Issue in Focus — Can We Get Better for Less? Value for Money in Canadian Health Care 

Background

Over the past decade, Canadian health care expenditures have grown much faster than the economy and combined federal-provincial tax revenues. The Parliamentary Budget Officer has raised concern about the sustainability of projected health care expenditures, in terms of both cash flow and as a percentage of GDP. However, allocating an increasing amount of resources to health care does not necessarily lead to better health care. Despite significant investment in health care, Canadians do not seem to receive sufficient value from the health care system as it clearly ranks at the bottom among other industrialized countries in terms of value for money spent. To that end, CGA-Canada has seen it timely to analyze the concept of value for money in the largest segment of the Canadian health care system – hospitals.

Summary findings

A lack of activity-based or patient-based funding may have limited the ability of Canadian hospitals to assess their own effectiveness and efficiency. Block funding may not present hospital management with persuasive incentive to reduce costs (inputs) or improve value (output) in terms of timely access to care, patient health outcomes and other dimensions of quality and quantity of health care.

A focus on outcome measures alone may not be sufficient to assess and evaluate management for the stewardship of resources allocated to them. Per-capita spending seems largely unrelated to outcomes since higher spending on health care services may not always offer overall benefits. One reason for the lack of sufficient correlation between spending and health outcomes is that health care resourcing can often be supply-driven.

Outcome measures may not reflect how much value for money results from health care spending. Detecting economic efficiency or sound stewardship of economic resources requires performance metrics that capture output per unit of input (or input per unit of output). Increasing use of pay-for-performance models in hospitals highlights the importance of identifying appropriate metrics on which to reward hospital management.

A number of reasons exist for the slow integration of value measures in health care delivery. Among those are the difficulties in measuring quality and thus value; wide range of severity and complexity of illnesses and thus possible outcomes; non-aligned responsibilities and divergent skill sets among the financial managers and clinicians.

Introducing incentives for improving quality of health care is not sufficient to improve efficiency of health care delivery. Incentives such as pay-for-performance systems, benchmarking for quality and value, and hospital funding based on volume of care will likely influence what gets measured, and therefore managed.

Value measures can offer the possibility of greater decision-making autonomy and flexibility for hospital management and can result in improved resource allocation, planning, and decision making while ensuring that hospital actions are in accordance with the broader social and economic objectives of governments and taxpayers.

Highlights

Overview

Canada is the fifth-highest spender on health care on a per capita basis and the sixth-highest in terms of spending as a percentage of GDP among industrialized countries. Despite such investments in health care, Canadians do not seem to receive sufficient value from the health care system.

In 2008 and 2009, Canada ranked last out of 30 countries in terms of value-for-money spent as reflected in the Euro-Canada Health Consumer Index. In 2010, Canada’s ranking moved to 25^th place out of 34 countries (with the United States excluded from the study). The scorecard released by the Commonwealth Fund ranked Canada sixth out of six countries on the value-for-money dimension.

While the concept of value for money is well understood in the health care industry – delivering more health care or better health outcomes at the same or lower costs – implementation has not gained a commensurate traction. Canada does not currently employ standardized benchmarks for the evaluation of effectiveness and efficiency in health care delivery, making assessments of investments in health care and comprehensive value-for-money analysis difficult.

Hospital funding

Canadian hospitals constitute the single largest component of health care spending by provincial governments. Historically, most of the hospital funding has been in the form of block grants that are largely based on previous funding levels. However, block funding does not offer hospital management strong incentives to reduce costs (inputs) or improve value (output) in terms of timely access to care, patient health outcomes and other dimensions of quality and quantity of health care.

Value for money

While achievements in hospital wait times are often reported with much fanfare, the cost of achieving them is rarely revealed. As a result, the public – as well as the government funding authorities – often do not know what was given up (the opportunity cost) in achieving such outcomes. Lack of value-for-money metrics does not allow hospitals and governments to determine whether or not they could have achieved better health outcomes if the same money had been invested elsewhere within the health care system.

Value metrics may also provide feedback to society and policy-makers on how much health care they are willing to buy. If successive improvements in wait times require significant investments, then they may be viewed as outcomes for which society or taxpayers may not be prepared to pay.

Funding hospitals based on value-for-money outcomes is especially critical since those entrusted with dispersing government funding often face short-term pressures of election cycles and therefore may be tempted to commit large funds to the health care system for the sake of political expediency.

Using value-for-money measures does not imply a move away from publicly funded health care. Performance measures borrowed from outside the health care sector could promote greater efficiency, transparency and accountability by hospitals and governments, allowing the publicly funded health care system to remain viable and sustainable in the context of growing demands.

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