The new england journal of medicine health policy report Canada’s Health Care System — Reform Delayed Allan S. Detsky, M.D., Ph.D., and C. David Naylor, M.D., D.Phil. The foundation of Canada’s government-funded constitutional contradiction, health insurance system was laid in 1957, when the structural gridlock federal government passed legislation providing financial incentives for the provincial governments Canada’s constitution puts the authority for taxation to establish universal hospital insurance. There- largely in the federal sphere but the management of after, major reforms in the health insurance system health care systems under provincial jurisdiction. have occurred three times. In 1968, insurance for The inevitable byproduct of this division of powers physician services was added. In 1977, the federal is recurrent squabbling among levels of government government altered its cost-sharing arrangement about health care. Because the federal government with the provinces, abandoning its previous com- has very limited powers to promulgate legislation or mitment to pay approximately 50 percent of pro- regulations that control provincial health services, vincial health care costs. Instead, cash transfers it can lead only by persuading the provinces to ac- were cut at the same time as some federal tax rates cept conditions on funds that it transfers to them. were reduced, leaving provinces the option of fund- If the provinces fail to comply with the conditions ing health care from additional taxes. The result was set by the federal government, the only recourse is an immediate reduction in the federal contribution to impose financial penalties by withholding por- to health care and greater interprovincial variation tions of the transfer payments. Most provinces, in in funding. Then, in 1984, the Canada Health Act turn, have resisted the imposition of conditions on consolidated previous legislation and imposed fi- federal transfers, and the resulting negotiations nancial penalties on provinces that allowed physi- among provinces and with the federal government cians to charge patients more than the amount list- are usually intense. ed in the negotiated provincial Schedule of Fees, As a result, Canada’s health care system is best which led all provinces to ban the practice known described as a collection of plans administered by as “extra billing.” the 10 provinces and 3 territories, each differing The year 2003 was expected by many to be an- from the others in some respects but similarly struc- other watershed year, as the federal and provincial tured to meet the federal conditions for funding. governments responded to two major reports aimed The simplicity of the five federal conditions is argu- at renewing the framework for organizing, financ- ably one of the beauties of the Canadian system. ing, and delivering health care services to the 30 mil- They are the provision of all medically necessary lion citizens of Canada. However, prospects for services (defined as most physician and hospital major change have rapidly receded, and cautious services), the public administration of the system, province-specific incrementalism with a temporiz- the portability of coverage throughout Canada, the ing injection of federal funds now appears to be the universal coverage of all citizens and residents, and order of the day. the absence of user charges at the point of care for In 2000, Iglehart reviewed the Canadian health core medical and hospital services. care system and issues facing Canadian policymak- To meet these conditions, each province runs a ers at that time.1 In this article, we provide a sequel publicly administered and publicly funded universal to that report, focusing on what has happened dur- health plan that insures physician services and funds ing the past three years, the “New Deal” between general hospital care. Physicians practice mostly on the federal and provincial administrations, and the a fee-for-service basis as independent professionals prospects of the public system that Canadians call but are unincorporated, and investor-owned agen- Medicare. cies and facilities play only a small part in medical 804 n engl j med 349;8 www.nejm.org august 21, 2003 health policy report care. Similarly, general hospitals are structured as macare” budgets for physicians and outpatients is private nonprofit corporations, publicly funded by invariably outside the scope of the regional authority. block budgets with some incentives for complexity And Ontario, Canada’s largest province, has rejected and volume of services. For all intents and purposes, regionalization, leaving acute care and long-term they are public institutions. In fact, even though they care institutions organized as scores of independ- are not “owned” by governments, they are referred ent nonprofit corporations without any integration to as “public hospitals” — terminology that causes or alignment of incentives. some confusion. There are only a handful of private, investor-owned hospitals, because they do not qual- strains on the system ify for block funding from provincial governments. The system is unique in the world in that it bans As Iglehart1 has reported, during the 1990s, the coverage of these core services by private insurance federal government took aggressive action to cut companies, allowing supplemental insurance only spending. In essence, the federal government down- for perquisites such as private hospital rooms. This loaded its operating deficit to the provinces and mu- ban constrains the emergence of a parallel private nicipalities by reducing its cash transfers for a wide medical or hospital sector and puts pressure on the variety of programs, including health care. The pro- provinces to meet the expectations of middle-class portion of provincial health care expenditures cov- Canadians. ered by a direct cash transfer from the federal gov- During the 1980s and 1990s, government ex- ernment in Ottawa decreased from 30.6 percent in penditures shifted away from general hospitals in 1980 to 21.5 percent, on average, in 1996 and to favor of home-based care and prescription drugs much lower levels in richer provinces. This reduced (Table 1). For example, in Ontario, expenditures for transfer of funds weakened the ability of the federal home-based care increased by an average of 16 per- government to impose the terms of the Canada cent per year during the 10 fiscal years from 1984 to Health Act on the provinces. 1993. This shift occurred without parallel revisions The hospital sector took the brunt of the finan- of the Canada Health Act that had consolidated the cial pressure as real spending decreased. Between federal–provincial framework for the funding and 1986 and 1994, the number of staffed beds in short- administration of health care. As noted, its provi- term care units in all categories of public hospitals sions apply specifically to physician and hospital decreased by 30,023, or 27 percent, despite the on- services. Thus, although publicly-funded drug cov- going growth and aging of the population. As noted erage for elderly persons and recipients of social above, in most provinces, countless hospital boards assistance (“pharmacare”) is the provincial norm, (and their hospitals) were consolidated under re- several provinces have adopted user charges and gional governance. In Ontario, with the absence of blended public–private plans for prescription-drug regionalization and with virtually no voluntary clo- coverage. There is also interprovincial variation in sures, the government appointed a Health Servic- the financing and scope of home-based care servic- es Restructuring Commission in 1996 and gave it es. These inconsistencies became increasingly dif- wide-ranging powers to rationalize hospital servic- ficult to reconcile with the ideal of a truly national es. The commission ordered more than 40 institu- health care system. tions to close or merge during its term.3 Another shift in the 1990s occurred as 9 of the By the end of the decade, the federal government 10 provinces adopted regionalized administration had rebalanced its budget and, amid growing con- of health care, folding a variety of acute care, long- cern about the sustainability of Medicare, reached term care, and rehabilitation institutions together an agreement with the provincial governments in under a single administrative umbrella. Several 2000 to provide new funds. At that time, the total an- provinces also moved to population-based funding nual Canada Health and Social Transfer (CHST) formulas for health regions. Home-based health from the federal government to the provincial gov- care services were often added to regional adminis- ernments was $15.5 billion per year (this and all sub- trations in an attempt to improve the integration sequent amounts are given in Canadian dollars). Of of institutional and community care. Nonetheless, this amount, $7.235 billion was notionally allocated service remains poorly integrated in some respects. to health care expenditures representing 10.49 per- For example, even in the nine provinces where re- cent of all public expenditures and 7.43 percent of gional health authorities exist, control over “phar- total expenditures on health care in Canada.2 (The n engl j med 349;8 www.nejm.org august 21, 2003 805 The new england journal of medicine Table 1. Health Care Expenditures in Canada, 1975 to 2002.* Fiscal Year Health Care Expenditures Other Physician Total Per Capita Public Sector Hospitals Institutions Services Drugs Other billions of dollars (% of GDP) dollars billions of dollars % of total expenditures 1975 43.70 (7.0) 1,888.21 33.31 44.71 9.22 15.08 8.82 4.59 1980 51.39 (7.1) 2,096.11 38.83 41.86 11.37 14.74 8.44 4.75 1985 63.36 (8.2) 2,451.61 47.88 40.81 10.30 15.17 9.54 5.17 1990 76.87 (9.0) 2,774.85 57.27 39.03 9.42 15.15 11.36 6.70 1995 83.15 (9.1) 2,832.81 59.21 34.60 9.62 14.36 13.63 8.07 2000 101.85 (9.1) 3,307.90 72.18 32.07 9.38 13.34 15.45 8.29 2002† 112.21 (9.8) 3,572.07 NA 31.33 9.27 13.38 16.16 8.01 * Data are derived from Romanow.2 All dollar amounts were calculated in constant 2002 Canadian dollars, with the use of price indexes for public and private expenditures in each province or territory.