Canadian Health Policy Failures Canadian Health Policy Failures What’s Wrong? Who Gets Hurt? Why Nothing Changes by Brett J. Skinner FRASER I N S T I T U T E Fraser Institute 2009 This book is an edited version of the author’s earlier published Ph.D. thesis, titled Barriers to Health Policy Liberalization in Canada: Institutions, Information, In- terests and Incentives, Copyright © 2009 Brett J. Skinner (2009), accepted by the University of Western Ontario and catalogued in the National Library of Canada. Large portions are direct excerpts from this earlier work. The author retains and reserves all copyrights to previously published content reproduced in this book, but has granted the Fraser Institute non-exclusive license to reprint content from the earlier publication. Copyright © 2009 by the Fraser Institute. All rights reserved. No part of this book may be reproduced in any manner whatsoever without written permission except in the case of brief passages quoted in critical articles and reviews. The author of this book has worked independently and opinions expressed by him are, therefore, his own, and do not necessarily reflect the opinions of the support- ers, trustees, or staff of the Fraser Institute. This publication in no way implies that the Fraser Institute, its trustees, or staff are in favor of, or oppose the passage of, any bill; or that they support or oppose any particular political party or candidate. Date of issue: September 2009 Printed and bound in Canada Library and Archives Canada Cataloguing in Publication Skinner, Brett J. (Brett James), 1967– Canadian health policy failures : what’s wrong, who gets hurt, and why nothing changes / Brett J. Skinner. Includes bibliographical references. ISBN 978-0-88975-242-9 1. Medical policy--Canada. I. Title. RA395.C3S57 2009 362.10971 C2008-907074-7 Contents About the author / v Acknowledgments / vii Summary / ix Introduction / 3 Chapter 1 Unsustainable costs / 23 Chapter 2 Shortage of medical professionals / 47 Chapter 3 Shortage of medical technology / 57 Chapter 4 Long waits for medical treatment / 65 Chapter 5 Inflated generic drug prices and wasted spending / 71 Chapter 6 Lack of access to new drugs / 79 Chapter 7 Who gets hurt? / 93 Chapter 8 Problematic Canadian health policies / 105 Chapter 9 Economically liberal solutions / 129 Chapter 10 Why nothing changes: Ideology and information / 151 Chapter 11 Why nothing changes: Interest group incentives / 167 Chapter 12 Why nothing changes: Political incentives / 181 Chapter 13 Prospects for reform in Canada / 197 References and resources / 207 About this publication / 263 www.fraserinstitute.org | Fraser Institute About the author Brett J. Skinner is the Director of Bio-Pharma, Health, and Insurance Policy at the Fraser Institute. He has a Ph.D. from the University of Western Ontario (London) where he has taught courses in both the Faculty of Health Sciences and the Department of Political Science. He earned a BA (Hon.) from the University of Windsor (Ontario) and an MA through joint studies at the University of Windsor and Wayne State University (Michigan). Since 2002, Dr. Skinner has authored or coauthored 40 major origi- nal pieces of applied economics and public policy research. In 2003, he was co-author of a paper that was awarded the Atlas Economic Research Foundation’s Sir Antony Fisher International Memorial Award for innovative projects in public policy. His research has been published through several think-tanks including the Fraser Institute, the Atlantic Institute for Market Studies (Halifax), and the Pacific Research Institute (San Francisco). His work has also been published in several academic journals including Economic Affairs, Pharmacoeconomics, and Alimentary Pharmacology & Therapeutics. Dr. Skinner appears and is cited frequently as an expert in the Canadian, American, and global media. He has presented his research at confer- ences and events around the world, including twice testifying before the House of Commons Standing Committee on Health in Ottawa, and twice briefing bipartisan congressional policy staff at the US Capitol in Washington, DC. www.fraserinstitute.org | Fraser Institute Acknowledgments I would like to thank several people for their contributions to this book. Mark Rovere, Senior Policy Analyst at the Fraser Institute, provided research assistance as a coauthor on several studies that I reference from my own body of work and also contributed research assistance on parts of this book. Nadeem Esmail, Director of Health System Performance Studies at the Fraser Institute reviewed and commented on early drafts. Kendal Egli and Bill Ray from the Fraser Institute’s publications department were responsible for layout and design. www.fraserinstitute.org | Fraser Institute Summary Canadian health policy is increasingly failing patients and taxpayers. Canadians spend a lot on health care relative to comparable countries, yet our high relative level of spending does not buy Canadians as many health care resources as patients in other countries enjoy. Shortages of medical resources, as well as improper economic incentives within the Canadian health system, have resulted in growing waits for access to publicly funded, medically necessary goods and services. The avail- able evidence indicates that wait times are longer in Canada than in almost all other comparable countries. Not only has our high level of spending not produced better access to health care, government health spending has also been growing at rates that are faster than our ability to pay for it through public means alone. This has resulted in health care consuming ever greater shares of the revenue available to governments, leaving proportionally less available for other public responsibilities and obligations. Economic research and international experience suggest that eco- nomically liberal policy alternatives could dramatically improve the financial sustainability and the value for money spent in the Canadian health system. The expected result of introducing such policies in Canada would be to reduce wait times and increase access to health professionals, medical technologies, and new medicines. Most other countries that share Canada’s social goal of publicly guaranteeing universal health insurance coverage are increasingly introducing eco- nomically liberal reforms into their health systems. Canada has gone the opposite direction in effectively prohibiting user fees for publicly funded services, extra-billing by health providers above public fee lev- els, and private payment or private health insurance for physician and www.fraserinstitute.org | Fraser Institute x Canadian Health Policy Failures hospital services. Yet, all or some of these policies have been used suc- cessfully in other countries that also have publicly guaranteed universal health insurance systems, and those countries achieve better access to health care resources on a more economically efficient and financially sustainable basis than Canada. There are four main political explanations for why economically liberal health policy reform is resisted in Canada. First, policy makers probably suffer from information asymmetry regarding health pol- icy alternatives. An analysis of the health policy literature suggests that there is a dominant ideology among Canadian experts that is opposed to the liberalization of health policy. Ideological bias can cause researchers to ignore or unfairly discount evidence and policy options that are counter to their own preferences and worldviews. Second, special interests in the health policy community benefit economically from the state’s involvement in health care and there- fore face incentives to favor interventionist public policies and oppose liberalization. Third, the electoral incentives produced by the distribution of the tax burden and of illness are opposed to the introduction of economi- cally liberal health policy reforms. The majority of the tax burden is paid for by a minority of the population. This means most people are disproportionally insulated from the price of public health insur- ance programs. Therefore, the majority of voters have significantly reduced financial incentives to make cost-benefit calculations about the performance of the health system. It also means that policy makers face fewer political risks from raising taxes to fund health care than from introducing price mechanisms that are paid by everyone. And ill people—those most directly harmed by a lack of access to medi- cal care—make up an extremely small percentage of the population, therefore representing too few votes to have a decisive influence on policy makers about declining access and coverage under Medicare. The costs of public policy failure are not borne equally by policy mak- ers and the public and this also can produce policy preferences that do not optimize the public interest. Fraser Institute | www.fraserinstitute.org Summary xi Finally, federalism, as it is actually practiced in Canada, represents an institutional barrier to the adoption of liberal health policies. The constitutional division of powers assigns to the provinces sole leg- islative authority for medical services and medical insurance policy. Theoretically, this arrangement should facilitate health policy innova- tion. However, the national (or federal) government has “gamed” the formal division of powers under Canadian constitutional federalism by intervening in an area of exclusive provincial policy jurisdiction. Through the exercise of its spending power,