, acting as intermediaries 1) between the patient and the provider, 2) between government and the local population, and 3) between the insurer (government) and the various providers.  In this regard, the Committee views RHAs as key players in the reform of Canada’s health care system.  They offer tremendous opportunities for renewing and sustaining health care in Canada.


3.3     Barriers that Prevent RHAs from Functioning to Their Fullest Potential[82]

During its study, the Committee learned that a number of barriers currently prevent RHAs from operating to their fullest potential.  These are summarized below:

·        While RHAs are responsible for delivering health services according to the needs of their populations, their budgets are, in some provinces, almost completely determined by government and their performance targets are set by government.  In these provinces, RHAs have few options if they are unable to meet their residents’ health needs within their existing financial resources.  A number of observers have suggested that RHA boards must spend a great deal of their energies lobbying the province for increased funding.  They have suggested that this effort would be better spent on setting their own priorities and achieving their own set of objectives rather than responding to the priorities and objectives set for them by government.

·        There are weaknesses in RHAs’ planning and budgeting of resources, as well as gaps in reporting performance.  Currently, RHAs are required to provide business and budget plans to the province.  In some cases, however, these plans are very general in nature.  Specific targets are not set and agreed to by both parties, and budgets are more in the nature of guidelines rather than setting formal limits on what can be spent and for what purposes.  Some analysts have suggested that agreements with the provincial government should clearly spell out what happens if RHAs do not manage to live within their budgets or do not achieve their performance targets.  This would greatly improve transparency and enhance accountability.

·        A useful example of how setting specific targets can be done in practice was brought to the attention of the Committee.  Alberta Health and Wellness, along with Capital Health of Edmonton and Calgary Health Region, annually set target volumes for a number of province-wide services (such as organ transplants, open heart surgery, major trauma and burn care and complex neurosurgery).  These targets are set based on health status, incidence of health conditions and trend data.  The ability of these two Albertan RHAs to achieve the targets and the associated health outcomes are monitored annually.

·        While doctors direct much of what happens in health care, they are remunerated independently of RHAs.  For example, if a physician orders a laboratory test or an X-ray, it is the RHA that carries the financial burden, not the physician.  David Kelly, former Assistant Deputy Minister of Health in Alberta and British Columbia, told the Committee:

Health regions have been in place now in western Canada for the better part of a decade, with a mandate and the resources to provide many publicly paid for health care services. However, to date these regions have been given virtually no responsibility for the provision of physician services. Physician payment remains a responsibility of Health Ministries, which negotiate province-wide contracts with the physicians’ unions. To date, these contracts, in my opinion, have done little to assist in the integration of physician’s services with regional health care services, or to promote primary care reform. A notable exception is the decision by Alberta in 1994 to move the responsibility and resources for the provision of all laboratory services, both hospital and contracted private laboratory, to the health regions. This step, which moved about 10% of the physician budget to the regions, produced substantial savings and an integrated lab service at the regional level. Both the Fyke and Mazankowski reports recommend that at least part of the responsibility for the payment of physician services should move to the regions (…).[83]

This problem could be significantly ameliorated if the cost of physician services was included in the budget of RHAs rather than having physicians paid separately by provincial/territorial governments.  Perhaps more important, moving both drug therapy and primary health care to the budget of RHAs would ensure, from the patients’ perspective, a fully integrated health care system (or a “seamless system”):

(…) the move to regional health authorities may have reduced some of the problems of uncoordinated care among organizations but it is not clear whether it has improved integration of many patient-care processes. Essential components for integrated care have been excluded from the authority of regional bodies – drugs and medical care being the most important. A regional health authority without responsibility for physicians and pharmaceuticals cannot provide integrated health care.[84]


Text Box: The Committee believes that increased responsibility for decision-making related to the full range of health services, enhanced responsibility for planning and better control over the allocation of resources would lead to greater integration of health services; these are all appropriate roles for RHAs in the publicly funded health care system today and in the future.

In light of this evidence, the Committee believes that increased responsibility for decision-making related to the full range of health services, enhanced responsibility for planning and better control over the allocation of resources would lead to greater integration of health services; these are all appropriate roles for RHAs in the publicly funded health care system today and in the future.

This requires governments to move away from “top-down” approaches and toward devolving the management and governance of health care at the regional level.  The role of government should be that of overall system governance, setting policies with respect to the health of the population, negotiating strategic plans and budgets and funding RHAs to achieve their objectives.

A policy-based on some of the principles of an “internal market” approach is one potential reform that would devolve greater responsibility to RHAs, depoliticize health care decisions at the regional level, encourage more competition and more choice in the health care sector and provide Canadians with a truly seamless health care system.


3.4     RHAs and the Potential for Internal Markets[85]

The concept of “internal markets” may sound quite complex, but it simply refers to the introduction of market-like mechanisms into the publicly funded health care system.  These market-style incentives would take place on the delivery and allocation sides of health care systems, not on the financing side.  Internal market reforms are introduced in pursuit of efficiencies in the delivery of care and in the allocation mechanisms that distribute revenue to the health care providers and institutions.

The markets are “internal” because they involve, on both the demand and supply sides, entities within the publicly funded health care system itself.  On the demand side, there is a publicly funded purchaser that operates as the agent for the population of patients being served.  On the supply side, there is another entity providing the service.  In this context, the purchaser would be the RHA, while the provider could be a hospital, specialist, laboratory, primary care physician, etc.

A number of observers have suggested that the Canadian health care system already involves several characteristics inherent to internal markets.  For example, in most provinces RHAs purchase or contract for hospital services on behalf of their citizens.  Prior to that, a global budget or some population-based funding is negotiated separately between the government and each RHA.

What has not happened yet in Canada is 1) the clear, explicit devolution of responsibility from governments to RHAs for the purchasing of the full range of health services; and 2) the establishment of a consistent framework of expectations, so that a variety of providers could compete for funding on a level playing field, with clear accountability, using a business or performance contract model.  In some instances, RHAs currently simply pass the budget received from their provincial/territorial governments on to hospitals, based on historical spending patterns.  In addition, none of the RHAs in Canada is responsible for the budget of physicians (hospital-based specialists or primary health care doctors) or for the spending on prescription drugs.  As a result, there can be no competition (and no market-like behaviour) among health care providers and institutions, and no real integration of the various publicly insured health services.

Some Canadian experts contend that an internal market approach based on RHAs acting as the purchasing agents would foster effective management of health services and improve the quality of care in their regions:

With an internal market, regional health authorities hold the purse strings and choose between providers on the basis of quality and cost, rather than simply funding the decisions of those using the resources.[86]

Applying the principles of internal market reform at the regional level does not imply that hospitals currently owned by RHAs must be turned to the private sector.  There is opportunity to apply the rationale behind internal market reforms in Canada through competitive contracts among the RHAs and the various public (RHA owned) hospitals.  Competition can be further enhanced when private providers are allowed to compete with public providers for some publicly insured health services (such as day surgery and long term care).  In addition to enhanced competition, these contracts between RHAs and their hospitals could set specific performance targets; this would greatly improve the accountability of hospitals and other health care providers.

The Committee holds the view that reforms based on internal market approaches have the potential to introduce competition among hospitals, other institutions and individual health care providers.  Competition will also provides the incentives for providers to become more efficient and cost-conscious and to make decisions about what to provide, to whom, and what standard of service they can achieve.

Text Box: The Committee believes that an internal market reform can reconfigure services in a way that is more in line with population needs.

Furthermore, the Committee believes that such reforms would ensure that RHAs have the necessary flexibility to reconfigure services in a way that is more in line with population needs.  Perhaps most important, reforms based on internal market principles solve the current problem in some provinces of top-down management by provincial health departments.  In addition, an internal market approach will introduce a much greater degree of transparency into the system and enhance the accountability of all parts of the system.

Internal market reforms involving the devolution of clear responsibility to regional health bodies have been implemented in Sweden and the United Kingdom.  In Sweden, prior to reforms, hospitals were owned and operated directly by the county councils, which were responsible for financing and delivering health services and which employed most physicians, both hospital-based physicians and those providing primary health care.  The reforms brought new contractual arrangements and new payment schemes.

More precisely, public hospital management was devolved from county council control to independent boards of directors.  Hospital remuneration was changed to Diagnostic Related Groups (DRGs), a form of service-based funding (like the one recommended in Chapter Two of this report).  Reforms of the primary health care sector were also introduced to allow county councils to purchase physician services.  A number of primary health care physicians now operate privately under contract with the county councils; they are reimbursed by the county councils on a fee-for-service basis.  Some other county councils have introduced capitation payments for primary health care physicians.  Overall, estimates suggest that county councils in which internal market reforms were implemented were able to reduce costs by 13% over those who retained the status quo.

In the pre-reform system of the United Kingdom, hospitals were state-owned and operated by the National Health Service (NHS) through its RHAs.  The budget of each RHA was determined by the central government and was based on a weighted capitation formula.  Each hospital’s budget was then determined regionally through an administrative process involving negotiations between its management and the relevant RHA.  Hospital specialists were salaried employees of the NHS.  A major critique of the system was that RHAs were purchasing services on behalf of their local populations, but at the same time they were running the local hospitals.  Thus, they had a pronounced conflict of interest aimed at protecting those hospitals.

When internal market reforms were introduced, RHAs ceased to manage their own hospitals directly and became responsible, as purchasing organizations, for contracting with NHS hospitals and private providers to deliver the services required by their resident populations.  Hospitals, for their part, were transformed into NHS Trusts: that is, not-for-profit organizations within the NHS but outside the direct ownership of RHAs.  A system of DRGs was developed for providing payment to hospitals.

A review of the literature suggests that there has been little rigorous evaluation of the role of RHAs as purchasers of care in the United Kingdom.  The fact that all RHAs became purchasers at the beginning of the reforms meant that there was little scope for comparative analysis.  According to some experts, the internal markets did not function as originally envisaged because of a lack of incentive on both sides of the market to make restructuring work.

Perhaps more important, responsibility for primary health care was never devolved to RHAs.  Primary health care physicians were encouraged to establish GP Fundholding practices.  GP Fundholders were given a fund to purchase, on behalf of their patients, prescription drugs, hospital-based physician services and some hospital care.  As such, most primary health care physicians practising as GP Fundholders became rival purchasers to RHAs.  In fact, the GP Fundholding system became so popular that the central government decided to pass purchasing responsibilities from RHAs to GP Fundholders (which later became Primary Care Trusts).

According to Donaldson, Currie and Mitton (2001), the potential for turning RHAs into purchasers exists in Canada.  RHAs now exist in most provinces/territories  and the fact that most of Canada’s health care is consumed in and around large cities allows, in their view, for plenty of potential competition among providers.  They stress, however, that there are challenges to overcome.

·        First, the method of remunerating hospitals would have to change if market-like incentives were to work.  That is, hospitals would have to be remunerated according to service-based funding.  This is one of the reasons why the Committee has recommended service-based funding in Chapter Two.

·        Second, if hospitals were to commit to contracts established with RHAs, more control would have to be exerted by hospitals over those who work in them.  Ultimately, this would require that responsibility for the budget of hospital-based specialists  be devolved to RHAs.

·        Third, to achieve a fully integrated or (“seamless”) health care system, the budget for primary health care physicians would have to be allocated to RHAs for contracting with physicians in their region.  Physicians or groups of physicians should be able to choose the option of entering into contracts with RHAs or working outside the system.  This would require a revision of the current mode for remunerating doctors.

·        And fourth, serious consideration should be given to devolving authority for spending on prescription drugs to RHAs.

According to the Mazankowski report, RHAs are ready to take up these challenges.  More precisely, the report stated:

·        RHAs should consider establishing contracts with hospitals in their region as well as alternative ownership arrangements and payment mechanisms.

·        RHAs should be encouraged to contract with a variety of providers including clinics, private and not-for-profit providers, groups of health care providers (including primary health care physicians) and other regions.

·        RHAs should be encouraged to foster the development of centres of specialization.  RHAs with specialized expertise should be able to market those services to other regions and enter into contracts with other regions to deliver services.  In this way, regions would generate a sufficient volume of services to allow them to achieve better outcomes.

The Committee acknowledges the fact that, while internal markets can improve efficiency in large urban centres and populated areas, they cannot work properly in regions with a low population density.  This point was also raised by Michael Decter, currently Chair of CIHI’s Board of Directors and formerly Deputy Minister of Health in Ontario, when he stated:

(…) population density is underrated as a factor in the ability to implement an internal market. It is one of the hazards of the European experience brought to Canada. Purchaser/provider splits work well where you have enough density of population and enough density of providers to have some competition.

(…) We have two realities in Canada. We have a good portion of the population, perhaps 70 percent, living in a handful of big cities where I think this model can work. The competition could be virtuous in terms of driving a better price and quality over time. In the rest of it, you need strategies to have enough service there to meet the needs. It is not a matter of competition. It is more a matter of stability of funding and strategies to allow providers to actually locate.[87]

The Committee also acknowledges that there are currently no RHAs in Ontario, the Yukon and Nunavut.  Accordingly, reforms based on internal markets with RHAs having responsibility for the full range of health services would not be possible in these jurisdictions.  Alternatives approaches to integrating health service delivery and improving efficiency will therefore need to be considered.


3.5     Committee Commentary

The Committee believes that the devolution of further responsibility to regional health authorities is an important step in reforming health care in Canada.  In fact, RHAs exist in most provinces and a large percentage of health care spending occurs in and around large cities, creating the potential for competition among the various providers and institutions.  We strongly believe that now is the time for RHAs to be given greater control over the full range of health care spending in their region.

Text Box: The Committee strongly believes that now is the time for RHAs to be given greater control over the full range of health care spending in their region.

The Committee acknowledges that establishing market-style incentives among health care institutions requires sufficient numbers of providers and a significant population base.  Thus, while a number of regions across Canada would be capable of undertaking internal market reforms, some of the smaller provinces and some regions within the larger ones would be unable to do so.  In our view, internal market reforms should be done in those geographic locations where gains can be achieved in terms of effectiveness and efficiency.

The Committee also believes that a reform based on the principle of internal markets is the solution to the various barriers that prevent RHAs from operating to their fullest potential.  On the one hand, political interference will be minimized when RHAs are given the freedom and responsibility for achieving targets and performance standards.  On the other hand, RHAs will have the needed flexibility to allocate their financial resources more cost-effectively and more in line with the needs of the population they serve.  In addition, bringing the primary health care envelope under the authority of the RHAs will ensure that they have the levers to exercise more control over these costs.  Moreover, devolution of financial responsibility for hospital services, hospital-based physicians and primary health care will encourage competition and allow RHAs to deliver/contract for the most efficient and timely services.  Finally, assuming responsibility for the full range of health services will result in a better integrated and more patient-oriented health care system.  

Text Box: Despite the fact that the management and delivery of health services is an “intensively provincial matter”, the Committee is of the view that the federal government can play an important role in improving health care delivery at the regional level through its sustained investment into the health care info-structure, the evaluation of health care system outcomes and the supply of human resources in health care.

The Committee acknowledges that the introduction of internal market principles within the publicly funded health care system requires changing the method of remunerating hospitals.  We believe that service-based funding is the most appropriate method, and our recommendation to that effect is detailed in Chapter Two.

The Committee is also aware that, in order to be successful, internal market reforms require detailed and reliable costing information.  We also believe that the recommendations we make in relation to the full deployment of a national system of electronic health records, along with an independent evaluation of performance and outcomes (see Chapter Ten), will greatly facilitate such reform.

We understand that there have been few, if any, rigorous assessments of the internal market reforms undertaken in other countries.  We believe that the influence of many factors, such as introducing different reforms simultaneously, has made it difficult to isolate the impact of the internal market reforms undertaken elsewhere.  For this reason, the Committee feels it is important to monitor and evaluate the impact that reforms based on internal market principles can have in Canada on productivity, health outcomes, access to publicly insured services, waiting times, etc., and to report this information to Canadians.

Despite the fact that the management and delivery of health services is an “intensively provincial matter,” the Committee is of the view that the federal government can play an important role in improving health care delivery at the regional level through its sustained investment into health care info-structure (particularly the development of the information systems that make it possible to move to service-based funding for hospitals), the evaluation of health care system outcomes, and the supply of human resources in health care (each of these issues is addressed in subsequent chapters of this report).

Therefore, the Committee recommends that:

Regional health authorities in major urban centres be given control over the cost of physician services in addition to their responsibility for hospital services in their regions. Authority for prescription drug spending should also be devolved to RHAs.

Regional health authorities should be able to choose between providers (individual or institutional) on the basis of quality and costs, and to reward the best providers with increased volume.  As such, RHAs should establish clear contracts specifying volume of services and performance targets.

The federal government should encourage the devolution of responsibility from provincial/territorial governments to regional health authorities, and participate in evaluating the impact of internal market reforms undertaken at the regional level.


Primary Health Care Reform

4.1     Why is Primary Health Care Reform Needed?

Primary health care constitutes a patient’s first point of contact with the health care system. According to the Canadian Medical Association, “primary medical care includes the diagnosis, treatment and management of health problems; prevention and health promotion; and ongoing support, with family and community intervention where needed.”[88]

At present, primary care delivery in Canada is organized mainly around family physicians and general practitioners working solo or in small group practices. Approximately one-third of primary care physicians work alone and fewer than 10 percent work in multidisciplinary practices. The vast majority of primary care practices are owned and managed by physicians. Fee-for-service (FFS) payment is the dominant form of physician remuneration.

A variety of weaknesses and problems with the way in which primary care is generally delivered in Canada have been noted. These include:

·        fragmentation of care and services;

·        inefficient use of health care providers;

·        lack of emphasis on health promotion;

·        barriers to access (care not available after hours and on weekends);

·        poor information sharing, collection, and management;

misalignment of incentives, especially fee-for-service remuneration that rewards episodic more than continuing care and health promotion/disease prevention.[89]

Text Box: There is a fairly wide consensus emerging that the creation of primary care groups (PCGs) is central to reform of primary care delivery, and just about every major provincial report issued in recent years has recommended some version of primary care reform.

A fairly wide consensus is emerging that the creation of primary care groups (PCGs) is central to reform of primary care delivery, and just about every major provincial report issued in recent years has recommended some version of primary care reform (see section 4.2.1). As Michael Decter, former Deputy Minister of Health in Ontario, told the Committee:

The single biggest thing is to move from a model that cannot really work any more — which is solo practice — to groups. Those groups could have many configurations.[90]

Primary care groups are practices composed of several physicians; they can also incorporate other health care professionals (potentially including nurses, nurse practitioners, physiotherapists, dieticians, midwives, psychologists, etc.).

In nearly all existing models of primary care groups, patients have to enrol with a specific group or physician within a defined group for a definite period of time. The PCG is then responsible for ensuring access to primary care for enrolled (rostered) patients 24 hours a day, seven days a week. Once enrolled, patients are expected to remain with their designated primary health care group for a specific period, usually six months to a year, unless they change their place of residence. The primary care physician or team acts as the gatekeeper to the rest of the health care system, referring enrolled patients to specialists. As now, the choice of specialist would be negotiated with the patient, by the primary care physician concerned . However, the rostered patient would not have direct access to a specialist (as is, in theory, the case now) or to other family physicians outside the group, except, of course, in  urgent situations.

There are several potential advantages to a system based on PCGs, including:

·        Guaranteed patient access on a 24/7 basis to the patient’s own team of doctors and other providers;

·        Better utilization of the spectrum of health care providers, and better coordination of patient services, through interdisciplinary teamwork;

·        Potential cost savings in the longer term by reducing demand on expensive emergency rooms and specialists’ services and by making sure that the most appropriately qualified professional handles each task;

·        Provision of health promotion and illness prevention measures to patients.

In Volume Five, the Committee accepted the need for diversity in the models of primary care groups appropriate for the many and diverse regions and provinces of the country.  The Committee drew on the various reports (see section 4.2.1) to establish a list of desirable attributes for all models of multi-disciplinary primary health care teams, including:

·        The provision of a comprehensive range of services, 24 hours a day, seven days a week;

·        Delivery of services by the most appropriately qualified health care professional;

·        Adoption of alternative methods of funding to fee-for-service, such as capitation, either exclusively or as part of blended funding formulae;

·        Integration of health promotion and illness prevention strategies in the teams’ day-to-day work.

·        Full integration of electronic patient health records into the delivery of care.

One issue that surfaced during the Committee’s most recent hearings was whether primary care reform would lead to noticeable cost savings. Some witnesses suggested that, because PCGs allow for all providers to practise to the full extent of their scope of practice, it should be possible to save money by having the most appropriately qualified provider deliver each service. These witnesses saw a potential source of savings in the fact that, for example, up to 60-70% of the procedures performed by physicians could be done by nurses or nurse practitioners (nurses with advanced qualifications). They felt that two things could be accomplished by transferring these tasks to other qualified personnel who are not as highly paid as physicians:  money could be saved in the short term, and physicians would also be able devote a greater proportion of their time to those tasks for which only they are qualified, many of which are now referred to specialists because primary care physicians lack the time to do them.[91]

While all witnesses agreed that there would be efficiency gains by allowing physicians to concentrate on the full range of procedures where their particular training and skills were required, several witnesses questioned whether the anticipated cost savings would in fact be generated. For example, Dr. Peter Barrett, former president of the CMA,  noted that:

expanding the primary care team to include nurses, pharmacists, dieticians and others, while desirable, will cost the system more, not less. Therefore, we need to change our way of thinking about primary care reform. We must think of this as an investment, not in terms of cost savings but as a cost effective way to meet the emerging, unmet needs of Canadians.[92]

At the same time, the Committee feels that there would be factors that would indeed operate to reduce costs. Dr. Barrett’s comment is based on the assumption that there is a large amount of unmet need which, as a result of primary care reform, would be filled because more health care professionals will be supplying more services. Under a fee-for-service arrangement, this would obviously cost more money. At the same time, however, if primary care physicians provide services through the full range of their competency, there would also be a decrease in referrals to specialists.[93]

However all witnesses argued that even if there were no short-term cost savings, the importance of primary care reform was not diminished. Rather, the discussion brought to the fore other reasons for pushing it forward. In the words of Professor Brian Hutchison of McMaster University:

The emphasis on cost control has led to a focus on nurse practitioners as substitutes for physicians. The other dimension that needs to be explored is their potential for broadening the scope of primary care and providing a greater emphasis on health promotion, prevention and health counselling, where they have a great deal to offer, probably more than physicians. We should think of nurse practitioners in a complementary role, not mainly with the idea of saving money. We should view them in terms of improving health.[94]

The Committee strongly endorses this point of view. Indeed, the synthesis report on various primary health care projects undertaken under the auspices of Health Canada’s Health Transition Fund provides further evidence in this direction. Discussing a project that evaluated the role of a nurse practitioner in the context of a multidisciplinary team working out of a Calgary clinic, the report says:

Although the physicians were not initially clear on the role of the nurse practitioner, the project soon saw nurse practitioners facilitating communication among various providers, “significantly” increasing access to care, improving quality, and handling cases, thus allowing physicians to spend more time with patients who required their services; 95 per cent of patients were satisfied with the initiative.[95]


4.2     The Provinces and Primary Care Reform

In this section, we review briefly the highlights of six provincial reports that contain recommendations for primary care reform. We then look at recent implementation initiatives in three provinces, Ontario, Quebec and New Brunswick, that have progressed beyond report-writing and pilot projects.


4.2.1   Recent reports

Table 4.1 (end of chapter) presents an overview of the different proposals contained in six reports released since late 1999,[96] organized according to a number of key elements of primary care reform. All six contain many important similarities and a number of significant differences.

All of the reports advocated the delivery of comprehensive primary care through some form of multidisciplinary team, usually 24 hours a day, seven days a week. However, the means suggested for achieving this objective varied considerably, as did the detail provided in the various reports. It is important to note that all stressed the need for the introduction of some form of Electronic Health Record (EHR – see Chapter Ten), although not all linked this need directly to their proposals for primary care reform.

The reports differed in their descriptions of the multi-disciplinary teams, and in the ways in which they envisaged the connections between primary care groups and other health care providers such as hospitals. Only a minority of the reports advocated specific alternate funding mechanisms, and only two presented explicit proposals for rostering.

Although it is too early to say whether the recommendations of these various reports will be implemented, the Ontario example is perhaps instructive. The Health Services Restructuring Commission (Sinclair) Report was both the first to be issued and contained the most detailed outline of how primary care reform should be carried out. As Ontario became the first to begin implementation of a province-wide scheme for primary care reform it is interesting to note that the actual model being put in place appears to be less uniform, as well as more flexible and voluntary than the plan contained in the report.


4.2.2   The Ontario Family Health Network

The Ontario Family Health Network (OFHN) was created in March 2001 as a semi-arm’s-length agency that reports to the Ontario Ministry of Health and Long-Term Care (MOHLTC). The OFHN provides family physicians with information, administrative support and technology funding to support the voluntary creation of Family Health Networks (FHNs) in their communities.

The FHN model encourages groups of family doctors and allied health professionals, such as nurse practitioners, to work together to provide accessible, co-ordinated care to patients enrolled with them. OFHN provides funding, guidelines and support, but doctors voluntarily decide to form a local FHN and plan how they will work together to best serve their patients.

A minimum of five physicians (one of whom must act as group leader) and 4,000 enrolled patients are required to form an FHN, which can be spread over more than one site. In addition to regular office hours, one FHN office must be open from 5 p.m. to 8 p.m. Monday to Thursday, and three hours each day on the weekend. After hours, rostered patients have access to a phone line staffed by nurses, with support from a FHN doctor on call.

Pilots, known as Primary Care Networks, were created in 1998. Between 1998 and 2000, 14 pilot networks were created in seven communities, today embracing more than 178 physicians and approximately 270,000 enrolled patients. In November 2001, the Ontario Medical Association (OMA) voted to allow the OFHN to begin offering Family Health Network agreements to doctors in northern and rural Ontario. In January 2002, the OMA voted to allow a general contract agreement to be released to family doctors throughout the province. In May 2002, a group of six doctors from the Dorval Medical Associates in Oakville formed the province's first Family Health Network.

Patients who sign on to an FHN agree to contact their Family Health Network doctor first when they need a health service, unless they are travelling or in an emergency situation. They also agree to allow the Ministry of Health and Long-Term Care to provide to the FHN doctor some information about health services received by the patients from family physicians outside their network. In addition, the MOHLTC can release to the Family Health Network doctor dates of immunizations, cervical screenings and mammograms.

Referrals to specialists, or to other family physicians for second opinions, is done by the Family Health Network physician in consultation with each patient. Patients can continue to use the services of their doctor without joining that doctor’s FHN. Similarly, if they decide to cancel their enrolment in their doctor’s FHN, they do not have to change family doctors. He or she can continue to see that doctor on the same basis as before they joined the network. Patients are free to change the doctor with whom they are enrolled up to twice a year. If, however, they are seeing another general practitioner on a regular basis, the doctor with whom they are enrolled can remove them from his or her Family Health Network roster of patients.

Physician satisfaction has been high and, to date, no physicians have left the pilot networks. The agreements that physicians sign in order to create an FHN address patient and physician rights and responsibilities, physician compensation, and administrative support.

Payment for rostered patients - which is weighted by age and gender (see Table 4.2) and covers a basket of 57 common primary care services - is expected to amount to about 60% of FHN revenue. There are additional payments for providing preventive health services such as vaccinations, Pap smears and mammography; bonuses for repatriating patients who previously saw other physicians for any of the core primary care services; an on-call fee; and premiums for non-core services such as deliveries and hospital in-patient care.

Table 4.2
Ratio for payment of base rate payment and special payment by age and sex

















































































Note: $96.85 is the multiplier for the base rate payment.
Source: Matt Borsellino, “Primary Care Payment Options Become
Available,” The Medical Post, 4 December 2001, p. 8.

Physicians can also bill for continuing medical education, and each network is entitled to up to $25,000 annually to defray additional administration costs. FHNs are also eligible for funding to set up an information technology system, including electronic patient records, drug interaction alerts, tracking of preventive care measures and electronic billing.

A physician who does an “average” amount of office work, hospital, obstetrics and ER, with a roster size of 1,480, patients might be paid $254,846 under the blended model. For a physician who only does office work and has a roster size of 1,423 patients, the annual payment might be $204,256. For a roster of only 598 patients, gross payment is $105,455.

Dr. Elliot Halparin, a Georgetown, Ont., family physician and President of the OMA, said average payment under the blended model of the urban FHN template is an estimated $244,500, assuming a roster size of 1,600 patients. This compares with $210,700 under traditional fee-for-service. The numbers are based on the average billings of the 6,500 to 7,000 Ontario family physicians who provide comprehensive care.

While it is too early to attempt any evaluation of the actual OFHN project, an assessment of the pilot projects (Primary Care Networks or PCNs) that preceded the full rollout was done by PriceWaterhouseCoopers for the MOHLTC in October 2001. Some of the conclusions are worth noting:

·        The top five benefits physicians have experienced in being part of a PCN are: the lifestyle and practice-style benefits of the capitation model; better care for patients; information technology (IT); increased income; shared call and coverage for absences.

·        The top challenges physicians have faced in being part of a PCN are: administrative demands; IT; patient rostering; dealing with the Ministry.

·        To date, the involvement of nurse practitioners and other health care providers in the networks has been limited, although patients report very high satisfaction with nurse practitioners.

·        Role definition and team integration have been challenges in integrating nurse practitioners into PCNs; the nurse practitioner to physician ratio extremely low in many PCNs.

·        It has been proposed that nurse practitioners might have an impact on cost-effectiveness, but there is no definitive evidence on the economic impact of nurse practitioners in the PCNs.

·        There is high physician satisfaction with capitation, and preliminary evidence of changed behaviours due to capitation incentives.

·        The teletriage service appears to have had a positive impact on emergency room utilization. Data from the teletriage service provider suggests that in the absence of the teletriage service, callers would have made 1,874 visits to hospital emergency rooms. However, the teletriage service advised only 871 callers to seek emergency care – a difference of 1,003 visits.

The report also noted three categories of barriers that impede the progress of the networks:

·        Implementation barriers.  Examples include delays in various IT components, insufficient multidisciplinary resources, inability to respond to higher than anticipated teletriage call volumes, and insufficient patient and public education about the reform.

·        Model barriers.  Examples include a physician-centric approach to the reform, issues with the bonus codes and capitation rates, insufficient feedback to physicians on outside use, and the need for specific performance measures for the PCNs.

·        Systemic barriers.  Examples include physician shortages, the health care funding structure, lack of integration with reforms in other health sectors and gaps in service.

The Committee feels it is important to note that the model adopted in Ontario differs considerably from that advocated by the Hospital Restructuring Commission. The Commission had wanted governments to stop paying for individual services performed by physicians and move to a model in which the PCG as a whole would be funded primarily using capitation. In the Committee’s view this proposal would have led to the creation of genuine group practices, instead of the kind of practice that seems to be emerging in Ontario, where practitioners who remain essentially independent work together under a single roof. The Committee agrees with the approach recommended by the Hospital Restructuring Commission.

However, two other provinces recently announced initiatives in primary care reform that more closely resemble the recommendations of the reports that had been commissioned in their respective jurisdictions.


4.2.3   Quebec

On June 4, 2002, the Quebec Minister of Health and the President of the Quebec Federation of General Practitioners announced that they had reached agreement on arrangements for establishing the first 20 family medicine groups (FMGs). This is part of a plan to create over 300 of these groups over the next four years, by which point, as recommended by the Clair Commission, they are expected to provide primary care service to 75% of the province’s population.[97]

The creation of FMGs is voluntary, as is patient enrolment. Each FMG will involve 6 to 10 physicians and nurses and provide a full complement of primary care services to 10-20,000 patients.[98] During an initial transitional phase, physicians will continue to be remunerated for clinical activity in the same way as now (fee-for-service, salary, etc.), but will also receive payment on an hourly basis for activities associated with the operation of the FMG, such as the coordination of services for enrolled patients, or interdisciplinary collaboration with other providers, as well as a yearly premium for each patient on their roster.[99]

Patients enrol with the doctor of their choice within a given FMG. Enrolment lasts a year and is automatically renewed unless the patient cancels in writing. Patients agree to consult their doctor (or someone else from the FMG) first, unless it is an emergency or they are travelling. FMGs are open for extended hours and guarantee service 24/7 using telephone emergency service.[100]

The Quebec government has committed $15 million to finance the creation of the first 20 FMGs, split three ways: $5 million for additional physician compensation; $5 million for office computerization and equipment; $5 million to hire nurses.[101] Each FMG must be approved by the Minister and must have in place a contract with a local CLSC (community health centre) as well as an agreement with the regional health board.

The Quebec government also recently introduced legislation, jointly sponsored by the health and justice ministries, that redefines the role of physicians, allowing them to delegate more duties to nurses. Nurses will specialize in areas such as surgery, cardiology and neo-natal intensive care, as well as performing extra tasks in a variety of settings, including in emergency rooms.[102]


4.2.4   New Brunswick

The Government of New Brunswick recently announced two related measures that follow up on the recommendations on primary care reform contained in the Premier’s Health Quality Council Report. On May 8, 2002 the government brought down legislation intended to introduce nurse practitioners to the province’s health system and allow registered nurses to make greater use of their skills and training. The legislation will provide for the creation and registration of nurse practitioners, and will also enable front-line nurses working in primary care to deal with certain non-urgent conditions on their own, without the direct intervention of a physician.[103] They will be able to order laboratory tests and a variety of diagnostic procedures and also to issue prescriptions for some drugs.

The Minister of Health also announced that the government will spend $2.1 million to establish at least two community health centres in the province during the current fiscal year.[104] These centres will use multidisciplinary teams of health professionals, including nurse practitioners.

Both physician and nurses’ organizations have been supportive. In fact, in April 2002 the New Brunswick Medical Society had proposed that some nursing services be billed directly to Medicare so that both physicians and nurses could see patients. It reasoned that this would allow family physician practices to take on more patients, shorten waiting lists for specialists and even attract some nurses back to the profession.


4.3     Overcoming the Barriers to Change

The Committee welcomes these provincial initiatives. We note that, for the first time, they move primary health care reform off the drawing board and into the realm of concrete application. These developments therefore offer grounds for guarded optimism that significant reform of primary care delivery is possible in Canada. However, there remain a number of barriers to change that must be overcome.

For example, with respect to Ontario, a number of witnesses expressed concern over the “physician-centric” nature of the OFHN. One of these, Professor Hutchison, told the Committee that the Ontario model was:

…a very limited model that reflects the process by which it was negotiated — bilateral negotiations between the government and the Ontario Medical Association. There were no non-physician stakeholders involved in the discussion. It was a private, “behind closed doors” set of negotiations.

Although it has interesting elements, it is a pretty traditional approach. It changes funding (physician payment) methodology, but it does not change a lot of other things. It certainly does not provide many opportunities for providers to develop and evaluate varying arrangements that involve non-physician providers such as nurse practitioners, social workers, midwives, and so on. It is a physician-centred model.[105]

Reinforcing that, Dr. Peter Barrett insisted that “to ensure comprehensive and integrated family care, family physicians should remain as the central provider and coordinator of timely access to publicly-funded medical services.”[106] Dr. Ruth Wilson, the Chair of the OFHN, acknowledged in her testimony that the current Ontario model was a starting point, and that she was “expecting and hoping the relationships with other professionals will grow as we put family health networks in place,”[107] adding that “we have a large process of change to introduce if we are to convince the thousands of family physicians in Ontario to accept this model.”[108]

In this regard, the President of the OMA, Dr. Elliott Halparin, noted that it will take time before physicians sign on in large numbers:

I think it will be a bit like popping popcorn: A few kernels will pop to begin with, but then there will be a lot of popping going on when people understand that this acknowledges the complexities involved in providing comprehensive care, that it is good for patients and, by extension, good for physicians.[109]

More generally, witnesses pointed to the continued presence of a variety of barriers to the implementation of primary care reform. These include:

·        The vested interests of various professional groups

·        Shortages of qualified personnel

·        Fee-for-service as the dominant method of physician remuneration

·        High start-up costs

·        The absence of electronic information infrastructure

The issue that seemed to spark the most controversy among the Committee’s witnesses was the first. Some felt that strong action, by government if necessary, was needed to break the log-jam with regard to professional groups protecting their respective turfs. Claude Forget, former Minister of Health in Quebec, argued that the “sector is not unlike a medieval guild system in the sense that it is rigid and does not allow the use of someone from another related profession if you find that you are in a deficit situation, and move him or her over.”[110]

Graham Scott, former Deputy Minister of Health in Ontario, expressed a similar view, pointing out that “we have a very well-funded, well-organized, and powerful monster in the form of each one of these health professional organizations,”[111] and that “the eventual threatened hammer of forced legislation”[112] was required to bring the parties to the table in order to revise the existing regulation of scopes of practice.

Other witnesses, however, stressed that primary care reform could not be imposed upon health care providers, but will work only if adopted voluntarily. Dr. Les Vertesi, Medical Director at the Royal Columbian Hospital in Vancouver, argued that “there are some things such as primary health care reform that have to be done by the providers because the detail is incredibly important.”[113] And Professor Hutchison noted that, “the chances of imposing reforms on unwilling providers are very small, partly because I do not think the public sees primary care reform as offering huge advantages to them.”[114]

With regard to scopes of practice, Ms. Kelly Kay, of the Canadian Practical Nurses Association, noted that:

[the fact that] Licensed Practical Nurses continue to experience artificial limits to practice, that nurse practitioners must struggle for recognition and remuneration and that other professionals such as physiotherapists still face restrictions to direct access are examples that speak to continuing barriers imposed upon professional groups.[115]

At the same time, physician representatives noted the progress that had been made among professional organizations in agreeing to common principles for determining scopes of practice. Dr. Barrett pointed out that:

The Canadian Medical Association had developed a “scopes of practice” policy that clearly supports a collaborative and cooperative approach, which has been supported in principle by the Canadian Nurses Association and the Canadian Pharmacists Association. We indeed have a signed document to that effect.[116]

In Volume Five, the Committee expressed its support for the revision of scope of practice rules in order to allow all health care providers to deliver the full range of services for which they have been trained.[117] In the Committee’s view, these should be as standardized as possible across the country. The synthesis report of the Health Transition Fund’s primary care projects reached a similar conclusion, notably with regard to nurse practitioners:

Text Box: …the Committee expressed its support for the revision of scope of practice rules in order to allow all health care providers to deliver the full range of services for which they have been trained. In the Committee’s view, these should be as standardized as possible across the country.

A federal/provincial/territorial initiative should develop national standards for terminology and scope of practice. It should include legislative requirements that support an expanded role for nurses and nurse practitioners.[118]

The Committee endorses this conclusion and believes that the federal government should take the initiative in this regard.

Some witnesses suggested that the key ingredient lacking in order to make more rapid progress in implementing primary care reform is political will. In this vein, Michael Decter told the Committee:

It is not about the right model; it is about moving the yardsticks. We have spent a long time looking for the perfect model for primary care reform. It has worked in some places largely because someone just had the will to do it.[119]

Witnesses reiterated the point made by the Committee in Volume Five that no single model could be applied in the same fashion in all parts of the country. Kelly Kay stated, “primary health care service delivery will look different in each community” since “communities must customize primary health care services in response to their own identified needs.”[120] For her part, Dr. Susan Hutchison, Chair of the GP Forum of the Canadian Medical Association, told the Committee:

The mix of health care providers varies based on the needs of the population. There is no ideal mix. What works best is an adequate human resource to meet the needs of the population. The mix of providers is dictated by the services required to address these patient needs. The ideal range of services for a given team would depend on the needs of the population and the available mix of providers. There may be considerable variability between the needs of a given population, as is the case in Aboriginal populations, for example.[121]

The Synthesis Report on Health Transition Fund projects in primary care (June 2002), reached a similar conclusion, noting that “the health system has already demonstrated its capacity and ability to support organizational variations and could continue to do this within an overarching theme of primary health care integration.”[122] It also drew a number of lessons that coincide with the recommendations made by the Committee in Volume Five, both with respect to the basic features a reformed primary care system should have, and to developing a national health human resources strategy and implementing a national electronic health record. In particular, it concluded:

The first-hand experience gained through the HTF projects offers new insights and reinforces long-standing knowledge about aspects of primary health care: the benefits of group practices and multidisciplinary teams; the untapped potential of nurses; and the linkages between determinants, health promotion and disease, and injury prevention.[123]

The report also insisted that certain conditions were necessary to the success of primary care reform, arguing that “the development of a common electronic health record and access to computers and other technology for services, information, and research is essential to successful primary health care.”[124]


4.4     The Federal Role

In Volume Five the Committee recommended that:

The federal government continue to work with the provinces and territories to reform primary care delivery, and that it provide ongoing financial support for reform initiatives that lead to the creation of multi-disciplinary primary health care teams that:

§         are working to provide a broad range of services, 24 hours a day, 7 days a week;

§         strive to ensure that services are delivered by the most appropriately qualified health care professional;

§         utilise to the fullest the skills and competencies of a diversity of health care professionals;

§         adopt alternative methods of funding to fee-for-service, such as capitation, either exclusively or as part of blended funding formulae;

§         seek to integrate health promotion and illness prevention strategies in their day-to-day work;

§         progressively assume a greater degree of responsibility for all the health and wellness needs of the population they serve.

Ongoing financial support for reform initiatives that lead to the creation of multidisciplinary primary health care teams would represent a continuation of the commitment to primary care reform that the federal government displayed in funding the $150 million Health Transition Fund, of which over $60 million was spent on projects related to primary care reform. The federal government also committed $560 million out of the $800-million Primary Health Care Transition Fund (PHCTF) that was created as a result of the First Ministers Conference in 2000 to assist the provinces and territories in broadening and accelerating primary health care initiatives. This money is to be allocated on a per capita basis. To access these funds, each provincial and territorial government must develop one proposal showing how their PHCTF funding will support the transitional costs associated with primary health care reform.

However, the PHCTF is not an ongoing program. The Committee recognizes that the start-up costs for primary care groups can be substantial. Based on the actual costs of implementing primary care reform in Quebec, this cost could be as much as $750,000 per group, while earlier estimates from Quebec had placed this cost as high as $1 million per group.

The Committee therefore recommends that:

The federal government commit $50 million per year of the new revenue the Committee has recommended it raise to assist the provinces in setting up primary care groups.

This money would be in addition to any funds made available through the PHCTF and should enable the creation of between 50 and 65 primary care groups per year.

In order for primary care groups to function effectively, the Committee is convinced that they must act as gatekeepers to the rest of the health care system. For example, patients who are enrolled in a particular PCG must have incentives, both positive and negative, to ensure that they consult their PCG physician rather than seek care from specialists on their own. Referrals to specialists should therefore be made by a primary care provider in consultation with the patient.

Text Box: In order for primary care groups to function effectively, the Committee is convinced that they must act as gatekeepers to the rest of the health care system.

Nevertheless, the Committee does not believe it appropriate to prohibit patients from consulting other doctors, especially specialists, should they so desire. But it does believe that patients who choose to seek care elsewhere, care that could be provided adequately within the PCG with which they are enrolled, should bear the financial consequences of their decisions. In other words, patients should be obliged to pay a fee in order to consult other physicians, including specialists, when they do so on their own initiative.

In Volume Five, the Committee also recommended the establishment of an ongoing framework to deal with human resource issues, in particular by creating a permanent national coordinating body for health human resources composed of representatives of key stakeholder groups and of the different levels of government. Its mandate would include coordinating initiatives to ensure that adequate numbers of graduates are being trained to meet the goal of Canadian self-sufficiency in health human resources.[125]

With respect to the development of electronic health records, the Committee recommended in Volume Five that the Canada Health Infoway initiative be extended beyond its current 3-5 year mandate in order to develop, in collaboration with the provinces and territories, a national system of electronic health records. Several witnesses suggested not only that the development of electronic health records is crucial to the reform of primary health care, but that it is an area in which the federal government can exercise leadership.

In  the words of Jack Davis, CEO of the Calgary Health Region, “the one area I would see that has a real potential for federal investment is the electronic health record.”[126] Dr. Kenneth Sky, past president of the Ontario Medical Association, suggested that “for physicians, the IT component of primary care reform is a big incentive,”[127] and Michael Decter felt that electronic health records were so important that “bribery is in order in this particular sphere. I would bribe the doctors to convert.”[128]

The Committee agrees that the federal government should take the lead role in expediting the development of a national electronic health record, and presents specific recommendations to this effect in Chapter Ten.


Appendix 4.1:
GP Fundholding in Great Britain

In discussions of primary care reform, reference is often made to the British experience in the 1990s with the introduction of “internal markets”. Before 1990, it was accurate to describe the British National Health Service (NHS) as being run by a monolithic bureaucracy that controlled all aspects of the system. At that time, NHS hospitals and community health care units were state-owned and operated by the NHS’s regional health authorities. Each hospital’s budget was determined through an administrative process involving negotiations between its management and the NHS administration. GPs provided care through a “rostering” system that required patients to register with one GP, who then acted as “gatekeeper” to the rest of the system. GPs worked under contract with the NHS and were remunerated through a mixed system that combined a salary with capitation based on the number of patients on a doctor’s list.

With primary care reform, introducing internal markets allowed some general practices to volunteer as “Fundholders”. Family practices that served a sufficient number of patients became purchasers who were then able to contract with hospitals and other community-based providers (such as cistrict nurses) for defined services. Fundholder budgets were restricted for the purchase of hospital and community services; they could not be used to supplement GPs incomes. GPs have always been paid by the NHS as independent, self-employed professionals. The various reforms enacted throughout the 1990s, such as fundholding and more recently the creation of Primary Care Groups and Trusts, have not fundamentally affected the ways in which British GPs derive their incomes.

In the early 1990s the GP fundholding system was expected to be only a small part of the overall reform process, but it quickly became more popular than anyone had anticipated, due to a variety of factors. There was evidence early on that fundholders could secure improved services for their patients. This created a bandwagon effect; few physicians wanted to be left behind. The Conservative government reinforced this trend by offering further benefits (e.g. computers) exclusively to fundholding practices. Moreover, fundholding gave GPs a central and more authoritative role in the overall system than they had had previously. Consultants (specialists) were forced to become more responsive and accountable to GPs who had the option to take their business (referrals) elsewhere.

The Labour government under Tony Blair, first elected in 1997, was critical of a number of aspects of internal market reform. In particular, it felt that GP fundholding had allowed a form of “two-tierism” to develop in Britain because patients of GP Fundholders were often able to obtain treatment more quickly than patients of non-Fundholders. This was considered inimical to the founding principles of the NHS, and as a result Labour sought to curb the forms of competition they saw as being at the root of emerging inequalities.

In April 1999, government required all GPs to join a Primary Care Group (PCG - groupings of GP practices in geographical areas far larger than the previous fundholding model, covering between 50,000 to 250,000 people.) PCGs brought local primary care providers together under a board dominated by GPs, but also representing nurses and other local community providers. PCGs were expected to develop through stages to become “Trusts” (PCTs) able to assume full responsibility for commissioning (contracting for) care and for the provision of community health services for their population. By April 2002, nearly all the PCGs had made the transition to Trust status.

In principle, this evolution gave all GPs the benefits of fundholding, a single regional budget encompassing general medical services, and prescription drugs, as well as hospital and specialist care. However, a recent assessment by the King’s Fund suggests that there is still some way to go before PCTs “will be able to realise their undoubted potential.” The authors of this study concluded that PCTs are developing at different speeds and that while “they have made progress in developing and integrating primary and community care…their commissioning and health improvement functions are, as yet, limited.”[129]

It is worth noting that until the market reforms of the 1990s, GPs retained a monopoly on primary care delivery through their role as gatekeepers to all other dimensions of the system. A number of reforms introduced by the Labour government have allowed nurse-led providers to assume a growing role in this regard. These have included the creation of a nurse-staffed 24-hour telephone advice line (NHS Direct) and the creation of a number of walk-in centres where initial assessments are performed by nurses, who can then refer patients to local GPs if necessary.

A number of factors make it very difficult to draw definitive conclusions from the British experience that can be easily applied to the Canadian context. There have not always been sufficient data available, and the rapidity of change has not facilitated careful study. Moreover, given the very different structure of the two systems, it is difficult to apply the lessons to the Canadian health care system. However, a number of points bear mention:

·        In the first place, despite the Labour Government’s opposition to the form taken by the “internal market” under the previous Conservative government, the Labour governement has nonetheless retained key elements of the purchaser-provider split the Conservatives introduced.

·        Second, the transition that the Blair government has engineered from GP fundholding to the creation of PCGs and PCTs would seem to highlight the successes of the fundholding scheme more than its deficiencies. It is because the fundholding GPs were successful in negotiating with hospital trusts on behalf of their patients that fears of “two-tierism” emerged.

·        Third, the shift to grant a greater role in the delivery of primary health care services to nurses and other providers parallels similar recommendations that have been voiced consistently in the Canadian debate over primary care reform.


Table 4 1
Review of Recent Provincial Reports Containing Recommendations on Primary Health Care Reform


Scope of service

Team Composition


Size of practice



External Relations



Dec. 1999

Comprehensive primary care would be provided 24 hours a day, seven days a week; this would be achieved through after-hours clinics (or extended office hours) and around-the-clock telephone triage. 

Physicians and nurse practitioners as “core providers”, in an interdisciplinary team including: registered nurses, midwives, psychologists and social workers, pharmacists, physiotherapists, dieticians, Individual health care providers would work to the full extent of their scope of practice.

Group rather than individual funding, primarily on the basis of capitation supplemented by other methods; group determines how its member providers are reimbursed. Not merely office sharing.

Three distinct models:

urban –  6 MDs, 2 NPs for about 1,680 patients;

rural – 2 MDs and 2 NPs for 1,293 patients;

remote  –  1 MD and 3 NPs for 1,142 patients.



Each practice would be responsible for developing agreements with other health care organizations and providers (hospitals, specialists, public health, rehabilitation centres, long-term care facilities, home care, community care).



Jan. 2001

Group practices would ensure round-the-clock, seven-days-a-week coverage. Services to include health promotion and disease prevention, diagnosis and treatment, referral to hospitals and specialists, coordination of continuum of care, and referral to social care.

Practices comprise only physicians and nurse practitioners, but they work in partnership with the existing network of CLSCs (social workers, dieticians, psychologists, physiotherapists, etc.). 

A blended system of remuneration that includes elements of capitation, a lump sum for participation in some programs, and FFS for prevention or to promote productivity.

6 to 10 physicians working in a polyclinic or within a CLSC with the collaboration of 2 to 3 nurse practitioners, and responsible for between 1,000 and 1,800 persons. 



Contract with the regional health authority, and between the primary care group practice and the CLSC.  Regional health authorities would be responsible for coordinating the network of primary care group practices with other service providers.



Apr. 2001

Group practices would make services available around the clock.  Outside of office hours, telephone calls would be forwarded to a nearby group member; 24-hour back-up through  a provincial call centre. No explicit list of services.

Primary care group practices would involve a variety of providers including physicians, nurse practitioners, midwives, physiotherapists, dieticians, home care workers, and professionals in the areas of mental health, rehabilitation, addiction and public health.





Regional health authorities would organize and manage primary care group practices, contracting with or otherwise employing all providers including physicians.




Dec. 2001

Gives very general approval to the idea of primary health care reform. Comprehensive care  would be delivered by multidisciplinary teams.

Teams might include a family doctor, nurse or nurse practitioner, mental health worker, social worker and others.

Identifies FFS as a barrier to change. Suggests that a blended funding model is the best likely alternative, and sees the Ontario Family Health Network as an excellent example.




Physicians should be given the option of contracting with Regional Health Authorities for a portion of their income.


Dec. 2001

A network of primary health care teams providing a ‘Continuum of Care’ (including preventative, promotive, curative, supportive and rehabilitative care).

Primary care physicians would work collaboratively with other health care providers and other physicians. Within each team, each health care provider would practice at the highest level of his or her respective skill set.

Did not endorse any specific funding method (no universal model) but seemed to support some form of flexible,  blended funding. No mention of capitation.




Regional boards would outline for physicians what medical services are required for their region. Physician groups would enter into formal arrangements with boards to ensure delivery of the full basket of services listed in the agreement.


Jan. 2002

Access to a comprehensive range of ambulatory services 24-hours a day, seven-days a week, coordinated from one location, where possible a Community Health Centre. Where these would not be open 24 hours a day, phone calls would be re-directed to an around the clock service site.

A collaborative model and a team approach to providing primary care. Family physicians would not see every patient and other members from the team of health providers could provide consultation and/or perform treatment services. The goal would be to make full use of all providers based on their respective knowledge, skills and abilities.


All primary care services, where feasible, should be provided or coordinated through a network of Community Health Centres. These would be viewed as the physical ‘nucleus’ of primary care in the community.



Other providers could be accessed via telehealth and/or on site at the Community Health Centre.

[1] Only 5% of hospitals in Canada are private for-profit institutions.

[2] Canadian Institute for Health Information, “Health Expenditure by Use of Funds, By Source of Finance, Province/Territory 1975-2001,” National Health Expenditure Database (NHEX)


[3] Volume Five, pp. 23-25.

[4] Volume Five, pp. 36-39.

[5] Unless otherwise indicated, the information provided in this section is based on the following documents:

Sheila Block, The Ontario Alternative Budget 2002 – Health Spending in Ontario: Bleeding our Hospitals, Canadian Centre for Policy Alternatives (Ontario), May 2002 (

Comité sur la réévaluation du mode de budgétisation des centres hospitaliers de soins généraux et spécialisés (Comité Bédard), La budgétisation et la performance financière des centres hospitaliers, Santé et services sociaux, Government of Quebec, 2002 (

Jeffrey C. Lozon and Robert M. Fox, “Academic Health Sciences Centres Laid Bare,” Healthcare Papers, Vol. 2, No. 3, 2002, pp. 10-36 (

Les Vertesi, Broken Promises: Why Canadian Medicare is in Trouble and What Can be Done to Save It, Document tabled with the Standing Senate Committee on Social Affairs, Science and Technology, 2001.

Ian McKillop, George H. Pink and Lina M. Johnson, The Financial Management of Acute Care in Canada -.A Review of Funding, Performance Monitoring and Reporting Practices, Canadian Institute for Health Information, March 2001 (

Danish Ministry of Health, Hospital Funding and Casemix, September 1999

Nizar Ladak, Understanding How Ontario Hospitals are Funded: An Introduction, Joint Policy and Planning Committee, Ontario, March 1998 (

[6] Although the classification of funding method may be the same for a number of jurisdictions, the way in which the method is implemented may differ.

[7] Mark Rochon, Ontario Hospital Association (56:42).

[8] Jack Davis, Calgary Health Region (53:40).

[9] Les Vertesi (2001), op. cit., p. 117.

[10] Barer, M.L. (1995), “Hospital Financing in Canada,” Chapter Two in Hospital Funding in Seven Countries, Office of Technology Assessment: U.S. Congress, p. 23.


[11] Les Vertesi (2001), op. cit., p. 31.

[12] Canadian Healthcare Association, Brief to the Committee, June 2002, p. 6.

[13] Les Vertesi (53:44).

[14] Ontario Joint Policy and Planning Committee, Hospital Funding Report Using 2000/01 Data, Reference Document No. RD 9-12, October 2001 (

[15] Laschober, Mary, and James Vertrees, “Hospital Financing in the United States,” Chapter Eight in Hospital Funding in Seven Countries, Office of Technology Assessment; U.S. Congress, 1995, p. 136.


[16] Comité Bédard (2001), p. 38.

[17] Medicaid is a joint federal-state program that provides health care insurance for low-income Americans.  Medicare is a federal health care insurance program responsible for covering individuals 65 years old and over.  Together, these two programs cover roughly 30% of the American population.

[18] Comité Bédard (2001), p. 38.

[19] Two lists of rates are used, based on whether a hospital is located in an urban area (defined as more than a million inhabitants) or a non-urban area.

[20] Dr. Duncan Sinclair (50:12).

[21] PricewaterhouseCoopers Healthcare (2000) “Health Care Fraud and abuse: DRG creep,” Issues (

[22] The information provided in this section is based on European Observatory on Health Care Systems, Health Care Systems in Transition – Denmark, 2001.

[23] The information provided in this section is based on European Observatory on Health Care Systems, Health Care Systems in Transition – Norway, 2000. (

[24] Michael Decter (52:12).

[25] Mark Rochon, Ontario Hospital Association (56:43).

[26] Canadian Healthcare Association, Brief to the Committee, June 2002, p. 6.

[27] Ontario Hospital Association, Brief to the Committee, May 22, 2002, p. 36.

[28] This opinion was also expressed by Ladak (1998), op. cit., p. 3.

[29] Canadian Healthcare Association, Brief to the Committee, p. 7.

[30] Les Vertesi (2001), op. cit., p. 118.

[31] Ontario Joint Policy and Planning Committee Financial Issues Advisory Group (1998), “Understanding the Financial Pressures of Ontario Hospitals: Short and Long Term Solutions”, Document No. RD 7-10.


[32] This point is clearly enunciated in a document prepared for the Commission on the Future of Health Care in Canada by Colleen Flood and Sujit Choudhry, Strengthening the Foundations: Modernizing the Canada Health Act, Discussion Paper No. 13, August 2002.

[33] Volume Five, pp. 38-39.

[34] Specialized hospital services include for example paediatric cardiac surgery and gamma knife neurosurgery.

[35] For example, with paediatric coronary surgery, given the relatively small number of children affected and the generally reparative nature of the problems (as opposed to life-threatening), the case is compelling to concentrate those procedures in very few centres (as is now being done in Ontario). But for adult coronary artery by-pass, for example, it would make no sense to have only one Centre in Ontario doing them.

[36] Duncan Sinclair (50:12).

[37] Michael Decter (52:13).

[38] Canadian Healthcare Association, Brief to the Committee, p. 7.

[39] Kevin Empey (56:45).

[40] Ibid.

[41] Canadian Healthcare Association, Brief to the Committee, p. 6.

[42] Mark Rochon, Ontario Hospital Association (56:43)

[43] Canadian Healthcare Association, Brief to the Committee, p. 6.

[44] Volume Five, pp. 36-39.

[45] Sharon Sholzberg-Gray (60:27).

[46] Volume Five, pp. 36-39.

[47] Volume Four, pp. 95-105.

[48] S. Kevin Empey, Brief to the Committee, 22 May 2002, p. 12.

[49] Lozon and Fox (2002), op. cit., p. 16.

[50] S. Kevin Empey, Brief to the Committee, 22 May 2002, p. 6.

[51] S. Kevin Empey, op. cit., p.10.

[52] Dr. Hugh Scott (63:17).

[53] Dr. Jeffrey Lozon (63:16-17).

[54] Lozon, Jeffrey and Robert Fox (2002), “Academic Health Sciences Centres Laid Bare”, lead paper in Healthcare Papers, Vol. 2 No. 3, p. 30.

[55] Raisa Deber (59:12).

[56] Canadian Healthcare Association, Brief to the Committee, p. 7.

[57] Ladak (1998), op. cit., p. 31.

[58] Mark Rochon (56:43).

[59] S. Kevin Empey (56:45).

[60] Association of Canadian Academic Healthcare Organizations, Brief to the Committee, 13 June 2002, p. 17.

[61] Ibid.

[62] Ibid.

[63] Canadian Medical Association, For Commissioner Romanow: A Prescription for Sustainability, 6 June 2002, p. 26.

[64] Based on the 2001 Census data of Statistics Canada (

[65] P.J. Devereaux et al., “A Systematic Review and Meta-Analysis of Studies Comparing Mortality Rates of Private For-Profit and Private Not-for-Profit Hospitals”, in Canadian Medical Association Journal, Vol. 166, No. 11, 28 May 2002, pp. 1399-1406.

[66]Ibid., pp. 1404-1405.

[67] Dr. Arnold Relman (48:8-9).

[68] For more information, please consult the recent paper by Brian S. Ferguson, A Comment on the Deveraux et al. Meta-Analysis of Mortality in Private American Hospitals, Draft, Department of Economics, University of Guelph, Ontario, June 2002.

[69] Ibid.

[70] These studies are summarized in a paper by Stephen Duckett, “Does it Matter Who Own Health Facilities”, in Journal of Health Services Research Policy, Vol. 6, No. 1, January 2001, pp. 59-62.

[71] Brian J. Ferguson, op. cit., June 2002.

[72] Brian S. Ferguson, Profits and the Hospital Sector: What Does the Literature Really Say?, Health policy working paper prepared for the Atlantic Institute for Market Studies, February 2002.

[73] Dr. Arnold Relman (48:23).

[74] Gina Bravo et al., «Quality of Care in Unlicensed Homes for the Aged in the Eastern Townships of Quebec, Canadian Medical Association Journal, Vol. 160, No. 10, 18 May 1999, pp. 1441-1445.

[75] The interpretation of the study findings in terms of ownership status (for profit versus not for profit) were facilitated by information provided by the statistician who participated in the realization of this study, Marie-France Dubois.

[76] Volume Five, pp. 39-40.

[77] Premier’s Advisory Council on Health, (Right Hon. Don Mazankowski, Chair), A Framework for Reform, December 2001 (

[78] The Committee was told that one of the reasons explaining why there are no RHAs in Ontario is the fact that the Greater Toronto Area is too big for a RHA.  One possibility could be to consider implementing the RHA model elsewhere in that province, while another model allowing for the integration of care could be implemented in the GTA.

[79] Unless otherwise indicated, the information contained in this section is based on the following documents:

Ontario Hospital Association, Regional Health Authorities in Canada – Lessons for Ontario, Discussion Paper, January 2002 (

Regionalization Research Centre, What is Regionalization? (

Ian McKillop, George H. Pink and Lina M. Johnson, The Financial Management of Acute Care in Canada, – A Review of Funding, Performance Monitoring and Reporting Practices, Canadian Institute for Health Information, March 2001 (

Peggy Leatt, George H. Pink and Michael Guerriere, “Towards a Canadian Model of Integrated Health Care”, HealthCare Papers, Vol. 1, No. 2, Spring 2000, pp. 13-35.


British Columbia Medical Association, Regionalization of Health Care, BCMA Policy and Reports, 1997 (

Jonathan Lomas, Regionalization and Devolution:  Transforming Health, Reshaping Politics?  Occasional Paper No. 2, October 1997 (

Jonathan Lomas, “Devolving Authority for Health Care in Canada’s Provinces:  1. An Introduction to the issues”, Canadian Medical Association Journal, Vol. 156, Issue 3, February 1997, pp. 371‑377 (

[80] Definition provided by the Regionalization Research Centre.

[81] For more information, see for example the following two documents: 1) Robert Bear, “Can Medicare Be Saved? Reflections from Alberta”, in Healthcare Papers, Summer 2000, pp. 60-67; 2) The Mazankowski report (December 2001).

[82] Unless otherwise indicated, the information presented in this section is based on the following documents:

The Mazankowski report (December 2001).

Glenn G. Brimacombe and Lorraine Pigeon, A Review of the Funding Flows of Regional Health Authorities in British Columbia, The Conference Board of Canada, 2001.

Cam Donaldson, Gillian Currie and Craig Mitton, “Integrating Canada’s Disintegrated Health Care System – Lessons from Abroad”, C.D. Howe Institute Commentary, April 2001 (

[83] David Kelly, Brief to the Committee, pp. 7-8.

[84] Peggy Leatt et al. (Spring 2000), p. 18.

[85] The information provided in this section is based on the following documents:

European Observatory on Health Care Systems, Health Care Systems in Eight Countries:  Trends and Challenges, April 2002 (

Volume Three, Chapters Four and Five, January 2002.

Volume Five, April 2002.

[86] Cam Donaldson et al. (April 2001), p. 8.

[87] Michael Decter (52:12).

[88]  Cited in Ann L. Mable and John Marriott, Health Transition Fund Synthesis Series – Primary Health Care, June 2002,  p. 1.

[89] Ibid.,  p. 2.

[90] 52:9

[91] This point is well illustrated by the following facts from a 1999 report of the Ontario Health Services Restructuring Commission, cited in Volume Four of the Committee’s study (p. 110). One third of billings by specialists in Ontario in 1997 (at a total cost of $1.4 billion) was work that could have been done by family doctors. The five most frequently used billing codes by Ontario family doctors in 1997, which account for about 69% of the total amount billed by these doctors (at a cost of $1.2 billion), were for: intermediate assessments (well baby care), general assessments, minor assessments, individual psychotherapy, and counselling. The clinical consultants to the Ontario Health Services Restructuring Commission were of the opinion that most, if not all of the services these bills represent could well be provided by nurse practitioners, nurses and many well-trained health professionals.

[92] 56:12

[93] Research done for the Ontario Health Services Restructuring Commission shows that the most dramatic decrease in referrals would be to dermatologists and ear-nose-and-throat specialists.

[94] 58:13

[95] Marriott Mable, op cit., p. 20

[96] These reports are:

1. Health Services Restructuring Commission (Duncan Sinclair, Chair), Primary Health Care Strategy – Advice and Recommendations to the Honourable Elizabeth Witmer, Minister of Health, Government of Ontario, December 1999.

2. Commission d’étude sur les services de santé et les services sociaux (Michel Clair, Commissioner), Emerging Solutions – Report and Recommendations, January 2001

3. Saskatchewan Commission on Medicare (Kenneth Fyke, commissioner), Caring for Medicare – Sustaining a Quality System, April 2001

4. Premier’s Advisory Council on Health (Right Hon. Don Mazankowski, Chair), A Framework for Reform, report to the Premier of Alberta, December 2001, pp. 52-53. 

5. Primary Care Advisory Committee (Kathy LeGrow, Chair), The Family Physician’s Role in a Continuum of Care Framework for Newfoundland and Labrador, A Framework for Primary Care Renewal, Department of Health and Community Services, Newfoundland and Labrador, December 2001.

6. Report from the Premier’s Health Quality Council, Health Renewal, Government of New Brunswick, January 2002.


[97] Ministère de la Santé et des Services sociaux (MSSS) press release, June 4, 2002.

[98] Health Edition, Vol. 6 No. 23, June 7, 2002, p. 4

[99] MSSS fiche technique, « Résumé de l’entente particulière entre la FMOQ et le MSSS relative aux groupes de médecine de famille. »

[100] MSSS fiche technique, “Le groupe de médecine de famille.”

[101] Health Edition, op. cit.

[102] Medical Post, May 14, 2002.

[103] News Release 453, May 8, 2002.

[104] Medical Post, Vol. 38 No. 21, May 21, 2002.

[105] 58:23

[106] 56:10

[107] 57:7

[108] 57:17

[109] 56:22

[110] 53:54

[111] 53:47

[112] 53:49

[113] 53:90

[114] 58:12

[115] 61:4

[116] 56:12

[117] See also Chapter Eleven for additional comments on the need to reform scope of practice rules.

[118] Marriott Mable, op. cit., p. 29.

[119] 52:16

[120] 61:5

[121] 56:15

[122] Marriott Mable, op. cit., p. 24

[123] Ibid.

[124] Ibid., p.25

[125] See also Chapter Eleven of this volume.

[126] 53:88

[127] 56:22

[128] 52:14

[129] John Appleby and Anna Coote, Five Year Health Check, King’s Fund, April 2002, p. 47.

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