November 28, 2002
More Money for Health Monopoly Wrong Answer
Disappointment looms for those who had hoped for some truly new thinking from the Romanow Commission on the Future of Health Care. Roy Romanow’s public statements to date suggest his Commission’s work will cling to the status quo instead of dealing with Medicare’s structural problems.
More money has always been the easy answer in Canadian public policy and easy answers seem to be what the Commission has in store. With public spending as a percent of the economy about 45% higher than our southern neighbour (42% of GDP in Canada vs. 29% of GDP in the U.S.), more money for the current public health monopoly is what we’ll be offered. If that is the case, we will have missed yet another opportunity for real reform like allowing private providers a chance to remedy shortages by competing with lethargic public facilities.
From the outset, Mr. Romanow declared that his recommendations would stay within the spirit of the famous five principles of the Canada Health Act, a restriction that essentially forbids thinking outside of the box. It can be argued that Medicare is in trouble precisely due to an overly slavish adherence to those principles - particularly the requirement of public administration, which effectively outlaws an efficient market for health-care. The Commissioner then packed his research team with the kind of thinkers who have made the defense of public sector monopolies a theology, impervious to any rigorous examination of its postulates.
Among the alternatives excluded in advance is the notion that for-profit hospitals and clinics have any role to play in whittling away at Canada’s long health care waiting lists. It is an article of the Medicare faith that these potential providers would inevitably bleed the resources of the public system by cherry-picking affluent patients. Further, their profits would represent a new drain on health spending since they might be achieved by skimping on care. No study, we are told repeatedly by academics, has ever shown that for-profit hospitals are less costly or more efficient than not-for-profit hospitals.
The trouble with that position? It’s simply not true.
Fortunately, there are Canadians who approach the issue with more intellectual honesty. One such is Brian Ferguson, an economist at the University of Guelph. Last spring, a Halifax-based think tank, the Atlantic Institute for Market Studies, published his illuminating paper, Profits and the Hospital Sector: What Does the Literature Really Say? Ferguson’s essay cuts through much of the cant that shapes present thinking on the relative economic merits of private and public hospitals.
“Much of the debate,” Ferguson writes, “focuses on what the international literature says about the relative efficiency of the two types of provider, and most of the claims made about what that literature shows are wrong.” Hospitals are complicated, multi-product enterprises, and the measurement and allocation of costs inside their accounting systems are fraught with error.
Most of the attempts to measure efficiency focus on the American health system, where about 15 percent of the providers operate for profit. Trouble is, the allocation of costs within each system compared is totally arbitrary. When you have a hip replaced, for instance, how much of the hospital’s fee actually paid for the procedure, and how much covers the cost of general overhead? The formulas for determining that vary widely, and make comparisons dicey at best. Ferguson notes that most such attempts appear in medical journals, not in ones devoted to economics. “[L]earning economics from the American Medical Association,” he warns, “is on a par with learning medicine from the American Economic Review. You might luck out and do OK, but it’s not an approach to be recommended. . . .”
In several other countries - Canada is the only one that aggressively discourages for-profit hospitals - private providers have triggered better practices in the public system and significantly reduced waiting lists. The creation of internal markets in places like Sweden, France and Japan has not been followed by massive cherry-picking. That can happen, if the rules for public payment are not carefully constructed, but it is not necessarily the case. Either for-profit or not-for-profit structures can work quite efficiently, if they spur competition. “[T]here is definitely potential for private, bed-equipped clinics to make a significant contribution to the Canadian health care system,” Ferguson concludes.
That’s the kind of thinking that will play no part in the recommendations of the Romanow Commission. By excluding fair consideration of other delivery structures, it will thus paint itself into an irrelevant corner. We will hear, yet again and erroneously as usual, that public-private competition, especially if it is motivated by profit-seeking, has been proven to be a faulty remedy.
If the Romanow Commission does head in that direction, we might as well order up the next study right now. An expensive effort with the vision of Mr. Magoo doesn’t lend itself to policy sharpshooting.
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."