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Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology

Issue 20 - Evidence

OTTAWA, Monday, June 11, 2001

The Standing Senate Committee on Social Affairs, Science and Technology met this day at 9:08 a.m. to examine the state of the health care system in Canada.

Senator Michael Kirby (Chairman) in the Chair.


The Chairman: I thank all of you for taking the time to be with us this morning.

We have a panel of witnesses, via video conference, from the German Health Ministry. I would ask the first witness to begin. It would be helpful if each of you could give us a brief overview of the German system. We will then proceed to ask our questions and try to explain to you the issues that most interest us.

Mr. Georg Baum, Director General, Head of Directorate, Health Care, German Health Ministry: It is an honour to be asked to give evidence about our experience dealing with health care reform processes in Germany. We have been in a steady health care reform process in our country since the late 1980s. Since that time, we have introduced five major laws. I will give you a brief overview.

You may know that the German statutory health care system is part of the German social security system. It works on the same principle as the pension system and the unemployment system. This means that the financing of the system works on the basis of contributions. Contribution rates are carried by employees and employers, each carrying half of the contribution. When people retire, the contribution is paid from the pension system.

We have a system that is financed without taxes. It is financed on a contribution base. This is very important. It is a system that is organized by law but is not run by the government. Our system is different from the typical national health care system.

This system is carried by the sickness funds. The sickness funds are not government parts. They are not private companies. I would describe them as non-profit institutions which work on the basis of federal law but have their own contribution rates. In the system, at the moment, we have approximately 400 individual sickness funds, but the figure seems to be more disordered than it is because we have special kinds of sickness funds.

One kind of sickness fund is the company sickness fund. As we have many types of industry, such as insurance or banking, we have many sickness funds belonging to these companies.

If you reduce this to types of sickness funds, we have several different kinds of sickness funds. They are regionally organized in every state of Germany. We have six regional sickness funds. Then we have sickness funds that operate in the handicraft sector, and we have sickness funds that operate in the smaller, more historical division of the labour force, in the white collar and blue collar sectors.

If you reduce sickness funds into different types, there are seven kinds of sickness funds. One is responsible for agricultural people, which is smaller, as well as one that is responsible for the mine workers. It is also small. We have 400 individual sickness funds and 400 individual contribution rates, but these contribution rates are based on the same benefits.

These sickness funds must provide for the insured people. The benefits are the same. Therefore, the contribution rates of the sickness funds are very close together. However, we do have a spread, of course, and we have competition between the sickness funds because insured people who have access to the sickness funds can choose their sickness fund. For instance, a white collar worker can be insured in a company sickness fund if the sickness fund is open to the public, or a worker can be insured in a white collar sickness fund. Therefore, the sickness funds compete to insure people.

Approximately 90 per cent of the population is insured in one of these federal health care system funds and 10 per cent of the population has private coverage. Workers must contribute to the public sickness funds up to an income that at the moment is about 6,500 Deutschmarks per month. We have an income ceiling for contributions to the sickness fund and this income ceiling is also the ceiling to determine which people must contribute to the sickness fund. If workers earn more than 6,500 Deutschmarks they can choose to go outside the system or whether they will have any insurance. Most people, of course, choose private insurance. Also, people who are part of the ministry staff have coverage from the private sector and there is a special system in the civil service sector.

The sickness funds provide coverage for about 90 per cent of the population within the health care system. People receive a very widespread catalogue of benefits. To make it simple, everyone who is ill can get healthy, with all the benefits available from the insurance system, without the need for additional insurance. The system gives people everything they need if they are ill. We have only a small number of co-payment arrangements, which are not high and are added to by a helping social system. Those who do not earn enough money, of course, will be exempt from this co-payment system.

People in Germany get all the kinds of benefits that are expected of a system. This means hospital treatment, outpatient treatment, drugs and high-tech medicine, if, for instance, one requires transplantation. All these benefits are covered by the federal health care system. We spend a large amount of money on the system. At the moment, approximately 260 billion Deutschmarks are funded by the sickness funds through the contributions. Like all other sickness fund systems in the western world, we have problems dealing with medical progress and problems we will have in future with democratic development.

Let me make a few remarks on the supply system. As I said, the system works free from the government. The supply side is primarily organized privately. These are all private bodies. The individual out-patient doctor works on his own bill. Pharmacologists work on their own bills. Hospitals, however, are run either by local communities or by the state. For instance, university hospitals are run by the state. Germany has 36 medical schools which are university hospitals run by the state.

About one-third of hospital capacity is run by the state. A little more than one-third of hospital capacity is run by social welfare institutions like the Red Cross or the Catholic or Protestant churches. Then we have a quota of private hospitals which are run by private companies. This last sector is growing and is expected to continue to grow in the future.

All these bodies that supply health care to people who have benefits are linked to the social security funds by contracts under the federal law framework. For instance, there are contracts between panal doctors and sickness funds on the federal level and on the state level.

In the way our hospitals are financed, we can use the contracts to make cost containments. The budget of an individual hospital must be negotiated between the sickness funds and the individual hospital, and that budget is allowed to grow annually only at the same rate as the national wage growth. With such rules, we try to strengthen the system by federal law, but all the primary decisions on how the framework funding will be used are negotiated between the sickness funds and, for the most part, the suppliers' association.

We call this system a "self-administrative system" or a "self-government system." The federal law only sets the framework. We can further discuss our system and our past successes in the context of your questions because the issues are often related to instruments of cost containment, budget, quality assurance and so on.

Dr. Margot Faelker, Deputy-Director, Section Financial Issues of Statutory Health Insurance, German Health Ministry: Mr. Baum has given the main points on the framework and how the system functions. It will be useful now to discuss your questions.

The Chairman: I understand how the sickness funds work, but what is the role of private insurance? Why would people buy private insurance if they can contribute to the sickness fund through their employer? What is the role of the private insurance sector in this area?

Mr. Baum: In the context of the European countries and Germany, private insurance has an important role because it offers whole coverage. Since 10 per cent of the population is in the private system, people compare it with other European countries. A private insurance contract allows you to choose the benefits you want insured. Most people who earn more than 6,500 Deutchmarks are voluntarily in the private system. They can buy an insurance package which is comparable with those in the federal health care system.

Dr. Faelker: Within the statutory health insurance, 90 per cent of the population is insured. The private health insurance system covers only 10 per cent of the population. As Mr. Baum explained to you when giving the framework, people can decide to enter the private system when their income reaches the threshold limit of 6,500 German marks.

If you want to evaluate the relevance of the private health insurance, you must take into account that most people are insured in the statutory health insurance system. There are differences in the coverage of benefits. If you choose private health insurance, you have to decide on a certain catalogue of benefits. When you are a member of the statutory health insurance, you have a comprehensive benefit package which every health insurance fund offers.

The Chairman: Why would an individual prefer the private system to the sickness fund system? What would motivate someone with a high income to go into the private system?

Mr. Baum: It is an individual decision. The contribution rate for the private insurance system is calculated on individual risk. Most university graduates in academic jobs reach the high-income level within a few years of graduation. Because the contribution rate is calculated on individual risk, the private insurance system offers these young people a very good price at the start, compared to the contribution rate which they must pay in the federal health care system. If your earnings are at the ceiling, of course, you must pay the highest contribution rates. For the young, it is an economic decision. Not all young people leave the federal health care system though, because they know that it can be very difficult to get back in.

Because the contribution rate in the private insurance system is calculated on individual risk, only the individual risk is insured. In the federal health care system the risk of the whole family is insured. In families where one of the partners stays at home to mind the children, each child is insured without additional contribution to the health care system. Thus, couples must calculate for more than one, two or ten years because they both must follow a lifelong decision. There are good reasons to stay in the federal health care system.

The Chairman: Is it not a decision that a person could make at the age of 25 and then easily change at the age of 50?

Mr. Baum: It was easily changed in the past, but we closed the holes in the legislation. Under certain conditions, a person may re-qualify for the federal health care system. However, it is not so easy to do.

The Chairman: I have one last question on the private health care system. As I understand it, physicians are paid more for performing the same procedure if the individual is privately insured than if insured under a sickness fund. Is that true? If that is true, does it follow that in the private system an individual automatically receives preferential treatment - speed and quality of service - because the physician wants to make more money?

Mr. Baum: I would say that the medicine is the same under private insurance and the social security system. The prices paid for the medicine are different. For people under the private care system there is a special fee-for-service guide set out by the ministry. We are responsible for setting these fees at the federal health care system. In the federal health care system the fees are negotiated between the sickness funds and the doctors associations. The price difference is 100 per cent; if the doctor treats a patient under the private system, he receives double the income that he would receive under the federal health care system.

We oversee the system, so privately-insured people will not receive better medicine. The private system will be required to conform to the federal system. Some may feel more comfortable in the private system, but when the kinds of treatment - especially high-tech medicine - are examined, there really is no difference in the treatment received. An ill patient need not be privately insured to become healthy again. That is not necessary.

Senator Graham: Mr. Baum, in your opening remarks, if I heard you correctly, you said that the system was financed without taxes and that it was controlled by law, but not run by the government. Is that correct?

Mr. Baum: That is correct.

Senator Graham: Your system is financed without taxes and it is controlled by law, but not actually run by the government. If that is the case, how are the sickness funds accountable to government? Are the sickness funds accountable to the federal government, to the lander or to both?

Mr. Baum: We have two kinds of sickness funds in this context. One is the local sickness funds - most of the company sickness funds. They are under the supervision of the state government - the state, "lander". Those sickness funds that are at the federal level are the former white collar sickness funds. We call them nation-wide sickness funds. These sickness funds fall under the supervision of an agency of the federal government.

On the one side, there is the lander supervision system and, on the other side, there is the federal supervision system. Those two systems control the sickness funds; they control their households. If they plan to increase the contribution rate, they have to ask for it. That decision is accompanied by the supervision system. If insured people do not feel comfortable with benefit decisions, they can appeal to these institutions. In this way they are controlled.

Senator Graham: Are the sickness funds permitted to incur debts or to keep profits?

Mr. Baum: These are non-profit organizations. Only the private insurance works on a profit basis.

Senator Graham: Are they permitted to incur debts?

Mr. Baum: Yes, but there is a debt limitation. They can incur debt if there is the prospect that revenues will increase over the course of the year. We have exceptions for that which we introduced as we integrated the eastern part of the country. However, the law says that every sickness fund must maintain a minimum balance of one and one-half months' income in reserve. If they fail to do that, action will be taken.

For a short time, they can have debt, but if that debt continues over the year, then contribution rates must be increased. That is an interesting question because, as I mentioned, there is competition between the sickness funds. Some sickness funds try not to increase their contribution rate, but they go into debt. That then causes the supervision system to take action.

Senator Graham: If the sickness fund earns a profit, would it be retained against the possibility of future debts?

Dr. Faelker: The health funds have the right and the necessity to maintain reserves, as Mr. Baum told you. Within their financing plans, they are required to show to the authorities that control the health funds what the time frame required to spend those profits will be. If the profits exceed one year, then the contribution rates must be lowered. It is an issue of the calculation, the financial plans of the insurance funds and the supervision by the authorities.

Senator Graham: That is interesting. My other question relates to administrative costs. What proportion or what percentage of total health care spending in Germany is devoted to administrative costs, and how does this proportion compare to other European health care systems?

Dr. Faelker: The proportion of administrative costs in the system of the statutory health insurance is very low. It is approximately 5.6 per cent of all spending on health insurance. This proportion has been constant through many years. In international comparison, the administrative costs of the system are very low. To give you a comparison, similar costs in the private health insurance are about at 12.5 per cent of the whole spending of the private health insurance.

Senator Morin: Thank you very much for your presentation.

I would like to address the matter of the costs of the health care system in Germany. The costs are higher in Germany than they are in other countries and higher than in Canada. Have they increased in the last two years, as they have increased here in North America? Do you think these costs are too high?

Also, I would like to follow up on the question of Senator Graham. Canada and many other countries have a single payer, while in Germany there are more than multiple payers. The number is in the hundreds, if not more. Does having multiple payers increase the administrative costs? For us, 5 per cent is a bit high compared to the private system. Administrative costs of the Canadian system are lower than 5 per cent. I do not have the figure at the tip of my fingers, but it is around 2 per cent. Does having multiple payers in Germany increase the total costs, or are there other factors that explain why there are higher costs for health care in Germany than in other European countries, Canada or Australia?

Dr. Faelker: It has to be noted that the benefit package that is covered by the statutory health insurance is quite comprehensive. In comparison to other countries, it is a larger. Within the package there are many inpatient and outpatient treatments. As Mr. Baum already stated, even high-tech medicine is financed and covered. Dentures, drugs, remedies, medical aids, transportation costs and even sickness payments are all covered. We have a large system of rehabilitation and spa facilities. Not many countries have such a system and that is one reason why the system is so expensive.

On the other side of the coin, we know that there are inefficiencies in the system. The senator is correct in assuming that the multiple payer system partially contributes to such inefficiencies. However, on the whole, I think that it is the large benefit package that is responsible for the high costs. To make the system more efficient, an advisory council will identify areas of over-use, under-use and misuse of treatments. We expect the report of the advisory council at the end of the year.

Mr. Baum: Let me address the multiple payer system of which you spoke. The sickness funds do not receive contribution money directly from individually-insured people. That is only the exception. In the mass field, the employer finances both parts. It is a payroll tax which is directly brought from the company to the sickness funds. There are no direct financial relations between insured people concerning the contribution to the sickness funds, but only people who are not in the employment system, people who are not in the pension system - and this is the majority in the system - have a direct financial relationship with the sickness fund. This is important in the system.

Dr. Rudolf Vollmer, Director-General, Head of Directorate Long-Term Nursing Care Insurance: I apologize for being late, but we had a delegation from the OECD from Paris.

We have to avoid the impression that the contribution is not paid by the workers. It is deducted by the employer. It is important to note that half is deducted from the wages of the employee. It is a pay-as-you-go system. The current expenditure is paid for by current contributions. Although we have multiple health insurance funds, they all apply the same law, which means that they cannot really have competition as far as services are concerned.

Senator Morin: When I was referring to the cost of health care, I was referring to total cost, both public and private.

I would like to move to the private-for-profit hospitals. I understand that in Germany, at the present time, one hospital in five is operated for profit. Are these hospitals owned by companies? Must they, by law, be German companies or could they be European companies, such as French or British? Are some of them owned by doctors? What types of procedures are performed in these private hospitals? Do they perform cardiac surgery or cancer treatment, or are there relatively minor procedures carried out in those hospitals?

Mr. Baum: It does not matter whether I speak of private hospitals, public hospitals, or welfare-carried hospitals, all the hospitals, which have the right to provide treatment to people and that are insured in the statutory health care system, work on the same basis. It does not matter whether it is privately or publicly-run, if the hospital is one of the 2,250 hospitals that are introduced in one of the lander hospital plans, because we have a lander-wide hospital planning system, it has a contract with the sickness fund.

Perhaps only 50 to 100 hospitals in Germany work on a private basis where people from the statutory health care system cannot be treated. However, hospitals in Germany are eager to get contracts for people in the social security system. In our system, a privately-carried hospital means the same thing as public hospital. They all have the different programs. Parts of the university are carried by private people. We have big private hospitals in high-tech medicine for cancer. There is no difference in this program.

You have to differentiate between the kind of private program which has no access to the social security system. However, those are in the minority and it makes no sense to speak much about them because they play no great role in our system. It does not depend on whether it is an American company or a German company. Capital companies that have stocks are owners of hospitals. International companies on the medicare market have access to the German hospital market now.

Senator Morin: Is there a problem in Germany with the waiting time for diagnostic or surgical procedures? How important is that, or does that exist?

Mr. Baum: It is not a public discussion. For major surgeries, hip surgeries, cardiologic surgeries, or cancer diagnostics, for example, we have no discussion about waiting lists in the country. There is the possibility that people prefer to go to a specific hospital in a region. If it is an elective surgery, someone might say, for example, he or she will have a hip in eight weeks, but this is due to preferences for a specific hospital. In general, we will not have an emergency case situation in the whole country for any kind of surgery that people have. For a time we had a discussion about specific cardiology surgeries, but then the lander organized a system to monitor free capacity and the problem was solved.

The Chairman: Why have you not had a waiting line problem? Other countries with which we have had discussion have experimented with various ways of dealing with the waiting line problem. Our data shows you have significantly more physicians per 1,000 of population than most countries, and you have probably double the number of acute care beds that most countries have. Is that the reason? Is it that fundamentally you just have such a large supply? If that is the reason, I am surprised that you are able to financially sustain that amount of supply because it is the cost of supply that has curtailed the supply in many other western countries.

Mr. Baum: Yes, it is. We are speaking from a general over-capacity program in the German health care system, especially in the hospital field. If you examine the ratio of beds to population, we are at the top, compared with the United States or many other countries. The Austrians have a similar rate to ours. This capacity is expensive and we are trying to reduce it.

We have too many outpatient doctors. Therefore, in 1993 we introduced a planning system for outpatient doctors. Unless there is a demand for a specific kind of doctor, for example, a family doctor or an eye doctor, within a county where there is a special ratio between the population and doctors, then it is not possible for a new doctor to enter the outpatient system. We tried to solve the problem of an oversupplied system.

At this point we believe that we have a total cost containment reversal. In hospitals, for instance, we are now introducing a Diagnostic Related System, DRG, in which there will be a built-in process to reach the capacity we need. We have a longer length of stay in the hospital, 10.4 days on average, in comparison with the systems in North America or in France. In France, they have close to half of that.

The Chairman: What did you call that system?

Mr. Baum: It is called the DRG system, Diagnostic Related Group, for financing the hospital treatment.

The Chairman: What have your attempts to curtail the entrance of new physicians into the market done to your enrolment in medical schools? Are you simply producing doctors for other countries in Europe?

Mr. Baum: This is one of our greatest political problems. The federal government is interested in reducing the current number of about 10,000 or 11,000 doctors graduating every year from our medical schools. We do not need 11,000 doctors every year in Europe. There are different political levels. Universities are run by the lander and these are run by the ministry of culture and education. We are working on the side of the health care people. If you try to make a shortage for a university, you are working in its field and it is very difficult to mandate the universities by federal law to reduce their capacity because every leader of a university defines himself by the science he has. It is a very difficult discussion we are having in the country.

Dr. Faelker: With our reform act of 1992, we introduced an age limit of 68 years for doctors in outpatient care. In the year 2000, for the first time, the number of outpatient doctors who left the system was higher than the number of doctors who entered it. In the long term we hope to reduce the oversupply of outpatient doctors.

Senator Callbeck: Certainly your health care system is very broad indeed; it covers a lot of services.

You mentioned user fees. What about nursing care at home? I assume that is covered under the sickness funds, but is there a user fee?

Mr. Baum: We have two sectors of nursing at home. They are part of the nursing services that are financed by sickness funds. Those are the services one needs to prevent a hospital stay or to leave the hospital earlier. I would call that the short-term nursing system.

People who have a long-term demand are the responsibility of my colleague, Dr. Vollmer.

Dr. Vollmer: As part of the health care insurance system, we cover professional home care according to care levels. Certain limits are in place. We pay home care according to 20 defined service complexes. For example, a person who needs help in getting ready in the morning, help in getting up and being dressed, et cetera, would be one kind of service complex. The amount of money paid is according to three care levels. At level one, we pay about 750 marks, which is about $250 at present. At care level two, we pay 1800 marks, which is about U.S. $900. At care level three, 2,800 marks per month can be used for home care services. Care is provided in the fields of nutrition, mobility, personal hygiene and household help.

Senator Callbeck: What about nursing homes? Who pays for someone to live in a nursing home?

Dr. Vollmer: I would have to explain to you the care system. We introduced care insurance in 1994 and it is fully effective now.

In nursing home care, the care insurance again pays according to different levels. We pay between 2,000 marks at care level one, 2,500 marks in care level two and 2,800 marks in care level three. If you divide the number of marks by half, you will have the equivalent sum in U.S. dollars.

Of course, those amounts do not suffice to pay for institutional care, which is extremely high - up to 10,000 marks per month. The average cost is around 7,000 or 8,000 marks. The individual must pay the differential. If he or she cannot pay, then supplementary social benefits are available. In institutions, about 35 per cent of people are dependent, according to a means test, on social welfare or supplementary benefits.

Senator Robertson: To continue with Senator Callbeck's line of questioning, where is most of your primary care delivered - in the hospital, in the community, in the home or in the workplace?

Dr. Faelker: Most primary care is delivered by outpatient physicians - by family doctors or general practitioners and specialists. A German specialty is that we have specialists in the outpatient area and in the hospitals. If a patient needs a specialist, he or she need not go to a hospital, as is the case in many other national health services.

Senator Robertson: If I understand you correctly, your primary care patients are not admitted to the structural hospital?

Dr. Faelker: These patients need not be admitted to hospital unless their disease is very severe. We have a rule that everything that can be treated on an outpatient basis should be treated on an outpatient basis. We have facilities in the outpatient area and in the hospital sector. Patients are only admitted to the hospital if necessary.

Mr. Baum: The hospitals, by law, are not allowed to give general treatment or diagnostic treatment which is possible in the outpatient system. People must have a prescription for a stay in a hospital. That is the rule. Of course, in the case of emergency, a patient can go directly to the hospital and be helped.

The outpatient system is very sophisticated with specialists and 100,000 doctors who organize outpatient treatment. Our budget shows that one-third of total spending, $260 billion Deutschmarks, is spent for hospital stays and $40 billion Deutschmarks are fees for the outpatient doctors. About 40 billion Deutschmarks are spent on drugs and other services which are bought outside. The outpatient system is a very dominant system in our country.

Senator Robertson: What percentage of the German population is comprised of senior citizens? Do you consider a senior to be 65 years of age or over?

While Dr. Faelker is looking that up, I will ask another question. You mentioned in the beginning that your health system is part of the social security system of Germany. Is there a point where the health system integrates with other social security services or payments?

Mr. Baum: It is not a question of linking the services. It is more a question of the principle of how people in the country are protected in old age, in the pension system, in the unemployment system, in the long-term nursing system and in the health care system. We have four divisions of social security. The common sense of these systems is that the financing works on a solidarity basis. A person who has a high income makes a high contribution to the system. That person receives the same benefits as those who have low incomes. We define them as part of the social security system by the way in which we finance the system, which is solidarity financing. That is why they are integrated into the social security system.

Senator Robertson: You mentioned that the health benefits for long-term care for a senior citizen, perhaps in a nursing home, are not crossed or confused with other social benefits. Does each one always stand alone?

Dr. Vollmer: Care really means long-term, non-medical care; you have to be either ill or handicapped. Long-term care provided in a nursing home is basically non-medical care, apart from the nursing care that is ordered by a doctor. Of course, if the resident falls ill in a long-term nursing home, they will receive treatment by doctors, possibly in a hospital. That is an example of a combination of both systems.

In that case, of course, the health insurance will pay. If a patient requires hospitalization, a consultation, a family doctor, or medication, that will be covered by the health insurance.

Senator Robertson: Did you ascertain the percentage of the population who are seniors?

Dr. Vollmer: We currently have about 19.1 million people over the age of 60. That will rise, by the year 2010, to 21 million, which is about 26 per cent of the population. Between 2010 and 2030, the number of people in this age group will rise by another 6.7 million to 27.2 million. Over the same period of time, the total population will decrease from 84 million to 77 million inhabitants. As a result, by 2030, every third person living in Germany - 35 per cent, to be exact - will be over the age of 60.

Senator Robertson: Examining the senior population is a factor for us, because in Canada, it is a problem to try to find appropriate care for our senior citizens that does not break the bank. Most of them have major health problems by the time they require a nursing home.

In respect of your "split system" of that block of senior citizens, what percentage is accommodated in nursing homes? What percentage is accommodated in the home because of the financial support in the home, which we do not have?

Dr. Vollmer: We have about 1.9 million senior citizens in the long-term care system. However, you must understand that we have an artificial definition that is governed by the contribution rate of 1.7 per cent. If you compare us with England, you will find that it has about 5 million people who are regarded as dependent. We have a narrow definition. From those 1.9 million people, about 500 live in a nursing home and 1.3 million are cared for at home, either by family or by professional nursing care. Women constitute 70 per cent of the people in need of care, and 70 per cent of the caregivers are women, which demonstrates a problem.

The other problem we have is that we have just come out with a bill in respect of dementia care. In nursing homes, about 70 per cent of the residents have some kind of cognitive impairment. Of those, 70 per cent have Alzheimer's and 20 per cent suffer from vascular dementia. In home care, cognitive impairment is about 50 per cent. Of the 1.9 million people in care, we have about 1 million who are demented. That is a huge problem, as you can imagine.

Currently, Japan, Italy and Germany have the oldest people in the world. The older we get, the more we will be afflicted with the problems of dementia. That is a result that is stressing home care. The average entry age into institutional care is approaching 85 years. The average length of stay for a man in a care home is about 13 months.

Senator LeBreton: I will ask about the sickness fund again because I am seeking clarification. I believe that the sickness funds set their own contribution rates? Is that correct?

Mr. Baum: Yes.

Senator LeBreton: That being the case, is there any control over these rates exercised by the lander? Is there a great difference between one sickness fund and another? If the rates are higher in some than others, how do you avoid people jumping from one fund to another to pay a lower rate?

Mr. Baum: That does happen. People can choose their sickness funds, in consideration of their contribution rates. They do that. The contribution rate, on average, is 13.5, which has been stable for four years. We are proud to have succeeded in stabilizing the contribution rate for four years. The difference between the sickness funds is that the least costly sickness fund is at a rate of about 11.5, and the most expensive sickness fund is at a rate of about 14.9.

There is a spread in the rates, but the sickness funds have their own contribution on the one side, and on the other side there is the financial equalizing system that underlies the sickness funds. That means that if there is a financially stable sickness fund, it is required to relinquish funds to assist the sickness funds that are not as stable and have bad loans because they have a lower-income clientele.

We have an equalizing financial distribution system between the sickness funds. With this instrument, we are able to balance the contributions so they are more equal. At the moment, we are making additional efforts to create a more sophisticated money distribution system between the sickness funds.

We have four factors. They are income, which is one aspect of money distribution; sex: male or female; the number of people insured by one contribution payer - we have the family system, and age. Those are the four relevant factors for one sickness fund to pay into another sickness fund.

Of course, you can well imagine that one of the major factors defining the spending of the sickness funds means that the morbidity rate must also be considered. At the moment, we are changing the legislation to introduce an additional factor, or to bring a new important factor into the account - the morbidity rate. Thus, sickness funds that consist of many people with a high morbidity indicator will receive more money from other sickness funds that have a reduced morbidity factor.

Senator LeBreton: Is the distribution system that you just described directly controlled by the lander?

Mr. Baum: Yes, of course. As we said, the contribution rate, which the individual sickness fund sets, is controlled by the lander, if the sickness fund is organized on the lander level. As I explained, for those sickness funds that are organized on a national level, their contribution behaviour is controlled on the state level. However, the financial distributing system is organized on the national level.

Senator LeBreton: Are people who are covered by the sickness funds allowed to buy additional insurance from private insurance companies?

Mr. Baum: Yes, of course. No one is forbidden to make a private insurance contract.

Senator LeBreton: Would one take private insurance to get increased services over what is provided by the sickness funds?

Mr. Baum: In the field of prosthetic supply, dental prosthetics have a relatively high co-payment where people pay 50 per cent of dental prosthetics from their own pockets. In this field, there is additional private insurance which covers that.

Dr. Faelker: There is also additional private insurance in hospitals. But this is primarily for better hotel accommodation. People buy the right to be treated by the chief of the hospital. There are some people who like alternative medicine and additional private insurance can also be bought for those treatments.

Senator LeBreton: With regard to people who are covered only by private insurance, do they have a choice of hospitals, whether they go to a publicly-funded or private hospital?

Mr. Baum: Yes.

Senator LeBreton: Are there situations where people jump the line or perhaps they are covered by a private insurer with a wider range of services? Someone said doctors are paid more on the private side, so do they jump the line over people who are covered only by sickness funds?

Mr. Baum: Yes. First, it could be said that people who are organized in the private system have more freedom of choice. I told you that hospitals are only allowed to perform inpatient treatments. If you are in the private plan, you can go, without a doctor's recommendation, to the hospital for outpatient treatment. The hospital can be used like an outpatient doctor. As stated by my colleague, people have more comfortable rooms. If you are in a private plan, the rule is that you stay in a one-bed or two-bed hospital room. Most hospitals are being organized to be more modern, so it is underway that the two-bed room will be standard in the whole system and then there will not be great additional advantage.

There are more possibilities to choose from, but it is not that a higher quality of medicine must be chosen. If you need a hip, it does not matter whether you are in the social security system or in a private system. The same medical product is used for both kinds of insured people. The quality of medicine is not divided between the private and social security system.

It is the comfort, perhaps a better standard, a better position that you may have. But as there is overcapacity, it is not necessary to have a special position in the system to get treatment or to get a diagnosis. There are only very small differences. You could discuss it as an advantage, but it is not an advantage as you compare it with the whole medical possibility.

Senator LeBreton: So is there not the problem of people who are covered privately jumping the line?

Mr. Baum: There has been no discussion in the country that people outside the social security system feel discriminated against in comparison to people in the private system. There has been no media discussion on this issue.

The Chairman: Before turning to Senator Keon, I was curious about your response to Senator LeBreton in the way you described the sickness funds operations. Effectively, if the sickness fund has a difficult sample of the population, you will underlie that with an element of redistribution from one sickness fund to another. That prompts me to ask why you have more than one sickness fund. It seems that what you are doing is attempting to equalize differences and therefore would the system not be simpler to either have one national fund, or, at the very worst, only one fund per lander?

Dr. Faelker: We have the philosophy that competition between the sickness funds leads to better care and better services for the patients than one sickness fund could provide. If there is no competition at all between the sickness funds, there is no incentive to give very good service to the patient. That is the reason there is a large number of sickness funds. The other side of the coin is that sickness funds should get an incentive for effective contracting with the health care providers and not for risk-skimming on patients. With the equalization schemes we introduced into the system, we want to make sure that sickness funds compete for good service and good contracting and not compete for good risks. Therefore, we need these equalization mechanisms. It works very well because as a result of the introduction of these risk equalization mechanisms, contribution rates got closer together.

The Chairman: Right. I understand the point you are making. It just seems to me that in the end, if the rates are essentially identical, I am not sure that the benefits that normally go with competition are still there. That was my point.

Dr. Vollmer: It has to be noted that this system has historical reasons. When health insurance was introduced in 1883 by Bismarck, it was not started from scratch but was built on the institutions which existed at the time. The local health insurance funds have existed for 500 to 800 years in German history, as have the funds for craftsmen and for miners. That is one of the reasons why we have so many different health insurance funds which all apply the same law. It is extremely difficult to get rid of all the institutions which have proved their case over the century. When I started in health 20 years ago, we still had approximately 1,200 funds or more and now we are down to 600.

The Chairman: We can understand the difficulty of changing institutions that began in 1967. With that history, trying to change institutions that began 300 or 400 years ago is an even more difficult problem.

Senator Keon: I want to pursue further what Dr. Faelker was attempting to address, the efficiency in your system. I am always amazed when I visit your country at what you are able to deliver compared to us and the United States, for example. It is true you spend about 1 per cent more of your GDP than we do, but you spend about 3.5 per cent less than the Americans, yet you are way out in front in a number of areas. For example, at the Heart Institute Berlin, the last time I was there, about 30 patients were on artificial heart and assist devices, which is about half the patients of the entire world on these devices. There is no question that the hospitals and rehabilitation centres that you have are the world's leaders.

You are able to achieve all this by spending only 10 per cent or 10.5 per cent of your GDP. It is my impression you must have tremendous efficiencies somewhere. None of us is really sure what our overheads are in Canada or America, but we kind of accept the fact that we live with about 30 per cent. You must be pulling out many more efficiencies between the actual funds going to care for the patients and the actual funds you have in the bank, in your various insurances and so forth.

Have you any idea what your overhead is? When you go right down through the system of paying your physicians, running your hospitals, running your rehab centres and clinics, have you any idea what your ballpark figure is?

Mr. Baum: We call the system we have a self-governed system. The directly involved bodies make contracts, and fee-for-service arrangements are made between these bodies. In hospitals we have a financing system which causes both sides, the sickness funds on the one side, which are eager to provide their people with the maximum of medical technique, and on the other side, the rules on how we negotiate hospital budgets, the system of self-government, self-defining prices and rules. That is one part of the efficiency we have.

It is difficult, for instance, if we make a change in the fee-for-service catalogue for private doctors, to find the right price, but in the collective organized system of statutory sickness funds and associations of doctors, associations of the hospital, there is a higher possibility for a rational financing system and procedures and control systems. For instance, there is self-set control system for the panel doctors. The association of the panel doctors controls the private doctors. In addition, over these 14 years since 1987, we have been in a health care reform process where we introduced many new things such as in the drug sector. We introduced two planning instruments like those described for the panel doctors and the planning system for hospitals. We introduced budget cuts for hospitals. We introduced, some years ago, a drug budget. This means, if the panel doctors need more money than the budget allows at the state level, they have to finance the difference from their own income. We have such a system. We reduced, by law, the prices for drugs by 5 per cent for one year as a specific measure. We have to discuss our activities in health care reform and health care cost containment to explain part of this story.

Dr. Vollmer: If you do not consider the cost, just the efficiency, we have one advantage compared with the United States or Canada. Germany, with its 80 million people, is as large as Lake Ontario, which means, having produced more doctors over the years than the United States, we have immediate access to doctors in Germany. In a little place in a wine valley doctors are like sand at the sea. The question is not whether the doctor has time for you. The question is really whether you have time for the doctor. You can have immediate access to consultants and hospitals, et cetera. The immediate access and free choice of consultants or family doctors and hospitals makes part of the efficiency. I do not know how long we can afford to finance it, but that is one of the natural conditions we have in our country.

Dr. Faelker: In different areas, the different providers in parts of the benefit package do not work together enough. We have the problem that sometimes diagnostic measures are taken two or three times. If you first go to the general practitioner, for example, he makes a diagnosis. If he admits you to the hospital, it can happen that the hospital repeats the diagnostic measure. There are many points where integration between inpatient and outpatient care and long-term care and rehabilitation must be improved.

Mr. Baum: This is the sector in which we have a chance to improve in the future. I think your question was about why the system is so efficient in providing people with all this medicine, and these are the resources we need to be successful in the future. This is part of the future of health care reform. We have started discussions for the next step of health care reform. We have general federal elections next year in the autumn, and we will be in a health care reform draft discussion, or, at the latest, one year later. Then we will start reforming health care to bring all these sectors together and to make an integrated supply, as we call it, to bring the outpatient doctors, the outpatient system and the hospital system together in the sense of a common medicine. The reform will also solve limitations we have in the different systems, to enhance aspects of quality insurance in the medical system, and to collect resources we will have in these fields.

Senator Keon: This is a fascinating discussion, particularly the point that Dr. Vollmer just made. If you consider both ends of your system, you have more doctors than any other country. Therefore, patients can get into the system more rapidly, I suspect, than any other place in the world.

You expended enormous resources on your rehabilitation program, and they are coming out of the other end quickly and going back to work. It is curious that here, a few years ago, we reduced the number of doctors because we thought we could curtail the cost of health care. Maybe we are doing it backwards.

I would like to ask about your social code book because there is tremendous interest in America now about the Patients' Bill of Rights. I spent last week at a conference there. Have you considered the drafts and the preliminary information coming out of that to compare it with your social code book?

Mr. Baum: We also have patients' right discussions, but not in the fundamental and severe sense you have it in North America. If we discuss patients' rights, we are discussing a better introduction of the individual patient into the process of treatment. That means more transparency in the system for the patient or more information for the patient. Our system works on the basis of service in kind. People do not know what comprises the fees for the doctors' service because the doctor is financed directly by the associations of doctors and they are financed by the sickness funds. People do not know what their medicine costs are. They do not know what a day in hospital costs. When we discuss patients' rights, we discuss patient information and patient participation to ultimately create more transparent and efficient treatment.

In this field, at the moment, we are organizing a political process, for when there is an accident in a hospital, such as a patient being given the wrong medicine or a mistake in surgery, particularly for the civil rights of the patient. These are not so transparent in our system. It sometimes takes two or three or four years for people to get their rights because they must go into the civil court system.

In this bill we are discussing reforms, but not in the sense of the American managed care system where insurers are defining good medicine for people. This is one advantage of our system. The sickness funds do not define which medicine is good for people. It is a progressive system. If progress is made in a particular treatment, no sickness fund would prevent the insured from access to this progress. There is a great difference in the discussion of patient rights.

Dr. Vollmer: In this country, as in America and Canada, we are concerned with patients' rights. More important, though, in the field of care, I am convinced that after about five or ten years time, even earlier, we might have a cut-off of rights and freedoms of patients to care. At present, the care insurance has completely changed the mentality of the people. As long as they were independent on the system, they did not dare to complain. Now, since they have benefits in their own right, they are asking, "What do I get for my money?" We are discovering that we have a quality problem which we are just detecting by a major care quality act. They are asking, "What do we get as consumers? How will I be treated in an old patient's home?"

It is a completely different situation. If you are ill or injured, it may not seem so important because, if you go to a hospital, you are normally out in 10 days and your doctors will achieve that if they have to fight the devil or death. In long term care, that is not the case. The only way to get out after a short stay is with your feet in front of you. Therefore, it is very important to know your rights and the kind of treatment you get. We are discovering that in our case, like in other countries, in long term care people are still objects of care and not subjects of care. This will completely change - partly due to influence from England and the Scandinavian countries.

It is worthwhile to read the charters of rights of dependent people. On the health side, we have an organization that is trying to promote the rights and freedoms of patients, particularly of people dependent on long term care.

Senator Cordy: Thank you for taking the time to appear before us this morning.

Those of us sitting around the table are envious of the fact that you have too many doctors in your system. You have mentioned that, in itself, can cause problems. I wonder whether you also have too many other health care professionals or health care providers in your country. In the past, were deliberate measures taken by your country to ensure that people who entered the health care profession would remain? In Canada, we have large numbers of people leaving the health care profession, either leaving the country to go to the U.S. or leaving the health care profession for other careers.

Mr. Baum: In Germany there is a big exchange, especially in the field of nurses. In some areas we will have a shortage of nursing staff. For instance, in Munich or the big cities, we already have problems. One day, one of the factors that will cause us to lessen the capacities we have in some fields will be that there are not enough nurses in the country. It may be a more severe problem in the future.

Beyond the doctor system, if we consider pharmacists, we have 20,000 outpatient pharmacists. In German cities, you will find more working pharmacists than you will jobs for supplying food. In most fields, apart from the nursing field, we will have also this overcapacity situation in the future.

Dr. Vollmer: In the field of care, we have a problem. I think you referred to the burn-out effect. It is chic to work in an operating theatre because you can achieve some kind of success. If you are in an old age nursing home, it is pretty terrible for nurses to look after people who they watch getting worse and worse from day to day. We have a very high fluctuation of nurses, which means we have the wrong kind of personnel management principle. You cannot have nurses working all the time with the same patients or working at the front. We need new management so we can centralize the nurses and send them in from the organizations which run the long term places to avoid the burn-out effect.

We have a shortage, and I could almost say we are a developing country in the question of geriatric psychiatric nursing. That applies to other European countries as well. We have a real shortage, and the few people we produce, for instance in Schleswig-Holstein in the north of Germany, are immediately hired by Scandinavian countries. In the field of geriatric psychiatric nursing in nursing homes, we have a serious problem at present. That applies to the quantity of nurses and, in particular, to the quality.

Senator Cordy: In Canada, the public gets irate, to say the least, as soon as we bring up the topic of user charges. What is the reaction of the German people to user charges? Does a user charge cause a reduction in the usage of health services? A fee can be a positive thing if it means people do not use the service when they should not. Can patients be denied service if they are unable to pay the user charge?

Dr. Faelker: In Germany, users are not charged for attending a panel doctor, for example. Charges for a hospital stay are only 25 German marks per day for a maximum of a fortnight.

Other types of services require a co-payment with the amount depending on the kind of service. For example, we request different co-payments for drugs, for remedies or medical aids, dentures or for transportation.

People under a certain level of income fall under the hardship clause and need not pay the co-payment. Children and people who live on social welfare do not pay any co-payments in our system. In international comparisons, Germany has the lowest rate of co-payments.

Mr. Baum: There are user fees only in the field of dental procedures. In most other health systems, dental prosthetics are not included. There we have a high co-payment of approximately 50 per cent. As we introduced it, in addition to a specific kind of direct payment, there was a deep decline in the use of dental prosthetics from one year to the next, of more than 20 per cent.

In the field of drugs, the lowest co-payment is 8 Deutschmarks per unit; the highest possible co-payment is 11 Deutschmarks per unit.

You asked if anyone is prevented from receiving a service because of co-payment requirements. A hospital will admit a patient who cannot pay the co-payment because the co-payment, in the end, is paid to the sickness fund and not to the hospital. If a patient cannot pay when admitted to the hospital, the hospital will tell the patient to clear it up with the sickness fund directly. No one is prevented from receiving services because of inability to finance the co-payments.

The Chairman: Thank you for your testimony. You have been very helpful.

Welcome to our next witnesses. Thank you for taking the time to be with us today.

I would like to have the witnesses identify themselves. I have the list but I cannot tell who is who. As I understand it, you would like to give us a brief overview of the British system and then we will turn to honourable senators to ask questions.

Professor Julian LeGrand, Richard Titmuss Professor of Social Policy, London School of Economics: I cannot give a full overview of the British system, but I will tell you where my areas of expertise lie, such as they are.

During the 1990s, the previous government introduced an internal quasi-market system into the British system which divided purchasers and providers and set up a number of different kinds of purchasers, including primary care practices and district health authorities, and, at the same time, let hospitals go, and hospitals became kind of semi-independent agencies that contracted with the purchasers. I did quite a lot of research on the relative success or failure of that system and I will be happy to talk about it.

The second area in which I have a strong interest is that the new government has set up a regulatory agency called the Commission for Health Improvement, the task of which is to visit every National Health System institution - hospitals, health authorities, primary care groups - to monitor, in some senses, their activities. I am on the board of that commission and so have some expertise in that kind of regulatory area. Perhaps expertise is a little strong because it is not functioning to the full extent yet, but I can talk about that. On either of those areas I would be happy to answer any questions of the committee.

The Chairman: Thank you. Mr. Smee.

Mr. Clive Smee, Chief Economic Adviser, Department of Health, Economic and Operational Research Division of the United Kingdom: I have been the Chief Economic Advisor in the Department of Health and its predecessor, the Department of Health and Social Security, since 1984. I suppose my major contribution is, I can take a long-term perspective of the changes over the last 17 years. I am not sure that I can claim any particular area as one in which I have unique knowledge relative to my colleagues, because my responsibilities and those of my staff extend to advising on the whole of the department's responsibilities and I must put my efforts where ministers want a particular push or change.

However, I have always been very interested in international comparisons. I had the privilege of working in the Canadian federal Department of Health and Welfare for six months in 1979 and I visited Canada in 1996 - when we were preparing for an expected change in the government here from Conservative to Labour - to help identify areas where we were, as we would say, "off the pace" relative to you, the United States, Australia and New Zealand. Some of the ideas I brought back from that visit have now borne fruit here. For example, an area I have always been particularly concerned about and interested in is how to make a system like ours more patient-responsive. You had in those days regular surveys of patient views on the health care system and since then we have introduced national patient experience surveys. Performance indicators and the use of performance measures for performance management is another area in which I have a particular interest and as an economist I was also heavily involved, like Mr. LeGrand, in the establishment of the internal market here and in trying - not always successfully - to get it evaluated.

The Chairman: Professor Ham, do you have any opening comments?

Mr. Chris Ham, Director, Health Services Management Centre, University of Birmingham: I am a health service researcher from the University of Birmingham. I have recently decamped into government where I have been working on secondment for the last year or so. My interests are in trends in health care reform in different countries, making comparisons to determine what lessons can be learned. My specific interest is in health care rationing, or priority setting, defining the benefits package and making decisions about coverage.

I will make a few observations, partly formed in the week I recently spent in Vancouver learning about developments in health policy in British Columbia and by having visited Canada on three or four prior occasions. I would say that the U.K. and Canada share many of the same objectives in health policy - to deliver universal services which are comprehensive and accessible - and share many of the same problems in achieving those objectives. I was struck by the similarities between our two systems. Overcrowded, overpressured emergency rooms in hospitals, lengthening waiting lists and waiting times for non-urgent treatments, increasing shortages of key groups of staff like doctors and nurses and increasing professional criticism of the performance of services and declining public confidence. It seems to me that many of the issues are similar between our two jurisdictions.

One of the big differences is that traditionally Canada spends a lot more, as a share of national income, on health care. The current figure is over 9 per cent of GDP, whereas in the U.K. we have always been parsimonious at less than 7 per cent of GDP still. One of the conclusions that reinforces this point, from a U.K. perspective, is that we probably must spend more money on health care, but more investment alone will not solve the problems which are common to both countries. You have the same problems, despite your high levels of expenditure. We need to reform our two systems to get better performance and increased efficiency.

I wish to comment now on the briefing given to us about the U.K. experience. The headline points that are important is that the U.K. has been very good at cost containment in health care. To provide universal and more or less comprehensive services for less than 7 per cent of GDP is a bargain buy. It is value for money, if you compare the performance of different countries. We have achieved that for two reasons. The first is very strict government control, a single payer system with one tap through which resources flow into health care, a tap which treasury keeps a strong hand on and regulates expenditure on health care. The second main reason is, we have a strong primary care system in the U.K. - one of the interesting points of contrast between Canada and this country - with general practitioners acting as gatekeepers, with patient registration, with rostering and with a system that is now very well established.

Another reason that we have good cost containment is that government has controlled wage rates and salaries for all key groups of staff in the U.K. That traditionally has been seen as a strength because of the bargaining power of government. Now perhaps it is seen as both strength and weakness because of the difficulty of attracting key groups of staff in the competitive labour market and the greater attractions for some staff to work in other sectors where the rewards may be higher and the flexibilities greater.

In the U.K., the emphasis is now on increasing expenditure, more investment to overcome some of the problems of cost containment, more money which will buy a few more acute care hospital beds, reversing the decline that we have experienced over many years to give us more slack and more capacity and more money to increase staffing numbers. We are trying to recruit internationally as well as to do better in this country to retain and recruit our own staff, more money to modernize equipment and hospital buildings.

The big question that is being raised internally within the Department of Health and externally is, will this be sufficient? We have a national health service that is also a nationalized health service, government owned and run hospitals, a major role for government at all levels in regulating how the system is run. We are trying to achieve these changes not by going back to the internal market model because the internal market, to a large extent, is now dead and buried, even though there are still some remnants of it around. Competition and choice have been rejected by the Blair government and it is attempting to achieve improvements in performance through government control and intervention, setting national standards for performance, using organizations like the Commission for Health Improvement to inspect and visit hospitals, driving up change through a number of new mechanisms like the moderization agency for the health service, which is there to identify and spread good practice and to overcome some of the variations in performance.

The last thing I would say, by way of introduction, is that my reading of the international evidence is that Canada and the U.K. are not alone in experiencing a perceived crisis of performance and being subject to increasing public concern and media criticism.

In the evidence from the Commonwealth Fund on its recent studies of professional attitudes toward the performance of health care, it is reporting broadly similar findings in a variety of different countries such as Australia and New Zealand, as well as Canada and the U.K. The problems of health policy are pretty intractable and, at worse, insoluble. The issue is the least bad solution rather than most perfect.

The Chairman: On that encouraging note, you will understand why we are here doing what we are doing.

Before turning to my colleagues I will ask the question of Professor Ham, but I invite all to chime it. I understand that the internal market is, in Professor Ham's words, "dead and buried." Was that purely for political ideological reasons, in which case we do not need to pursue it, or was there some evidence that the internal market structure was not working anyway?

Mr. Ham: Some people would say it was never properly tried and tested. I suspect that might be the view of Mr. LeGrand when we bring him into the conversation. Of course, when you get two or three academics, you get four or five different opinions, so we are in for a lively session.

The Chairman: I should tell you that we have two doctors, so we can certainly match you in a multitude of opinions.

Mr. Ham: I would say "internal market" was always a bit of a misnomer in our case. I would say, it was a managed market and it turned out to be a heavily politically-managed market. It was introduced by Margaret Thatcher, who had a certain belief in the value of competition and choice in health care as in other sectors. When it was implemented, John Major became Prime Minister and there was a change of health minister at the same time. It might be argued that they did not have the courage of their predecessors' convictions. They did not actually implement the internal market as it was intended from the beginning, so in practice I would say there was not ever a great deal of competition between hospitals and other health care providers and to that extent the so-called internal market experiment was never tested in the way that was intended at the outset.

Mr. LeGrand: I would agree with that. Many of us who supported the idea of the internal market were disappointed with the consequences. It neither really failed, nor did it really succeed. There were no massive changes of the kind that some of us had hoped to see and some of us had feared. There were two reasons for that. One was because the consensus was too weak and the constraints were too strong. There were not any dramatic incentives. Hospitals rarely did well, but if they did do well, any surplus they made would be taken away in the following year. If they failed on the whole, they were bailed out by the government. The actual incentive for a hospital to perform well at both ends was blunted.

At the same time, as Professor Ham said, there was a fairly dramatic degree of central government control which found it fairly difficult to let go of the health care market, as it would have had to do for health care to have worked properly. Therefore, the incentive was too weak and the constraints were too strong.

There might have been a mistake in terms of the fundamental degree of motivation. For a market to work properly, the individuals concerned must be motivated to respond to market signals. They must be motivated, in the crudest sense, to make a profit. In many cases, the key agents in the market were doctors and hospital specialists, whose motivations are not necessarily either to make a massive profit for themselves or for the institutions for which they work. Motivations might be patient welfare or professional status. There could be a whole variety of different motivations, but not necessarily ones that are suitable for the kind of market arrangements that were set up. That is another reason why, at the end of the day, the internal market was not perhaps the success that people had expected.

Mr. Smee: There is nothing that I have heard so far that I would strongly disagree with, but one should remember there are important legacies from the period known as the internal market and I would identify three. First, we continue to separate the purchasing, or what is now called commissioning role, from the provider role. One of the critiques of the National Health Service, NHS, before the so-called internal market was introduced was that the same bodies' health authorities were meant to be commissioning, or purchasing, services on behalf of the 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.

This government has continued with the idea that to have a body, or bodies, acting primarily, or solely, as the agent for the consumer in the health system is a system that we want to maintain. We have a strong distinction between the people who receive the money - the health authorities now and, increasingly in the future, the primary care groups or trusts in the future - and the providers proper, particularly the secondary care providers - the hospitals - and they are not under the same direct management. That idea has survived.

The second idea that survived came out of the internal market more by chance than by design. Probably the best agents for the public in terms of commissioning or purchasing services are primary care groups of some kind. We had the GP or general practitioner fund-holders set up in the original model, and they became the commissioners of choice, usurping that role from the health authorities. The current government built on that and said that it recognized that GPs and the primary care team more generally appear to be, on balance, the most effective agents that it could identify in the health care system, in terms of commissioning services for the bulk of the population of the country. Therefore, it would put them together into primary care groups that will evolve into primary care trusts. There is a continuity between the current status and the internal market.

The third area is that, when we decided that we had to commission services, we had to start pricing services properly. We had to start asking questions about quality as well as costs. This government has been able to build on much of the work set up under the internal market in terms of improving performance information and performance measures. Before the internal market, because we were not purchasing, commissioning, or contracting for services to any large extent, we had far less information on costs and, increasingly, on outcomes. In the internal market, at least in theory, when trying to drive costs down, you rapidly realize you need information on quality to ensure that you are not simply cutting costs all the time and the quality is going out the window. There is a kind of continuity in improving the information we have for measuring what is happening in the health care systems and in using those measures to promote improvement across the piece.

Senator Graham: Senator Kirby made reference to the fact that we have the luxury of having two distinguished people from the medical profession with us on the committee: Senator Morin, who is the former Dean of Medicine of one of our great universities and Senator Keon, who is Canada's most famous heart specialist.

In reviewing the material for this meeting, I came across an interesting statistic: in England and Wales in 1986, the figure that was given for the number of coronary bypass graphs performed there was 929. Six years later, in 1992, the figure had grown to 6,463. I do not know whether that is due to declining health or growing expertise. Perhaps you would like to comment on that.

While I am on that point, are your university medical students encouraged or directed to enrol or study a particular discipline or specialty to ensure that there are sufficient doctors in all specialized fields?

Mr. Ham: What you are giving is a particular example of the general issue of the system that has very strictly contained costs in the past. One way in which that has been expressed is relative under-provision and under-investment in services like coronary artery bypass grafting.

If you examine the comparative figures in all years, for North America, France and Germany, the U.K. tends to do fewer of these procedures in relation to the population than are done elsewhere. In the last three or four years, government has said that we actually perform too few of those operations. Thus, the investment now being made is directed at developing services in the fields of cancer, coronary heart disease and mental health to bring levels of provision and intervention more in line with what you would expect to find elsewhere.

It is the supply side constraints that explain the difference you are pointing to, rather than any major variations in demand among that population group.

Senator Graham: Could you tell us how much emphasis is placed on preventive health care programs?

Mr. Ham: There is a lot of work being done to give priority to preventive health care programs. At the moment, they take a number of forms. I mentioned the differences between our two systems in primary care during my opening remarks. One of the main strengths of our primary care system is that there are patients who register with a family physician or use a group of family physicians. Therefore, there is a continuity of relationships between patients and doctors that you do not find in other systems.

The group of family physicians have continuing responsibility for a given population, usually responsible for a whole family, and as part of that they will give priority to vaccinations and immunizations among the children in the practice population. They will also have responsibility for certain screening programs, for example, for cervical cancer screening. They will, in various other ways, give advice on giving up smoking, adopting healthy life styles, nutrition, diet and so on. Primary care is an important focus for us in relation to prevention.

At a national level, there are population health targets that both this government and the previous Conservative government have set for improving the health of the population. Typically, this focuses on the major causes of mortality and morbidity such as cancers, stroke, heart disease, suicides and mental health. The government establishes targets, 10 to 15 years hence, for how it wants to see population health improve in relation to each of those areas. Those targets are then translated at the local level into each health authority having responsibility for its population and agreeing on local programs of prevention and health promotion, often working in partnership with local government.

Mr. Smee: On the point about medical schools, there is a system for agreeing with the Royal Colleges, our major professional association, on the number of training posts beyond the undergraduate level. If we thought there would be a need for more gynaecologists in five or ten or fifteen years, there could be agreement with the Royal Colleges that there should be more registrar or senior house officer posts in those specialties. I think one would have to say the process has not worked terribly well, given that the same specialties have been marked by scarcities in terms of waiting times for many years.

Mr. LeGrand: One could say more about the prevention issue as well. The potential, when you have a purchaser-provider split, of focusing more on prevention is clearly there and there were one or two interesting examples or stories. One health authority deliberately decided to spend its money on putting in what we call in Britain "sleeping policemen" - you might call them speed bumps - in a local public housing estate, the idea being to bring down the number of accidents.

The Chairman: Do you have any further comments on Senator Graham's question?

Mr. LeGrand: I was telling a story about a purchaser-provider split and prevention. The point was simply that, in theory at least, if you had a purchaser-provider split, the purchaser could spend money on prevention in a way that is much more difficult if the whole system is an integrated one. I must say in practice, other than the stories we heard, the acute hospital sector was still very good at gobbling up much of the money, as these types of centres usually do.

Senator LeBreton: I have a specific question for Professor LeGrand. You talked in your introductory remarks about a Commission for Health Improvement, and you talked about it monitoring activities. When was this established? What is its mandate? How broad a scope do you have? What powers do you have to affect change? It sounds like a tall order. It certainly would be if there were such an agency in Canada.

Mr. LeGrand: Those of us working in it feel the same way. It has a number of functions. One of its functions - my colleagues would kill me for this, because I am not using the jargon - is basically to monitor performance and quality and the procedures that have been set up within the system, particularly with an emphasis on clinical arrangements for performance and monitoring.

Another role is to undertake specific investigations that have been asked for by the secretary of state or, indeed, by others. We are open to requests from other parts of the health service to undertake specific investigations into specific indicators, or specific instances, I should say, or examples of system failure we have been asked to investigate.

Third, we have a general performance monitoring role. We are, in conjunction with other agencies of government, putting out a number of performance indicators that look at national performance of the system relative to certain national targets.

We have only been in operation for a year or so. We have undertaken a number of specific investigations during that time, cases of abuse of elderly patients, for instance, in one particular hospital trust, and the case of a surgeon making a mistake and taking out the wrong kidney in another hospital trust.

We have also begun a process of visiting. We have visited now 20 or 30 of the 500 NHS institutions that we are supposed to visit on a regular basis - once every four years for the ones that are doing all right and once every two years for those not doing well. We are supposed to produce a report on these institutions. That report is sent to the regional office. If there are recommendations for action in that report, the regional office of the National Health Service is supposed to follow up on those actions. As yet, it is early days to say whether that is the way it will work in practice, but that, at least, is the theory.

Senator LeBreton: How large a staff do you have working for this commission?

Mr. LeGrand: It is rising exponentially. At last count, it was in the order of 250. That is the staff of the home base. To undertake the reviews themselves, we call upon a wide range of reviewers. People are seconded, usually from the health service itself, and we include a doctor, a nurse, a medical manager and a lay person as reviewers. These people are seconded and trained by us and then undertake the review specifically for that purpose.

Senator LeBreton: The beneficiaries of this, of course, would be the public in terms of the knowledge and the profession in terms of performance. Do you get involved in legal implications? You talked about the gentleman with the wrong kidney removed.

Mr. LeGrand: We certainly do.

Senator LeBreton: How do you handle that?

Mr. LeGrand: As always in legal matters, with great difficulty.

In our first report, which was the case of abuse of elderly patients, we went through endless contortions trying to decide if we could name a particular individual who we thought bore a heavy responsibility for this particular abuse. We consulted a variety of government solicitors. We consulted the treasury solicitors, although I cannot remember why, and they gave advice that we could not name the individual concerned. My understanding was that the Department of Health was rather impatient with us and told us we ought to get another solicitor. We do tread that particular path with extreme care because, clearly, we can get into legal issues quickly.

Senator LeBreton: I have another question on the issue of private insurers. I read somewhere that in the U.K. more people were starting to turn to private insurers. I think the figure was growing. Does that then cause additional stress on the system if people have private insurance? I believe the U.K. has similar problems to Canada in terms of waits and line-ups. Is there a danger that people covered by private insurance can jump the line and get care to which the general public does not have access?

Mr. Smee: The history on the scale of private health insurance is that it rose rapidly in the 1980s, up until around 1989, if I remember correctly, when it reached 10 per cent of the population that had private insurance. It then stuck at that level all the way through the 1990s until 2000 when the most recent figures have shown again a significant increase. However, this increase of around 5 per cent, or in that order, is the first of significance in a decade.

The interesting aspect for us is why private insurance apparently remained static for the better part of a decade. We now think that around 12 per cent of the population is covered by private insurance. The distinction is made between those covered by their employer's schemes - and those who have been expanding - and those covered by personal private insurance that individuals buy directly themselves rather than obtaining as an employment perk. The company schemes have tended to be expanding over most of the period and have been offset for much of that period by a decline in private payments. The fastest growing part, in terms of private coverage at the moment, is out-of-pocket payments - people not using either private insurance or employer insurance, but simply paying for elective operations, when they need them, out of their own pockets.

In terms of jumping queues, yes it happens. One of the major reasons given by people who take private insurance is they want the peace of mind of being able to have elective operations for themselves or their families more quickly or at more convenient times than if they must depend on the National Health Service. That is seen, of course, as a cause of unfairness, which is one of the reasons that the government is committed to bringing down waiting times for National Health Service patients as rapidly as it can.

Senator LeBreton: You do not have any laws, then, that would intervene, so there is a potential for this activity to increase, particularly with the employee and employer plans. Why would people get into them unless they thought there was some real benefit? Is there any way that the government is expected to control the use of private insurance in the system?

Mr. Smee: The government believes that the NHS, if it is adequately funded and of adequate quality, will be able to remain the service of choice for the great majority of the population. Its aim is, I suppose, to make it the choice for more of the population. It hopes that the NHS plan, and the reforms following on from that, will lead to fewer people deciding they may need private health care insurance.

There are other reasons for getting private insurance. You can get faster treatments for certain things in some parts of the country. If you have private insurance you can get faster access to a specialist as an outpatient and then you get your operation done more quickly. The government is trying to narrow that gap and at the moment is making progress in that regard.

People may also take private insurance because they want to have a higher level of "hotel services" in the hospital. They may want not only their own room but their own television, and so on, or they may want a particular consultant. In private insurance you normally get access to a consultant, while in the National Health Service you may find, although your case may be under the overall supervision of a consultant, you may actually be operated on by a more junior member of staff. The government does not, at the moment, restrict access to private insurance and it does not see any reason to give incentives for people to obtain private insurance. It has withdrawn all obvious tax incentives or subsidies that encourage people to obtain private insurance.

Senator Morin: I would like to address my first question to Professor Ham, who has spent six months in Vancouver. Am I right in saying that?

Mr. Ham: I wish it had been six months. It was only a week.

Senator Morin: I see. You know the Canadian system, however, and you know there are similarities between the British and the Canadian systems. There are major differences as well. In its electoral platform, the Labour government has promised that it will increase spending by one-third, while we are fighting desperately to maintain costs. Do you have views on what Canada can learn from the NHS and its recent reforms after your visit to Vancouver?

Mr. Ham: As I indicated in my opening comments, I was struck by many of the similarities between our two systems. We have similar objectives, but also very similar problems. I am also conscious, in all the work I have done in examining how different countries pay for and provide health services, that the value of each system is so important in shaping what is possible to do and that ideas do not always transfer easily across international borders. What may work best in the U.K. system may not work very well elsewhere.

I would say that the strongest features of the National Health Service are the primary care foundations, upon which the rest of the system is based. If you consider the international evidence, the work of Barbara Starfield at Johns Hopkins University shows that countries that have stronger primary care tend to get better population health outcomes. They tend to get better value for money and they tend to have populations that are more satisfied with the performance of health services. Ms Starfield also demonstrates in her comparison that the U.K. probably comes out above all other countries in the strength of the primary care orientation in the health care system.

I would not want to give you the impression that we have everything right with our primary care arrangements, but with the principle of having patients register with a family physician and that physician being responsible for providing continuity of care, we do not have a system of doctor shopping in the U.K. We expect a family to return to the same group of doctors for its care. With the building up of that relationship over time, physicians have the ability to take responsibility for the whole of that population to give priority to preventive medicine and to give health advice. Those are all positive features, not just for the U.K. but for any health care system that is trying to improve performance.

A second feature, which is increasingly salient here, is that we are considering not just how the medical system can be developed and strengthened, but how the social and economic determinants of health can be acted upon to improve health.

Since the Blair government was first elected four years ago, we have seen a range of social policies tackling child poverty and inequality in society, which the previous government found difficult to recognize explicitly. There is more emphasis now on improving conditions outside the health care sector in the belief , which I think is well-founded if you look at the research evidence, that will, in the longer-term, improve population health. We look to Canada as the home of the Lalonde report in 1974, for inspiration going back some years in this respect. We have not got it right, but we are trying for a better balance between the health agenda and the medical agenda.

Senator Morin: Am I right in understanding that NHS is thinking of turning more to privately run hospitals?

Mr. Ham: Yes. The NHS has always made some use of privately run hospitals, but during the recent election campaign - this may be what you are referring to - the Blair government made a commitment to be pragmatic after the election as to whether private or public hospitals should be used to treat National Health Service patients. Those patients would be treated free at the point of use of those services, whether public or private. That is to try to bring down the waiting lists and waiting times, particularly for non-urgent medical treatments, and to help achieve the targets set by the government. That is quite a shift compared to, traditionally, how Labour governments have seen these issues. The Blair government claims to be new Labour, not old Labour, being much more pragmatic about where the care is provided, as long as it is free for the patients.

Senator Morin: What would be the effect of devolution or decentralization of health care delivery to Scotland and Wales? Would primary care fall under the responsibilities of these states?

Mr. Ham: Yes. There are differences between the four parts of the U.K. Scotland has the greatest measure of devolution. Scotland has elected a parliament that has some tax-raising powers. Neither the Welsh Assembly nor the Northern Island Assembly can raise taxation. They have limited legislative powers. In the last two years into the process of devolution, the most significant issue so far has been the funding of long-term care, by which I mean usually non-medical care for older people, dependent people, who no longer need to be looked after by the National Health Service, who no longer need medical support. The proposal in Scotland is that all aspects of long-term care should be fully funded by government. The proposal in England is that only some aspects of long-term care should be funded by government and the rest paid for directly by patients and their relatives. That is one indication of how devolution over time may result in four different versions of the National Health Service, even though we think of it as one model.

Mr. Smee: On the issue of devolution, it is worth bearing in mind that my department, which you are now talking about, the Department of Health, has always been responsible only for England. We have not had responsibility for the health care system of Scotland, Wales or Northern Ireland for the last 20 or 30 years, if not since the health service was established. There has always been some scope for Wales, Northern Ireland and Scotland to go their own way. Wales was earlier than we were in terms of setting health targets. Scotland was never so keen on the internal market as England was. Now, of course, because the Scottish have tax-raising powers, they can plan for larger divergence in the health care system by building on what has been there for many years.

Mr. LeGrand: I have two comments on the cost containment issue and the use of private hospitals. I have one point to make about relating those two. One reason Britain has been successful at cost containment is its ability to keep down the incomes of doctors and other medical professionals. The argument has been that is because many hospital specialists and nurses are paid on a salary basis, employed by the National Health Service and not by the employer, and we have been able to control the salaries of doctors and nurses. One of the effects of moving toward a system of relying more heavily on private hospitals may well be to break that kind of monopoly.

I am actually sitting on the commission recommending this move, or at least recommending some move in that direction. It is fairly clear that it is quite possible that if hospital staff move to actually being employed by the private sector or working more on a freelance basis, we might see an upward pressure on costs as a consequence of such a move, which is one argument often made against this particular idea. I think those on the commission feel it should have beneficial effects on the other ways.

Senator Morin: Was the report of that commission published? Is it available?

Mr. LeGrand: It is due to be published on June 25.

Senator Morin: We would appreciate receiving a copy, if possible.

Mr. LeGrand: We will try to arrange for that to happen.

Senator Keon: Thank you very much, gentlemen, for taking the time to be with us.

I want to cover two areas. One is the impact of your health research policy and expenditure, which you are to be very much commended on, and the other is the health industry that has emerged in Great Britain partly because Heathrow is a bit like the centre of the universe.

First, I will address the effect of your health research organization policy and expenditure. Investment in basic research is difficult to measure, and things that fall out through the bottom of the funnel will, on occasion, have enormous impact. In your investment in outcomes research, population health research, in cost containment research and so forth, you are probably the world leaders in this area. Are you getting measurable results from this now, for example, in the way you manage patients with prostate cancer, or are you not quite far enough down the road to use this information effectively? Could you address that?

Mr. Ham: The United Kingdom has a long tradition of health service research, outcomes research, going back to investments in randomized control trials, establishment of the Cochrane Centre, indeed Cochrane's work itself. I think you are right in making that observation. Over the last 10, 15, 20 years, we have been developing a strong health economic capacity in a number of different centres based in universities around the U.K. to bring the economic evaluation perspective much closer to the clinical outcome analysis. There is a network of researchers in different parts of the country now that is working very much on the agenda you have described. That has been very much facilitated by a national commitment, both Conservative and Labour, so that there is a cross-party commitment to putting funding into research and development in support of the National Health Service.

Researchers such as Mr. LeGrand and I have been beneficiaries of that. Therefore, we have to declare an interest and that we think it is a good thing. However, that research is not being translated into action as much as we would like at this stage. That is a one of the global challenges with which we are struggling. .

There is a lot that we now know about cost and outcomes. Getting clinicians to act on the evidence is a more difficult challenge and we are struggling with that as much as other countries.

Mr. LeGrand: It might be worth mentioning the National Institute for Clinical Excellence, NICE, in this context. Its terms of reference are to try to transmit some of this evidence to the service and, indeed, to have it implemented. One of the tasks of the Commission for Health Improvement is to check on whether the practitioners are actually using the guidelines that have been promulgated by NICE to try to promote good practice in this area.

Mr. Smee: The difference between now and five years ago is not so much the growth in the scale of our research or, indeed, of the subject matter, although that is changing, but that we now have institutional mechanisms, as Mr. Ham and Mr. LeGrand indicated, for using that research to impact directly on policies.

The National Institute of Clinical Excellence is one example and that is meant to set the standards that the Commission for Health Improvement monitors and raises questions about. We have a series of initiatives, called National Service Frameworks, covering the basic major disease areas. These initiatives set standards of care linked to objectives for improving clinical health outcomes 10 years or so in the future.

For example, a National Service Framework for coronary heart disease starts from objectives about reducing mortality rates from coronary heart disease by 2010. In a sense, it works back from that date: What do we have to do to improve the quality and availability of care, and what scale of coronary artery bypass grafting should we be contemplating or moving towards? In that way, we can provide world class quality of care for patients with coronary problems in order to hit these improved targets for health outcomes.

That whole program is meant to be evidence-based. Therefore, it drew heavily on research and on drawing together the areas from research programs, because, of course, we identified a whole series of new issues on which we would need more research to ensure the success of these programs. I understand that is the big change.

We now have these institutional, policy-related, central-to-policy mechanisms that tie in the research in a much closer way than ever before. It was rather like spreading bread on water: you never knew what would sink and what would float. Now, we are making sure that the bread is focused much more - I think my metaphor will fail here - on the boats or certainly something that will float.

Senator Keon: That was a clear answer.

Let me shift to something that has always fascinated me, which is the health care industry that has existed in Britain for some time. It is quite different from any other country in the world. America has a large private sector health care industry, which is sustained internally, by Americans, largely. The UK's health care industry has been sustained, to a large degree, by people outside Britain, particularly from the Middle East, Africa and parts of Europe that are not as well developed.

I have always wondered if the fact that you have been able to hold your expenditure on health down below 7 per cent of the GDP was in some way related to this. There is no question that some of your outstanding specialists and some of your outstanding specialty hospitals are sustained by this industry, in my opinion.

Mr. Ham: You have stumped us all with that one. It is not often that we are at a loss for words, as you can tell. There was a time when there was an influx, to answer one of your specific points, of patients from other countries to the U.K., particularly from the Middle East. That has really stopped over the last few years because countries like Saudi Arabia have built up their own infrastructure and expertise. They are treating more patients closer to home, rather than sending them to the U.K. I do not think that is a significant factor.

It is also fair to say that U.K. governments, over the history of the health service, have been reluctant to pay for National Health Service patients who go overseas for treatment. Although it is interesting for us, in the European context, that our much richer German neighbours, who have a well-funded and quite efficient health care system with surplus capacity, are now trying to market that surplus capacity to the U.K. to help us reduce our waiting times and achieve our targets. Within the European context there is more portability and perhaps a little more competition, but the government is not encouraging that. It is trying to deal with the problems of the U.K. within the U.K.

Mr. LeGrand: Some people believe that the private sector, in general, or the fact that National Health Service specialists can bolster their incomes in the private sector is an important part of keeping morale high - higher than it otherwise would be in the health service.

It is interesting - and I would be interested in my colleagues' reaction to this - that the government has actually proposed banning hospital specialists from practising privately for seven years after they are promoted to the specialist grade. This has aroused enormous hostility among junior doctors who have not yet been promoted. Even junior doctors are not likely to benefit greatly from this because not all specialities engage in private practice. I must say that I have been surprised at the degree of hostility that it has promoted. It does seem to relate to this more fundamental point that, if you run a system that is essentially salaried, where the top consultants are salaried, having a private system alongside is a sort of safety valve or device for keeping morale up and keeping the specialists happy, which the purely public system would not.

Mr. Smee: If you are interested, senator, we could try to provide facts on what proportion of private health care expenditure derives from foreign visitors to this country. I agree entirely with Professor Ham that the proportion is small. It was larger, but it has been declining, as Mr. Ham implied, for some years.

If it is of interest, I would be surprised if it were more than 10 per cent, or in that order. It may be more important in one or two specialized hospitals that have worldwide reputations for cancer care or for children's services. However, across the health care system as a whole, it is a tiny factor.

When the senator mentioned that we had a successful health care industry, I thought that he would refer to our pharmaceutical industry. That is what we normally refer to as our "Health Care Industry."

The Chairman: I thought I heard Professor Ham make an observation a minute ago about waiting line targets. Do you have, Sweden for example, explicit waiting line targets?

Mr. Ham: Yes, we do.

The Chairman: Are there targets for different procedures? What is the penalty to the institutions for failing to meet the targets? Alternatively, what other options for the patient open up if the targets are not met, or is it essentially a no-penalty system?

Mr. Ham: At this point, we scrub lunch and set aside more time - to answer your simple question which has an amazingly complex answer. Shall I give you the headlines?

The Chairman: We are politicians, so we are quite happy to just read the headlines.

Mr. Ham: We have moved recently from targets expressed as a reduction in waiting list numbers. That was the target which the Blair government set in 1997. The last four years have been spent demonstrating that government can deliver - and can deliver a reduction in the numbers on waiting lists. That was a target to reduce the numbers by 100,000. You must understand that the overall number on the waiting list at any one time is over 1 million, so it was slightly less than a 10 per cent reduction of the number of people on waiting lists. That has been achieved and the government has now put its hand up and said, "We have made a mistake, we should not have set the target as a waiting list reduction, it should be a waiting time reduction." That is what we are now focusing on.

There are targets for the maximum - and that is how it is established - such as the maximum time to wait for an inpatient elective procedure, the maximum time to wait for an outpatient specialist consultation, and yes, there is discrimination depending on the procedure involved. Much more challenging targets have been set in relation to some forms of cancer treatment, which is seen as a high priority, to get quick diagnosis for cancer or potential cancers than for other treatments.

Targets have also been set in the NHS plan for maximum waiting times to see a general practitioner in primary care. The target there is that no patient should have to wait longer than 48 hours to see a general practitioner. Some currently wait a lot less than that, some wait a lot longer, but that is the target for the health service as a whole.

The Chairman: Let us suppose the target for something is three weeks. If at the end of three weeks a patient has not received service, do I then have the right to go somewhere else and the NHS or someone will pay for it? Or is it, "That is too bad, we tried to help you within the time limit, but we cannot?" I am trying to understand where the penalties are in the system.

Mr. Ham: I have to say that three weeks would be a very short waiting time for most of our patients.

The Chairman: I understand that. Let us make it three months.

Mr. Ham: Within our system at the moment, patients have very few rights in those circumstances. The only right that is now being established is if a patient has a date for an operation and that operation is cancelled on the day of the operation, then it has to be rearranged within 28 days or the patient can go anywhere at the expense of the hospital or the health authority.

The Chairman: I would like to return to the three-month topic. I am trying to understand how to induce behavioural change in the health care systems of every country if there are not either clear rewards or clear penalties, or both, for failing to meet targets.

Mr. Ham: The incentives are not so much on the patient side, they are on the hospital side. If a hospital does not hit its targets, it will be penalized by those up the management line by budget reductions, or no budget additions. That is the sort of discipline that is built into the system.

Mr. LeGrand: I sat on a hospital board and it was very interesting watching the reactions of the hospital getting the targets set and also during the year when it looked as though we would not meet those targets. Anxiety levels rose dramatically, particularly those of the chief executive. The implication was that the chief executive or the chair of the hospital board might well lose their jobs if they systematically and consistently failed to meet their waiting list targets. I suspect that failing to meet them once would not result in that, but if there was a consistent pattern of failing to meet the targets, it would be regarded as a serious management failure and the jobs of some of the key people involved would be on the line.

Senator Pépin: I would like to discuss the problem of nurse shortages. In Canada we have a shortage of nurses and we heard that other countries, such as Germany, are facing the same difficulty. I was wondering if you have a shortage of nurses and what is the cause? We know that here nurses are overworked and are suffering from burnout. Also, the work environment is deteriorating. I wonder if you are facing the same difficulty?

It was mentioned earlier that nurses may be going to work in the private sector and you control the salaries of doctors and nurses. So if they switch to the private sector, will they have an increase of salary and will the work environment be better? What is the situation and how do you see it?

Mr. Smee: We do have a shortage of nurses, particularly given the ambition of the NHS plan. We have a very large potential shortage for several reasons. As was the case with some other countries, in the 1990s, we reduced the training of nurses. There were two reasons. One was that numbers of hospital beds were falling rapidly, lengths of stay for acute care were falling and people tended to assume that those trends would continue and concluded that we would need fewer nurses. Another factor was that with the internal market, the planning of nurse training was decentralized and everybody tended to look at his or her own particular patch and forget what was going on in the wider field. In a sense, the Department of Health moved out of nurse planning, did not keep its eye on the ball, and the ball, in a sense, got away. For those two reasons at least, the numbers in training fell quite sharply and we saw some fall in the number of nurses in the total health care system.

We are now expecting to increase services very rapidly and a key constraint is the number of nurses, along with the number of doctors. The first thing the government is doing is recruiting more nurses from other countries, wherever it can find them.

Second, the government is increasing the number of training courses and providing various incentives to encourage more young people to go into those courses.

Third, the government is making nursing more attractive to the large number of ex-nurses who have left the profession for one reason or another or who may be interested in moving from part-time to full-time work. The issue is not just salaries and pay, although that is one part; there are also the issues of working conditions, flexibility of hours and those things.

We are trying to work on all these fronts at the same time. These shortages of nurses and doctors are seen as the critical constraints on the government's ambitions for the NHS. How do we push the numbers up rapidly along with the right skills?

Senator Pépin: It seems governments everywhere ask the same question. I have a question on a different subject, and that is palliative care.

Do your medical students and nurses receive special training for palliative care? Are palliative services offered in special hospitals or at home? How is it working?

Mr. Ham: I do not know what the training is for palliative care. In our system, hospices play a big role in palliative and end-of-life care. Hospices here are not usually a formal part of the health service. They are usually run by voluntary, community, not- for-profit organizations, although much of their funding may come from the National Health Service. The trend at the moment is a shift away from institutional hospice care into home care and to support people who wish to live out their final days comfortably in the home and in the family environment.

Mr. LeGrand: There are also some experiments called "hospital at home" where a large part of treatment, not just terminal care, is taking place. Other forms of care, including post-operative care, can be undertaken in the home rather than in the hospital.

These experiments have been evaluated and I understand they are very popular with patients, not surprisingly. They are not very popular with families, perhaps not surprisingly. These programs cost a lot of money, but, on the whole, they are regarded as successful.

Senator Pépin: We are facing a similar difficulty. Our Senate studied palliative care and found that more and more people want to have those services at home. We found that the level of service and medication available differs depending on the region where a patient lives. We also discovered that only three universities provide training in palliative care to doctors. That is why I was wondered if you are facing the same problem.

Mr. Ham: The medication issue is different between our two systems because the cost of pharmaceuticals comes within our benefits package.

Mr. Smee: The issue of palliative care was raised by a French team visiting Britain about a year ago. I remember being surprised at how much material we had available in the department about which I knew nothing. May I suggest that we send you some material on our policies in this area?

The Chairman: Yes, thank you.

To return to the waiting line problem, you indicated a couple of times that the shortages of nurses and doctors is a big constraint on the system. You also seemed to indicate that it is possible, by setting maximum waiting line times and by putting pressure on institutional administrators, to shorten waiting lines successfully. That success suggests to me that, even though you clearly want more physicians and nurses, there are possible efficiency changes in the way institutions are run that can shorten waiting lines, even if the shortages of nurses and doctors continue. Is that right?

Mr. Smee: That is absolutely right.

Mr. LeGrand: It is certainly possible to have short-term improvements; indeed, that is what happened. To try to meet our waiting list targets on the hospital board, we contracted out a number of operations to the private sector. Our consultants came in on Saturdays and Sundays to reduce the list. We tried to recruit nurses from everywhere, even from South Africa against the wishes of Nelson Mandela.

Generally, there was an elaborate short-term operation to meet the targets. I am more pessimistic about our success in the long term. Many of the arrangements did not seem to be sustainable in the longer term.

Mr. Ham: One of my Birmingham colleagues, John Yates, is a researcher who has been working on waiting lists for longer than he cares to admit or remember. He has about six things that really matter in terms of improving performance in relation to waiting lists. The first is to validate the waiting list at regular intervals. In the U.K., about 20 per cent of patients on any waiting list no longer require the appointment or the operation because they had the procedure done elsewhere or for some other reason. That is an immediate 20 per cent improvement. Perhaps that could be one of your recommendations and you could become popular with that one.

Second, he suggests continuing the push to have elective operations done as day cases where appropriate. Our rates are now up to about 60 per cent to 70 per cent. There is no reason why it cannot go even higher than that.

Third, we will look at variations in surgical productivity. In any surgical speciality, big differences exist between surgeons in how many operations of a certain kind they are able to do with the time and resources available to them. We now have evidence on this.

When I was in Vancouver, I picked up a fascinating research study done by Charles Wright at Vancouver General Hospital, which examined patient satisfaction with elective surgery. As I recall the findings, cataract operations made up two-thirds of the overall operations in his study. Over one-quarter of the patients who had cataract surgery in Vancouver felt their sight was worse after the operation than before, so apart from considering productivity, we must ask the more fundamental questions as to whether these things are necessary in the first place. It is an effectiveness issue, not just an efficiency issue.

Senator Robertson: I am impressed with what you have said so far about the improvements you have made to primary care. Should you have any other literature on that, it would be helpful for the committee to have it.

May I ask you a direct question? Could each of you tell us what you perceive to be the largest, most worrisome problem that you have with your system? Could you advise us of the most successful improvements or change that you have had in your system?

Mr. LeGrand: The biggest problem - and I can see no easy of solving it in the short-term - is the sheer size of the organization.

We are trying to run, what some people argue is the largest organization in Western Europe, largely through a centrally-managed targeted system that relies on performance targets and managerial incentives. It may just be possible that we will succeed. With many of the improvements that we have just been talking about being put in place, it may work. However, as the economist said the other day, if targets and managerial incentives were the way to run a large organization the Soviet Union would now be the most efficient society in the world. This is a major issue that we have not yet succeeded in cracking. We may, but that is the problem that will confront us over the next few years.

What is the most successful innovation? I was a great supporter of the GP fund holding scheme, which is the idea that primary care practitioners hold a budget very close to secondary care. The successes of the GP fund holding scheme is the primary care group that is currently being implemented. It has its strengths and weaknesses, but I certainly would think that is the thing that I would regard as the greatest potential for trying to improve the system over the next few years.

Mr. Ham: Our biggest problem is in relation to the health service workforce. Health care is a people business. We serve people through people. If we do not have a sufficient number of well-trained doctors, nurses, porters, receptionists and clerks who feel valued, who feel motivated, who feel supported, who feel they have the resources needed to do the job they trained for, then patients will not get the quality of service that we expect and there will be declining public confidence and patient experience in the health care system. My point really is, we neglect our staff and our workforce at our peril. If we get that right, then many other things will follow. If we get it wrong, we will always be playing catch-up.

The best example of things we are doing in the U.K. is the much stronger emphasis on trying to do things differently, not just investing and doing more of the same. There is work being led by the new modernization agency for the health service, using support and advice from Don Berwick of the Institute for Healthcare Improvement in Boston. We are using some of the breakthrough techniques in working with doctors, nurses and clinical teams, helping them to redesign how care is delivered to patients. In the early work that is being carried out involving cancer services, trying to tackle problems of waiting lists and moving more towards booked hospital appointments, pioneers in the health service are achieving some impressive results. Doing things differently, for us, must be as much part of the equation as doing more of the same. The question mark I would add there is that it is all very well to do that early on with the pioneers, with additional money, but can you sustain that change over time and can you spread it to people who may not be as naturally enthusiastic to redesign and re-examine their care.

Mr. Smee: I would very much agree with Mr. Ham's statement that the health service workforce is probably the key constraint. If you would like a third key problem, I would say it is a tendency to set too many targets and objectives to be achieved at once, which is a joint product of pressure from the public, very high expectations and a willingness of political masters to meet those pressures. That would be very much second to the health service workforce issue that Mr. Ham has mentioned.

In terms of biggest improvements I would address a small one, but I think it actually suggests that in the National Health System you can move rapidly in an area that is probably quite important if you get things right. That is the launching and the universalism of the NHS Direct, which is the telephone nurse help line that is now available for everyone, 24 hours a day, in the whole of England, but which is not yet in all the adjacent countries. This system is being expanded, in a number of experiments, to being a booking system and it has a whole range of other add-ons. It has an Internet site. It will be linked into digital TV experiments which are already underway. In terms of improving access, this has made a substantial contribution already.

On the longer term and a more fundamental change, I would agree with the points of both Dr. LeGrand and Dr. Ham and I would add a third; that is, the willingness for the first time in NHS to actually set measurable standards in clinical care levels that we are determined to hit. It does not seem to me that you can have performance improvement unless you have performance measurement, and you cannot make much sense of performance measures until you have set standards. With national service frameworks, with the National Institute for Clinical Excellence and so on, we are, for the first time that I can remember, setting specific targets for clinical quality of care that we are determined to meet.

Senator Cook: I should like to thank the witnesses for a very informative session.

I would also like to follow through on a supplementary from Senator Kirby's dialogue with you, where you say day surgery has brought an efficiency into the system. What program or support system do you have for the client who returns home after day surgery?

Mr. Ham: Our National Health Service covers the full range of health and medical care: hospital services, doctor services and also primary care and community health services. That would include providing care in patients' own homes. Usually the care will be provided by the family doctor, by the GP with whom the patient is registered. In our system, that doctor - and I think this is different from most parts of Canada - will work as part of a primary health care team. The doctor will have available a number of nurses working with children or with older people and community nurses who will work in peoples' homes providing support. They may be able to access pieces of equipment or other support services that patients of families require. It is this full range, from home through primary care and intermediate care, that we also give high priority to now, as well as the hospital and specialist services. I will not say, again, that we always get that right, but we are getting better at trying to integrate the different components, from the patient's point of view.

Senator Cook: We have not talked about mental illness. How do you deliver that discipline within the system that we are talking about this morning? In my province, about 10 years ago, there was a concerted attempt to de-institutionalize mental health patients and integrate them into the community. How do you deal with that particular discipline in your country?

Mr. Smee: There is a slight passing of the buck going on at this end of the link that would suggest that possibly none of us feel tremendously well-informed on this. There has been a national service framework announced, which I referred to before, part of which is for mental health. There is a strategy now for mental health and there have been various government papers. It would probably be best for us to send those to you.

The major weakness here, and, as you imply, possibly in Canada and many other countries, is that we ran down the institutional support faster than we ran up domiciliary care in the community. We are now trying to address that imbalance as fast as we can, but it gets back to the same issues of human resources shortages and skill shortages that we referred to more generally. There are now specific programs of action. We are trying to ensure that when patients have been discharged from large institutional care, they receive much more support in the community.

Mr. Ham: To add a couple of points to that, in considering the statistics in the longer term, we have seen a major reduction in the number of hospital beds for people with mental illness, particularly beds in psychiatric hospitals - the former asylums, as we once called them. We still have beds in that kind of specialty facility, but the number is currently lower than it was 10 or 15 years ago.

We usually have an acute mental health facility that would be part of the local general hospital to integrate mental health services with physical health services. However, increasingly, as Mr. Smee indicated, the move has been toward community-based care, having teams of mental health specialists to provide services to people who are living at home, or who have just been discharged from a hospital environment.

Our mental health pressure groups will, I suspect, say many of the same things to which you have alluded. We have had a policy of community care, which too often has seemed to be a policy of community neglect. People have been discharged without the degree of support they need to live independently and effectively in a community setting. There has been some move back in the opposite direction.

Senator Graham: You have all been informative and eloquent.

My final question has to do with administrative costs. Could you please give us an idea of the proportion or the percentage of total health care spending in the U.K. that is devoted to administrative costs?

Mr. Ham: We sound like politicians when we answer this kind of question: It all depends.

Senator Graham: Let me give you an idea. We had representatives from Germany earlier, and I believe the figure they used was in the area of 5.6 per cent. In Canada, it is in the area of 2 to 3 per cent. In the United States, it is much higher. Could you give us an idea what the percentage is in the U.K.?

Mr. Ham: Ours is in the low end of the range. I would say that ours is around 5 per cent, or less. The reason for the hesitation is that it does depend on what you count and how you count it, particularly if you have doctors or nurses who are taking on management roles in hospitals and primary care. Would you add that to your administrative cost total, or would you consider that as being clinical time? The general picture in the U.K. is that we are well below the U.S. figure of 20 per cent, which is often quoted. We are much closer to the European figures that you mentioned.

Mr. Smee: This is an issue that we have been asked about by our ministers on many occasions, to my certain knowledge, over the last 20 years. I am afraid the truthful answer is that there are no good international comparisons of administrative costs. There is no agreement across countries as to what should be called "administrative" or "management" costs. The OECD has tried to do this. They actually published tables that showed these figures, but one has only to cast one's eye down at them to know that they are a load of nonsense. There are no good international studies. There have been one or two small-scale studies that compared the U.S. and Canada, which were done by Himmelstein and Woolhandler, that showed that Canadian costs, by any set of definitions, are much lower than those of the U.S.

We tried to do a comparison of hospital administrative costs directly, drawing on some detailed work in the U.S., about four or five years ago. Depending on one's definitions, we came out with considerably lower costs than the U.S. However, it was of the order then for hospitals to wonder whether you include information technology under administrative or clinical costs. If it were included as an administrative cost, then 20 per cent of the American hospital costs could be deemed administrative, and the U.K.'s were at about 12 per cent.

We have other figures from our National Audit Office and Audit Commission that give much lower figures - around the 5 per cent level.

Another more detailed study I can remember was done by the McKinsey's, the management consultants. Four years ago, they attempted to do a detailed study of costs and outcomes of the U.S., the U.K. and the German health care systems. I do not believe that Canada was in the comparison. The study examined three or four particular specialities. They concluded that the U.K. and the German costs were pretty even, but again, they made them much higher than the figures you quoted and the figures we would normally quote - about 12 per cent. The U.S. was in a different ball game with well over 20 per cent. There is a agreement that the European countries, in general, along with Canada, have lower administrative costs than the U.S. has. I doubt, if there is any agreement across Europe, as to which has the lowest administrative costs, because we have not managed to agree on our definitions.

Mr. Ham: As a supplementary, from my experience, the part of the budget that goes into administration increased when we were in the internal market experiment. That was to be expected because you needed to hire more people to negotiate contracts, monitor them and send out all the pieces of paper. There was a price to be paid for operating that system, compared with a non-market based system.

The other comment is a casual, empirical observation. On my visits to Canada, when I have had the opportunity to examine your health care system, it has felt very management light compared with the U.K. system. I provide that as a descriptive comment, because we may have too much management and regulation in our system, rather than Canada having too little. However, it was interesting to observe that.

The Chairman: I have a question about political will. I have been impressed with several things: your moves on accountability, your moves to set targets of various kinds, the focus on population health programs and the setting up of a pretty impressive institutional infrastructure to try to improve quality and efficiency. All of those things cost money on a budget that is already, by your standards, low. You indicated, in Professor Ham's opening comments, that there were a whole host of new areas where money needed to be spent.

How do you get political approval to spend money on the kinds of things that you talked about? All the political pressure, at least in Canada, is to spend money on items that are directly patient-related. In that way, we would be able to indicate to the public that, for example, we have opened 10 new MRI machines or a new radiation lab for cancer. Even though, in the long run, the kinds of things you talked about clearly would have a better long-term cost benefit, how do you get around dealing with the short-term problem to put some resources into the long-term problem?

Mr. Ham: We would understand and sympathize entirely with the imperatives that you describe. They are evidenced in our health care system too. The drive, alongside what we have been discussing, is to get more money into direct patient care. Our Prime Minister has talked at some length in the recent campaign about the need to modernize and improve all of our public services - public education, health, transport, et cetera. The phrase he has used is "front line first, " by which he means we need to put more money and more support directly into doctors, nurses, teachers, policemen on the beat and to empower them to bring about improvements in patient care.

However, the analysis is more general than that. If you abandon the internal market, because it is dead and buried, and you do not just revert to a centralized command and control health care system, something else needs to be put in place as the drivers for change and improvement because the system itself cannot be relied upon to deliver the targets that are you are trying to establish. That is why a whole new institutional architecture is being established: the commission for health improvement, a National Institute for Clinical Excellence, the duty of clinical governance at a local level. It is the answer to the exam question that asks if markets are rejected and centralized planning is rejected, then how will changes be brought about in this big complex public service?

The Chairman: Obviously there is political support for doing it. That is the piece that surprises me.

Mr. Ham: There is absolute political support. Our government has reached the point in its analysis where it is saying, given continuing media criticism of health care, given continuing professional concerns about the adequacy of funding and what doctors feel they can do with the resources available - I am not trying to be overly dramatic at this point - if we, as a government, do not get it right over the next three or four years, there may not be another chance to save the NHS model and to modernize it in a way that retains universal population commitments and a willingness to pay taxes to government to fund a health service that fails to deliver the services that people expect.

Mr. Smee: We, in the health department, tend to believe or act as if we are being treated in a particular way. The approach that we have been setting out here is the government's approach to many, if not all sectors of the public sector, for the setting of standards, for much more emphasis on accountability, and much more emphasis on performance measures and mechanisms for inspection. One might say "naming and shaming" would be the term of art. Those have been applied strongly to education and also to social services. Yesterday the new Home Secretary announced that the same approaches will be applied to the police force. This is a national, public-sector-wide philosophy and we have only been describing it for the health sector.

The Chairman: On behalf of all of our colleagues, I thank you for this useful and entertaining session. We would also like to thank Gail Tyerman of the Canadian High Commission for the time and effort to organize this.

We hope we can make progress toward dealing with our problems and if we do, we will let you know. As you said at the beginning, our joint problems are very similar.

The committee adjourned.