Proceedings of the Standing Senate Committee on
Social Affairs, Science and Technology
Issue 58 - Evidence
OTTAWA, Thursday, May 30, 2002
The Standing Senate Committee on Social Affairs, Science and Technology met this day at 11:02 a.m. to examine
the state of the health care system in Canada
Senator Marjory LeBreton (Deputy Chairman) in the Chair.
The Deputy Chairman: Honourable senators, our witnesses this morning are Dr. Brian Hutchison and Professor
Brian Ferguson. Welcome, gentlemen. Thank you for appearing before our committee on this very important phase of
our health care study.
Will you please proceed, Dr. Hutchinson?
Dr. Brian Hutchison, Director, Centre for Health Economics and Policy Analysis, McMaster University: Thank you
for the invitation, Madam Chair. Along with my brief, I have brought along a copy of a paper published in the journal
Health Affairs, which addresses in considerably more depth some of the issues in my brief and that I will be talking
about in my oral presentation.
Past efforts to strengthen primary care in Canada can best be described as a torrent of talk and a trickle of action.
The basic structure of primary care organization, funding and delivery, private, fee for service, solo and small-group
practice, remains intact, despite repeated calls for radical change. Innovations have been at the margins of primary care
rather than at its core. Many have been limited to small-scale pilot or demonstration projects and have not, so far at
least, been permanently incorporated into the health care system. Others that have achieved permanence have been
add-ons to the prevailing system of physician-centred fee-for-service primary care.
Progress in the development of primary care has been impeded by four major barriers to change. The first is
disregard for the policy environment, leading to futile efforts to achieve big bang reforms and missed opportunities for
cumulative incremental change. The second barrier is flawed processes for the development of primary care policy. The
third is a preoccupation with the policy objective of cost control at the expense of other socially valued health system
objectives. The fourth is a lack of public investment in primary care infrastructure. I will talk about each of these
barriers briefly in turn.
First, with regard to the policy environment, Canadian primary care has been, and continues to be, shaped and
constrained by critical policy legacies and by the interacting effects on policy decision making of institutions,
information and values. Among the most influential policy legacies are those created by the Saskatchewan Medical
Care Insurance Act, 1961 and its federal counterpart, the Medical Care Act, 1966, which enshrined private fee-for-
service practice as the dominant mode of practice organization and physician payment in Canada, and the Canada
Health Act, 1984, which reinforced physician-centred care.
Flowing from the policy legacies of public payment for private medical practice and a health care system centred on
physician and hospital services, physicians have been accorded a privileged position in health policy formation.
Discussions of innovations in primary care invariably take place in an evidentiary vacuum. Strong evidence is
lacking to support the superiority of any one model of organizing, funding and delivering primary care, and of many
suggested model components, including group practice, multidisciplinary practice and remuneration methods.
The absence of strong evidence to inform the development of primary care policy sets the stage for a cacophony of
competing claims reflecting the concentrated, often economic, interests of stakeholders. Lack of evidence makes it
difficult to persuade honest sceptics about the necessity for change and provides ammunition to those who resist it.
As usually proposed, primary care reform addresses issues of managerial effectiveness and efficiency, rather than
core social values. Proposed primary care reforms may not address, and in some cases, such as patient rostering,
triaging, and team-based approaches to care, may seem to compromise important public values.
Physician surveys indicate that capitation payment — a key feature of almost all primary care reform models — is
an anathema to most primary care physicians. In the 1999 Canadian Medical Association physician survey, less than 1
per cent of general practitioners and family physicians identified capitation as their preferred method of payment.
Anecdotally, many family physicians worry that team-based approaches to primary care will substantially alter their
scope of practice and undermine the continuity and closeness of their relationships with patients.
Seemingly oblivious to this complex and constraining policy-making environment, government task forces,
commissions and policy-makers charged with strengthening primary care have almost always advocated big bang
reforms — the universal, more or less simultaneous, implementation of an ``ideal'' model for primary care organization
funding and deliver. This approach virtually guarantees widespread opposition from physicians, the currently
dominant primary care providers. Most physicians can be counted upon to find at least one objectionable feature in
any comprehensive model. What is most worrisome is that the pursuit of big bang change under unfavourable
circumstances may not simply be futile, but may result in missed opportunities for cumulative incremental change.
Flawed processes for policy development is the second major barrier to primary care renewal. Provincial and
territorial governments' ministries of health have gravitated toward one of two contrasting approaches to the
development and implementation of primary care policy, sometimes flip-flopping between the two.
The first approach is to leave physicians and other stakeholders out because they are resistant to change. The second
approach is to negotiate primary care innovations with the provincial or territorial medical association.
The former approach has usually been achieved either by developing policy within the Ministry of Health or, more
commonly, farming out policy development to an external committee or commission. The lack of stakeholder
involvement in these processes tends to result in policy proposals that are divorced from the real world and ignore the
politics of getting there. The second approach excludes all stakeholders other than physicians and tends to result in
reforms that are physician centred, narrow in scope and leave the fundamentals of primary care organization and
delivery relatively undisturbed.
Both approaches leave much to be desired. The first has led to policy paralysis. The second can be successful, but
within narrow bounds.
Preoccupation with cost control is the third major barrier. Unfavourable economic conditions and governments'
adherence to neo-liberal economic policies have led policy-makers to focus on cost control as the principal objective of
primary care reform. The transparency of policy-makers' cost containment agenda has undoubtedly caused physicians,
other stakeholders, and perhaps the public to be suspicious of claims that proposed new models of primary care will
actually enhance effectiveness, access and appropriateness.
Strategically, Canadian policy-makers, analysts and many health care stakeholders have seen the elimination of fee-
for-service payment as a necessary, if not sufficient, condition for strengthening primary care, and in particular for
controlling health care expenditures. Capitation has usually been advanced as the preferred alternative. However, the
belief that capitation funding of primary care achieves cost savings and improves efficiency is not supported or, for that
matter, refuted by high-quality evidence. The identification of altered payment methods as an essential feature of
primary care reform alienates many physicians from the reform process, including those features of reform that might
otherwise be attractive to them.
A fourth and final barrier that I see is a lack of investment in primary care infrastructure. Perhaps not surprisingly
in an era of fiscal stringency, the primary care sector in Canada suffers from a striking lack of infrastructure in the
areas of information technology, communication, coordination of care, quality improvement and staffing, seriously
limiting the potential for improvements in primary care quality and appropriateness.
I will end my presentation with a discussion of some of the lessons for policy-making from this analysis of barriers
to change. Accepting that big bang reform is currently unachievable, policy-makers might consider two
complementary approaches as an alternative. The first of these is the identification of opportunities for progressive,
incremental change. The components of recently proposed models for primary care are largely divisible and capable of
independent implementation. The unbundling of primary care models would allow early system-wide implementation
of those elements with broad stakeholder support. For others, action could be deferred while efforts are made to build
The second approach is to embrace, or at least tolerate, pluralism of organizational and funding models.
Opportunities to move forward could be offered to those ready to embrace innovation without attempting to impose
change on the remainder. This overall approach, planned diversity and a cumulative incremental change, if linked to
thoughtful and rigorous evaluation, could lead to a primary care system that, over time, becomes increasingly effective,
efficient and responsive to patient and community needs, while providing a satisfying work environment for primary
The probability of future success in strengthening Canadian primary care is likely to be dependent on the
appropriate representation of public and stakeholder interests in policy development, implementation and evaluation.
Such representation will strengthen the acceptability of innovation, feasibility of implementation, and credibility of
As long as cost containment and efficiency remain the pre-eminent goals of primary care reform, significant change
may be difficult to achieve. Primary care policy initiatives that explicitly and credibly target the socially valued
objectives of health care quality, appropriateness, accessibility and responsiveness, in addition to cost control and
efficiency, are more likely to garner the support of health care providers and the public than those who appear to be
motivated primarily by a desire to control expenditures.
Blended funding arrangements provide a potential policy response to the unacceptability of capitation to most
primary care physicians. Among the funding streams that could be incorporated into blended models are fee for
service, capitation, infrastructure funding, program funding, performance payments and benefits packages.
The creation of adequate primary care infrastructure is only conceivable if ministries of health make direct
infrastructure investments or provide primary care practices with segregated funding for infrastructure development
and maintenance. Investment in primary care infrastructure offers the possibility of enlisting the support of primary
care providers for reform. A process that has been viewed suspiciously as an exercise in cost reduction may come to be
seen as one that offers primary care providers tools that will enhance their effectiveness and the quality of their
Professor Brian Ferguson, Department of Economics, University of Guelph: Honourable senators, Dr. Hutchison
referred to the lack of evidence to back up many of the proposals for primary care reform. I should like to focus my
remarks fairly narrowly on the evidence that does exist for some of the most often proposed features of the most often
proposed approaches to primary care reform.
The most common proposal for primary care reform involves some variant on 24-hour clinics with multidisciplinary
staffs, usually involving both physicians and nurse practitioners and with the physicians, in particular, shifting from fee
for service to capitation. The assumption usually made is that this kind of structural change would lead to greater
access to care — it does tend to be proposed most commonly in the context of underserved areas — and that it might
achieve greater access at lower cost. I wish to argue that both of those propositions are wrong.
We have a fair amount of international evidence pertaining to these issues. Over the years, many countries have tried
various experiments that have involved shifting doctors from capitation to fee for service or from fee for service to
capitation. The pattern that results is relatively consistent. When you shift doctors from fee for service to capitation,
you eliminate much of the incentive to actually supply services and the number of services provided declines.
The best-known example in the literature was the case of a change in Copenhagen, where doctors in Copenhagen
were shifted from capitation to blended payment, including fee for service. The number of services they provided
immediately went up, not because they were generating unnecessary services, but because they simply started
performing in their own offices services that they had previously been referring their patients to specialists or hospitals
There was an example in Norway that went the other way. They reduced the fee for service and increased the
capitation component of payment structures for certain doctors. The result was that those doctors reduced the number
of services that they provided and increased their propensity to refer their patients out to specialists and to hospitals. In
Ireland, when they changed the funding method for what is known as ``category 1'' patients, the lowest income
category of patients, from fee for service to capitation, the number of services provided to those lowest income patients
dropped by 20 per cent.
There is a consistent pattern internationally that, when you do shift from fee for service to a pure capitation system,
results in fewer services being delivered. Since, as I said, these proposals tend to be associated mainly with trying to
increase access to care in underserved areas, this seems like a slightly perverse incentive to be talking about putting in
The other very common proposal or component of these proposals is that these multidisciplinary clinics would
involve nurse practitioners. The argument is usually made that a nurse practitioner can treat perhaps 70 per cent of the
cases that walk through a GP's door on any ordinary day. Even if we accepted that 70 per cent figure, which is the
upper end of what is in the literature, there is a strong argument that an awful lot of what your typical GP is doing
could also be done by nurse practitioners.
There is also an argument that, because nurse practitioners are cheaper to train, they will provide these services at a
lower cost than GPs. I would argue that the first part of that suggestion, that is, that nurse practitioners are perfectly
capable of providing many services, is true.
The second part, that they will do it more cheaply than GPs, is false. It is false because the price that the supplier of a
service gets for his or her service does not depend on what it costs to educate that supplier; it depends on the value of
that service to the recipient. If nurse practitioners are indeed providing services that are equivalent to those that GPs
provide, within the range of services that it is generally accepted nurse practitioners can provide, then they have every
reason to expect to be paid as much per service as a GP would be paid for providing exactly the same service. While
nurse practitioners earn less in the sense that their annual incomes are lower than GPs, that is because they tend to
provide fewer services in any given period of time — for example, in a week — and because they do not provide that
upper 30 per cent of more complicated services that require GP training.
If you look only at the overlap services and what it would cost medicare to have exactly the same services provided
and exactly the same number of services, whether provided by GPs or nurse practitioners, you will find that it will cost
exactly the same amount in total. The per-service price will be the same.
This has happened under market forces in the United States. According to one survey of nurse practitioner salaries
that I looked at recently, they earn, on average, $63,000 U.S. a year. The 95th percentile of that income distribution
was at about $155,000 U.S. a year. Nurse practitioners are not cheap labour, and advocates of greater use of nurse
practitioners in the United States now acknowledge that, on a per-service basis, they are no cheaper than GPs.
This does not mean that nurse practitioners do not have an important role to play in primary care reform. They
have a very important role. As I said, a very large part of what your ordinary GP has to deal with in a day could
perfectly well be dealt with by a nurse practitioner. If nurse practitioners take over that load, it frees the GPs up to deal
with services that require medical school levels of training. If you do that, you get much greater efficiency in your use of
GP time. If you are getting greater efficiency in your use of the GP input to the health care system, then you are using
your health care resources, in general, more efficiently.
If you incorporate nurse practitioners into the system, you will get greater efficiency of resource use. You will not
get cheap care, because if nurse practitioners are not being paid as much on a per-service basis as GPs are being paid
for providing identical services, one good ``equal pay for work of equal value'' lawsuit will fix that.
While I am making these remarks, as I say, I do not want to give the impression that I am somehow opposed to the
role of nurse practitioners in primary care reform. They have a very important role to play; I just do not think it is the
role that has often been suggested in terms of basically providing cheap labour to the system. They are not cheap
labour; they are skilled professionals.
One additional point I wish to make is that, looking at the international evidence on primary care reform, one thing
that does show up as working pretty well is fund holding. Both the U.K. and the New Zealand experiences with fund
holding would indicate that. They both suggest that implementing fund holding for hospital services is tricky.
However, they both suggest that implementing fund holding, in the sense of having GPs pay for lab tests, diagnostic
tests, things of that nature, can actually work very well. In New Zealand, for example, after they rolled back most of
their experiments with internal market reforms, fund holding for GP purchases of lab and diagnostic tests was left in
place because it had been working very well.
As a final observation I would say that Medicare is basically locked into a model of the 1960s. The Hall commission
did a splendid job of designing a system that was suited to the way health care was delivered in that period and to what
medical care could do in that period. The Hall commission reported in 1964 or 1965. Medicare was implemented in
1968. The first heart transplant was in 1967. The whole thing changed between the Hall commission report and the
implementation of medicare as we now know it. Unfortunately, we have almost insisted that the structure of medicare
not change relative to what it was in the 1960s. Until we can get past the almost obsession with form and focus on the
need to maintain the function, I think we will have a lot of trouble with primary care reform and reform of any other
part of the system you wish to look at.
The Deputy Chairman: Thank you, Professor Ferguson. My thought process was triggered by your last point. You
say, like it or not, economic incentives matter as much in health care as in other area of life.
In order to make the transition from what we have now to a more workable primary health care model, what other
incentives, other than economic — perhaps both of you gentlemen may answer this — do you see the government
working with the professions in instituting? Do we start with young doctors coming out of medical schools? Where
would you start if you were to begin on a new page?
Dr. Hutchison: The key is helping those providers to do a better job. By and large, health professionals, as are most
of us, are motivated to do our jobs well. Many health care providers, whether they are nurse practitioners, nurses,
family physicians or specialists, are feeling hamstrung in their ability to do what they are capable of doing. A
willingness to invest in primary care infrastructure to support those primary care providers so that they can be more
effective in their work, would win their allegiance for significant changes in organization and funding in the long run. I
believe that is the key.
As I said in my brief and in my presentation, there has been too great a preoccupation with cost control. It is
certainly understandable in the current fiscal climate. However, I think it has soured potential allies for reform when
they see cost containment as being almost exclusively what policy-makers are working towards, and who do not see
serious efforts being made to improve the quality, accessibility and responsiveness of the care that they are providing.
There is a tremendous opportunity to forge an allegiance among primary care providers and with governments if there
is a shift in the process for developing policy and a greater emphasis on investment in improved quality of care,
responsiveness, and improved health outcomes.
The Deputy Chairman: You would start with the basic infrastructure.
Dr. Hutchison: I would go to those people and say, ``What do you need to do your job better, and how can we
support that? What do you need?'' One of the questions posed in the set of questions I received prior to coming to the
committee was this: Can this be done voluntarily, or will it have to be imposed? Given the policy environment and the
nature of primary care reform proposals, the only way it will ever happen is voluntarily. It is matter of finding how we
can enlist folks to work together to improve our primary health care delivery.
The chances of imposing reforms on unwilling providers are very small, partly because I do not think the public sees
primary care reform as offering huge advantages to them.
Mr. Ferguson: As an economist, I have trouble with the notion that there are any incentives beyond economic ones. I
also do not know that they are needed in the sense that physicians and other providers, while they are economic agents,
all want to do their jobs properly. They are all concerned with the quality of care that they give to their patients. Some
of them are better than others. In many ways, the most important thing is to allow flexibility into the system.
Going back to what I was saying about nurse practitioners, some of the earliest experiments with nurse practitioners
took place in Canada. Some of them were done at McMaster, and some were done in Newfoundland. That was about
30 years ago. Since then, nurse practitioners have become, perhaps not universal, but very familiar in the American
health care system. We are still trying to decide whether and how we might be able to fit them under medicare.
My concern is that any attempt at a ``big bang'' reform or at a cookie-cutter approach, imposing the same structure
across the country would simply impose a new set of rigidities. Whatever we do in the way of primary care reform and
beyond that, flexibility in how physicians are allowed to practice medicine is extremely important.
Dr. Hutchison: I would add a thought about nurse practitioners, picking up on some of what Mr. Ferguson said. I
would certainly agree with him that nurse practitioners do not inherently lead to reduced primary care costs. The
emphasis on cost control has led to a focus on nurse practitioners as substitutes for physicians. The other dimension
that needs to be explored is their potential for broadening the scope of primary care and providing a greater emphasis
on health promotion, prevention and health counselling, where they have a great deal to offer, probably more than
physicians. We should think of nurse practitioners in a complementary role, not mainly with the idea of saving money.
We should view them in terms of improving health.
The Deputy Chairman: That is particularly relevant in rural and remote areas where that might be the point of entry.
Senator Morin: I would like to compliment both our witnesses for the high quality of their presentations.
Dr. Hutchison, I agree with you that primary care reform should be incremental, and not a big bang type of reform.
I also believe that people have forgotten that there is a cost inherent in primary care reform. In Quebec, a cost of $1
million per primary care team has been suggested. That is in addition to the operating costs.
What role do you see for the federal government in this incremental type of reform?
Dr. Hutchison: It is a difficult area, and it is one to which I have not given a lot of thought. Clearly, the federal
government has played some role so far in the health transitions funding which was provided for primary care
demonstration and pilot projects, and new funding is becoming available.
My concern is with how that money is invested. To the extent that it is simply a matter of turning money over to
provinces, I am not sanguine that it will necessarily lead to the kind of significant change that I think is possible.
It would please me greatly to see a genuine effort among the provincial and territorial governments and the federal
government to forge some common strategy. I would agree that one-size-fits-all approaches are not appropriate. A
pluralistic approach is required. There needs to be an approach that stimulates innovation and evaluation to identify
opportunities for improvement. We must identify what works and what does not, for which people and under what
There is a major need for infrastructure investment, and it may be that there could be some federal-provincial
agreement that the federal government would play a role in providing earmarked funding for the development of
primary care infrastructure.
Senator Morin: What about a national information system?
Dr. Hutchison: I do not know. It is important that we think about primary care information systems as being from
the ground up, the primary objective being not so much to gather information about system performance, which is
important, but to provide information at the point of decision making that will allow primary care providers and the
patients they are working with to make well-informed decisions about health care interventions. I think that has the
prospect of improving health care and making more efficient the use of resources.
Senator Morin: If we want to evaluate the system, these primary care information systems must ``talk'' to each other
across the country.
Dr. Hutchison: Sometimes we lose sight of the clinical level of information systems in these discussions. A lot of
attention is devoted to the idea of electronic medical records and the ability to interface between providers and connect
the information systems. If the information for decision making is not there at the point of decision making, then that
is not going to change things very much.
Senator Morin: That is the first step.
Dr. Hutchison: That is an important step. I think the federal government could provide leadership in the
development of data standards to build that clinical information system on which the broader system-level data
collection is built.
Senator Morin: Dr. Ferguson, with respect to your comment about professionals, we had a recent example of
pharmacists in Quebec who were asked to prescribe the morning-after pill because it was more convenient, and they
immediately asked for fees equal to that of family physicians for the prescription. Your point is very well taken.
Fee for service increases the number of services, but you get to a point where many physicians are performing more
services on fewer patients. In fact, capitation increases the number of patients, but it decreases the number of services.
The Ontario experience at the Lakehead clinic was that family physicians who moved from a fee-for-service system to a
capitation system increased the number of patients they were seeing. However, I believe the number of services may
Mr. Ferguson: There is a strand in the policy debate which argues that, under fee for service, physicians provide
what are medically unnecessary services because they generate income. The argument is that, if you shift to capitation,
physicians will reduce the number of unnecessary services they provide and quite possibly see more patients and
provide a higher proportion of appropriate service.
However, that strand does not hold up terribly well against the literature. When you look broadly at the evidence on
the relationship between the rate of services provided and the rate of inappropriate services — ones that are perhaps
being provided in order to pump up the doctor's income — there is no relationship. The consensus in the literature is
that changing the payment mechanism does not change the proportion of inappropriate services.
Senator Morin: That was not my point. Let us forget about quality of services. There is a trade-off between the
number of patients and the amount of services. In the context of rationing medical manpower, you may choose to
favour the number of patients and not the number of services.
This is getting away from what we were to be discussing this morning. You have generously given us a paper on
profits in the hospital sector.
Mr. Ferguson: Why do I have a feeling I am about to regret that?
Senator Morin: Of course you are aware of the Devereaux paper this week and the editorial by the Dean of the
University of Toronto that made the front page of Canadian newspapers. I know that you were not aware of that
paper when you wrote your submission.
You probably know that our committee, like many others, has taken a neutral stand regarding for-profit and not-
for-profit, pretty well along the lines, without having read it, of your document. It may well be that for historical
reasons the not-for-profit system in Canada is the one that is preferable. However, there is no reason to exclude for-
profit, as long as there are standards.
What has struck me is that many conclusions are being based on a consideration of American institutions. France,
for example, has a network of private institutions that are functioning very well, from what we can determine. They
have rigorous evaluation systems. Sweden also has private hospitals. As far as their efficiency goes, they are doing
much better than the hospitals in the public system. I do not know if any quality output studies have been done. Britain
has a number of private institutions that are not available to the general population, only those who have private
insurance. The systems in Europe are more comparable to the Canadian system.
About a year ago, there was a special issue in Health Affairs on chronic care, which dealt with the problems of
private, for-profit nursing homes in the U.S. The conclusion was that the problem was not so much related to the for-
profit aspect of it but to the regulatory process aspect of it. The regulatory process of the providers in the U.S. is a
mess. Dr. Relman, the editor of the New England Journal of Medicine, attended before the committee, and he stated
that the for-profit providers are not efficient. Finally he admitted that the problem was more regulatory than inherent
to the for-profit or not-for-profit aspects.
The reason the regulatory process is so bad in the U.S. is due to the very powerful lobbying they have, and the fact
that their political system can be so much more heavily influenced than those of European countries. Maybe the
American situation is due to the fact that their regulatory process is not strong enough.
We, in Canada, could not tolerate situations they encounter, such as the low number of nurses they employ. The big
difference between for-profit and not-for-profit is manpower, especially as it relates to nurses. The number of nurses in
for-profit institutions in the U.S. is way down. We would not tolerate that here in Canada. We have regionalization.
We could have good supervision and evaluation.
The paper that was published is important in the view of this committee, because we have taken a stand that is
similar to the conclusions in your document. We will present our final report in October. I might be persuaded to
change my view, but and I cannot speak for other senators. I will bow to the evidence. I was wondering whether this is
the final say on the matter. What is your own opinion?
Mr. Ferguson: I only saw the Devereaux paper yesterday. Let me answer your points in reverse order and I will deal
with that paper at the end.
There is no such thing as a definitive study in this field, and anyone who thinks they have produced one does not
understand how complicated the field is. In that paper to which you referred, I cited a remark by a American health
economist, Joe Newhouse, who said that you will never be able to resolve to everyone's satisfaction the question of
whether private or public providers are better. What you need to do is put a system in place which has the right
incentives for quality, output and access to care, regardless of whether it is publicly or privately provided. Ultimately,
that is where I would come down.
With regard to the American system, it is a complete and utter mess. That has nothing to do with private sector
provision of care. It has to do primarily with the incredible mess they have made of insuring people.
Let's face it, your GP is a private sector for-profit provider. We just happen to call his income professional income
rather than profit. He earns his revenue by supplying services. He earns his income from providing services, subtracts
his costs, and takes home what is left at end of the day. If he were a grocer, we would call it profit. Since he is a
professional we call it income.
There is a notion that the American system is the one that we would automatically have to look at or move towards.
It is certainly one we have to consider because we have to know what not to do. However, it is not the only possibility,
as you say.
In Japan, over one-half of the hospital beds are in investor-owned institutions. Those institutions are more like
Klein-type clinics than they are like full-scale hospitals. They are investor-owned institutions. In France, almost 30 per
cent of hospital beds are private. Australia has many private hospitals, although not as many as in the U.K. They have
performed very well, certainly on every quality study that I have seen, but there will always be a new quality study
coming out that may disagree with the previous studies.
I do not think we would ever see full-scale, private, general hospitals in this country along the lines of those in
America, Australia or Britain because it would be a serious mistake to put in place the type of insurance structure that
is required to support that kind of hospital.
Incidentally, you are probably much more familiar with the details than many other people, but I do not know how
many people realize that only 15 per cent of American hospitals are for-profit institutions. The other 85 per cent of
hospitals, accounting for 88 per cent of beds, are non-profit — either government or private non-profit. This view that
the American system is riddled with for-profit hospitals is one of those fallacies that floats around and distorts
Canadian health policy debate.
It would be perfectly feasible for us to have private clinics in the sense of the Swedes, the Norwegians, the French
and virtually every other country of the world where they are specializing and selling those services directly to
medicare. They are basically being paid on a fee-for-service basis. This comes back to something I said earlier about the
rigidity of medicare.
Part of the reason we have debate about this at all is because, in 1968, we set up a system that said the doctor part of
any services that you receive in hospital will be paid for on a fee-for-service basis. The hospital part, which includes
non-physician labour, will come out of the hospital's global budget. That means we have no idea what those non-
physician services cost. That means we have no idea what to pay for a service provided in an office.
A continuing theme in the medical literature over the past several decades — it was around when I worked at Health
Canada in the mid-1970s — is that the natural trend would be to move things out of hospitals and to have hospitals
concentrate more on high labour and capital intensive medical services while the smaller services would be moved to
clinics of one kind or another.
We have not done that because we do not have a system in place to pay for moving those things into, for example, a
GP's office. If there is a multidisciplinary group practice, we do not have a well-established system for paying the
providers to provide services in their offices or in their clinics. If we had that kind of system, there would be much less
fuss about precisely the kind of transition that seems to be regarded as natural everywhere.
Concerning the Devereaux paper — and I do not trust Meta analysis anyway — reducing a very large literature to
12 articles that happen to fit certain precise selection criteria always makes me extremely nervous. It amounts to saying
that any article that does not fit those selection criteria precisely has no information to offer, and I do not believe that.
There are studies of varying quality and varying degrees of reliability out there. A few have no information to offer at
all. A Meta analysis of the sort that was done in the Devereaux paper simply throws them out.
I would also make the point that they deliberately excluded government public hospitals in the U.S. They argued
that this was because our public hospitals are structurally much like American private for-profit hospitals because they
have boards of directors. I would argue that our boards of directors are allowed to manage their hospitals only when
they are doing things that the government agrees with. As soon as they decide to do something the government
disagrees with, that is the end of their independent authority.
Our hospitals, while they have boards of directors, in terms of ultimate control over what they can do and what they
cannot do and what can be done and where, are much more like American public hospitals than they are like American
private not-for-profit hospitals. Incidentally, the average rate of profit on for-profit hospitals in the United States,
according to an article published in the late 1990s looking at data from the mid-1980s and on, was 5.3 per cent, not the
10 or 15 per cent figure that is kicked around.
The average rate of profit in not-for-profit hospitals in the U.S. was 4.8 per cent. Being a not-for-profit hospital does
not mean not making profits, rather, it means having to cut a deal with the internal revenue service so that you do not
have to pay taxes on those profits.
I have managed, I hope, to duck your question successfully.
Senator Morin: I hope I will be reading all of this in a letter to the editor in next week's CHMA.
Mr. Ferguson: I will wait until I have had a look at the 12 articles. I must add that this is just a Meta analysis.
Contrary to some of the newspaper reports or TV news bites, they did not look at 38 million patient records. They
looked at 12 articles on hospital studies that between them had processed 38 million patient contacts.
The articles they looked at are all well-established in the literature, and I am familiar with some of them. I am also
familiar with some of the ones they left out. I am not familiar with all 12 of those articles so I will take a look at them
before I stick my neck out any further than I already have. I would come back to what I said earlier: There is no such
thing as the definitive article in this field no matter how much attention it may receive in the TV news.
Senator Pépin: I know that you are an economist and that everything must be summed up in dollars and cents. I
have read the document that you have provided to us. I must admit that I was under the impression that you were
disappointed that the traditional nurses would be considered as professionals and not as cheap labor.
I quote from your document:
Nurse practitioners have a great role to play in order to make health care more efficient, so that we can have
more bang for the buck in the area of health.
I know that money is very important, but I have always thought that people were going in nursing or medicine
because they wanted to care for people. I agree that people do want to make money. We must take into consideration
the revenues and the salaries, and you do say that nurses earn less that physicians, but on the other hand, if you add
that a nurse earns $63,000 because she works 40 hours, while the physician earns between $90,000 and $130,000
because he or she works 60 hours, one has to wonder whether they wouldn't earn the same salary if the nurse was
working 60 hours.
There is a difference between a physician and a nurse. Perhaps I had the wrong perception when reading your
document. I had the feeling that, in your view, more and more nurses would play the role of general practitioners and
they would open up private clinics.
As an economist, how would you organize health cares services? I know your bottom line approach, in dollars and
cents. However, if you were to put into that mix a little bit more generosity, how would you organize this without
labeling a group as cheap labor and the other as professionals?
The Deputy Chairman: This is said in the context that Senator Pépin was once a nurse.
Senator Pepin: A nurse practitioner.
Mr. Ferguson: Let me say that money has absolutely nothing to do with economics. Economics is about allocating
resources. When economists are blamed for cutbacks in services in order to achieve budgetary savings, it is not our
fault. To an economist, efficiency means receiving the greatest bang for your buck, and you can define the bang any
way you like.
What we are concerned with is the allocation of resources that allows one to achieve that particular target with the
most efficient resource mix, because any resources that are used inefficiently in one place are resources which are not
available to be used efficiently somewhere else. That is the economist's perspective on efficiency and resource
In terms of nurse practitioners, I prepared a report for Kansas University Medical Centre a few years ago on various
proposals for getting greater access to primary care in rural Kansas, and they are already making use of physician
assistants more than nurse practitioners in Kansas to extend access in those areas. It was in that context that I was
reading the nurse practitioner literature.
My view on nurse practitioners is that they are not there to replace doctors; they are there to complement them
within the system. I have been using this example in my introductory microeconomics courses for a number of years. It
is a matter of what we call, in economic jargon, comparative advantage. Physicians have a comparative advantage in
certain sets of services, nurse practitioners have a comparative advantage in others, and you get the most efficient use
of your resources if you allow everybody to work in the direction of their comparative advantage.
I do not see nurse practitioners replacing doctors because you always have that other 30 per cent of cases walking
through the door. I do not automatically assume a nurse practitioner is going to be any more inclined than a doctor to
go into an isolated, rural part of the country. In Kansas, they are using physician assistants in almost stand-alone
practices in parts of rural Kansas. They have to be supervised by a physician, but the physician need not be on site. It
can be telemedicine supervision. That is a way of getting basic primary care services into rural Kansas.
Physician assistants can earn almost as much as physicians. The difference is based on the difference in the mix of
services they provide. I am not sure if you are happy or unhappy that I am saying nurse practitioners would expect to
be paid the same amount as physicians if they were providing the same services. This has happened under a public
system much like ours in New Zealand. There is a longer tradition of making much greater use of midwives as primary
maternity care providers.
In the early 1990s, the New Zealand government defined primary maternity care provider, introduced a fee schedule
for primary maternity care providers, and specified that, regardless of whether the provider were a physician or a
nurse-midwife, a certain fee would be paid for a particular service.
I am not objecting to that in any way. I am saying that, in a free and competitive market, the amount you pay nurse
practitioners annually relative to the amount you pay physicians will be proportional to their relative productivities. In
terms of efficient allocation of resources I think that is a good thing.
Senator Pépin: I agree with your very practical and concise approach. Perhaps it has to do with the fact that in my
generation, those who chose to go into nursing or medicine had a somewhat more compassionate approach.
I find you are rather practical and perhaps a little bit cynical. I still have a lot to learn.
Mr. Ferguson: We are getting into Oscar Wilde's definition of an economist as someone who knows the price of
everything and the value of nothing. I might point out that, while I am one of those cynical economists, my father was
a surgeon in rural New Brunswick before medicare was introduced.
Senator Callbeck: In our last report, we recommended that a maximum time should be allocated for each procedure.
When that time is up, if the patient has not had the procedure, then the government must pick up the tab for them to
go to another province or country.
Professor Ferguson, you said that has only been successful in a very few cases. I would like to hear comments from
both of you. Do you think this is something that can be successful in Canada? If not, why not?
Mr. Ferguson: It has been successful in those countries in which it was part of a general process of changing the
incentives. It did work in both Sweden and Norway. There was also a change in the way hospitals were funded. They
were rewarded for moving patients through rather than being rewarded for keeping them on a waiting list, as
effectively happened in Norway.
Sweden had a similar problem to ours with bed blockers, patients who really did not need to be in hospital in a
purely medical sense but there was nowhere else to put them. Sweden also made some changes to the way those patients
I make the point that something like that is already in place here. New Brunswick, for example, recently did a deal
with cancer treatment centres in Maine so that anybody who had been waiting too long for cancer treatment in New
Brunswick was able to go to Maine for it. That program has recently been cancelled. The explanation given was that it
was no longer needed. I understand a lot of people did not want to go from New Brunswick to Maine to get cancer
treatment. British Columbia has used that kind of system with cardiac surgery. It is not new in Canada. It just has been
used on a fairly ad hoc basis in the past.
Denmark introduced waiting time guarantees. Each time the majority of counties started missing the guarantee,
they quietly dropped the guarantee. The U.K. brought them in initially for certain services and conditions. They found
that this meant that patients whose condition happened to have been favoured by being listed received treatment over
patients who were not so favoured, even if those less-favoured patients were sicker.
The Blair government then introduced a general waiting time guarantee. As a result of a report by the British
equivalent of the auditor general, the chief executives of four of the biggest British hospital boards have just been if not
fired, then at least allowed to resign because it turned out they were falsifying their waiting list time data.
It is a good idea. It is not a magic bullet. As with anything else, I would be very careful in how it was actually
Senator Callbeck: Yesterday Dr. Wilson gave evidence about the Ontario Family Health Network. I would like your
views on that. Do you think this is a favourable model that could be applied across Canada, and that we should be
considering this seriously?
Mr. Ferguson: I do not know anything about it. I am sorry.
Dr. Hutchison: I do know about the Ontario Family Health Network model. I believe it is a very limited model that
reflects the process by which it was negotiated — bilateral negotiations between the government and the Ontario
Medical Association. There were no non-physician stakeholders involved in the discussion. It was a private, ``behind
closed doors'' set of negotiations.
Although it has interesting elements, it is a pretty traditional approach. It changes funding methodology, but it does
not change a lot of other things. It certainly does not provide many opportunities for providers to develop and evaluate
varying arrangements that involve non-physician providers such as nurse practitioners, social workers, midwives, and
so on. It is a physician-centred model.
I do not see either the funding part of it or the model in general as being something you would want to emulate on a
universal basis. It will be an interesting exercise to look at. It may evolve in some positive ways over time. However, it
relates to what I was saying about flawed processes. Unless we can develop processes for planning innovation that
involves the full range of relevant stakeholders, we are likely to end up with some pretty strange creations.
Senator Callbeck: When you speak of funding, are you referring to the method by which the physicians are paid?
Dr. Hutchison: Yes.
Senator Morin: I am surprised that you are saying that. This is the first time in Canada where the physicians have
agreed to be part of an organization where the major funding element will be capitation. I realize it is mixed. However,
you started out by saying this should be incremental.
There are problems with introducing other professionals. However, this is the first step. Dr. Wilson fully admitted
that this was not the ideal situation. We asked her the question about nurse practitioners, and she told us that we
should take one step at a time and look at the role of the nurse practitioner next year. She told us that now they will
have rostering, have access to electronic medical records, electronic decision-making tools, and patients will have 24-7
type of care. I am surprised by your criticism.
Dr. Hutchison: There is no reason universal rostering could not have been introduced. You do not need to be paid
by capitation to have rostering of patients. You do not need to have capitation or any particular funding mechanism to
have an electronic medical record or 24-7 coverage or a telephone advice service. All those elements could have been
introduced much more broadly and not linked to any particular funding mechanism.
Blended funding approaches can have an appeal to physicians and can provide some flexibility that permits different
approaches to organization. However, I think the impact of funding and remuneration methods on the behaviour of
providers has been vastly overrated. We need to focus more on the kinds of changes in practice organization and
delivery that will impact on quality of care, rather than endless discussions on payment mechanisms.
Senator Morin: Aside from the fact there are no nurse practitioners, what is your major criticism of the system in
place right now?
Dr. Hutchison: Some of those innovations could have been introduced at a system-wide level. There could have been
Senator Morin: Of all patients in Ontario?
Dr. Hutchison: Sure. Physicians would be happy to embrace an electronic medical record if it gave them useful tools
to provide high-quality patient care.
I return to my point. We should unbundle these models and ask, ``What are the innovations which, if introduced at a
system level, we could agree would be useful and would advance health system objectives?'' Linking it to a particular
model of funding gets in the way of physician acceptance.
It is fine that the OMA has agreed to it, but it is my understanding that, so far, one family health network has been
approved. We do not know that it will appeal to 80 per cent as the government hopes it will. We could make more
progress than has been made through that innovation. However, I am pleased with it. I think the funding method is
much more creative than any funding scheme proposed before. My concern is that it has been bundled together with
other things that could have been implemented on a much broader scale if they were de-linked from a particular
Senator Fairbairn: As we are a legislative group, I would like to focus on the Canada Health Act. As Dr. Hutchison
noted, our primary care continues to be shaped and constrained by what you call ``policy legacies,'' one of the most
powerful being the Medical Care Act. Mr. Ferguson noted that, while the medical world has changed considerably
from the period 1964 to 1968, the fundamentals of the act have not.
Dr. Hutchison, you indicated in this section on the policy environment that, in your view, the way in which the
comprehensiveness of a portion of the Canada Health Act has been defined by practice has limited innovation in
primary health care reform. I believe the act states the need for reasonable compensation for physicians but does not
require fee-for-service remuneration.
In the course of this study, at some point we must arrive at some conclusions. I would like both of you to, first,
discuss alternative modes of remuneration for physicians — such as capitation or a blended formula — through the
perspective of the Canada Health Act.
Second, do either of you believe the time has come to actually change the principles of the Canada Health Act? This
is a question that delves deep into the area in which we work, because it the Canadian people view it as a protection.
Perhaps there are ways of enhancing it. If you dive into it, then the explosive political events that will be triggered could
either lead us into a great new world or into a big mess.
Could you comment on that, Dr. Hutchison, particularly as it relates to the points you mentioned in your brief?
Dr. Hutchison: On the discussion of remuneration methods, I would recommend that you peruse the paper I
provided along with my brief. It gives a fair amount of detail about the evidence related to the effects of various
approaches to physician payment.
As to the constraints of the Canada Health Act around physician remuneration, there is no reason why there could
be forms of remuneration other than fee-for-service. My point about policy legacies was that, in some sense, there was
a founding bargain between the state and the medical profession at the time medicare was introduced that included
physician discretion over the method of payment, so that there was an implicit obligation on governments to come to
terms with physicians around payment mechanisms. It is not so much the specifics of the legislation but that that
legislation flowed out of a fundamental accommodation made in the 1960s when medicare was introduced, first in
Saskatchewan and then more broadly.
As to opening up the Canada Health Act, you have summed it up beautifully. It depends on what you would like to
achieve. Some wish to open it up in order to reduce the public role in funding particularly; others wish to open it up to
broaden the federal role in funding and the implied broader role of influencing the shape of the health care system that
would go with that broader scope. It is clearly a political calculation that ultimately must be made. Some of us — and I
include myself — would like to see the scope of medicare broadened from the required physician and hospital services
to include the sectors that are becoming increasingly prominent.
Senator Fairbairn: Are you referring to an area such as home care?
Dr. Hutchison: I refer to areas such as home care and pharmaceuticals. I think many people are worried about the
risk involved in opening it up. It may not have a broadening effect, but, rather, result in a reduction of public funding
and management of the health care system. I do not know how that decision will be made.
Mr. Ferguson: As the Canada Health Act has been used, I think it has been disastrous. Its vague wording
contributed to its being used as almost a threat to block any kind of experimentation with alternative approaches to
delivering care that provinces might have wanted to implement. I do not think there is anything in the basic principles
that blocks any alternative payment mechanism.
What we really need, when we talk about opening up the Canada Health Act, is to go back to the question of what
exactly are medically necessary services, which is a term that has caused us no end of trouble for pretty much the whole
of the life of medicare. In the context of considering bringing home care, pharmacare or whatever under the broad
umbrella of the Canada Health Act, we need to open up the whole question of how we decide what items of care are
covered. At the moment, it is defined by where they are performed. You are all familiar with the case of patients who
can get medication free when is in hospital but do not have drug coverage when they go home again, which frequently
results in them having to stay in hospital longer than necessary.
In the process of considering those patients, we need to go back and open up the question of which items of care are
appropriate for being paid out of the public purse and which should be left to individual responsibility. When we have
done that over the years, it has been done on a very ad hoc basis. If you want to cause a real explosion, I suggest that
we actually follow the Oregon exercise in trying to decide what should be covered.
The Canada Health Act is written too vaguely for its own good and for medicare's own good. I believe we need
definition of some terms that sound good but which may well mean different things to different people, ``medical
necessity'' being perhaps the most obvious of them.
Senator Keon: I will bring you back to the economics of primary care reform. It seems we have fallen into a
conundrum. It is the perception — indeed, it is fundamentally the rule — that if we cannot see cost-effectiveness
upfront in moves to reform primary care, we do not go there. Consequently, the whole possible vision of a network of
allied health institutions that could download the hospital sector and provide many services, I believe, at a fraction of
the cost that hospitals are providing them now, has not occurred. We had a rigid set of rules from the provinces, which
I can understand because they are facing terrible financial hardship, governing whether you are a hospital or not, and if
you are not, you do not dare house a patient.
We have not had a structural framework provided that would allow the evolution of primary care along the lines
that you have been talking about, Dr. Hutchison. I think the barrier to that has been an economic one. Perhaps we
have been afraid to come out and say, ``This is going to cost us upfront; it may or may not have long-term implications;
it certainly is going to be easier and a lot better for the patients if we do this.'' I would ask for your comments.
Dr. Hutchison: I agree with you that innovation should be linked with rigorous evaluation, because we do not often
know upfront whether something will achieve the objectives we set for it. Often, when we do make changes, we do not
put in place the kind of rigorous evaluation that allows us to make corrections if things are not going well, to discard
failed innovations, and to build on ones that are successful.
I think we need a different attitude toward policy development, one that provides opportunities for innovation, but
ties them tightly with high-quality and timely evaluation so that we learn from these experiences.
We spend a lot of time arguing in advance about what will be the effect of a given change rather than saying, ``Well,
let's try it out, but let's do it in a way that uses resources appropriately.'' If it is a high-risk, uncertain venture, we do it
on a small scale under controlled conditions with careful evaluation of both the process of implementation and
If it is something for which there is very strong evidence to indicate that it will be effective, we introduce it on a
broader scale, but always linked with effective evaluation. However, if things are to change, there must be a willingness
to invest in change as opposed to trying to look for cheap solutions such as tinkering with payment mechanisms and
hoping everything will fall into place without having to spend money.
I do not know whether the fiscal climate has sufficiently changed so that decision makers are prepared to do that. It
seems to me that in recent surveys the public sees health care as a priority and is willing to see increased taxes devoted
to health care. The block to health care investment is partly fiscal, but it is also partly ideological. What really seems to
count in policy-making is cost control — not even efficiency because efficiency is something different from controlling
costs. It is hard to garner the enthusiasm of the public and health care providers when, from a social value perspective,
what seems to be a pretty puny goal is driving change.
Mr. Ferguson: I would agree that we have, as it stands, far too rigid a system that does not allow experimentation on
a large scale or on a small scale. What we really need to do is build in flexibility rather than pilot projects, although any
change that comes from that flexibility must be carefully evaluated.
Incidentally, in connection with something else you mentioned almost in passing — cost-effectiveness — I would
point out that the effectiveness side of it, if done properly, could include a lot of patients' subjective well-being and not
just purely medical outcomes. Patients are much happier if they can get into home care rather than having to stay in a
In terms of overall objectives of the system that should be part of the effectiveness measure. We hear the word
``stakeholder'' tossed around a lot in this debate. There is one stakeholder who matters in the health care system and
that is the patient.
In connection with the cost control issue, we have lost sight of the distinction between long-run costs and short-run
costs. Many of the proposals for reform that are being kicked around are going to wind up being blocked because they
would increase our costs in the short run, even if they were to result in long-run savings. I would mention home care in
I suspect you have heard figures indicating that it costs $400 a day to treat a patient in hospital and about $80 a day
to treat that patient in home care. Those figures do not make sense. To come to that $400 a day, take total in-patient
costs and divide by the total bed days. A patient who is eligible for home care is not using $400 worth of resources
while he is in hospital, he is probably using $80 worth of resources. If you move him out of hospital and into home
care, he will still be using those $80 in resources.
The idea is to get the less sick people out sooner and the sicker people in sooner. That sicker patient will require
more treatment, will be more resource intensive, that is, will be more costly. If you implement a home care program
that gets people out of hospital sooner, and you do not close the beds but you use those beds to get other people into
hospital sooner, the total hospital costs will go up. That is a short-run cost increase. In the long run there will be more
efficient use of the hospitals. As the population ages, the more efficient use you can make of those hospital beds, the
fewer of them you will have to build. A new bed does cost $400 a day because its total costs have to be covered, one
way or another.
If what you are looking for from home care, for example, is a short-run cost savings, you will not get it ultimately. It
will only generate a long-run cost saving. Unless we are very clear on its investment, are you prepared to spend now in
order to save in the future? If what we are saying is, ``We cannot spend one penny more tomorrow than we are
spending today,'' then we are going to foreclose an awful lot of promising investment opportunities.
Dr. Hutchison: I would like to take that further. It is not always a case of investing now for future savings, it may be
investing now for future improvements in health and well-being. It may be that we spend more, not just because we are
going to save money, or maybe in spite of the fact we will not save money, but because, as a society, we decide it is
worth investing in improved health and well-being even at an increased cost. We seem to be in a time where it is not
acceptable to talk about an expenditure as an investment in health as opposed to an expenditure that will save money
now or next year. It is demoralizing for those who are working in the health care sector that that seems to be the
Mr. Ferguson: I agree with that completely. We are going to want to deliver more and more services to raise the
medical or health-related quality of life — very broadly defined — in the future. We need to take advantage of
investment opportunities now, which will allow us, even if they are cost increasing in the long run, to get appreciable
increases in health status and quality of life in the future.
Dr. Hutchison: At reasonable cost.
Senator Keon: Mr. Ferguson, I want to bring you back to something to think about. Currently, I am a hospital
CEO. While, hypothetically, it may be cheaper to have a patient in-house, the fact is that you cannot reduce costs
below a certain level in a hospital setting, because of union rules, quality assurance and all of that. I would like to see
economic arguments evolve that would display the enormous savings that I think are there. Savings are a great
motivation for allied health institutions, particularly the smaller ones that have the flexibility to get out of the
conundrum that the hospital system does not have at this time.
Mr. Ferguson: Smaller, specialized institutions can — and I believe this is a point that has been made to this
committee before — achieve gains from specialization, which a larger, general hospital will have a lot of trouble
achieving. That is, in principle, a good way to go, because the more efficiency gains we can get from the existing
resources the better.
We have lagged in the past in introducing many of these things primarily because our funding formulas did not
allow for them. Back in the cost-sharing days, these things could not be cost shared, so patients had to stay in hospitals.
These days, because we fund things differently, depending on the location of the treatment, it is not in the interest of
the hospital administrator necessarily to move patients out because his budget will not go up in proportion to the
increased severity of the caseload that he will be handling because he has put in a convalescent care structure, for
example, and moved sicker patients into hospital.
In terms of economic arguments, it comes down to the efficiency with which we use our resources, when you define
efficiency in terms of improving welfare rather than just reducing your bottom line.