1. The Fiscal Sustainability
of Ontario’s Health Care
HLTH 405 / Canadian Health Policy
Winter 2012
School of Kinesiology and Health Studies
Course Instructor:
Alex Mayer, MPA

2. Announcement
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3. In the News
• ‚Premiers’ working group a hopeful sign‛
- The Guardian (Jan 21)
• ‚Prevention gets left out of health-care debate‛
– The Toronto Star (Jan 20)
• ‚The Harper government is taking action to improve
efficiency in health care‛
- press release, Canadian Newswire (Jan 20)

4. The Fiscal Sustainability
of Ontario’s Health Care

5. Topics for today’s lecture:
• How much does Ontario spend on health care?
• Components of health spending
• Key drivers of spending growth
• What action has been taken so far…
And where work remains to be done.
• Don Drummond’s recommendations

6. What is the Fiscal
Sustainability Problem?
Every year, Ontarians pay taxes on income
earned…

7. What is the Fiscal
Sustainability Problem?
… on goods and services purchased…

8. What is the Fiscal
Sustainability Problem?
… on properties we own… etc.

9. What is the Fiscal
Sustainability Problem?
• All other things being equal, this tax revenue
rises or falls in tandem with the province’s
economic activity (GDP).
Year Real GDP Revenue
growth
2011 $71.3B
2010 +2.95% $64.9B
2009 -3.26% $68.9B
2008 -0.64%

10. What is the Fiscal
Sustainability Problem?
So the ‘fiscal sustainability problem’ is simply this:
Y/Y% growth HC spending > Y/Y% growth revenue
Or similarly…
Y/Y% growth HC spending > Y/Y% growth GDP

14. Share of Ontario’s
Total Program Spending
2010
Health, 46%
Education &
Other, 54%

15. Share of Ontario’s
Total Program Spending
2020
Education &
Other, 40%
Health, 60%

16. Share of Ontario’s
Total Program Spending
Education &
2030
Other, 20%
Health, 80%

17. So how does one bend the
cost curve?

18. Follow the money

20. Follow the money
Big revelation #1:
• About 1/3 of the health care budget goes to
hospitals.
o Until 2011, MoH sent global funding
envelopes ($$$)
o Then, ‘Excellent Care for All’ kicks in

21. Global Funding
Hospital is paid based on historical budget trends, with
small year-to-year adjustments based on input costs.
Pros
• Provides budgetary predictability
Cons
• Disincentives for discharging patients to post-acute care
and increasing volume (i.e. exchanging relatively less
expensive patients for relatively more expensive
patients)
• No incentive to improve quality or efficiency

22. Excellent Care for All Act (2011)
• Introduces activity-based hospital funding in Ontario as
of April 2011.
• Reimbursement rate based on types, volumes and
quality of care provided.
• CEO pay is tied to performance (meeting concrete
targets).
• If all goes well, model will become funding model for
CCACs, long-term care homes, CHCs, as well.

23. Activity-Based Funding
Pros
• Rewards volume, quality and efficiency, which will
incentivize greater specialization (i.e. centres of excellence)
and high throughput (i.e. more efficient discharge; no more
stranded ALC patients).
• CEO incentives are aligned with hospital’s performance.
Cons
• Rural hospitals risk may be penalized if performance
standards (e.g. ‘quality premiums’) are set too high or if some
component of basic global funding is not retained to offset
operating costs.

25. Follow the money
Big revelation #2:
• More than ½ of health care spending involves
paying people for services (e.g.
medical, admin, clerical).
o Big ticket items: Physicians, nurses, CEOs

26. Physician Remuneration
• Payment models come in many different shapes and
sizes:
o Fee-For-Service
o Blended Models: FHT MDs can choose from Blended
Capitation (FHN or FHO) or Blended Salary
• Average payments to physicians have moved from
$200,000 to $400,000 over 1992 - 2009.

27. Physician Remuneration
• MDs are being gradually weaned off of Fee-for-Service
based models through $$$ inducements from other
payment models (FHGs in 2003, FHOs/FHTs in 2006).

28. Blended Capitation Model
• Base funding of about $125 (avg.) per patient added
to a physician’s roster (accounts for 60% of income)
o teen male = $60; 90-year old female = $440
o $60 extra if patient has diabetes or serious mental illness, $125
extra if patient has experienced heart failure
• Shadow billing provides small FFS component (only
10-15% of normal OHIP fee for the procedure)
• Population health bonuses and incentives:
o E.g. If 50% patients get colorectal cancer screening, $2200 bonus
If 70% patients get colorectal cancer screening, $4400 bonus

29. FHTs and Blended
Capitation Payments
Pros
• Incentivizes cost-effective primary care (i.e. prevention)
• Does NOT incentivize volume (desirable for quality care)
• MDs lose out on bonuses if low acuity patients seek ER care;
this incentivizes 24/7 access to primary care (e.g. extended
hours, THAS)
Cons
• Rewards beneficial activity but not health outcomes!! (yet!)
• FFS MD practices still alive and kicking despite their obvious
drawbacks (BC payment model not imposed across the board)

30. Health Human Resources
• If you were to design the system from the
ground-up, with MDs costing $250k to
$500k, how would you organize different health
professionals to provide accessible, cost-effective
care that emphasizes prevention above all?

32. Follow the money
Big revelation #3:
• Drug expenditures account for 10% of public
health care costs and 33% of privately-borne
health care costs.

33. Pharmaceutical Drugs
• Ontario had some of the highest per capita drug costs of any
jurisdiction in the world until recently.
• Due to:
1. Generous Ontario Drug Benefit program
e.g. No matter if a 68-year old made $45,000/yr. or $45M/
yr., she would still have access to basically ‚free‛
pharmaceutical drugs (small annual deductible of $100).
2. Overutilization of new, expensive brand-name drugs
90-95% of new drugs provide no clinical benefit over generics.
3. Relatively high prices for generic drugs
Highest of any jurisdiction in the world, until recently.

35. Pharmaceutical Drugs
• Defeats cost-effective provision of health care in
a few ways:
o Age criterion does not align provision of benefits with
financial need
o High cost of pharmaceuticals facing non-ODB patient
leads to high rates of clinical non-adherence; patients
show up sicker downstream

36. Pharmaceutical Drugs
• In 2010, new regulations were introduced into the
Ontario Drug Benefit Act.
o Prices for generics bought under the plan would be capped at
25% of the cost of their brand-name equivalent, down from 50%.
o Similar price reductions for drugs purchased out-of-pocket or
through private insurance to be phased in over 3 years.
Result:
• Whereas ODB program cost growth used to go up by
9.4% per year, it only went up by 5% in 2010.

37. Class Exercise:
Don Drummond’s 10 Prescriptions
for Sustainable Health Care

38. Recap
• How much does Ontario spend on health care?
• Components of health spending
• Key drivers of spending growth
• What action has been taken so far…
And where work remains to be done.
• Don Drummond’s recommendations
Fill-In-The-Blank…
• What is the %growth in Ontario’s HC spending for 2011?
• What does this say about our odds of having a fiscally
sustainable health care system under McGuinty?