Defusing the healthcare demographic time bomb

by Gary Finnegan – World Health Matters (Canada) – Austerity measures introduced by European governments and the deepening threat of insolvency faced by the US Medicare system have focused minds on ‘doing more with less’. With health systems under growing pressure to cut costs and demand rising in developed countries due to ageing populations, experts are drawing on Canada’s experience of finding efficiencies.

A new study published in the Archives of Internal Medicine finds reforms undertaken in Canada have decoupled healthcare inflation there from the spiraling health costs seen in the United States. Reducing bureaucracy, promoting primary care and saving on capital spending have helped keep spending in check, say the authors.

If the US had followed a similar path to Canada since 1980 it could have saved a staggering US$2.15 trillion – around one sixth of US national debt.

Per capita US Medicare spending on older patients has grown nearly three times faster in the US than in Canada over the past three decades. Costs have risen more slowly in the Canadian system – which is based on a universal system – despite a law introduced in 1984 which banded copayments and deductibles.

The study by Dr David U. Himmelstein and Dr Steffie Woolhandler, found that US spending on older patients rose by 198.7% in the 30 years since 1980 compared to 73% in Canada.

The article cites several reasons for Canada’s better record on cost containment: Less paperwork and administration throughout their health system (administrative costs account for 16.7% of total health spending compared to 31% in the US); the use of lump-sum budgets for hospitals; stringent controls on spending for new buildings and expensive new equipment; the use of single-buyer purchasing power to rein in drug and device prices; relatively low litigation and malpractice costs; and an emphasis on primary care.

“In a nutshell, including the elderly in a universal, nonprofit, publicly administered single-payer system has been the key to Canada’s cost control. Although US Medicare is often called a single-payer system, that’s not quite accurate. It’s true that traditional Medicare is relatively efficient – only about 2% of its budget goes to administration, according the most recent trustees’ report, versus about 14% for privately run Medicare managed-care plans – but Medicare is only one of many health care payers in the United States,” Dr Woolhander said.

As a result, doctors’ and hospitals’ administrative costs are inflated by having to deal with a multitude of payers and by having to track eligibility, attribute costs and bill for individual services, according to the authors. This extra paperwork and bureaucracy is a major contributor to rising costs in the US and these costs spill over into the relatively efficient Medicare programme.

“In contrast, Canada’s single-payer system is much more streamlined and lean throughout, with big dividends for clinical care,” the authors note.

The article cites several studies that show clinical outcomes in Canada are as good if not better than in the US and rejects several proposals put forward for reforming the US system, such as a plan to replace the current structure with a  voucher system which would allow older people to buy private care.

None of these proposals have proven themselves to be effective in containing costs, the authors write. “Canada’s road-tested cost containment methods offer an alternative,” the authors conclude.