May 12, 2002
The Stockholm Healthcare Model In Manitoba
In a few years, the runaway train of ever-increasing healthcare spending will slam many provinces into a "wall". At that point, the mindset that leads us to run our health-care system and other important public services like the old post office may finally become another intellectual relic. Manitoba Health Minister David Chomiak speaks earnestly about the need to control health-care spending, but his ideas on consolidating smaller health districts are not new. Based on experience elsewhere, look for them to go nowhere fast.
How might Manitoba try something fresh, an approach that avoids the decidedly disappointing path of bureaucratic shuffling, service cuts disguised as efficiencies, and ever larger and stodgier administrative units? How might we tackle the rationalization of excess capacity in rural areas and give smaller communities a chance to participate in a more customer-centred system, while removing the severe politics that haunt our elected leaders when they face the closure of redundant or underutilized facilities?
We can start by applying some basic principles of high performance public policy to our health system. Let's begin with the premise that we retain the present single-payer system, with universal access and public funding. Our goal should then be to maximize the system's transparency, by measuring quality levels and the real costs of all services. We can build on this information by becoming neutral on how services are delivered. We will go with the provider, either public or private, who can provide the highest quality at the best price. To tie these two principles together, the system needs to separate the "purchasing" decision, where the best price and service levels are sought from a variety of sources, from the provision decision, which involves the actual production of the service. Having the same organization both fund and produce a service, particularly where the service is supplied in a monopoly environment and has no measurable costs is a straightforward recipe for both high costs and spotty services.
The model described above is known technically as the "purchaser/provider split" in service delivery. It is an easier sell for politicians, since funding remains public in this model. The critical success factor is that the monopoly disappears, replaced by a competitive, results-based model that gives patients choice. It forms the basis of the increasingly acclaimed "Stockholm" model, where customers can choose between competing clinics and suppliers, who in turn, are paid by the government (described extensively at www.fcpp.org). In use, the model has slashed waiting lists, improved service and created incentives for excellence within a single-payer system. It has also lifted pay for professionals, who have benefited directly from redesigning workflows, profit-sharing and much greater job satisfaction. Significantly, Tony Blair's Labour Government is now moving to reform Britain's National Health Service using the Stockholm model.
Rural areas are over-serviced with health-care facilities, the logical result of an industry where decisions about resource allocation are determined politically. The Stockholm model handles the thorny issue of rationalizing facilities well, from both a political and customer viewpoint. Here is how a transformation might work here.
It would mean the end of block funding, where facilities receive resources regardless of the volume of service they provide. Regional health authorities would be transformed into purchasing agencies, specifying service levels and seeking costed bids from facilities and clinics in their areas. To ease the transition, this fundamental change would be phased in over two years. Rural facilities that are underutilized would find their funding automatically declining to match their lower service levels. If they cannot adapt, they would effectively run out of resources and have to close themselves.
To fly politically, this reform must have a constructive trade-off. Rural facilities would no longer be constrained by the myriad bureaucratic rules and procedures and the "cost plus" mentality that is endemic to the present monopoly system. They would have the freedom to compete for business with other facilities. Information on waiting list times and eventually other quality variables (i.e. mortality rates) would be posted on the Internet. A savvy consumer might choose to avoid a long wait for a procedure in Winnipeg by driving out to a rural centre where there were no waiting lists. The surplus rural capacity would begin to rebalance urban line-ups. Since the biggest hospitals in Winnipeg suffer from diseconomies of scale and they cost more to operate than middle-sized hospitals in major rural centres, there would also be a migration of activity from the city. The attraction to rural communities would be the prospect of thousands of consumers visiting their communities and hotels to skip the inconvenience in the city.
Excess rural facilities would be converted into long-term care homes. Many would be sold off as private day surgical units, saving their extensive and expensive surgical infrastructure. Again, the more entrepreneurial members of the medical community would have the freedom to reconfigure and restaff these facilities to create a thriving medical services business. New technology would arrive to lower costs and improve service, critical requirements in a competitive, transparent model. These operations might go after the local business by competing with local hospitals.
More interestingly, many facilities would begin to specialize, creating centres of excellence in different areas of treatment and therapy. Ultimately, they would aggressively pursue the massive and wealthy U.S. market to the south, offering high quality services based on the hyper competitive $.64 Canadian dollar. This supplemental business would pay for the latest medical technologies.
Healthcare would no longer be in constant crisis, hostage to politics and the failed conceit of central planning. No longer would medical services be seen as a cost centre to be amalgamated, managed, rationed and suppressed. Supplemented by a booming private export business, Manitobans would enjoy fast, efficient healthcare.
The Medicare train need not hit the wall. A new roadbed, one grounded in customer service, would make it run just fine. Call it the Stockholm express.
The Frontier Centre for Public Policy
is an independent public policy think tank whose mission is "to broaden the debate on our future through public policy research and education and to explore positive changes within our public institutions that support economic growth and opportunity."