Introduction

In this chapter, you will learn about the costs associated with providing Canadians health care. You will learn how the federal and provincial/territorial governments pay for health care, the major areas of spending in health care, and the reasons for these costs. You will also learn measures that governments are taking to control these costs.

Health Care Costs

References

Frasier Institute. (2021, September). The Price of Public Health Care Insurance, 2021. [Bulletin]

Health Care Costs Per Capita

Canada’s per capital (per person) spending on health care is among the highest in the developed world. Our health care costs rose sharply in 2020 and 2021 due to increased health care costs associated with the pandemic. While pandemic specific health care spending is expected to subside in the aftermath of COVID-19, continued increases in health care spending are expected to fund:

• health care deferred during the pandemic (i.e., surgical backlogs)
• caring for an aging population
• population growth (Canadian Institute for Health Information [CIHI], 2022b)

Total health spending in Canada is expected to average $8,563 per Canadian for the year 2022, although this amount varies from province to province. Review this CIHI Infographic to see how different province and territories compare on their per capita spending (CIHI, 2022b).

References

Canadian Institute for Health Information. (2022a) How do the provinces and territories compare? [infographic].

Canadian Institute for Health Information. (2022b, November 3). National health expenditure trends, 2022 — Snapshot [report].

Public Versus Private Health Care Spending

Although Canada is commonly referred to as having publicly funded health care, the reality is that it is funded through a mix of both public and private care sectors.

• Public-sector funding accounts for approximately 70% of health care spending. Public-sector funding includes payments from federal and provincial governments (CIHI, 2019).
• Private-sector funding accounts for approximately 30% of health care spending. Private sector funding consists of mainly of private insurance and household out-of-pocket spending (CIHI, 2019).

This split in spending has remained consistent since the early 2000s.

References

Canadian Institute for Health Information. (2019). National Health Expenditure Trends, 1975 to 2019. Ottawa, ON: CIHI.

Federal Health Care Funding

In chapter 3, you learned that the original funding for hospital and medical care was a 50/50 split between the federal and provincial governments. This equal burden of costs stayed in place until the Established Program Funding Act (EPF), in 1977. At that time, the federal cost sharing shifted to provision of tax points to provinces and block funding based upon gross national product to better control their contribution.

The federal government now supports provincial/territorial health care through various transfer payments and uses its spending power to influence provincial decision-making in health care by providing money to implement policies and programs consistent with federal objectives. In this next section, you will learn the most common federal transfer payment mechanisms.

The Canada Health Transfer (CHT)

The Canada Health Transfer (CHT) is the federal government’s largest transfer to provinces and territories. This transfer is meant to support the principles of the CHA by providing dependable, long-term funds for health care on a per capita basis. Violations of the CHA principles, such as extra-billing, result in a deduction of this transfer to the province/territory (Government of Canada, 2019).

References

Government of Canada. (2019, August 29). Federal transfers to provinces and territories.

Equalization Program

The Equalization Program is the federal government’s transfer program intended to address financial differences among provinces. Equalization payments are calculated yearly, with the program providing benefits to every province in Canada at some point in time. Although equalization payments are usually applied at least partially to health care, they are unconditional, and provinces may spend these payments according to their own priorities (Government of Canada, 2019).

The following provinces will receive equalization support in 2023-24: Manitoba, New Brunswick, Nova Scotia, Ontario, Prince Edward Island, and Quebec (Government of Canada, 2022).

Reflect:  the western provinces will not be receiving support payments for 2023-24. Consider why this may be.

References

Government of Canada. (2022, December 16). Federal government announces record transfers to provinces and territories.

Government of Canada. (2019, August 29). Federal transfers to provinces and territories.

Territorial Formula Financing (TFF)

The Territorial Formula Financing (TFF) is a yearly unconditional federal transfer to the 3 territorial governments to assist them in offering their residents a range of public services like those provided by the provinces, at similar levels of taxation. The level of funding acknowledges the increased costs to providing public services to a significant number of small, remote communities (Government of Canada, 2019).

References

Government of Canada. (2019, August 29). Federal transfers to provinces and territories.

The Canada Social Transfer (CST)

The Canada Social Transfer (CST) is the third largest federal block transfer to provinces and territories (after the CHT and Equalization payments). While the CST does not directly support health care, it supports social programs related to determinants of health such as: post-secondary education, social services and assistance programs, and early childhood development and childcare and early learning (Government of Canada, 2019).

References

Government of Canada. (2019, August 29). Federal transfers to provinces and territories.

One-Time Transfers

In addition to these annual federal transfers, the federal government provides one-time or support to provincial and territorial governments to address specific health issues. One current example of this is the federal government’s 2017-18 allotment of $11 billion to provinces and territories over 10 years, to enhance access to mental health and addiction services (Government of Canada, 2022).

References

Government of Canada. (2022, December 16). Federal government announces record transfers to provinces and territories.

Provincial Health Care Funding

Each provincial government is responsible for setting their own health care budget and managing their own health care system and associated services affecting broad determinants of health (Thompson, 2015).  The introduction of the federal EPF Act in 1977 led to negative effects on funding for the provinces and territories as the federal contribution to health care has dropped from 50% to just 22% of total cost (Canadian Medical Association, 2022). Provinces and territories continue to negotiate with the federal government regarding health care transfers, with the goal being to increase the federal share to 35% (Canada Medical Association, 2022).

Federal shortfalls have led to the provinces and territories financing the remainder of their publicly funded systems through a variety of methods including:

• Provincial and territorial taxation
  • personal taxes
  • corporate taxes
  • sales taxes
• Payroll levies
• Health care premiums (in some provinces such as B.C. and Ontario)
• Lottery revenues
• Worker’s Compensation Boards
• Community and volunteer organizations (Thompson, 2015).

Provinces/territories typically spend approximately between 30-40% of their total spending on health care, with the average spending 34.5% in 2021 (Statistics Canada, 2022). Provincial health care budgets vary depending upon the services they insure (what they deem is medically necessary), population distribution, geography, age and health of their populations, and the mix of the health care providers utilized (Thompson, 2015).

In the next section, you will learn the major areas of provincial and territorial health care spending.

References

Canadian Medical Association. (2022, October 18). Health care funding in Canada.

Statistics Canada. (2022, November 25). Government spending by function, 2021.

Thompson, V. D. (2015). Health and Health Care Delivery in Canada (2ed.). Elsevier Canada.

#1: Hospital Spending Overall Hospital Costs

Hospital spending peaked in the mid-1970’s at approximately 45% of the total health care budget leading to the federal government’s introduction of the EPF. Following the EPF, provincial governments made many cuts to hospital spending due to this reduced financing, yet hospital care is still the highest area of spending in our health care system (CIHI, 2019).

Hospital spending for the past several years has accounted for approximately 25-30% of overall health care spending; in 2022 is estimated to be approximately 24%. This decrease may be contributed to the reduction of many services due to COVID and hospital spending is anticipated to quickly accelerate to address post-COVID backlogs (CIHI, 2022).

Hospitals receive 90% of their income from public sources. The additional 10% may be accounted for by revenue from the private sector though chargeable services such as:

• parking
• food services
• preferred accommodation (private and semi-private rooms) (Thompson, 2015).

As well, charitable donations and charitable organizations such as hospital gift shops provide income for hospitals (Thompson, 2015).

References

Canadian Institute for Health Information. (2019). National Health Expenditure Trends, 1975 to 2019. Ottawa, ON: CIHI.

Canadian Institute for Health Information. (2022). Where is most of the money being spent in 2022? [infographic].

Thompson, V. D. (2015). Health and Health Care Delivery in Canada (2ed.). Elsevier Canada.

 Major Areas of Hospital Expense

The major areas of hospital spending remain consistent, with the leading expense being compensation or salaries. The top areas of cost in a hospital are as follows:

1. Compensation: 64%
2. Drugs and medical supplies: 16% (CIHI, 2022a)

The most expensive type of care in hospital is inpatient services, or the cost of patients admitted to overnight care units (CIHI, 2022a). Nurse practitioners and registered nurses account for the largest group of staff working in hospital units (CIHI, 2022b); therefore, they account for most of the compensation.

References

Canadian Institute for Health Information. (2022a, November 3). National health expenditure trends, 2022 — Snapshot [report].

Canadian Institute for Health Information. (2022b). Who’s taking care of you in Canada’s hospitals? .

Costs of Hospital Stays

The cost of a standard hospital stay in Canada is approximately $7600. This cost varies greatly between different provinces and territories. Ontario’s cost per stay is the second lowest in the country behind New Brunswick (CIHI, 2022b).

In general, the cost of hospital stays for older patients are more than those for younger patients. This may be attributed to them needing more and costlier services and tests than younger patients and taking a longer time to recover. In addition, comorbidity level (number of other illnesses a patient has in additional to the reason they are admitted) also results in higher hospital costs due to the need for more complex care and overall increase in the length of treatment. Comorbidities generally increase with age (CIHI, 2008).

Canadians typically spend 7.1 days during a hospital stay. The following are the top reasons for admission to hospital with their associated length of stay:

1. Childbirth: 2.1 days
2. Acute MI (myocardial infarction): 4.6 days
3. Heart Failure: 9 days (CIHI, 2022a).

The following are the top inpatient surgeries in Canada with their associated length of stay:

1. Caesarean section (C-section): 2.7 days
2. Hip replacement: 5.8 days
3. Knee replacement: 2.7 days (CIHI, 2022a).

Hospital care is the most expensive type of care provided within our health care system and is intended to address the most acute care needs of our population. However, 16.9% of hospital stays are designated ALC (Alternate Level of Care), meaning that the patient occupying the bed does not actually require hospital care (CIHI, 2022a). Instead, they are in hospital waiting for more appropriate services in other care settings, such as long-term care, chronic or complex continuing care, rehab, or mental health (CIHI, 2022a). This misuse of resources leads to both increased cost and wait times in the hospital sector.

References

Canadian Institute for Health Information. (2008). The Cost of Hospital Stays: Why Costs Vary [report]. Ottawa: CIHI.

Canadian Institute for Health Information. (2022a). Hospital Stays in Canada [product release].

Canadian Institute for Health Information. (2022b). Your Health System: Cost of a Standard Hospital Stay.

Balancing the Hospital Budget

Hospitals are expected to track all their expenditures and report on their financial status. Hospitals posting a deficit may have to apply for additional funding, reduce hospital services, reduce staff, close beds, or reduce operating times. Over the past two decades, many hospitals have taken the following approaches to reducing their costs:

Reducing overall length of hospital stay through the following practices:

• admitting elective patients on the day of surgery instead of the day prior
• changing elective overnight surgeries to day surgery
• utilizing less invasive major surgery techniques
• moving services within the community
• timely discharge processes, using supports such as home care
• earlier discharge of post-operative inpatients
• managing palliative care clients in community
• managing other conditions at home (Thompson, 2015).

Making structural changes:

• Rationalization: reducing or eliminating services in an area that are duplicated, redundant, or low volume (Thompson, 2015). In the Kitchener Waterloo region, hospitals have worked together to create Centres of Excellence by arranging complementary services together at one hospital and removing them from others to avoid duplication of services and equipment.
• Mergers: amalgamating stand-alone hospitals into a hospital system or network to achieve economies of scale (Thompson, 2015); for example, London Health Sciences Centre, Hamilton Health Sciences, or University Health Network.

Staffing changes:

• changing staffing patterns and ratios to reduce number of staff per shift.
• utilizing less costly staff in certain roles, such replacing higher paid Registered Nurses with lower paid Registered Practical Nurses, Personal Support Workers, or Operating Room Attendants.

Reflect: Think about cost cutting measures you have witnessed yourself at your local hospital. Did they reflect any of the actions outlined above? Do you think that they have diminished or increased the quality of care received?

References

Thompson, V. D. (2015). Health and Health Care Delivery in Canada (2ed.). Elsevier Canada.

#2: Physician Spending Physician Spending Trends

Physician spending has recently overtaken drug spending as the second largest cost in Canada’s health care. Although physician care declined somewhat at the start of the pandemic as routine visits were cancelled, physician services have dramatically increased in 2021 and 2022 (CIHI, 2022b).

Physician spending is one of the fastest-growing health categories due to several reasons including:

• large yearly rate increases in provincial fee schedules through the early 2000s
• increase in the number of practicing physicians (more medical school graduates as well as increased immigration of international medical graduates) (CIHI, 2011).

In addition, advances in medical technologies have decreased the time it takes to perform many surgeries or tests, in many cases allowing specialists to dramatically increase the number of procedures billed without reduction in fees to account for decrease in time required.

The average gross clinical payments to physicians in 2020-2021 was $343,500 (CIHI, 2022a). Most physicians operate a private business even though their services are paid for by the provincial/territorial plan. In the next section, we will look at the most common types of physician payment in Canada.

References

Canadian Institute for Health Information. (2022a, November 7).  An Overview of Physician Payments and Cost Per Service.

Canadian Institute for Health Information. (2011, October). Health Care Cost Drivers: The Facts.

Canadian Institute for Health Information. (2022b, November 3). National health expenditure trends, 2022 — Snapshot [report].

Common Types of Physician Payment Options

The predominant method of reimbursement for physicians’ clinical activity in Canada is fee-for-service (FFS), but other models exist, such as capitation, salary, and blended models. We will look at each of these payment schemes in the following section.

Fee-for-Service (FFS)

Fee for services is the oldest and most widely accepted physician payment method in Canada. Using this method, physicians bill the provincial/territorial plan for each service they perform. The amount billed relates to the complexity of the patient, the time of the physician takes, and whether the physician is a family physician or a specialist (Thompson, 2015).

Key points for FFS:

• may be used in solo family physician practices.
• always used in walk-in clinics and specialist’s offices.
• physician may only bill for one service per day/patient (leading many physicians to say that they can only see a patient for one problem per appointment).
• requires the use of a billing schedule, or Schedule of Benefits which outlines the billing codes and fees for each type of service.

CIHI (2022), indicated that approximately 70% of physician payments for the year 2020-2021 were FFS and that 96% of all physicians received at least some payments through FFS.

You will learn more about medical billing and the Schedule of Benefits in your Medical Office Administration courses.

References

Canadian Institute for Health Information. (2022, November 17).  An Overview of Physician Payments and Cost Per Service.

Thompson, V. D. (2015). Health and Health Care Delivery in Canada (2ed.). Elsevier Canada.

Enhanced Fee-For-Service (EFFS)

In addition to regular FFS payment schemes, family physicians may also by paid through an Enhanced FFS scheme.

In an EFFS scheme, the physician receives most of their payment through FFS with additional payments through bonuses and premiums based upon patient enrollment. This model of FFS would not be used for clinics or specialists’ offices, as they do not have ongoing relationships with patients.

And EFFS compensation scheme typically involves:

• 85% FFS +
• 15% incentives and enhanced fees (Ontario College of Family Physicians, 2022).

References

Ontario College of Family Physicians. (2022). Structure.

Capitation

In Ontario, primary care services have undergone a move from a system of independent physician practitioners to more advanced group-based family practices based upon patient enrollment and comprehensive care. Many family physician groups of three or more are paid via Capitation schemes (Government of Ontario, 2020).

Capitation involves rostering of patients. Rostering means that each patient signs a form agreeing to only seek treatment from:

• their physician’s office
• their physician’s office group on-call hours
• Telehealth
• the emergency department (Ontario College of Family Physicians, 2022; Thompson, 2015).

In addition, patients must agree that they will not seek primary care elsewhere, such as walk-in clinics (Thompson, 2015).

Physicians are then paid a base rate per month for each patient on their roster, (adjusted for patient’s age, health needs and sex), regardless of how many times the patient is seen. This results in a guaranteed income for physicians, regardless of how many days a week or how often they see patients. Physicians are often provided with bonuses for achieving certain milestones such as immunizing a given portion of eligible clients or performing routine PAP smears on a certain percentage of high-risk women to incentivize them to see clients (Thompson, 2015).

Notes:

1) If a rostered patient seeks health care treatment at another provider such as a walk-in clinic, that provider would receive payment for the service. This could result in the capitation payment for that month being denied to their family physician even if they saw them during that period. For that reason, a patient who routinely seeks care elsewhere may be “fired” from a capitation practice.

2) Capitation may not be appropriate for all patients; for example, students who are away studying at college or university who will need to seek health care elsewhere. Therefore, practices may keep some patients as FFS and roster others (known as Blended Capitation-see next section).

References

Government of Ontario. (2020, March 26).  Primary Care Payment Models in Ontario.

Ontario College of Family Physicians. (2022). Structure.

Thompson, V. D. (2015). Health and Health Care Delivery in Canada (2ed.). Elsevier Canada.

Blended Capitation

Some physician groups may choose a Blended Capitation scheme instead of a full capitation scheme. A typical blended capitation model may consist of:

• 75% through capitation (guaranteed income based upon rostered clients)
• 25% other; for example:
  • 15% of FFS billings (non-rostered clients)
  • bonuses for reaching milestones
  • premiums (Ontario College of Family Physicians, 2022).

References:

Ontario College of Family Physicians. (2022). Structure.

Salary

Finally, some physicians in Canada are paid by a salary, or a negotiated amount of money per timeframe; for example, monthly or per shift worked. Salary compensation may be used in teaching hospitals, medical centres, and non-profit agencies (Thompson, 2015). Some physicians may augment their regular FFS or capitation office hours with additional salaried positions in areas such as long-term care.

References:

Ontario College of Family Physicians. (2022). Structure.

Thompson, V. D. (2015). Health and Health Care Delivery in Canada (2ed.). Elsevier Canada.

Reflect: consider practices from your physician’s office, what type of billing do you think they are using and why?

#3: Drug Spending Drug Spending Trends

Until recently, drugs represented the 2nd largest health care expense. Drugs have now fallen to the 3rd largest health care expense just behind physician payments (CIHI, 2022). As you have already learned, Canada does not have a universal pharmacare program, but each province does provide some level of assistance to vulnerable groups. Drug spending in Canada is an approximate split between these public plans (40%) and private spending (60%), which includes private insurance and out-of-pocket spending (CIHI, 2019).

Public drug program spending varies by provinces/territories due to differences in program design, formulary coverage, physician prescribing patterns, and the demographics and health of the population.

References

Canadian Institute for Health Information. (2019). National Health Expenditure Trends, 1975 to 2019. Ottawa, ON: CIHI.

Canadian Institute for Health Information. (2022, November 3). National health expenditure trends, 2022 — Snapshot [report].

High-Cost Beneficiaries

Individuals on High-Cost Drugs

According to CIHI (2022), 43% of public drug program spending in 2021 was on just 2.5% of people covered by public plans. Public spending on these high-cost beneficiaries averaged $10,000 or more per year. These beneficiaries can be characterized in 2 ways:

1) those requiring at least one high-cost drug (2/3)

2) those using 15 or more different drug classes (1/3) (CIHI, 2022)

Most high-cost drugs are prescribed to treat or manage autoimmune diseases, retinal diseases, blood and breast cancers, and hepatitis C. Biologic drugs accounted for almost 30% of overall drug spending in 2021 (CIHI, 2022).  Biologic drugs are structurally more advanced and costlier than traditional drugs and are often prescribed for individuals with autoimmune disorders such as rheumatoid arthritis and Crohn’s disease. Due to their increased cost, many provinces and territories are changing their drug formularies to only cover biosimilar drugs (structurally similar and less expensive versions of the original biologic drug) (CIHI, 2022).

OHIP recently announced that Ontario’s ODB recipients who are on biologics will be transitioned to a biosimilar version of the drug to curb drug spending (Government of Ontario, 2022).

References

Canadian Institute for Health Information (2022, November 3). Trends in public drug program spending in Canada [product release].

Government of Ontario. (December 20, 2022). Ontario Expanding Safe Use of Biosimilars.

Individuals Prescribed Many Drugs

Individuals on many drugs are the next highest area of drug spending. Most individuals in this category are seniors aged 65+.  All provinces and territories provide public drug coverage for seniors, in Ontario, this is through the ODB program. In 2021, seniors made up 19% of Canada’s population and accounted for 62% of public drug program spending. This is because they are both prescribed both high-cost drugs and tend to be on multiple prescriptions (CIHI, 2022).

Seniors use more drugs than any other age group in Canada since they tend to have a higher number of chronic conditions. 1 in 4 seniors were prescribed 10 or more unique drug classes in 2021, with the number of prescriptions increasing significantly with age, lower income, and female status. Admission to long-term care also significantly increases the number of prescriptions seniors are on (CIHI, 2022).

The drugs that are prescribed most to seniors include:

• cardiac related medications (for high blood pressure, high cholesterol, heart failure or angina)
• diabetic medications
• antidepressants (CIHI, 2022).

References

Canadian Institute for Health Information. (2022, October 20).  Drug use among seniors in Canada [product release].

#4. Long Term Care (LTC) LTC Overview

Long-term care (LTC) spending is the fourth largest area of health spending in Canada, falling closely behind physicians and drugs (CIHI, 2022). There are approximately 2,100 LTC homes in Canada, housing approximately 200,000 LTC beds (CIHI, 2021).

Provincial/territorial governments oversee LTC for all Canadians. In Ontario, access to LTC is through Home and Community Care Supports Services (HCCSS). The majority of LTC facilities are privately owned and operated on a for-profit basis, although some may be run by on a non -profit basis by municipalities (Thompson, 2015). The provincial/territorial governments subsidize LTC beds; the client pays a portion for their accommodation called a co-payment for their room and board, while the government’s portion is applied to the clinical care which the patient requires (Thompson, 2015).

The basic client copayment for LTC differs by province/territory and when they were admitted; in Ontario the amount starts at approximately $1900 a month for basic ward accommodation. Reduced rates are available for low-income residents through the Long-Term Care Rate Reduction Program which evaluates clients via means testing. Reductions in LTC fees may also be made if the client has a spouse still living in the community (Government of Ontario, 2022).

References

Canadian Institute for Health Information. (2021, June 10). How many long-term care beds are there in Canada? 

Government of Ontario. (2022, October 4). Paying for Long-Term Care.

LTC Cost Drivers

Canada has an aging population with the baby-boom generation entering their senior years. Projections indicate that Canada will require at least 400,000 LTC beds to care for their senior population by the year 2035, effectively doubling the number of beds now (Gibbard, 2017). This will pose a significant increase in costs to the health care system.

Inappropriate LTC admissions also add to the high cost associated with LTC care. Currently, it is estimated that approximately 1 in 9 admissions to LTC could be cared for at home. Individuals who are prematurely placed in LTC are more likely to be from rural areas, over the age of 85, living alone, and facing difficulties navigating the health care system and financial barriers in attaining services (CIHI, 2020). Many provinces are attempting to increase their community services to assist aging adults in their residences to reduce these costs; Ontario’s services are outlined week 5 under HCCSS services.

References

Canadian Institute for Health Information. (2020, August 20). 1 in 9 new long-term care residents potentially could have been cared for at home 

Gibbard, R. (2017). Sizing Up the Challenge: Meeting the Demand for Long-term Care in Canada. Ottawa: The Conference Board of Canada.

Other Areas of Spending

There are several other significant areas of health care spending in Canada including public health, electronic health records, medical imaging equipment, telehealth, and virtual health. COVID-19 lead to a considerable new area of health care spending in Canada with COVID-19 spending peaking in 2021 at almost 10% of overall health care spending (CIHI, 2022). This amount declined in 2022 to approximately 4.5% overall health spending (CIHI, 2022).

However, it is expected that further pandemic related spending will occur long after COVID-19, in areas such as vaccine production, and disease surveillance and tracking. Additional spending may also be required to support lingering health effects associated with long-haul COVID. COVID-19 also necessitated a pivot to virtual health care; while the ability to resume in-person appointments has now occurred, it is expected that there will be further innovations and investments in telehealth moving forward.

References

Canadian Institute for Health Information. (2022, November 3).  National health expenditure trends [product release].

Summary

This chapter you learned about the average costs associated with health care in Canada including per capita spending and the main areas of spending. The main federal health care related transfers were outlined, as well as the mechanisms provinces and territories use to pay for their share of health-related services. The main areas of hospital costs were explored, as well as the steps that provinces and territories are actively taking to reduce these costs. Common types of physician’s payment methods were discussed, as well as the main drivers of high prescription drug costs and the costs associated with long-term care.

What’s Next?

In the next chapter, you will learn how various aspects of criminal, contract, tort, constitutional, and statutory laws relate to the provision of health. In addition, you will learn about the events leading up to Canada’s Medical Assistance in Dying (MAiD) legislation, current reforms to this legislation, and current challenges in implementation of this procedure.