You are on page 1of 234

MOHLTC SUBMISSION 2

IN THE MATTER OF A BOARD OF ARBITRATION


ESTABLISHED PURSUANT TO THE

The Binding Arbitration Framework

TO DEAL WITH A DISPUTE BETWEEN:

HER MAJESTY THE CROWN IN RIGHT OF THE PROVINCE


OF ONTARIO
(as represented by the Ministry of Health and Long Term
Care)

and

The ONTARIO MEDICAL ASSOCIATION

Board of Arbitration

Arbitrator: Mr. William Kaplan


Ministry Nominee: Dr. Kevin Smith
Association Nominee: Mr. Ron Pink
Table of Contents
Tab

1 Executive Summary Growth and Appropriateness

2 The Growth Factor is Potentially More Significant than Price

3 Population, Aging and Chronic Degree Prevalence

4 Historic Analysis - Percentage of Population who do not Visit a physician

5 Patient Encounters per Capita

6 Physicians Days worked in a Year

7 The Impact of Technology on Growth

8 The Impact of Allied Health Professionals on PSB Growth

9 Average Physician Income Improvements Cannot be Explained By Price

10 Appropriateness

11 Government Oversight of Physician Billing

12 Examples of Collaborative Discussions to Mitigate Inappropriate Growth

13 Sustainability in the Context of The Framework

14 Sustainability is not a new Concept

15 This Historic Issue of Physician Services Utilization

16 Uncontrolled growth in the PSB (Absent the Impact of Price Changes) for the
Next 25 Years

17 Sustainability of Health Care Spending in Ontario – Drummond 2018


TAB 01 GROWTH AND APPROPRIATENESS – EXECUTIVE SUMMARY

The issue of Growth in Physicians Costs absent any question of Price

Physicians’ incomes and the related costs to the Health Care System have always
grown at a faster rate of increase than the fees changes.

The following equation provides a simple summary to this very complex issue.

The Physician Services Budget (PSB) for the next year =

The Physician Services Budget for the previous year as increased by


a) Price and fee changes
b) Growth in services billed

It is component b) of the equation above which is the subject matter of these 2nd series
of submissions.

Tab 01 Growth and Appropriateness – Executive Summary Page 1


Context

The importance of the issues under the heading of Growth cannot be overstated.

There are a few fundamental considerations that define the Ministry’s case and point to
the Ministry’s proposal as a solution.

Ministry Proposal on the appropriate Growth Number

For the 17/18 and 18/19 contract years, since the entire period has elapsed, the
Ministry proposes that there not be a growth number established for these years.

Thereafter, for contract years 19/20 and 20/21, the Ministry proposes a 1.9% increase
each fiscal year to the Physician Services Budget (PSB) due to population growth and
aging.

Ministry Proposal to deal with gap between Actual Growth and Appropriate Growth

Growth

For the 17/18 and 18/19 contract years, since the entire period has elapsed, the
Ministry proposes that there not be a growth number established for these years.

Thereafter, for contract years 19/20 and 20/21, the Ministry proposes a 1.9% increase
each fiscal year to the Physician Services Budget (PSB) due to population growth and
aging.

The Ministry rejects the OMA’s proposal for a 3.6% increase for the reasons described
below.

Appropriateness Gap

The Ministry maintains that the difference between the OMA and Ministry position each
fiscal year can be managed by addressing inappropriate and unnecessary services.

Tab 01 Growth and Appropriateness – Executive Summary Page 2


The Ministry proposes that a committee of the MOHLTC and OMA be established to
discuss and establish evidence informed amendments to payments by eliminating or
restricting inappropriate or overused physician services, or physician payments.

The committee will commence work immediately upon release of the award of the
Kaplan Board of Arbitration, and for purposes of the 19/20 contract year, will endeavor
to achieve a settlement by March 31, 2019 on amendments to rules and fees to
address overuse or inappropriate practices, generating $200M in savings for the period
of July 1, 2019 to March 31, 2020. If no settlement is achieved, the Kaplan Board of
Arbitration shall remain seized, and will hold hearings with an award by April 30, 2019
that will identify the changes necessary to achieve the $200M savings.

For the purposes for the 20/21 contract year, the Ministry proposes the committee
endeavor to achieve a settlement by September 30, 2019 on further amendments to
the rules and fees to address overuse or inappropriate practices, generating a further
$200M in savings for the period of April 1, 2020 to March 31, 2021. If no settlement is
achieved, the Kaplan Board of Arbitration shall remain seized, and will hold hearings
with an award by January 1, 2020 that will identify the changes necessary to achieve
the $200M savings.

Tab 01 Growth and Appropriateness – Executive Summary Page 3


Fundamental Considerations:

1. Growth in services billed (absent any impact of price) has historically been a larger
component of increased costs than has price or fee changes.

This fact emphasizes the relative importance of growth in the collective bargaining
and interest arbitration process. This issue is reviewed at Tab 02.

2. Growth in services billed (absent any impact of price) is not explained entirely by
population increases.

While population change is a factor in moving costs higher, it does not explain a
large portion of the growth. Population as a factor in growth of physician
expenditures is extensively reviewed at Tab 03.

3. Growth in services billed (absent any impact of price) is not explained entirely by the
more complex health requirements of an aging population.

While evidence supports the proposition that medical requirements can be greater
for an older population group, the evidence also supports the proposition that the
aging factor captures any incremental costs related to complexity or chronic disease
prevalence. These issues are reviewed extensively in combination with population
growth at Tab 03.

4. Growth in services billed (absent any impact of price) cannot be explained on the
basis that a higher percentage of Ontario citizens are visiting a physician.

With increasing access to physicians and a more sophisticated and health conscious
public, one might assume that more patients are visiting physicians and therefore
driving costs higher. Interestingly, the opposite is true. An increasing percentage of

Tab 01 Growth and Appropriateness – Executive Summary Page 4


Ontarians are not visiting a physician in a given year. This issue is reviewed
extensively at Tab 04.

5. Growth in services billed (absent any impact of price) cannot be explained on the
basis that a patient is now seeing their physician more often.

Again, with increasing access to physicians and a more sophisticated and health
conscious public, one might assume that patients are visiting physicians more often
and therefore driving costs higher. Again, interestingly, the opposite is true. On
balance there are fewer patient/physician encounters per capita in 2014/15 than
there were in 2002/2003. This issue is reviewed extensively at Tab 05.

6. Growth in services billed (absent any impact of price) cannot be explained because
physicians are working more days in a year.

Another measure of the increasing access to physicians and a more sophisticated


and health conscious public could be causing physicians to work more days in a
year than they had in the past. Likewise, any such assumption would be inaccurate.
Ontario physicians are working fewer days (on average) in a given year, than was
the case in the past. This issue is reviewed extensively at Tab 06.

7. Technology should not contribute to growth, but rather should allow for growth in
services without growth in costs (or maintain services with reduced costs).

It is reasonable to assume that physicians’ as business owners would operate in


their own best interests, using all the tools of business (including technological
change) to increase productivity and therefore profit margin.

These technological changes would have a tendency to reduce growth as newer


more effective methods improve the health care of patients and diminish their need
for the frequency and extent of physician intervention.

Tab 01 Growth and Appropriateness – Executive Summary Page 5


This issue is reviewed extensively at Tab 07.

8. Increased utilization of allied health professionals reduces, on balance, the


dependence on physician’s services to deliver quality health care to patients.

This factor does not contribute to growth and in fact may diminish growth. This issue
is reviewed extensively at Tab 08.

9. The growth in services billed (absent any impact of price) in a given year is not
generated by the increased number of physicians working in Ontario. If that were so
the average physician income would only grow by the average price increase in fees
or other income generating models for physicians. However, the average per
physician income (or billings) has consistently grown at a higher rate than would be
predicted by price changes alone since the subject matter was first reviewed in
1973.

This advantage enjoyed by physicians continues today and reflects a significant


distinction from the traditional employment model and labour relations interest
arbitration.

This income advantage, which is not explained by price changes or patient


encounters or more days worked or a higher proportion of the population visiting
physicians illustrates the problem of uncontrolled and unlimited billings.
This analysis of income versus price is reviewed extensively at Tab 09, followed in
the same Tab by the expected impact on growth by the increased net new number
of physicians in the near future.

Tab 01 Growth and Appropriateness – Executive Summary Page 6


10. There is a large body of evidence proving that a significant component of services
billed by physicians are inappropriate or overused and have little or no medical
efficacy.

In some cases the unnecessary medical procedures might potentially harm the
patient. After years of not addressing the inappropriate, over-used or unnecessary
care, the accumulated portion of the entire Physician Services Budget could be very
significant and take years of committed study and effort to minimize.

An important example of this body of evidence is the Choosing Wisely Canada


(CWC) 2017 report on Unnecessary Care in Canada (Exhibit 01). CWC is a national,
clinician-led campaign that aims to reduce potentially unnecessary care by
encouraging patient-provider conversations. CIHI and Choosing Wisely Canada
worked together to report on patients receiving unnecessary tests and procedures
every year in Canada, across 8 out of the 200+ CWC recommendations. Their 2017
report found that “up to 30% of the tests, treatments and procedures associated with
the 8 selected CWC recommendations are potentially unnecessary”.

This issue is reviewed extensively at Tab 10.

11.The Ministry’s ability to effect change, optimize physician behaviours and address
poor behaviour is severely limited by the Binding Arbitration Framework (Exhibit 02),
as well as Acts and Regulations.

Absent agreement with the OMA, the Ministry cannot create a new or change an
existing fee or payment payable under the OHIP Schedule of Benefits for Physician
Services, the Health Insurance Act or under any other statute, regulation,
arrangement, agreement or program that provides for physician compensation for
the delivery of medical services to patients. This significantly limits the government’s

Tab 01 Growth and Appropriateness – Executive Summary Page 7


ability to change rules and fee levels, which may be necessary to ensure appropriate
fee value and appropriate physician billing.

Further, Acts and Regulations limit the Ministry’s ability to question bills and
practices of individual physicians, thus limiting the ability of the Ministry to ensure the
appropriateness of services.

This issue is reviewed extensively at Tab 11.

12.It is difficult, if not impossible, for the OMA to work with the Ministry to address these
obvious and evidence-based concerns; if as a consequence, the incomes of some of
their members would be reduced (while others are increased). Of course, this would
be the consequence of reducing or eliminating inappropriate or unnecessary medical
practices.

In the circumstances, we are asking the Board to direct the parties to achieve a fixed
dollar target in savings. If the parties are unable to agree, the Board shall be seized
to make a determination.

The precedents and review of this proposal in reviewed at Tab 12.

Conclusion

The historical annual growth figure cannot simply be assumed to continue into the
future, nor should we assume that it cannot be mutually managed downward to prevent
physician incomes increasing at taxpayer expense forever more.

We respectfully suggest that there is a problem with unabated growth, while at the same
time a substantial and material portion of billings are inappropriate. If there is any merit
to these fundamental considerations, the Ministry’s proposal to set as a target of the

Tab 01 Growth and Appropriateness – Executive Summary Page 8


gap between population growth and aging and the expected growth in billings, and have
awarded a mandatory obligation for the parties to meet and achieve that target, reflects
a reasonable and rational approach to solve the problem.

Furthermore, the sustainability of a publicly funded health care system is at significant


risk should the growth in billings exceed reasonable expectations of growth in price.

An overall limit on expenditures each year is enabled by the Framework.

Tabs 13-17 review the important criterion of Sustainability.

Tab 01 Growth and Appropriateness – Executive Summary Page 9


TAB 02 THE GROWTH FACTOR IS POTENTIALLY MORE SIGNIFICANT THAN
PRICE

Canadian Experience

Based on the CIHI analysis captured below:

1. Utilization growth exceeded price growth in the three of the five time frames
analyzed since 1975.
2. The average annual utilization growth over those 33 years was 3.6%.
3. Compounding 3.6% annual growth over 33 years equals total growth of 221%
above price.
4. Growth of 221% over and above price increases clearly represents a material
factor that must be studied, reviewed and considered in greater detail.

We quote from the CIHI – Health Care Cost Drivers – Physicians Expenditures at page
7 (Exhibit 03).

“Figure 5 compares movements in price and utilization over two decades.


 Average annual utilization increases between 1993 and 1998 were only one-half
the rate of annual increases in the previous five years. They were the lowest
experienced since the introduction of medicare.
 Rates of increase in both price and utilization accelerated during the 10 years from 1998
to 2008.
 Between 2003 and 2008, annual utilization increases moved above rates
experienced prior to 1993.

Tab 02 The Growth Factor is Potentially More Significant than Price Page 1
Figure 5: Average Annual Rates of Change in Price and Utilization, 1975 to 2008

Source: National Physician Database, Canadian Institute for Health Information.

Ontario Experience

The OMA would suggest that Ontario growth be anticipated at 3.6% absent price based
on historical experience.

This number, not surprisingly matches the CIHI Canadian experience.

While we do not disagree that the historical experience for growth absent price has
been in the range of 3.6% notwithstanding some efforts to mitigate the increase, we
differ entirely with the OMA with the reasons for that growth and as to whether that is
appropriate or should be accepted and not addressed.

We note particularly that a 3.6% annual growth rate absent price is the most significant
cost component in this dispute, dwarfing even the OMA annual price proposal.

Once price is added, no matter how modest, the overall cost increases are in the range
of 4.5% to 6.0% per annum.

Tab 02 The Growth Factor is Potentially More Significant than Price Page 2
While we submit that price and growth must be considered as one, clearly significant
mitigation of the overall costs must, in our respectful submission, be a major
consideration in this arbitration.

Tab 02 The Growth Factor is Potentially More Significant than Price Page 3
TAB 03 POPULATION, AGING AND CHRONIC DISEASE PREVALENCE

Canadian Experience

While population change is a factor in moving costs higher, it does not explain a large
portion of the growth. We quote from the Canadian Institute for Health Information (“CIHI”)
– Health Care Cost Drivers – Physicians Expenditures (Exhibit 03). Again, this provides
a Canada-Wide perspective.

“Expenditure and utilization are often measured relative to population. In Figure 6,


utilization growth rates are broken down into components of population and
utilization per capita. Rates of population growth from 1993 to 2008 were lower than
they were during the previous periods (population growth trends are discussed further
in the next section). Utilization per capita was relatively low from 1993 to 1998 when
strong rates of population growth during that period are taken into account. Rates of
increase from 2003 to 2008 are well above those between 1983 and 1993.

Figure 6: Components of Utilization Growth, 1975 to 2008

Source
National Physician Database, Canadian Institute for Health Information.”

Tab 03 Population, Aging and Chronic Disease Prevalence Page 1


Population and Aging

It is anticipated that growth in services billed will have a close correlation to population
growth but it may also be interrelated to the growth in services billed as a result of an
aging population.

Population growth and aging contribute to growth in physician services expenditures for
two reasons:
1. There are more patients that require physician services (population growth)
2. The underlying distribution of the population changes year over year due to a
number of factors including births, deaths, migration, and aging. The combined
effect of these factors is that our population becomes slightly older each year
and on balance, requires more physician services (aging).

Since aging cannot be calculated in isolation of population growth, the combined effect of
the two factors must first be calculated, and then segregated by subtracting the known
population growth.

The Canadian Institute for Health Information (“CIHI”) estimates the growth in services
billed attributable to the aging population was expected to have stayed in the range of
0.6% per year until 2010 and then fall to 0.4% by 2036, if all other factors remained
unchanged (Exhibit 03)

From: Canadian Institute for Health Information


Title: Health Care Cost Drivers: Physician Expenditure – Technical Report (Page – iii)

Utilization, defined as expenditure deflated for increases in physician compensation, increased


at relatively modest rates during the latter part of the 1990s but at higher rates during the last
two five-year periods. Utilization per capita increased at less than 1% per year from 1993 to
1998 but grew at increasing rates during the next two five-year periods; the rate of growth from
2003 to 2008 was 2.8% per year.

Population growth accounted for increases in expenditure averaging 1% per year, while
population aging accounted for 0.6%. These effects varied by jurisdiction. Based on population
projections by Statistics Canada, the effects of population aging on health expenditure were
expected to have stayed in the range of 0.6% per year until 2010 and then fall to 0.4% by 2036,
if all other factors remained unchanged.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 2


Ontario Experience

The ICES study (Exhibit 04) suggests the historical impact of population growth on
expenditures is 1.1% annually, while the impact of population aging is 0.8%. However,
we note the study does not suggest these figures are additive resulting in a combined
impact of 1.9% as presented by the OMA. While the Ministry prefers the CIHI study which
suggests that the impact should be 1.6% annually (as the CIHI study relied on a larger
dataset and has been more widely evaluated), the Ministry proposes 1.9% as a “high
water mark” for the impact of population and aging.

Outlook for Future Years

From: Canadian Institute for Health Information


Title: Health Care Cost Drivers: Physician Expenditure – Technical Report (Page – 12)
Statistics Canada forecast that, in 2010, the population would grow by 1.18%.
Thereafter, population growth rates were forecast to decline but remain above the
average of the period 1998 to 2008 until the early years of the 2020 decade (medium
growth estimate). The effect of aging on expenditure during that time is expected to stay
in the range of 0.6%, then fall to 0.41% over the next 15 years to 2036 as the age profile
becomes more stable (Figure 10). The combined annual effects of population growth
and aging are expected to be less than historic rates of growth in GDP, suggesting that
population aging will not threaten sustainability of medicare funding.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 3


The Analytics relating to Population and Growth

With the greatest of respect, the Ministry suggests that 1.9% reflects a generous
interpretation of all the data available to the parties and should be deemed at “high water
mark” for the reasons and analytics set out on the following pages.

Capturing the Impact of Population Growth and Aging

To capture the impact of population growth and aging on physician services expenditures,
any other factors contributing to growth (e.g. price changes, changes to service mix,
inappropriate billings, etc.) need to be controlled for.

Both the CIHI and the Ministry methodologies for calculating the impact of population
growth and aging on physician services expenditures use the logical assumption that to
calculate the impact of aging, one would hold the cost of a patient in a given age profile
constant1. One approach to this is to split the patient population into age bands (less than
1 year old, 1-4 years old, 5-9, 10-14, …, 90 years and older), calculate the dollars spent
per patient in each band, and then keep this figure constant for future year projections.

This approach will capture the physician services cost difference between treating, for
example, a 23 year old ($540 per year in 2016/17) and treating an 87 year old ($2,098
per year in 2016/17). Applying population projections to grow the number of patients in
each age band will simulate both the growth of the population and the aging of the
population as they move from one age band to another as shown below 2.

1 Note that CIHI’s methodology also uses gender to adjust the cost per patient variable in its projections of the impact of population
growth and aging on physician expenditures. The Ministry has tested this approach in its modeling and found no material difference
in the results.
2 It is important to note the distinction between cost per patient and cost per capita. The Ministry’s methodology uses cost per patient,

rather than cost per capita, for a couple of reasons. First, cost per patient provides a more accurate representation of the dollars spent
on Ontarians who actually use physician services. As described in Tab 04, the proportion of the population who actually visit the
doctor changes from year to year, so a cost per capita metric would not account for this change.
Second, cost per capita requires a population estimate which is just that; an estimate. Statscan population estimates are based on
survey data, while patient counts are discrete counts of distinct patient health card numbers that appear in the Ministry’s database.
Tab 03 Population, Aging and Chronic Disease Prevalence Page 4
Figure 3.1: Historic and projected (MOF Reference scenario) patient population distribution by
age

2016-17 2020-21 Projection


1,200,000

1,000,000
Number of Patients

800,000

600,000

2016-17 Patient Count: 11.8M


400,000

2020-21 Patient Count Projection: 12.5M


200,000

The shift in the peak of the population to the right shows that the projection will account
for the aging (patients moving into more expensive age brackets) as well as the growth
in the total number of patients (the area under the curve).

ICES have developed their own estimates for the impact of population growth and aging
on physician services expenditures, their methodology is strictly backwards looking and
does not take into account the population and the underlying distribution that will be
observed in the last two years of the agreement (2019/20 and 2020/21).

While the Ministry and CIHI share many similarities in their methodology, there are three
significant areas where their methodologies differ:

1. CIHI is Canada Wide and does not provide a projection for Ontario in isolation.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 5


2. The CIHI projections are based on 2010 estimates of future population growth,
while the Ministry’s methodology relies on Ministry of Finance projections made
in 2018 and therefore are implicitly more accurate
3. The CIHI projections do not isolate the last two years of the agreement (2019/20
and 2020/21), whereas the Ministry methodology does.

The Ministry approach described in this section below, on the other hand, is a forecast
that has been developed to estimate the physician services expenditure growth in these
two specific years using the projected population that is published by the Ministry of
Finance as the basis for the calculation

Estimating physician expenditure growth related to population growth and aging

The following formula can be used to derive total physician services expenditures:

>90
𝐷𝑜𝑙𝑙𝑎𝑟𝑠
𝑃𝑆𝐸 = ∑ ( × # 𝑜𝑓 𝑃𝑎𝑡𝑖𝑒𝑛𝑡𝑠)
𝑃𝑎𝑡𝑖𝑒𝑛𝑡 𝑖
𝑖=<1

First, average payment per distinct patient is calculated for each age band. These age-
banded figures are calculated for the base year (in this case 2016/17). As described
previously, to isolate the impact of population growth and aging, payments per patient in
future years are held constant at the base year level.

Next, expenditures in future years are forecasted by multiplying the patients in each age
band by the fixed payment per patient figures from the base year. The number of patients
in future years is projected using the age-banded population growth rate published by the
Ministry of Finance.

This method isolates the effect of population changes within each age band, meaning any
growth in total payments, year-to-year, would be solely due to population growth and
aging.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 6


Table 3.1 below illustrates this methodology. The actual patient count by age cohort for
2016/17 is used and projected in 2019/20 and 2020/21 by the increase in population in
each of those age cohorts, as published by the Ministry of Finance in their latest 2018
population projection update.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 7


Table 3.1: Calculating the impact of population growth and aging on physician services
expenditures for FY19/20 using the Ministry of Finance Reference Scenario

Patient Projections3 Projected Total Payments


Age Band 2016-17 $ per patient4 2018-19 2019-20 2018-19 2019-20
< 1 Year $1,338 175,004 178,355 $234,155,161 $238,638,814
1 to 5 years $580 544,898 553,068 $316,041,000 $320,779,565
5 to 9 years $407 629,368 631,424 $256,152,832 $256,989,380
10 to 14 years $424 598,157 604,537 $253,618,362 $256,323,655
15 to 19 years $528 619,251 620,705 $326,964,604 $327,732,107
20 to 24 years $540 690,755 686,336 $373,007,905 $370,621,303
25 to 29 years $652 753,514 767,294 $491,290,854 $500,275,676
30 to 34 years $755 775,829 795,274 $585,750,520 $600,431,869
35 to 39 years $747 765,875 784,578 $572,108,374 $586,079,805
40 to 44 years $728 750,290 759,700 $546,211,039 $553,061,532
45 to 49 years $781 793,046 787,066 $619,368,952 $614,698,457
50 to 54 years $895 873,462 848,712 $781,748,370 $759,597,353
55 to 59 years $992 936,626 953,798 $929,133,354 $946,167,486
60 to 64 years $1,131 849,092 874,434 $960,322,935 $988,984,946
65 to 69 years $1,313 719,859 741,203 $945,174,867 $973,199,213
70 to 74 years $1,527 619,991 652,858 $946,726,877 $996,914,381
75 to 79 years $1,753 425,070 443,646 $745,147,045 $777,710,583
80 to 84 years $1,937 307,066 318,048 $594,786,230 $616,058,927
85 to 89 years $2,098 206,809 209,857 $433,884,983 $440,280,855
> 90 years $2,172 142,017 149,166 $308,461,737 $323,988,949
Total 12,175,978 12,360,058 $11,220,056,000 $11,448,534,858
Expenditure
Growth due to
Population and
Aging (FY 19/20) 2.04%

3 Based on the growth rates of 2018 MOF population projections by age band
4 Based on MOHLTC physician billing data 2016-17
Tab 03 Population, Aging and Chronic Disease Prevalence Page 8
Table 3.2: Calculating the impact of population growth and aging on physician services
expenditures for FY20/21 using the Ministry of Finance Reference Scenario

Patient Projections5 Projected Total Payments


6
Age Band 2016-17 $ per patient 2019-20 2020-21 2019-20 2020-21
< 1 Year $1,338 178,355 181,177 $238,638,814 $242,414,932
1 to 5 years $580 553,068 561,315 $320,779,565 $325,562,598
5 to 9 years $407 631,424 635,119 $256,989,380 $258,493,348
10 to 14 years $424 604,537 610,616 $256,323,655 $258,901,152
15 to 19 years $528 620,705 621,745 $327,732,107 $328,281,347
20 to 24 years $540 686,336 677,073 $370,621,303 $365,619,377
25 to 29 years $652 767,294 773,944 $500,275,676 $504,611,591
30 to 34 years $755 795,274 816,417 $600,431,869 $616,394,509
35 to 39 years $747 784,578 802,357 $586,079,805 $599,361,049
40 to 44 years $728 759,700 769,157 $553,061,532 $559,946,379
45 to 49 years $781 787,066 783,383 $614,698,457 $611,821,849
50 to 54 years $895 848,712 829,503 $759,597,353 $742,404,972
55 to 59 years $992 953,798 959,552 $946,167,486 $951,875,919
60 to 64 years $1,131 874,434 898,683 $988,984,946 $1,016,410,582
65 to 69 years $1,313 741,203 767,708 $973,199,213 $1,008,000,406
70 to 74 years $1,527 652,858 685,569 $996,914,381 $1,046,863,198
75 to 79 years $1,753 443,646 462,406 $777,710,583 $810,597,997
80 to 84 years $1,937 318,048 328,423 $616,058,927 $636,156,001
85 to 89 years $2,098 209,857 213,581 $440,280,855 $448,093,448
> 90 years $2,172 149,166 156,753 $323,988,949 $340,468,040
Total 12,360,058 12,534,481 $11,448,534,858 $11,672,278,692
Expenditure
Growth due to
Population and
Aging (FY20/21) 1.95%

5 Based on the growth rates of 2018 MOF population projections by age band
6 Based on MOHLTC physician billing data 2016-17
Tab 03 Population, Aging and Chronic Disease Prevalence Page 9
1.9% is a Generous Estimate for Population and Aging

However, Ministry of Finance (MOF) Population Projections have historically


overestimated the population, and this should be accounted for when calculating growth
in services billed.

The MOF publishes a report of population projections for Ontario and each of its 49
census divisions, by age and gender, from the base year of 2016 to 2041. The projections
include three scenarios for Ontario. The report states that “the medium, or reference
scenario, is considered most likely to occur if recent trends continue. The low- and high-
growth scenarios provide a reasonable forecast range based on plausible changes in the
components of growth.”

Historically, MOF population projections have overestimated the actual population. The
following Figure 3.2 looks at the MOF 2008 population projections (2008-09 to 2011-12)
and the 2012 population projections (2012-13 onwards) and compares them to actual
populations from Statistics Canada. As shown in the figure below, actual population
growth is always at or below the medium (reference) scenario, and in some years is also
below the low scenario.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 10


Figure 3.2: Historical MOF Projections vs Actual Population

14,500,000 Actuals MOF Reference MOF Low

14,300,000

14,100,000

13,900,000
Ontario Population

13,700,000

13,500,000

13,300,000

13,100,000

12,900,000
2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Sources: Ministry of Finance Projections: 2008 and 2012


Statistics Canada historical population figures

Tab 03 Population, Aging and Chronic Disease Prevalence Page 11


Using the latest MOF population projections by age band, the impact on physician
services expenditure growth from Aging and Population growth can be estimated. As the
previous chart showed, population actuals have typically been either below the low
scenario or between the low and reference scenarios. As such, in projecting the physician
services expenditure growth from population growth and aging, it is justifiable to use the
Reference and Low scenario from the MOF projections.

To project the impact of population growth and aging on future physician services
expenditures, both the Low and Reference scenarios were used. The population growth
in each age band was calculated for each year and applied directly to the patient count in
the base year. With these projected patient numbers, the expenditure growth from aging
and population was calculated. These projections indicate that expenditure growth from
population and aging factors will be between 1.64% and 2.04% in 2019/20 and 1.56%
and 1.95% in 2020/21.

Figure 3.3: Projected Growth from Population and Aging

2.5% MOF Reference MOF Low


PSE Growth from Aging and Pop. Growth

2.04%
1.95%
2.0%
1.64%
1.56%
1.5%

1.0%

0.5%

0.0%
2019-20 2020-21
Fiscal Year

Tab 03 Population, Aging and Chronic Disease Prevalence Page 12


Chronic Disease Prevalence

The Ministry respectfully submits that there is no incremental impact, independent of


aging, that is attributable to chronic disease prevalence or patient complexity. As people
with chronic conditions live longer, any increased physician services cost is accounted
for entirely by the ageing factor described above.

We provide below the OMA analysis for the period 2004/05 to 2014/15 which argues that
patient complexity contributes to PSB growth independent from age and supports this
claim by stating that over time there was an increase in the prevalence of chronic diseases
across all age groups. The premise of this work is flawed, as is demonstrated below.

Source: B Kralj, J Kantarevic. Ontario Medical Review, October 2016.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 13


There are four main weaknesses to this approach for identifying chronic conditions and
comparing the prevalence.

1. There is a ten year difference in the amount of data that was used to classify
patients in each year’s cohort: 5 years for 2004/05 and 15 years for 2014/15. It is
not reasonable to directly compare the prevalence rates of these two cohorts
when there is such a big disparity in the number of years from which diagnosis
were drawn.

2. A diagnostic code only had to occur once in the OMA approach in order to identify
a diagnosis of the indicated chronic condition. Physicians will often submit a
diagnostic code for a condition that is being considered while they are conducting
test(s) to confirm the diagnosis. One occurrence of a diagnostic code is not a
reliable threshold for a definitive diagnosis: one occurrence is not a chronic
condition. In contrast to the OMA approach, both ICES and CIHI require a
diagnostic code for chronic conditions to occur twice before considering it as a
definitive diagnosis.

3. Once a person was assigned a diagnosis, that diagnosis was attributed to them
for the entire study period, which in the case of FY2014/15 was 15 years. This is
not appropriate for all of the conditions considered, particularly childhood
conditions such as: behaviour disorders of childhood and adolescence,
educational problems, and prematurity (low-birthweight infant). This explains why
larger differences are observed among children, adolescents, and young adults.

4. This analysis relies solely on physician billing data and does not take into account
diagnostic information that is available in other data sources, most notably
hospital discharge abstract data (CIHI DAD) and emergency department data
(NACRS). Diagnostic information on claims is less reliable than these data
sources (i.e. CIHI DAD and NACRS). Other groups like CIHI use additional data
sets to define disease burden.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 14


Analysis was done at the MOHLTC to evaluate how much patient complexity varies within
age group. The following graph shows a comparison of the prevalence of chronic
conditions between 2011/12 and 2015/16 based on output from the CIHI Population
Grouper, which uses two years of diagnostic information available in physician billing data
(CHDB), hospital discharge abstract data (DAD), emergency department and day surgery
clinic data (NACRS), and mental health inpatient data (OMHRS).

Shown below, these results show very little variation in the percentage the population in
each age group that has a chronic condition. In fact, the chart below shows that those
individuals ages 40 to 85 old today appear to be less likely to have a chronic condition
than those at the same age in 2011/12.

Given the improved life expectancy of Ontarians, it is logical to conclude that today’s 60
year old is healthier than a 60 year old in 2011/12.

This suggests that the impact of longevity will already be accounted for within the age
and population growth, and the prevalence of chronic disease is absorbed within those
numbers.

Tab 03 Population, Aging and Chronic Disease Prevalence Page 15


Figure 3.4: Proportion of Ontario Population with a Chronic Condition by Age Group,
FY2011/12 and FY2015/16

Proportion of Ontario population with a chronic condition


by age group, FY2011/12 and FY2015/16
100%

90%

80%

70%
Per cent chronic

60%
FY 2011/12
50% FY 2015/16
40%

30%

20%

10%

0%

Age Groups

Tab 03 Population, Aging and Chronic Disease Prevalence Page 16


We ask the Board to note that the population aged 85-89 and 90+ combined make up
only 2.24% of the total population. While the population at this age appears to have more
chronic conditions than the same age profile in 2011-12, the impact will not be significant
and is offset by the age 40 – 84 population which represents 48.5% of the population.

Table 3.3 - Statscan Population – Ontario

Age Band 2017 Population Percentage of Total Pop.


0 years 146,505 1.03%
1 to 4 years 581,034 4.09%
5 to 9 years 749,339 5.28%
10 to 14 years 752,339 5.30%
15 to 19 years 835,465 5.89%
20 to 24 years 1,012,586 7.13%
25 to 29 years 1,013,929 7.14%
30 to 34 years 968,906 6.83%
35 to 39 years 926,913 6.53%
40 to 44 years 905,679 6.38%
45 to 49 years 949,264 6.69%
50 to 54 years 1,053,440 7.42%
55 to 59 years 1,036,290 7.30%
60 to 64 years 891,943 6.28%
65 to 69 years 752,449 5.30%
70 to 74 years 584,383 4.12%
75 to 79 years 415,593 2.93%
80 to 84 years 299,639 2.11%
85 to 89 years 197,704 1.39%
90 years and 119,984 0.85%
over
Total 14,193,384

Tab 03 Population, Aging and Chronic Disease Prevalence Page 17


TAB 04 HISTORIC ANALYSIS – PERCENTAGE OF POPULATION WHO DO
NOT VISIT A PHYSICIAN

With all due respect to the hard and excellent work performed by Ontario doctors and by
no means diminishing that work, the statistical evidence would indicate that the growth
in average incomes is not attributable to a greater proportion of the population visiting a
physician in a given year.

The Ministry analyzed all billing records over the past 26 years, identifying every unique
patient encounter with a physician in a given year. The analysis involved analyzing
more than 5 billion billed claims that describe (anonymously) the physician who billed
the service, the patient who received it, what was performed, when it was performed
and how much was charged/shadow billed. Having completed that analysis, the total
number of patients was tracked each year and the percentage of the population was
calculated.

The population statistics were obtained from Statistics Canada and are provided at
Exhibit 05.

Over the past 26 years, while the population of Ontario has grown the number of
patients seen by physicians in a given year has grown at a slightly slower rate than the
population. This can be seen in the Figure 4.1 below as the gap between the population
and patient counts grows over the years. This has led to 5% fewer people going to the
doctor as a percentage of the population in 2016 (84%) than there were in 1991 (89%).

Tab 04 Historical Analysis – Percentage of Population Who Do Not Visit a Physician Page 1
Figure 4.1 – Historical Population and Patient counts with % of Population seeing a doctor

*Please see Exhibit 06 for further detail of the methodology.

Tab 04 Historical Analysis – Percentage of Population Who Do Not Visit a Physician Page 2
The 1991 to 2016 Compounded Annual Growth Rate (CAGR) of the percent of the
population that see a physician in a year was -0.23%.

All things being equal, one would expect this factor to reduce the growth rate in each
year by 0.23%.

The -0.23% is a CAGR which is calculated pursuant to the following formula:

𝑽𝒂𝒍𝒖𝒆 𝒂𝒕 𝒀 + 𝑵 𝟏
( )𝑵 − 𝟏
𝑽𝒂𝒍𝒖𝒆 𝒂𝒕 𝒀

Where Y is the start year, N is the number of years ahead.

This captures the average annual % change in the % of the population seeing the doctor
each year.

Tab 04 Historical Analysis – Percentage of Population Who Do Not Visit a Physician Page 3
TAB 05 PATIENT ENCOUNTERS PER CAPITA

With all due respect to the hard and excellent work performed by Ontario doctors and by
no means diminishing that work, the statistical evidence would indicate that the growth
in average incomes is not attributable to a greater number of patient encounters in a
given year.

The Ministry analyzed all billing records over the past 26 years, identifying every unique
patient encounter with physician in a given year. The analysis involved analyzing more
than 5 billion billed claims that describe (anonymously) the physician who billed the
service, the patient who received it, what was performed, when it was performed and
how much was charged/shadow billed. Having completed that analysis, the total
number of patient encounters was tracked and the levels in 1991/92 were compared to
those in 2016/17.

Figure 5.1 below compares the patient encounters per capita, by age group, for the
years 1991/92 and 2016/17. The patient encounters per capita have declined in almost
every age group, with the exception of the <1 year age bracket, which increased.

Tab 05 Patient Encounters Per Capita Page 1


Figure 5.1 – Average Annual Physician Encounters per Patient 1991-92 vs 2016-17

35 Average Annual Physician Encounters per Patient 1991-92 vs 2016-17


1991-92 2016-17

30 29.1

26.4
Average Physicina Encounters per Patient

25 23.5

21.0 23.6
22.9
20 21.0
18.3

16.1 18.7

15 14.2 16.4
13.0
11.6 11.9 14.2
10.7
9.7 9.7 10.0 12.4
9.4
10 8.6 11.1
8.2 10.2
9.1 7.0 9.2 9.2 9.2
8.8
5.9 5.6 8.1

5 6.6 6.7
5.6
4.6 4.6

0
< 1 year 1 to 4 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44 45 to 49 50 to 54 55 to 59 60 to 64 65 to 69 70 to 74 75 to 79 80 to 84 85 to 89 > 90
years years years years years years years years years years years years years years years years years years years

Note: Laboratory Medicine and Microbiology were removed due to anomalous results historically.

Tab 05 Patient Encounters Per Capita Page 2


It is clear from the above that the growth in the Physician Services Budget cannot be
explained by a patient seeing physicians more often.

All things being equal, one would expect this factor to reduce the growth rate in each
year.

Tab 05 Patient Encounters Per Capita Page 3


TAB 06 PHYSICIAN DAYS WORKED IN A YEAR

With all due respect to the hard and excellent work performed by Ontario doctors and by
no means diminishing that work, the statistical evidence would indicate that the growth
in average incomes is not attributable to physicians working more days in a given year.

The Ministry analyzed all billing records over the past 26 years, identifying every unique
patient encounter with a physician in a given year. The analysis involved analyzing
more than 5 billion billed claims that describe (anonymously) the physician who billed
the service, the patient who received it, what was performed, when it was performed
and how much was charged/shadow billed. Having completed that analysis, the total
number of patient encounters was tracked and the levels between 1991/92 were
compared to those in 2016/17.

Days Worked

In 1991-92 physicians worked 229 days per year on average (a day was considered
worked if a physician billed at least one service) while in 2016-17 physicians worked
194 days per year on average. This indicates that physicians today are working 7 weeks
(35 days) less each year than they did in the 1990s.

Table 6.1: Average days Worked per Physician 1991-92 vs 2016-17

Average Days Worked


Physician Group 1991-92 2016-17 Change % Change
All Physicians 229.5 194.3 -35.2 -15.3%
All Physicians Excluding Radiologists,
Ophthalmologists and Cardiologists 229.0 190.9 -38.1 -16.6%

Tab 06 Physician Days Worked in a Year Page 1


160
200
240
160
200
240
1991-92 1991-92

229.0
1992-93 1992-93 229.5

1993-94 1993-94
1994-95 1994-95
1995-96 1995-96

-16.6%
-15.3%
1996-97 1996-97
1997-98 1997-98
1998-99 1998-99
1999-00 1999-00

Ophthalmologists and Cardiologists)


2000-01 2000-01

Tab 06 Physician Days Worked in a Year


2001-02 2001-02
2002-03 2002-03
2003-04 2003-04
2004-05 2004-05
2005-06 2005-06
2006-07 2006-07
2007-08 2007-08
2008-09 2008-09
Figure 6.1: Average Days Worked per Physician (All Physicians)

2009-10 2009-10
2010-11 2010-11
2011-12 2011-12
2012-13 2012-13
2013-14 2013-14
2014-15 2014-15
2015-16 2015-16
2016-17 2016-17
Figure 6.2: Average Days Worked per Physician (All Physicians Excluding Radiologists,

190.9
194.3

Page 2
Patient Encounters

On those days worked, physicians are also seeing fewer patients now than they did in
the 1990s. Physicians are seeing, on average, 2.2 fewer patients per day in 2016-17
than they did in 1991-92. Excluding the specialties (Diagnostic Radiology,
Ophthalmology and Cardiology) impacted by technological change, physicians are
seeing, on average, 3.5 fewer patients in 2016-17 than they did in 1991-92.

Table 6.2: Average Patient Encounters per Day 1991-92 vs 2016-17

Average Patient Encounters per Day


1
Physician Group 1991-92 2016-17 Change % Change
All Physicians 22.2 20.0 -2.2 -9.9%
All Physicians Excluding Radiologists, Ophthalmologists and
Cardiologists 21.5 18.0 -3.5 -16.1%

Figure 6.3: Historical Average Patient Encounters per Day (All Physicians)

24

22.2

20.0
20 -9.9%

16

Tab 06 Physician Days Worked in a Year Page 3


Figure 6.4: Historical Average Patient Encounters per Day (All Physicians Excluding
Radiologists, Ophthalmologists and Cardiologists)

24

21.5

20

18.0
-16.1%

16

Tab 06 Physician Days Worked in a Year Page 4


Alternative Assumptions

Although we respectfully submit that the assumption used to measure days worked is
the most generous to the physicians (i.e. a day was considered worked if a physician
billed at least one service), we provide below the results using two different
assumptions in a summary format for completeness.

Original Assumption Count days with at least 1 patient encounters

Assumption 2 Count days with at least 2 patient encounters

Assumption 3 Count days with at least 4 patient encounters

Days with at
least 1 patient Days with at least 2 Days with at least 4
encounter patient encounters patient encounters
1991-92 229.5 209.3 187.0
2016-17 194.3 181.1 164.3
Change -35.2 -28.2 -22.7
% Change -15.3% -13.5% -12.1%

For all Physicians excluding Radiology, Cardiology and Ophthalmology:

Days with at
least 1 patient Days with at least 2 Days with at least 4
encounter patient encounters patient encounters
1991-92 229.0 209.0 186.4
2016-17 190.9 177.8 160.9
Change -38.1 -31.1 -25.5
% Change -16.6% -14.9% -13.7%

Please see Exhibit 07 for further details of the methodology.

Tab 06 Physician Days Worked in a Year Page 5


TAB 07 THE IMPACT OF TECHNOLOGY ON GROWTH

Technological improvements can have varying impacts on the health care system and
the delivery of health care services. While the bulk of costs for new technology relate to
drugs and special equipment, from the perspective of the physician services budget the
issue would be whether the net impact of technology is to increase or decrease the time
physicians have to spend providing services. For a technology to be implemented its
impacts should do at least one of the following:

1. Increase life expectancy of patients (reduce mortality)


2. Increase health of patients (reduced morbidity)
3. Increase efficiency of individual service delivery
4. Increase life expectancy and/or quality of health with a net increase in physician
services

Any technologies that increase the need for services or reduce the efficiency of
individual services while not reducing morbidity and mortality should not be
implemented or, if already implemented, should be stopped.

Tab 07 The Impact of Technology on Growth Page 1


1. Technological advances can increase life expectancy.

Examples of this include:

 Better cancer drugs and cancer care


 Hepatitis C drugs
 Better and more precise surgical techniques assisted by improved medical
devices
 Better diagnostic screening
 Pre-natal, intra-partum and neonatal interventions that increases neo-natal
survival

These technological advances increase life expectancy and the age profile of the
population. The resultant increased use of physicians’ services is captured in the
1.9% attributable to population growth and aging. In some cases healthcare
costs are markedly reduced. For example, Hepatitis C drugs cure the disease in
more than 95% of cases and eliminate the costs related to liver failure and liver
cancer. In other cases, for example saving (or improving) the life of a baby,
subsequent life long healthcare costs may be increased.

Tab 07 The Impact of Technology on Growth Page 2


2. Technological changes that improve the health of patients, reduce morbidity and
therefore reduce the number of physician services required for a given illness or
disease.

Examples

 Colo-rectal cancer screening will identify patients at risk for colo-rectal


cancer development through simple stool testing as well as those who
may have colon cancer. Positive testing is followed by colonoscopy.
Cancer may be identified at an early stage and subsequent treatment may
be less invasive. Polyps that may be pre-cancerous are also treated by
excision via colonoscopy which subsequently prevents cancer from
developing
 Obesity and its associated medical conditions can add significant illness
burden to patients and the health care system. Bariatric surgery is an
effective treatment for severe obesity and can reduce the complex
management of complications including diabetes. Bariatric surgery has
been demonstrated to be highly cost effective.
 Tobacco related diseases impact health care expenditures, and reductions
in smoking can reduce an individual’s healthcare costs dramatically.
Ontario programs like STOP and the Ottawa Smoking Cessation Program
have been shown to effectively reduce smoking.
 Improvements in cardiovascular care (better management of diabetes,
hypertension and dyslipidemia) as well as better recognition of myocardial
ischemia and substitution of percutaneous coronary interventions including
stenting for cardiac surgery are improvements in technology that have
reduced PSB costs.

There can be no doubt that technological change can and does reduce the
physician services required.

Tab 07 The Impact of Technology on Growth Page 3


3. Many technological advances enable physicians to work more efficiently and provide
more services in same or less time worked. Since prices for procedures are set
when the technology is new and the technical skills are at the base of the learning
curve, these technological improvements and greater experience enhance
physicians’ incomes by the factor of technical innovation rather than price. This type
of technological change illustrates the melding of growth, price and income which
differentiates this contractor interest arbitration from the traditional
employer/employee/union interest arbitration.

The Ministry submits that price must be reduced in these cases of technology
change since the physician income may be markedly increased by enhanced
physician productivity. As these technology investments that enhance productivity,
growth and income are often funded by the Ministry, it is only fair that productivity
gains are appropriately shared by the Ministry and tax payer.

Examples of this type of growth are illustrated in the first series of submissions by
the Ministry as it relates to fee changes in the following Tabs:

Tab 8d The Historical and Current Understatement of Fee Increases


Tab 11 Technological Change Reductions
A. Introduction
B. Ophthalmology
C. Cardiology
D. Diagnostic Imaging
E. Conclusion

Tab 07 The Impact of Technology on Growth Page 4


4. New technologies which allow for medical interventions that were not possible in
the past may increase growth simply because they are new and were not
performed in the past. These “miracles of modern medicine” are not substitutive
as they are not replacing older techniques or methods. Although they are not
substitutive, they would still be offset to some degree by an improvement in
health (reduced morbidity) that would reduce need for other services as outlined
in 2 above. These specific technologies are factors in growth, but in our
respectful submission do not represent a significant component and are certainly
not greater than those technologies that mitigate or reduce growth.

An example of this type of new “additional” technology is Transcatheter Aortic


Valve Implantation (TAVI). This “less invasive” transcatheter treatment of aortic
valve disease can now be offered to elderly patients or patients with significant
comorbidities who are not candidates for standard aortic valve replacement by
opening the chest. This new technology allows added life years (contributing to
the 1.9% factor) and better function (reducing ER visits and hospital admissions)
but may have a net increase costs to the PSB and health system.

Tab 07 The Impact of Technology on Growth Page 5


Summary:

Technology can increase life expectancy and these incremental costs are capturing by
an increasing and aging population. Technology can markedly reduce health system
and PSB costs curing a disease whose complications are expensive to treat (Hepatitis
C drugs, bariatric surgery). Technology may increase the provision of needed health
services and physician productivity and income (cataract surgery productivity
enhancement). Finally technology may increase health system costs while improving
outcomes by introducing treatments for patients who “had no hope” (TAVI).

The Ministry submits that it is impossible to make a blanket statement that technology
increases or reduces overall costs. Each technology enhancement must be judged on
its merits of cost effectiveness. Ontario leads the world in Health Technology
Assessment through Health Quality Ontario and generally only cost effective
technologies are approved for Ministry investment.

Cost effectiveness does not necessarily mean reduced costs. Sometimes costs are
increased but the increase in patient outcomes warrants the increased cost. However it
needs to be recognized that a careful assessment of both costs and outcomes is
undertaken before any new procedures are approved for funding in our system.

Tab 07 The Impact of Technology on Growth Page 6


TAB 08 THE IMPACT OF ALLIED HEALTH PROFESSIONALS ON PSB
GROWTH

As a natural consequence of the significant costs of physicians’ services and the


increasing needs for such services as a result of the population growth and aging, it is
not surprising that there has been increased reliance on allied health professionals and
increases in their scope of practices.

This increased utilization of allied health professionals not only increases access to
services for patients, but also substitutes or replaces, at least in part, what would have
otherwise been physician services.

The net impact would be to reduce or mitigate the growth in physicians’ services.

At this point, the Ministry is not reducing the 1.9% proposal for which it acknowledges
responsibility within the context of this Interest Arbitration Framework, but it does
respectfully submit that this factor should not, in of itself, increase the physicians’ billing
and, on balance, reinforces the Ministry position that 1.9% is a high water mark.

A more in depth review may assist future negotiators and Boards of Arbitration in
quantifying the extent to which the use of other allied health professionals and the
expansion of their scope of practice can and does actually reduce physicians’ billings or
costs.

We review certain allied health professionals below where the types of services they
provide have changed in recent years.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 1


Pharmacists and Flu shots

Pharmacists have seen a significant enhancement to their scope of practice in recent


years (Exhibit 08). For example, as of 2012, pharmacists have been authorized to
administer the flu vaccine.

The table below provides a simple example of the substitution or replacement of


physician services by pharmacists.

Since 2012/13, the number of physicians’ billings for flu shots have dropped by almost
400,000 (1,991,408 in 2012/13 versus 1,604,246 in 2016/17).

This reduction in services has been more than made up by an increase in pharmacists
billing for flu shots by some 725,000 (246,593 in 2012/13 versus 1,009,194 in 2016/17).

Not only have physician services dropped, but what would otherwise have been
material growth in this important service has been mitigated by using other allied health
professionals to provide the same or similar service. It is expected that the growth in
pharmacy delivered flu shots will continue.

Table 8.1 – Number of People Receiving Flu Shots from physicians versus pharmacists –
2012/13 to 2016/17

Number of people receiving flu Number of people receiving flu shots


shots from physicians from pharmacists
2012/13 1,991,408 246,593
2013/14 1,928,508 763,853
2014/15 1,751,647 900,389
2015/16 1,608,400 867,474
2016/17 1,604,246 1,009,194
Source: Ontario Drug Benefits Database
Source: Claims History Database
Includes number of unique individuals with a
Includes number of unique individuals
record for a flu shot based on eligible Drug
with a valid claim for the fee schedule
Identification Numbers (provided by Ontario Public
codes G590A or G591A
Drug Programs)

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 2


Further, given the other changes to the pharmacy scope of practice (additional
substances that pharmacists can administer by injection, the renewal of prescriptions in
certain circumstances, etc.), it can be expected that the substitution or replacement of
other physician services by pharmacists will also continue to grow.

At the same time, the number of pharmacists in Ontario has also been steadily
increasing:

Table 8.2 – Number of Ontario Pharmacists – 2010 to 2016

Ontario 2010 2011 2012 2013 2014 2015 2016 % change


Between
2010-16

Population 13,135,063 13,263,544 13,413,702 13,556,229 13,685,171 13,797,038 13,982,984 7%

Pharmacists 12,386 12,891 13,400 13,881 14,433 15,113 15,715 27%

Sources:
1. Population: Statistics Canada, Population of Ontario Census Divisions by Age and Sex, 1986 to 2041 (Spring 2017
Update)
2. Pharmacists: Ontario's Health Professions Database (HPDB), 2010-2016 Submission Periods

Notes:
A. The HPDB captures the number of ‘active’ regulated health professionals (excluding physicians) who are registered
with their respective regulatory college to practice in their profession in any capacity (clinical, research, teaching,
health promotion, etc.). This data does not include members who hold educational registrations
B. This data is derived from that that was originally obtained by the Ministry of Health and Long-Term Care (the ministry)
directly from health regulatory Colleges. The ministry therefore cannot and does not warrant or represent that the
information is accurate, complete, reliable or current.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 3


Midwives and medical services relating to birthing

Midwives provide services to expectant mothers which may otherwise be provided by


an obstetrician.

A midwife may well substitute or replace physician services in the 8 months of care prior
to (and including) delivery and in the post partum period for up to six weeks.

The number of midwives providing these services has increased significantly since
2010.

The scope of practice for midwifery also continues to expand (see Exhibit 08), with
recent scope of practice changes including:
 an expansion to prescribing authority;
 the ability to communicate a diagnosis;
 administering suppository drugs;
 Placing a tube in the nose or mouth of a newborn (intubation);
 Taking a blood sample from a newborn; and,
 Administering a substance by injection or inhalation on the order of a
physician.

This submission is not intended to argue that the policy change to provide women
greater choice in the method of delivery of their children would reduce the overall costs
to the system. It is intended to illustrate that the services provided by physicians in this
area would be reduced or the growth would be mitigated.

A review of hospital deliveries by a midwife from 2010/11 to 2017/18 shows that birthing
services provided by midwives has been growing substantially in recent years (a 59%
increase in total deliveries by a midwife):

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 4


Table 8.3 – Total Deliveries by Midwives – 2010/11 to 2017/18

2010 – 2011 – 2012 – 2013 – 2014 – 2015 – 2016 – 2017 –


2011 2012 2013 2014 2015 2016 2017 2018
Total Deliveries
15,935 16,826 18,182 20,048 21,866 23,080 24,066 25,326
by Midwives

Data Source: Better Outcomes Registry & Network (BORN), 2010-2017 Submission Periods.
Notes: The BORN dataset collects data about pregnancy, birth and childhood in Ontario. It is administered by the Children’s
Hospital of Eastern Ontario (CHEO). Every birthing hospital and midwifery practice in Ontario contributes data, and data are
captured on more than 140,000 births in Ontario. Some births attended to by midwives from the Indigenous Midwifery Programs,
however, may not be captured.
Disclaimers: Although significant effort has been made to ensure the accuracy of the information, neither BORN Ontario nor any
other parties make any representation or warranties as to the accuracy, reliability or completeness of the information contained
herein. There may be incomplete data on births not occurring in hospitals. Figures may underestimate the number of home births
attended to by Indigenous midwives

Further, there are substantial waiting lists for midwife delivered birthing services and it is
expected that the growth in these services will continue.

At the same time, the number of midwives in Ontario has also been steadily increasing:

Table 8.4 - Number of Ontario Midwives – 2010 to 2016

Ontario 2010 2011 2012 2013 2014 2015 2016 % change


Between
2010-16

Population 13,135,063 13,263,544 13,413,702 13,556,229 13,685,171 13,797,038 13,982,984 7%

Midwives 528 555 553 607 652 651 699 32%

Sources:
Population: Statistics Canada, Population of Ontario Census Divisions by Age and Sex, 1986 to 2041 (Spring 2017 Update)
Midwives: Ontario's Health Professions Database (HPDB), 2010-2016 Submission Periods

Notes:
The HPDB captures the number of ‘active’ regulated health professionals (excluding physicians) who are registered with their
respective regulatory college to practice in their profession in any capacity (clinical, research, teaching, health promotion, etc.). This
data does not include members who hold educational registrations
This data is derived from that that was originally obtained by the Ministry of Health and Long-Term Care (the ministry) directly from
health regulatory Colleges. The ministry therefore cannot and does not warrant or represent that the information is accurate,
complete, reliable or current.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 5


Nurse Practitioners lead Rural Nursing Stations, Primary Care Programs, Clinics
and Other Inter-professional Teams

Perhaps the group with the greatest expansion to their practice capabilities are the
Nurse Practitioners. Recent regulatory changes to the Nurse Practitioner scope of
practice include:
 Broad prescribing of drugs (e.g., NPs no longer have to prescribe from a
list of drugs) ;
 Expanded prescribing authority to include controlled drugs and
substances. NPs also became authorized to prescribe and administer
methadone without an exemption and prescribe diacetylmorphine
(pharmaceutical-grade heroin);
 Dispensing, compounding, and selling drugs in keeping with a regulation
made by the College;
 Setting or casting a fracture of a bone or dislocation of a joint;
 Ordering any laboratory test appropriate for client care (e.g., NPs no
longer have to order from a list of laboratory tests);
 Ordering diagnostics and treatments for hospital in-patients based on the
existing diagnostic test list;
 Discharging patients from hospital;
 Authorized to admit persons to hospitals;
 Removed restrictions on NP ordering of X-rays and ultrasounds.

There are a number of medical programs led by Nurse Practitioners. In these settings, a
Nurse Practitioner may perform services which would otherwise have been provided by
a physician.

We set out below the extent of these programs in 2017-18.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 6


Estimated patients
2017/18 Number of nurses
served
16 RNs
Rural Nursing Stations 35,000
16 NPs
Primary care NP Program and related 48,000 61 NPs
19 RPNs
NP-led clinics 60,000 38 RNs
119 NPs
Other inter-professional teams
Includes: Family Health Teams, Community 294 RPNs
Health Centres, Aboriginal Health Access 4,008,000 1,198 RNs
Centres, Public Health Units, Long-term care 920 NPs
homes, etc.
Data source: Primary Health Care Branch, 2017/18 data
RN: Registered nurse; RPN: Registered practical nurse; NP: Nurse practitioner.

In 2015 the estimated number of visits made by nurse practitioners working in FHTs
was 600,000.

Source: Claims History Database, Primary Care Branch Nurse Practitioner Access
Reporting (NPAR) Pilot Project
Using the Claims History Database for NPs working in FHTs who were part of the
Methodology
NPAR pilot project and knowing the NP FTEs in each FHT, the number of visits
provided per NP FTE per year was estimated at 1,300. The total visits was
calculated as the 1,300 visits for all NP FTEs in FHTs for 2015.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 7


As illustrated in the table below the number of Nurse Practitioners have increased
dramatically since 2012/13.

Table 8.5 - Number of Ontario Nurse Practitioners – 2010 to 2016

Ontario 2010 2011 2012 2013 2014 2015 2016 %


Between
2010 -
2016

Population 13,135,063 13,263,544 13,413,702 13,556,229 13,685,171 13,797,038 13,982,984 7%

Nurse
1,694 2,017 2,253 2,360 2,567 2,822 3,082 82%
Practitioner

Sources:
1. Population: Statistics Canada, Population of Ontario Census Divisions by Age and Sex, 1986 to 2041 (Spring 2017
Update)
2. Nurse Practitioners: Ontario's Health Professions Database (HPDB), 2010-2016 Submission Periods
Notes:
A. The HPDB captures the number of ‘active’ regulated health professionals (excluding physicians) who are registered
with their respective regulatory college to practice in their profession in any capacity (clinical, research, teaching,
health promotion, etc.). This data does not include members who hold educational registrations
B. This data is derived from that that was originally obtained by the Ministry of Health and Long-Term Care (the ministry)
directly from health regulatory Colleges. The ministry therefore cannot and does not warrant or represent that the
information is accurate, complete, reliable or current.

As numbers of Nurse Practitioners increase, it will clearly mitigate growth in physicians’


billings. In fact, scope of practice enhancements for Nurse Practitioners as well as
increases in the number of Nurse Practitioners will probably reduce the growth in
physicians’ billings overall. The continued growth in NP Led Clinics will reduce the need
for family practitioners, especially in difficult to serve populations or geographies.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 8


Anaesthesia Assistants

Anaesthesia assistants perform work that would otherwise be undertaken and billed by
an Anaesthesiologist. This work is done under the supervision of an Anaesthesiologist
but as a result of the help from an Anaesthesia assistant, the Anaesthesiologist bills the
Ministry of Health and Long-Term Care less per case.

The work of an Anaesthesia assistant also enables the Anaesthesiologist to complete


the case more efficiently and as a result more surgeries are completed. Therefore these
allied health professionals diminish the physicians’ billings per surgery case, but
increase physicians’ growth in the numbers of surgery cases.

To a large degree, the growth in surgery cases will be captured by the 1.9% growth
factor attributable to population and aging but clearly the cost factor attributable to the
Physicians Services Budget is mitigated by the use of Anaesthesia Assistants whose
incomes are captured within the Hospital budgets.

Table 8.6 - Number of Ontario Anaesthesia Assistants – 2010 to 2016

Ontario 2010 2011 2012 2013 2014 2015 2016 %


between
2010-
2017

Population 13,135,063 13,263,544 13,413,702 13,556,229 13,685,171 13,797,038 13,982,984 7%

Anaesthesia
NA 51 52 46 49 53 62 22%
Assistants

Sources:
1. Population: Statistics Canada, Population of Ontario Census Divisions by Age and Sex, 1986 to 2041 (Spring 2017
Update)
2. Anaesthesia Assistants: Specialist Contracts Unit, Negotiations Branch, Negotiations and Accountability Management
Division, Ministry of Health and Long-Term Care
Note:
Data for Anaesthesia Assistants (AAs) is by fiscal year. 2011 represents the 2011-12 fiscal year. The number for AAs is for those
that are funded by the ministry and may not provide a complete picture of the number of AAs working in the province.

Tab 08 The Impact of Allied Health Professionals on PSB Growth Page 9


TAB 09 AVERAGE PHYSICIAN INCOME IMPROVEMENTS CANNOT BE
EXPLAINED BY PRICE

Average Physician FFS Billings have Historically Exceeded Fee Growth

While the Ministry is unable to segregate price from growth on the total PSB, it is
possible to do so on the FFS billings outside Primary Care. Primary Care is excluded
because of the evolution into the PEM Models (particularly the very popular FHO
models). The transitions into the FHO models have a very significant price impact, but it
is hard, if not impossible, to segregate out total growth.

Therefore, the following analysis is not complete, but does confirm conclusively that
growth is materially higher than prices, and that average physician incomes grow at a
much faster pace than what price alone would dictate.

Since 2003-04 average FFS billings have grown 39% while fee rates have only grown
18% over the same period. This would imply that physician average billings have grown
21% beyond price increases over this period.

Tab 09 Average Physician Income Improvements Cannot Be Explained by Price Page 1


Figure 9.1 – Average FFS Billings Growth vs Fee Rate Growth 2003-04 to 2016-17

Methodological Notes

It is appropriate to use FFS billings in order to compare Physician billings growth to fee
rate growth, as changes in fee rates will not impact APP/PC payments. Furthermore,
due to family medicine’s shift towards APP/PC payment models over this period they
were excluded from the analysis (in both the calculation of the fee rate growth and the
average FFS billings). Finally, any physicians who did not bill any FFS were excluded
from the calculation of average FFS billings. Please see Exhibit 09 for further details on
methodology.

Tab 09 Average Physician Income Improvements Cannot Be Explained by Price Page 2


Even the OMA illustrates this point (OMA Brief – Phase I submission) when it identified
the following “price reduction” at paragraph 25 during the period of 2012-2014:

“As a result of the 2012 unilateral cuts and even further cuts “agreed to” in the
2012 PSA, Ontario’s doctors did more than their fair share to help Ontario’s
economic recovery from the 2008-2009 recession and, in the result, suffered a
significant decline in physician compensation. The 5.3% overall fee reduction,
including what was intended to be a temporary 0.5% across-the-board discount
to physician payments, resulted in the average gross clinical payments per
Ontario physician declining by 1.9% over the term of the 2012-2014 agreement,
at the same time as average gross clinical payments per physician in the rest of
the country increased by 5.7%. Moreover, these reductions were occurring at the
same time as the expenses of practice continued to increase.”

The above is also reiterated at paragraphs 76 to 79 of the OMA’s Brief.

The OMA has acknowledged that this 5.3% fee reduction only reduced the average
gross clinical payments by 1.9%.

Further, in charts at paragraph 138 and 140 of their brief, the OMA then goes on to
review Ontario Physician Fees from 2012/13 to 2016/17 as compared to Ontario
Physician Average Gross Clinical Payments over the same period

Tab 09 Average Physician Income Improvements Cannot Be Explained by Price Page 3


We have recreated the relevant columns of the OMA’s table at paragraph 138 of their
brief below, and included a column indicating the Physician income growth above price
change:

Year Ontario Ontario Physician


Physician Physician Income
Avg. Gross Fee Growth
Clinical Increase Above
Payments Price
Change
2012/13 -1.2% -3.8% 2.6%
2013/14 -0.7% -1.4% 0.7%
2014/15 -2.0% -0.8% -1.2%
2015/16 -2.6% -4.8% 2.2%
Total -6.50% -10.80% 4.3%

The above table also emphasizes that physician compensation does grow at a higher
rate than the fee increases.

Tab 09 Average Physician Income Improvements Cannot Be Explained by Price Page 4


The Impact of Net New Physicians on the Overall Billings

Both parties agree that the proportionate increase in the number of new physicians has
potential to impact PSB expenditures. Indeed, the combination of population increase
and aging will likely require increased services from a variety of health care providers
including physicians. There is agreement that the overall number of doctors is currently
predicted to increase each year in Ontario over the timeframe of this agreement and
with the increasing population and aging of the population an increasing number of
health care providers is needed.

It is also recognized that younger physicians in their first three or four years of practice
bill less than their more experienced colleagues. As the overall provincial number of
physicians increases, the average experience of physicians decreases since
proportionately more young doctors are added to the census. Therefore the province
needs more than a 1.9% increase in physicians to service a 1.9% increase in patient
service. In the next paragraph we will describe that the forecast increase in physician
census is appropriate to manage a 1.9% increase in service.

As shown in the graphs below (Figures 9.2 and 9.3), Ontario’s doctor population is
projected to increase by 2.5% in 2017 and 2018, 2.3% in 2019, and 2.2% in 2020. This
steady annual increase in physician numbers is sufficient to address a 1.9% increase
in patient service which requires an annual increase in physician census of 2.5%
(detailed below). The additional “net new” doctors will result in a greater proportion of
physicians who are starting practice.

The data regarding physician increases is taken from the Assessing Doctor Inventories
and Net-flows Model (ADIN) which is well known and relied upon by both parties. The
ADIN model has been updated with early 2017 data. As shown below, the rate of
physician supply growth remains well above the population increase for the term of this
agreement and in fact for more than a decade (shown below in Figures 9.2 and 9.3).

Tab 09 Average Physician Income Improvements Cannot Be Explained by Price Page 5


29,63

30,36

31,11

31,83

32,53

33,22

33,87

34,48

35,05

35,61

36,13

36,60
Figure 9.2 - ADIN projections of doctor census increase

Figure 9.3 - Relationship of Physician Supply and Population

Tab 09 Average Physician Income Improvements Cannot Be Explained by Price Page 6


The analysis of OHIP billing data shows that doctors starting their first year of
FFS billing typically bill at about 72% of their eventual rate and continue at a
similar rate in their second year of practice (see Figure 9.4 below). It is also
recognized that FHO doctors starting a new practice typically take about three
years to achieve a full roster and that in their first year they typically earn about
50% of an eventual full practice income. Since new doctors bill at about 75% of
the average doctor’s billings it follows that a 2.5% increase in physicians is
needed annually to manage a 1.9% annual increase in need for patient services.

Figure 9.4: Doctors in first and second years of FFS practice typically bill at about 75%
of their eventual annual billing rate and that their billings plateau by four to five years.
TAB 10 APPROPRIATENESS

A critical component of ensuring the sustainability of our health care resources is


ensuring appropriateness of services delivered based on the best available evidence.

A focus on appropriateness as a key component of optimal quality care is occurring in


many jurisdictions around the world and includes the Choosing Wisely campaign, the
United States Preventative Services Task Force, the National Institute of Health and
Care Excellence “do not do” resources, Australia’s federal Quality Management
Framework of the Medicare Benefits Schedule, peer reviewed health care literature and
other recognized entities.

This focus can be seen from our highlighted comments contained in a significant paper
in July 2017 from the well-respected medical journal Lancet. The entire paper provides
significant insight into the issue and is provided at Exhibit 10.

Right care 1
Evidence for overuse of medical services around
the world
Shannon Brownlee, Kalipso Chalkidou, Jenny Doust, Adam G Elshaug, Paul Glasziou, Iona Heath*, Somil Nagpal, Vikas
Saini, Divya Srivastava, Kelsey Chalmers, Deborah Korenstein

Overuse, which is defined as the provision of medical services that are more likely to cause harm
than good, is a pervasive problem. Direct measurement of overuse through documentation of
delivery of inappropriate services is challenging given the difficulty of defining appropriate care for
patients with individual preferences and needs; overuse can also be measured indirectly through
examination of unwarranted geographical variations in prevalence of procedures and care intensity.
Despite the challenges, the high prevalence of overuse is well documented in high-income countries
across a wide range of services and is increasingly recognised in low-income countries. Overuse of
unneeded services can harm patients physically and psychologically, and can harm health systems
by wasting resources and deflecting investments in both public health and social spending, which is
known to contribute to health. Although harms from overuse have not been well quantified and
trends have not been well described, overuse is likely to be increasing worldwide.

Tab 10 Appropriateness Page 1


Introduction

Overuse, which Chassin and Galvin defined as ‘the provision of medical services for which the
potential for harm exceeds the potential for benefit’,1 is increasingly recognised around the world.
Directly measuring overuse requires a definition of appropriate care, which is often challenging. In
the USA, estimates of spending on overuse vary widely: conservative estimates based on the direct
measurement of individual services range from 6% to 8% of total health-care spending,2 whereas
studies of geographical variation (an indirect measure) indicate that the proportion of Medicare
spending on overuse is closer to 29%.3 Worldwide, overuse of individual services can be as high as
89% in certain populations.4 Although overuse has mainly been documented in high-income
countries (HICs), low- and middle-income countries (LMICs) are not immune. Evidence
suggests widespread overuse is occurring in countries as diverse as Australia,5 Brazil,6 Iran,7
Israel,8 and Spain.9 Overuse can coexist with unmet health-care needs, particularly in LMICs.

Key messages

• Overuse is difficult to measure and has not been well


characterised

• Most studies of overuse have been done in high-income


countries, but there is growing evidence that overuse is a
global problem

• Overuse is likely to cause physical, psychological and
financial harm to patients

• Overuse deflects resources from public health and other


social spending in both low-income and high-income

… • countries
• Overuse occurs across a wide range of medical specialties

Ultimately, overuse can be considered to occur along a continuum. At one end of the continuum
lie tests and treatments that are universally beneficial when used on the appropriate patient,
such as blood cultures in a young, otherwise healthy patient with sepsis, and insulin for
patients with type 1 diabetes. At the other end of the continuum are services that are entirely
ineffective, futile, or pose such a high risk of harm to all patients that they should never be
delivered, such as the drug combination fenfluramine-phentermine for obesity.22 However, the
majority of tests and treatments fall into a more ambiguous grey zone,23,24 which includes:
services that offer little benefit to most patients (eg, glucosamine for osteoarthritis of the
knee); those for which the balance between benefits and harms varies substantially among
patients (eg, opioids for chronic pain, antidepressant medications for adolescents); and the
many services that are backed by little evidence to help decide which patients, if any, might
benefit and by how much (eg, routine blood testing in patients with hypertension) (see figure 1:
Grey zone services). Even when robust consensus has established criteria defining the
appropriateness of tests and treatments (such as those developed for cardiological services in the
USA), appropriateness can remain uncertain in many individual cases.25”

Tab 10 Appropriateness Page 2


In Canada, Choosing Wisely Canada has been launched, Health Quality Ontario has a
strong focus on appropriateness initiatives and the Canadian Medical Association has
published a paper on “Appropriateness in Health Care” (Exhibit 11) which defined
appropriateness as:
“The right care, provided by the right providers, to the right patient, in the right place, at
the right time, resulting in optimal quality care.”

Appropriateness of care has also been identified as a national priority by Canadian


provincial and territorial premiers, with the following definition adopted by all provincial
and territorial ministers of health in March 2013 (Exhibit 12):

“In the context of health care, appropriateness is the proper or correct use of health
services, products and resources. Inappropriate care, in contrast, can involve overuse,
underuse and/or misuse of health services, products and resources.

Appropriateness is primarily determined by analyses of the evidence of clinical


effectiveness, safety, economic implications and other health system impacts.
The practical application of appropriateness is made when these analyses are qualified
by (a) clinician judgment, particularly in atypical circumstances, and (b) societal and
ethical principles and values, including patient preferences.”

The Challenge

A recent article in JAMA reinforces the fact that these changes are difficult to achieve
voluntarily with Medical Associations, since these changes may not be in the financial
best interest of the members the Associations represent.

Tab 10 Appropriateness Page 3


Realizing The Promise Of Choosing Wisely Will Require Changes Both In The
Culture Of Specialty Societies And In Public Policy

NOVEMBER 7, 2017

10.1377/HBLOG20171107.649027

Avoiding wasteful medical services is key to improving the quality and efficiency of health care.
The Choosing Wisely initiative—launched in 2012 to spark conversations among clinicians and
patients about the overuse of common tests, treatments, and procedures—is an important step
forward. Unfortunately, the campaign has yet to have a significant impact. One study found a
small decrease in just two of seven low-value services listed by Choosing Wisely, and a small
increase in the use of two others.

The failure of the Choosing Wisely campaign to bring about a substantial reduction in the use of
unnecessary services is disappointing but predictable. Even the strongest medical evidence often
fails to change patient care and clinical practice. In their thoughtful Health Affairs article, Eve A.
Kerr, Jeffrey T. Kullgren, and Sameer D. Saini discuss a number of ideas to increase the impact
of Choosing Wisely, such as providing physicians information about how their practice styles
compare to those of peers or requiring clinicians seeking to prescribe antibiotics to
provide written justifications.

We endorse these ideas but believe they are insufficient. The proposed solutions fail to
adequately confront the far-reaching changes that will be necessary both in the organizational
culture of specialty societies and in public policy to move US health care toward a more
evidence-based system.

The Culture Of Medical Societies Must Change

Choosing Wisely implicitly recognizes that US health care must transition away from a medical
culture based on the assumption that more care is better. Yet one reason for the discouraging
results of the campaign is that it has not fully accepted the scope and scale of the cultural and
organizational changes that many medical societies must undergo to become effective advocates
for the avoidance of unnecessary (and sometimes harmful) care. For example, societies routinely
press payers to maintain coverage and generous reimbursement of both high- and low-value
treatments used in their practice areas. When the benefits of a particular treatment are called into
question by scientific studies, societies frequently give the narrowest possible construction to
research findings. They do so for a variety of reasons, including a desire to protect the
professional and financial interests of their members. Specialty groups will need to begin
embracing evidence about the (in)effectiveness of tests and treatments as an opportunity to
improve patient care.

What makes the transformation of the culture of professional societies a daunting task is that
many physicians seem content with specialty groups in their current form. As part of the research
for our book Unhealthy Politics: The Battle over Evidence-Based Medicine (coauthored with
Alan S. Gerber), we conducted a national survey of physicians in 2015. We received 374 total
Tab 10 Appropriateness Page 4
responses (response rate of 50.7 percent). We presented respondents with the following scenario:
“Suppose a leading medical journal publishes a new study (widely covered in the mainstream
media) that calls into question a treatment that is commonly used in your practice area. The
evidence suggests that the treatment might not be as effective as previously thought.” We then
asked respondents how they would like their medical society to respond to the medical study.
The survey found that many doctors want their society to push back when treatments are
questioned; the preferred response among respondents was for medical societies “to take an
active role in critiquing the quality of the study and point out any weaknesses of the study.”
Almost 75 percent of respondents somewhat or strongly agreed with this position. Sixty-one
percent of doctors also supported (somewhat or strongly) the idea that the medical society should
“argue that individual physicians are able to evaluate the new evidence and should be permitted
to continue practicing as they think best.” In contrast, there was less support for having medical
societies play a neutral information transmission role. Just 52 percent of doctors (somewhat or
strongly) supported the society disseminating the study’s results without taking a stance. In sum,
transforming the culture of the medical profession will be difficult because when specialty
groups resist evidence, they are generally in synch with the preferences of front-line clinicians.

Medical Societies Must Do A Better Job Educating Doctors About Health Policy Issues

Medical societies have a responsibility to educate doctors not only about the financial costs of
unnecessary treatments but also about how their own practice styles can lower the quality of care
patients receive. In their Health Affairs study, Carrie H. Colla and Alexander J. Mainor found
that even when prompted with a description of Choosing Wisely, less than a majority (42
percent) of physicians in 2017 reported having heard of the campaign. While improving patient
welfare should be the main focus of Choosing Wisely, it is striking that most doctors remain
poorly informed about the amount of waste in the US health care system. For example, just
below half of the physicians in our survey (48.5 percent) reported that they had “heard anything
about” research on geographic variation in use and spending, even though such variation is one
of the key pieces of evidence adduced to support the claim that a significant proportion of US
health care is wasted. (Less than 3 percent of doctors in our survey said they were “very
familiar” with this research.)

Our sense is that many societies are not educating their members about the capacity of some
regions to control waste without any reductions in quality or outcomes. Indeed, in a pilot survey
we conducted at a meeting of physicians in Charlottesville, Virginia, we found that the few
doctors who did know about variation research had usually learned about it not from their
societies but rather by reading Atul Gawande’s New Yorker articles.

If doctors were to strongly advocate for the need for evidence to guide care, the public’s
concern that guidelines will simply lead to rationing and “one-size-fits-all” medicine would be
eased. The US public believes that doctors are experts who are concerned about helping
people and does not see economic incentives as a primary driver of doctors’ behavior. This deep
reservoir of public trust means that doctors not only have the professional responsibility to
exercise public leadership on improvements to the health care system but also that they have an
opportunity to do so.

Tab 10 Appropriateness Page 5


Supportive Public Policy Changes Are Also Needed

While the Choosing Wisely campaign cannot fulfill its promise without stronger physician
leadership, the government also has a role to play in reducing the use of low-value care by
improving the medical evidence base and reducing financial incentives to deliver unnecessary
tests and procedures. The establishment of the Patient-Centered Outcomes Research
Institute (PCORI) to generate information on what treatments work best for which patients is a
positive step. However, the studies funded by PCORI have yet to have much impact on clinical
practice. The agency’s authorization expires in 2019, and it is too soon to know if the agency
will survive.

While health care experts across the political spectrum recognize the need to strengthen the
medical evidence base, the expansion of the federal government’s role in funding comparative
effectiveness research got caught up in the partisan battle over the Affordable Care Act (ACA).
As a result, many conservatives who had long been concerned about wasteful spending argued
that the government would use the results of comparative effectiveness studies as a pretext to
ration care and create “death panels.” Our interviews with Republican congressional staffers
suggest that attacks on federal support for comparative effectiveness research were strategic. The
intention behind the attacks was to foment public doubt about the government’s role in the health
care arena; they did not reflect a sincere belief among Republican policy makers that the current
health care system is efficient or that unnecessary treatments should not be retrenched. If and
when the fate of the ACA is settled, an opportunity may arise to build support among physicians
and politicians of both parties for further policy reforms to strengthen Medicare’s coverage
determination process and to reduce spending on medical services that produce small or no
health benefits at substantial cost

Tab 10 Appropriateness Page 6


The Choosing Wisely Canada (CWC) 2017 report on Unnecessary Care in Canada,
referenced earlier (Exhibit 01) lists a number of recommendations and states that “up to
30% of the tests, treatments and procedures associated with the 8 selected CWC
recommendations are potentially unnecessary.”

The list of 2017 recommendations is summarized on the following 2 pages.

The Choosing Wisely Canada report provides a much broader foundation for the
recommendations.

Tab 10 Appropriateness Page 7


Choosing Wisely Recommendations (Summary) – 2017
Nine Examples of Ways to Seek Appropriateness

Topic

Primary Care

Don’t do imaging for lower-back pain unless red flags are present

Red flags denoting that a scan might be necessary include suspected epidural abscess or hematoma
presenting with acute pain, but no neurological symptoms (urgent imaging is required); suspected
cancer; suspected infection; cauda equine syndrome; severe or progressive neurologic deficit; and
suspected compression fracture.
Recommended by the College of Family Physicians of Canada/Canadian Medical Association and the Canadian
Association of Radiologists

Don’t use atypical antipsychotics as a first-line intervention for insomnia in children and
youth

Atypical antipsychotics, also referred to as second- generation antipsychotic drugs, are a group of
medications used to treat psychiatric conditions (e.g., schizophrenia, bipolar disorder, autism).
Atypical antipsychotics are less likely than typical antipsychotics (which are more widely used) to
cause extrapyramidal effects in patients, including symptoms such as paranoia, anxiety and tremors.
Recommended by the Canadian Academy of Geriatric Psychiatry, the Canadian Academy of Child and Adolescent
Psychiatry and the Canadian Psychiatric Association
Don’t use benzodiazepines and/or other sedative-hypnotics in older adults as the first choice
for insomnia, agitation or delirium

Recommended by the Canadian Geriatrics Society and the Canadian Society of Hospital Medicine

Don’t routinely do screening mammography for average-risk women age 40 to 49

Individual assessment of each woman’s preferences and risk should guide the discussion and
decision regarding mammography screening in this age group.
Recommended by the College of Family Physicians of Canada/ Canadian Medical Association

Tab 10 Appropriateness Page 8


Specialist Care

Don’t routinely perform preoperative testing (such as chest X-rays, echocardiograms or


cardiac stress tests) for patients undergoing low-risk surgeries
Recommended by the Canadian Society of Internal Medicine

Don’t order a baseline electrocardiogram for asymptomatic patients undergoing low-risk non-
cardiac surgery
Recommended by the Canadian Anesthesiologists’ Society

Don’t perform stress cardiac imaging or advanced non-invasive imaging as preoperative


assessment in patients scheduled to undergo low-risk non-cardiac surgery
Recommended by the Canadian Cardiovascular Society

Emergency Care

Don’t do imaging for minor head trauma unless red flags1 are present
Recommended by the Canadian Association of Radiologists

Don’t order CT head scans in adults and children who have suffered minor head injuries
(unless positive for a validated head injury clinical decision rule)
Recommended by the Canadian Association of Emergency Physicians

Hospital Care

Don’t routinely obtain head CT scans in hospitalized patients with delirium in the absence of
risk factors

Risk factors may include recent head trauma or fall, new focal neurological findings, and sudden or
unexplained prolonged decreased level of consciousness.
Recommended by the Canadian Society of Hospital Medicine

Don’t transfuse red blood cells for arbitrary hemoglobin or hematocrit thresholds in the
absence of symptoms, active coronary disease, heart failure or stroke
Recommended by the Canadian Society of Internal Medicine

1
Red flags include Glasgow Coma Scale (GCS) less than 13, GCS less than 15 at 2 hours post-injury, a
patient age 65 and older, obvious open skull fracture, suspected open or depressed skull fracture, any
sign of basilar skull fracture (e.g., hemotympanum, raccoon eyes, Battle sign, cerebrospinal fluid
otorhinorrhea), retrograde amnesia to the event lasting 30 minutes or longer after the event, dangerous
mechanism (e.g., pedestrian struck by motor vehicle, occupant ejected from motor vehicle, fall from
higher than 3 feet or down more than 5 stairs) and Coumadin-use or bleeding disorder.

Tab 10 Appropriateness Page 9


Since that report, the recommendations have continued.

Choosing Wisely Recommendations (Summary) – 2018


Examples of Ways to Seek Appropriateness by Specialty

Recommendation
Topic*
Number
Emergency Medicine
Don’t order CT head scans in adult patients with simple syncope in the
1
absence of high-risk predictors.
Don’t order neck radiographs in patients who have a negative
4
examination using the Canadian C-spine rules.
Don’t order ankle and/or foot X-rays in patients who have a negative
9
examination using the Ottawa ankle rules.
Family Medicine
Don’t order screening chest X-rays and ECGs for asymptomatic or low
3
risk outpatients.
Don’t routinely do screening mammography for average risk women
aged 40 – 49. Individual assessment of each woman’s preferences and
7
risk should guide the discussion and decision regarding mammography
screening in this age group.
Don’t do annual physical exams on asymptomatic adults with no
8
significant risk factors.
Don’t order DEXA (Dual-Energy X-ray Absorptiometry) screening for
osteoporosis on low risk patients. 9
Internal Medicine
Don’t routinely perform preoperative testing (such as chest X-rays,
echocardiograms, or cardiac stress tests) for patients undergoing low 5
risk surgeries.
Orthopaedics
Don’t use arthroscopic debridement as a primary treatment in the 1
management of osteoarthritis of the knee.
Don’t order a knee MRI when weight-bearing x-rays demonstrate
osteoarthritis and symptoms are suggestive of osteoarthritis as the MRI
2
rarely adds useful information to guide diagnosis or treatment.
Don’t order a hip MRI when x-rays demonstrate osteoarthritis and
symptoms are suggestive of osteoarthritis as the MRI rarely adds useful
information to guide diagnosis or treatment. 3
Spine
Don’t perform fusion surgery to treat patients with mechanical axial low
back pain from multilevel spine degeneration in the absence of: (a) leg
pain with or without neurologic symptoms and/or signs of concordant 1
neurologic compression, and (b) structural pathology such as
spondylolisthesis or deformity.

Tab 10 Appropriateness Page 10


The applicable supporting documentation providing additional detail and references for each of the 2018
recommendations are summarized on the following pages.

Emergency Medicine Recommendation 1

Don’t order CT head scans in adult patients with simple syncope in the absence
of high-risk predictors.

Patients commonly present to the emergency department with syncope. Syncope is a


transient loss of consciousness followed by a spontaneous return to baseline neurologic
function that does not require resuscitation. The evaluation of syncope should include a
thorough history and physical exam to identify high-risk clinical predictors for CT head
abnormalities. These high-risk predictors include, but are not limited to: trauma above
the clavicles, headache, persistent neurologic deficit, age over 65, patients taking
anticoagulants, or known malignancies. Many patients with syncope receive a CT scan
of the head; however, in the absence of these predictors, a CT head is unlikely to aid in
the management of syncope patients. CT scans can expose patients to unnecessary
ionizing radiation that has the potential to increase patients’ lifetime risk of cancer.
Unwarranted imaging also increases length of stay and misdiagnosis.

Sources:

Goyal N, et al. The utility of head computed tomography in the emergency department
evaluation of syncope. Intern Emerg Med. 2006;1(2):148-50. PMID: 17111790.

Grossman SA, et al. The yield of head CT in syncope: a pilot study. Intern Emerg Med.
2007 Mar;2(1):46-9. Epub 2007 Mar 31. PMID: 17551685.

Sheldon RS, et al. Standardized approaches to the investigation of syncope: Canadian


Cardiovascular Society position paper. Can J Cardiol. 2011 Mar-Apr;27(2):246-
53. PMID: 21459273.

Related Resources:

Patient Pamphlet: Avoid Unnecessary Treatments in the ED: Talking with the doctor can
help you make the best decision

Tab 10 Appropriateness Page 11


Emergency Medicine Recommendation 4

Don’t order neck radiographs in patients who have a negative examination using
the Canadian C-spine rules.

Neck pain resulting from trauma (such as a fall or car crash) is a common reason for
people to present to the emergency department. Very few patients have a cervical
spinal injury that can be detected on radiographs (“X-rays”). History, physical
examination and the application of clinical decision rules (i.e., the Canadian C-spine
rule) can identify alert and stable trauma patients who do not have cervical spinal
injuries and therefore do not need radiography. The Canadian C-spine rule has been
validated and implemented successfully in Canadian centres, and physicians should not
order imaging unless this rule suggests otherwise. Unnecessary radiography delays
care, may cause increased pain and adverse outcomes (from prolonged spinal board
immobilization), and exposes the patient to ionizing radiation without any possible
benefit. This strategy will reduce the proportion of alert patients who require imaging.

Sources:

Michaleff ZA, et al. Accuracy of the Canadian C-spine rule and NEXUS to screen for
clinically important cervical spine injury in patients following blunt trauma: a systematic
review. CMAJ. 2012; 184(16):E867-76. PMID: 23048086.

Stiell IG, et al. Implementation of the Canadian C-Spine Rule: prospective 12 centre
cluster randomised trial. BMJ. 2009; 339:b4146. PMID: 19875425.

Stiell IG, et al. The Canadian C-spine rule versus the NEXUS low-risk criteria in patients
with trauma. N Engl J Med. 2003; 349(26):2510-8. PMID: 14695411.

Related Resources:

Patient Pamphlet: Avoid Unnecessary Treatments in the ED: Talking with the doctor can
help you make the best decision

Tab 10 Appropriateness Page 12


Emergency Medicine Recommendation 9

Don’t order ankle and/or foot X-rays in patients who have a negative examination
using the Ottawa ankle rules.

Foot and ankle injuries in children and adults are very common presentations to
emergency departments. The Ottawa Ankle Rules (OAR) have been validated in both
children (greater than 2 years old) and adult populations, and have been shown to
reduce the number of X-rays performed without adversely affecting patient care. In alert,
cooperative and sensate patients with blunt ankle and/or foot trauma within the previous
ten days and who are not distracted by other injuries, only those who fulfill the OAR
should undergo ankle and/or foot X-rays. Imaging of the ankle and/or foot in patients
who are negative for the OAR does not improve outcomes, exposes the patient to
unnecessary ionizing radiation and contributes to flow delays without providing
additional value.

Sources:

Plint AC, et al. Validation of the Ottawa Ankle Rules in children with ankle injuries. Acad
Emerg Med. 1999 Oct;6(10):1005-9. PMID: 10530658.

Stiell IG. Ottawa Ankle Rules by Dr. Ian Stiell [Video file]. 2015 Jul 7 [cited 2015 Nov
23].

Stiell IG, et al. Implementation of the Ottawa ankle rules. JAMA. 1994 Mar
16;271(11):827-32. PMID: 8114236.

Related Resources:

Patient Pamphlet: Avoid Unnecessary Treatments in the ED: Talking with the doctor can
help you make the best decision

Tab 10 Appropriateness Page 13


Family Medicine Recommendation 3

Don’t order screening chest X-rays and ECGs for asymptomatic or low risk
outpatients.

There is little evidence that detection of coronary artery stenosis in asymptomatic


patients at low risk for coronary heart disease improves health outcomes. False positive
tests are likely to lead to harm through unnecessary invasive procedures, over-
treatment and misdiagnosis. Chest X-rays for asymptomatic patients with no specific
indications for the imaging have a trivial diagnostic yield, but a significant number of
false positive reports. Potential harms of such routine screening exceed the potential
benefit.

Sources:

Canadian Association of Radiologists. 2012 CAR diagnostic imaging referral guidelines.


Section E: cardiovascular [Internet]. 2012 [cited 2017 May 9].

Canadian Association of Radiologists. Medical imaging primer with a focus on x-ray


usage and safety [Internet]. 2013 [cited 2017 May 9].

Tigges S, et al. Routine chest radiography in a primary care setting. Radiology. 2004
Nov;233(2):575-8. PMID: 15516621.

U.S. Preventive Services Task Force (USPSTF). Screening for coronary heart disease
with electrocardiography [Internet]. 2012 Jul [cited 2017 May 9].

Related Resources:

Patient Pamphlet: ECG (Electrocardiogram): When you need it and when you don’t

Tab 10 Appropriateness Page 14


Family Medicine Recommendation 7

Don’t routinely do screening mammography for average risk women aged 40 – 49.
Individual assessment of each woman’s preferences and risk should guide the
discussion and decision regarding mammography screening in this age group.

If, after this careful assessment and discussion, a woman’s breast cancer risk is not
high, current evidence indicates that the benefit of screening mammography is
small. Furthermore, for this age group there is a greater risk of false-positive screening
results and consequently of undergoing unnecessary or harmful follow-up procedures.
As always, clinicians need to be aware of changes in the balance of evidence on risk
and benefit and support women in understanding this evidence. High quality materials
to assist these discussions are available through the Canadian Task Force on
Preventive Health Care.

Sources:

Canadian Task Force on Preventive Health Care, et al. Recommendations on screening


for breast cancer in average-risk women aged 40-74 years. CMAJ. 2011 Nov
22;183(17):1991-2001. PMID: 22106103.

Canadian Task Force on Preventive Health Care. Screening for breast cancer:
Summary of recommendations for clinicians and policymakers [Internet]. 2011 Nov 22
[cited 2014 Sep 25].

Canadian Task Force on Preventive Health Care. Screening for Breast Cancer. Risk vs.
Benefits Poster: For ages 40-49 [Internet]. 2014 [cited 2014 Sep 25].

Ringash J, et al. Preventive health care, 2001 update: screening mammography among
women aged 40-49 years at average risk of breast cancer. CMAJ. 2001 Feb
20;164(4):469-76. PMID: 11233866.

US Preventive Services Task Force. Screening for breast cancer: U.S. Preventive
Services Task Force recommendation statement. Ann Intern Med. 2009 Nov
17;151(10):716-26, W-236. PMID: 19920272.

Tab 10 Appropriateness Page 15


Family Medicine Recommendation 8

Don’t do annual physical exams on asymptomatic adults with no significant risk


factors.

A periodic physical examination has tremendous benefits; it allows physicians to check


on their healthy patients while they remain healthy. However, the benefits of this check-
up being done on an annual basis are questionable since many chronic illnesses that
benefit from early detection take longer than a year to develop. Preventive health
checks should instead be done at time intervals recommended by guidelines, such as
those noted by the Canadian Task Force on the Periodic Health Examination.

Sources:

Blais J, et al. L’évaluation médicale périodique 2014. Agence de la santé et des


services sociaux de Montréal et Collège des médecins du Québec [Internet]. 2014 [cited
2014 Aug 25].

Boulware LE, et al. Systematic review: the value of the periodic health evaluation. Ann
Intern Med. 2007 Feb 20;146(4):289-300. PMID: 17310053.

Krogsbøll LT, et al. General health checks in adults for reducing morbidity and mortality
from disease: Cochrane systematic review and meta-analysis. BMJ. 2012 Nov
20;345:e7191. PMID: 23169868.

Si S, et al. Effectiveness of general practice-based health checks: a systematic review


and meta-analysis. Br J Gen Pract. 2014 Jan;64(618):e47-53. PMID: 24567582.

The periodic health examination. Canadian Task Force on the Periodic Health
Examination. Can Med Assoc J. 1979 Nov 3;121(9):1193-254. PMID: 115569.

US Preventive Services Task Force Guides to Clinical Preventive Services. The Guide
to Clinical Preventive Services 2012: Recommendations of the U.S. Preventive Services
Task Force. Rockville (MD): Agency for Healthcare Research and Quality (US); 2012.

Related Resources:

Patient Pamphlet: Health Check-ups: When you need them and when you don’t

College of Family Physicians of Canada Infographic: Rethinking the Annual Physical


Exam and Screening Tests

Tab 10 Appropriateness Page 16


Family Medicine Recommendation 9

Don’t order DEXA (Dual-Energy X-ray Absorptiometry) screening for osteoporosis


on low risk patients.

While all patients aged 50 years and older should be evaluated for risk factors for
osteoporosis using tools such as the osteoporosis self-assessment screening tool
(OST), bone mineral density screening via DEXA is not warranted on women under 65
or men under 70 at low risk.

Sources:

Lim LS, et al. Screening for osteoporosis in the adult U.S. population: ACPM position
statement on preventive practice. Am J Prev Med. 2009 Apr;36(4):366-75. PMID:
19285200.

Papaioannou A, et al. 2010 clinical practice guidelines for the diagnosis and
management of osteoporosis in Canada: summary. CMAJ. 2010 Nov 23;182(17):1864-
73. PMID: 20940232.

Powell H, et al. Adherence to the U.S. Preventive Services Task Force 2002
osteoporosis screening guidelines in academic primary care settings. J Womens Health
(Larchmt). 2012 Jan;21(1):50-3. PMID: 22150154.

The International Institute for Clinical Densitometry. 2013 ISCD Official Positions –
Adult [Internet]. 2013 [cited 2014 Aug 26]. Available from: http://www.iscd.org/.

Related Resources:

Patient Pamphlet: Bone Density Tests: When you need them and when you don’t

Tab 10 Appropriateness Page 17


Internal Medicine Recommendation 5

Don’t routinely perform preoperative testing (such as chest X-rays,


echocardiograms, or cardiac stress tests) for patients undergoing low risk
surgeries.

Routine preoperative tests for low risk surgeries results in unnecessary delays, potential
distress for patients and significant cost for the health care system. Numerous studies
and guidelines outline lack of evidence for benefit in routine preoperative testing (e.g.,
chest X-ray, echocardiogram) in low risk surgical patients. Economic analyses suggest
significant potential cost savings from implementation of guidelines.

Sources:

Benarroch-Gampel J, et al. Preoperative laboratory testing in patients undergoing


elective, low-risk ambulatory surgery. Ann Surg. 2012 Sep;256(3):518-28. PMID:
22868362.

Chee YL, et al. Guidelines on the assessment of bleeding risk prior to surgery or
invasive procedures. British Committee for Standards in Haematology. Br J Haematol.
2008 Mar;140(5):496-504. PMID: 18275427.

Chung F, et al. Elimination of preoperative testing in ambulatory surgery. Anesth Analg.


2009 Feb;108(2):467-75. PMID: 19151274.

Fleisher LA, et al. ACC/AHA 2007 guidelines on perioperative cardiovascular evaluation


and care for noncardiac surgery: A report of the American College of
Cardiology/American Heart Association Task Force on Practice Guidelines (Writing
Committee to Revise the 2002 Guidelines on Perioperative Cardiovascular Evaluation
for Noncardiac Surgery) developed in collaboration with the American Society of
Echocardiography, American Society of Nuclear Cardiology, Heart Rhythm Society,
Society of Cardiovascular Anesthesiologists, Society for Cardiovascular Angiography
and Interventions, Society for Vascular Medicine and Biology, and Society for Vascular
Surgery. J Am Coll Cardiol. 2007 Oct 23;50(17):e159-241. PMID: 19713422.

Fritsch G, et al. Abnormal pre-operative tests, pathologic findings of medical history,


and their predictive value for perioperative complications. Acta Anaesthesiol Scand.
2012 Mar;56(3):339-50. PMID: 22188223.

Institute of Health Economics. Routine preoperative tests – are they


necessary? [Internet]. 2007 May [cited 2014 Feb 10].

May TA, et al. Reducing unnecessary inpatient laboratory testing in a teaching hospital.
Am J Clin Pathol. 2006 Aug;126(2):200-6. PMID: 16891194.

Tab 10 Appropriateness Page 18


National Institute for Clinical Excellence. Preoperative tests: The use of routine
preoperative tests for elective surgery [Internet]. 2003 Jun [cited 2014 Feb 10].

Related Resources:

Patient Pamphlet: Chest X-rays Before Surgery: When you need them and when you
don’t

Patient Pamphlet: Echocardiogram Before Surgery: When you need it and when you
don’t

Patient Pamphlet: Heart Tests Before Surgery: When you need an imaging test and
when you don’t

Tab 10 Appropriateness Page 19


Orthopaedics Recommendation 1

Don’t use arthroscopic debridement as a primary treatment in the management of


osteoarthritis of the knee.

Several recent meta-analyses have culminated in clinical practice guidelines


recommending against the use of arthroscopic debridement for the treatment of
degenerative knee arthritis and meniscal tears in patients over the age of 35, as it
appears there is no maintained benefit of arthroscopic surgery over conservative
management (exercise therapy, injections, and drugs). However, this does not preclude
the judicious use of arthroscopic surgery when indicated to manage symptomatic co-
existing pathology in the presence of osteoarthritis or degeneration.

Sources:

Arthroscopy Association of Canada. Position Statement of Arthroscopy Association of


Canada (AAC) Concerning Arthroscopy of the Knee Joint[Internet]. September 2017
[cited 2018 Feb].

Brignardello-Petersen R, et al. Knee arthroscopy versus conservative management in


patients with degenerative knee disease: a systematic review. BMJ Open. 2017 May
11;7(5):e016114. PMID: 28495819.

Khan M,et al. Arthroscopic surgery for degenerative tears of the meniscus: a systematic
review and meta-analysis. CMAJ. 2014 Oct 7;186(14):1057-64. PMID: 25157057.

Laupattarakasem W, et al. Arthroscopic debridement for knee osteoarthritis. Cochrane


Database Syst Rev. 2008 Jan 23;(1):CD005118. PMID: 18254069.

Thorlund JB, Juhl CB, Roos EM, Lohmander LS. Arthroscopic surgery for degenerative
knee: systematic review and meta-analysis of benefits and harms. BMJ. 2015 Jun
16;350:h2747. PMID: 26080045.

Siemieniuk RAC, et al. Arthroscopic surgery for degenerative knee arthritis and
meniscal tears: a clinical practice guideline. BMJ. 2017 May 10;357:j1982. PMID:
28490431.

Tab 10 Appropriateness Page 20


Orthopaedics Recommendation 2

Don’t order a knee MRI when weight-bearing x-rays demonstrate osteoarthritis


and symptoms are suggestive of osteoarthritis as the MRI rarely adds useful
information to guide diagnosis or treatment.

The diagnosis of knee osteoarthritis can be effectively made based upon the patient’s
history, physical examination, and plain radiography consisting of weight-bearing
posterior-anterior, lateral and skyline views. Ordering MRI scans incurs further waiting
times for patients, can cause unnecessary anxiety while waiting for specialist
consultation, and can delay MRI imaging for appropriate patients.

Sources:

Menashe L, et al. The diagnostic performance of MRI in osteoarthritis: a systematic


review and meta-analysis. Osteoarthritis Cartilage. 2012 Jan;20(1):13-21. PMID:
22044841.

Sakellariou G, et al. EULAR recommendations for the use of imaging in the clinical
management of peripheral joint osteoarthritis. Ann Rheum Dis. 2017 Sep;76(9):1484-
1494. PMID: 28389554. https://www.ncbi.nlm.nih.gov/pubmed/28389554

Zhang W, et al. EULAR evidence-based recommendations for the diagnosis of knee


osteoarthritis. Ann Rheum Dis. 2010 Mar;69(3):483-9. PMID:
19762361. https://www.ncbi.nlm.nih.gov/pubmed/19762361

Tab 10 Appropriateness Page 21


Orthopaedics Recommendation 3

Don’t order a hip MRI when x-rays demonstrate osteoarthritis and symptoms are
suggestive of osteoarthritis as the MRI rarely adds useful information to guide
diagnosis or treatment.

The diagnosis of hip osteoarthritis can be effectively made based upon the patient’s
history, physical examination and plain radiography. Ordering MRI scans incurs further
waiting times for patients, can cause unnecessary anxiety while waiting for specialist
consultation, and can delay MRI imaging for appropriate patients.

Sources:

Menashe L, et al. The diagnostic performance of MRI in osteoarthritis: a systematic


review and meta-analysis. Osteoarthritis Cartilage. 2012 Jan;20(1):13-21. PMID:
22044841.

Sakellariou G, et al. EULAR recommendations for the use of imaging in the clinical
management of peripheral joint osteoarthritis. Ann Rheum Dis. 2017 Sep;76(9):1484-
1494. PMID: 28389554.

Tab 10 Appropriateness Page 22


Spine Recommendation 1

Don’t perform fusion surgery to treat patients with mechanical axial low back pain
from multilevel spine degeneration in the absence of: (a) leg pain with or without
neurologic symptoms and/or signs of concordant neurologic compression, and
(b) structural pathology such as spondylolisthesis or deformity.

For over half a century back pain has been the most common reason for spinal fusion.
Yet there is no unequivocal evidence that fusion is superior to comprehensive
conservative treatment for treating back pain without focal structural pathology and
concordant mechanical or neurological symptoms. It is often impossible to locate the
precise source of the pain; in many cases the symptoms are multifactorial and can
encompass elements such as centralized pain that exist outside the spine. The extreme
heterogeneity of the low back pain population leads to unpredictable surgical results
and consistently poor outcomes in those with pain from multilevel spine degeneration.

Sources:

Chou R, et al. Surgery for low back pain: a review of the evidence for an American Pain
Society Clinical Practice Guideline. Spine (Phila Pa 1976). 2009 May 1;34(10):1094-
109. PMID: 19363455.

Jacobs WC, et al. Evidence for surgery in degenerative lumbar spine disorders. Best
Pract Res Clin Rheumatol. 2013 Oct;27(5):673-84. PMID: 24315148.

Tab 10 Appropriateness Page 23


Ministry of Health Ideas

In pursuing the goal of achieving maximum effectiveness of care, the Ministry also relies
on the clinical expertise and evidence-based analysis of external agencies that provide
recommendations on health care services that focus on appropriateness of care to
improve the quality, efficiency, access and equity of health care services in Ontario.
Some of these agencies include: Cancer Care Ontario (including the Program in
Evidence Based Care), the Ontario Health Technology Advisory Committee of Health
Quality Ontario and COR Health Ontario.

Many of the evidence-based recommendations on appropriateness of care impact


physician compensation, particularly payments made to physicians under the Schedule
of Benefits for Physician Services.

The Ministry’s proposals are summarized below:

Tab 10 Appropriateness Page 24


Appropriateness
Summary of proposals
Potential Appropriateness Savings Initiatives
1 Limit psychotherapy units paid per patient/per physician/ per year on individual
therapy to 48 units (24 hours)
$-13.2M
 Published literature and a review of claims data suggests that there is significant
variability in access and utilization of psychotherapy services in Ontario.
 Claims utilization data also suggests that there are some physicians in Ontario
who are providing a high volume of psychotherapy to a small number of patients
for an extended period of time, with uncertain clinical benefit, while also limiting
access for new patients.
 Revise the Schedule of Benefits by amending the payment requirements related
to psychotherapy services such that:
o A new limit of 48 units (24 hours) on the number of psychotherapy units
paid per patient/year on individual psychotherapy with reduced fee of
50% on services in excess of the new limit.
2 Don’t fund more than four (4) peripheral nerve block services per visit and limit
visits to four (4) per year.
$-51.1M
 A review of claims data suggests significant issues related to the increased
utilization of peripheral nerve blocks. Some of the observations related to
increased utilization include:
o Significant growth in peripheral nerve blocks utilization from 2009 to 2015
o Significant utilization of peripheral nerve block services per patient
including: a high level of injections per visit, a high level of visits for repeat
peripheral nerve blocks
o Significant cohort of patients receiving a very large number of peripheral
nerve block services
o Significant proportion of patients receiving peripheral nerve block services
over multiple years
o Significant number of injections of bursa, injection and/or aspiration of
joint, ganglion or tendon sheath services occurring during same visit as a
peripheral nerve block service

 Review existing clinical standards and practice guidelines to assess this observed

Tab 10 Appropriateness Page 25


utilization and revisions to the Schedule of Benefits that would amend the
payment requirements related to peripheral nerve blocks such that:
o the number of services that are eligible for payment would be revised to
four peripheral nerve blocks per visit with a limit of four visits per year
o introduce additional language to include reference to applicable clinical
indications, requirements for image guidance etc.
3 Don’t fund screening breast ultrasound in women at average risk for breast cancer.
$-1.0M
 The Ontario Health Technology Advisory Committee (OHTAC) recommends public
funding of screening breast ultrasound as an adjunct to mammography, only for
high-risk women contraindicated for MRI.
 This is currently an insured service, but restrictions may need to be added.
 OHTAC recommends against publicly funding screening breast ultrasound as an
adjunct to screening mammography in women at average risk for breast cancer.
 In consultation with Cancer Care Ontario, revise the Schedule to add new fee
codes for MRI and screening ultrasound to limit use to the high risk breast
screening program only.
4 AG recommendations on continuous cardiac monitoring and loop recording.
(earlier tabled proposal)
$ -11.0M
 This is a recommendation to revise the Schedule related to continuous cardiac
monitoring and loop recording. In addition, there are also related OHTAC
recommendations on continuous ambulatory ECG monitors and external cardiac
loop recorders for cardiac arrhythmia.
5 Recommendations made by EPAUDIS related to diagnostic and imaging
(earlier tabled proposal)
$-7.0M
 This is a recommendation to review for implementation the recommendations
made by EPAUDIS related to diagnostic and imaging studies and to re-establish
EPAUDIS to review non-invasive diagnostic testing to ensure that patients have
timely, appropriate access to high quality diagnostic and imaging studies while
respecting the judgment of the physicians that care for these patients.
6 Don’t refer patients with MSK conditions for CT and MRI examination unless they
have attended a rapid access centre for evaluation and CT or MRI are
recommended.

Tab 10 Appropriateness Page 26


$-45.0M
 Evidence shows imaging for issues such as low back pain and shoulder paid in the
absence of “red flag” symptoms is unnecessary. Unnecessary imaging results in
prolonged wait times for services; delay in appropriate rehabilitation services
where that delay may lead to the development of chronic pain; and unnecessary
referrals to surgeons for individuals where surgery is not indicated. Having open
access to CT and MRI services is a contributing factor to maintaining historic
practices of medicalizing common MSK conditions.
 For patients with MSK conditions, amend the Schedule of Benefits such that the
applicable CT and MRI examination be eligible for payment only for patients who
have attended a rapid access centre for the evaluation of their condition and CT
or MRI is recommended unless red flag symptoms are present.
Sources:
Healthcare Quarterly. 2009 Sept; 12(4) 25-27.doi:10.12927/hcq.2013.21122

Related Resources:
"Cost-Effectiveness Analysis of a Reduction in Diagnostic Imaging in Degenerative
Spinal Disorders” Health Policy. 2011 Nov; 7(2): e105–e121

7 Do not fund the removal of polyps and other routine procedures in colonoscopy
unless specific criteria are met.
$-9.2M
 This is a recommendation to review the current payment rates for procedures
done during colposcopy such as polyp removal and to amend the Schedule
criteria for payment.
8 Do not use sedation in colonoscopy unless specific eligibility criteria are met.
$-16.6M
 This is a recommendation to review the appropriateness and current utilization
of deep sedation in colonoscopy.
 Evidence has demonstrated that routine anesthesiologist-assisted endoscopy has
increased by 5 fold over the last 10 years and that there are questions regarding
the appropriateness of this rate of usage.
9 Do not fund a Diabetes Management Incentive code (Q040)
$-10.0M
 The Diabetes Management Incentive was a code introduced in primary care

Tab 10 Appropriateness Page 27


models in 2006. A similar incentive was introduced for internal medicine,
endocrinology and paediatrics in 2011.
 Q040 – Primary Care - $60.00
 Published literature has noted that the diabetes incentive code has led to
minimal improvement in the quality of diabetes care at the population and
patient level, and that physicians providing the highest quality care prior to the
introduction of incentives may be the least likely to claim these incentive
payments.
 The Auditor General of Ontario has also questioned the value of K030 services.
 Revise the Schedule of Benefits by amending the payment requirements related
to diabetes management incentives such that:
 The Q040 code is removed from the Schedule.
Source:
Diabetes Care. 2012 May;35(5):1038-46. doi: 10.2337/dc11-1402. Epub 2012 Mar 28
10 Limit payment of diabetes management (K030) to the rate of an intermediate
assessment (A007).
$-7.0M
 The Diabetes Management Assessment was a code introduced in 2003
 K030 – Primary Care - Diabetic management assessment - $39.20 payable
up to 4 times a year.
 The Auditor General of Ontario has also questioned the value of K030 services.
 Revise the Schedule of Benefits by amending the payment requirements related
to diabetes management incentives such that:
o Payment requirements for K030 are tightened and the value of payment
for this code is reduced to the value of an intermediate assessment.
Source:
Diabetes Care. 2012 May;35(5):1038-46. doi: 10.2337/dc11-1402. Epub 2012 Mar 28
11 Do not fund immunization bonuses (Q115, Q116, and Q117).
$-4.4M
 Evidence has demonstrated that Q codes (Q115, Q116, and Q117) for
immunization bonuses do not change rates of immunization.
 Recommendation to review for appropriateness and amend if necessary.
12 Do not fund inappropriate echocardiograms
$-19.5M
 A scan of the literature on appropriateness of echocardiograms found the
following:

Tab 10 Appropriateness Page 28


o A study of indicators for patients referred for echocardiograms in Halifax
also found that 10% of those tests were inappropriate. (Savings Estimate
based on this figure)
o When alerted that a patient had received a complete echocardiogram
within 30 days, physicians would cancel a proposed echocardiogram 37%
of the time or request a limited scan 20% of the time (applying this to
Ontario claims data indicates $2.9M in potential savings).
This is a recommendation to review the appropriateness of repeat
echocardiograms and revise the schedule with respect to payment.
Sources:

Harris, D.M., Moore, K., & Labowksy, K. (March 2018). Reducation of repeat
complete transthoracic echocardiograms utilizing and alert in the electronic medical
record for improved efficiency. Journal of the American College of Cardiology.
21(11): A1461.

Richardson, L.R., et al. (October 2013). Appropriateness of outpatient echo requests


within capital health. Canadian Journal of Cardiology. 29(supplement): S122.

13 Do not fund more than 7 injections per eye per year.


$-1.3M
 A review of claims data suggests significant issues related to the increased
utilization of eye injections. Some of the observations related to increased
utilization include:
o Recommended posology indicates that patients should receive aflibercept
treatment (2 mg) at initiation with one injection per month for 3 months.
Thereafter, treatment continues at bimonthly injections for the remainder of
Year 1 (7 injections per year per eye).
o The claims database indicates that there are $866,520 injections that would
be considered inappropriate in 2016-17 based on a maximum of 14 per year
o The potential savings are higher if consultations and OCT scans associated
with additional injections are considered raising the potential savings figure
to $1.3M
 In keeping with the existing clinical standards and clinical practice guidelines to
support this observed utilization, revise the Schedule of Benefits by amending the
payment requirements related to eye injections such that:
o the number of services that are eligible for payment would be revised to 7

Tab 10 Appropriateness Page 29


injections per year.
14 Do not fund secondary ultrasounds billed by the same physician for the same
patient on the same day unless medically necessary.
$-18.1M
 This is a recommendation to review for appropriateness.
 Review of claims data of pelvic ultrasounds and analysis of other codes billed on
the same day by the same physician and the same patient reveal substantial
billings of secondary ultrasounds.
o 59% of pelvic ultrasound services also had a intracavity ultrasound on the
same day from the same physician on the same patient
o Other jurisdictions have stronger limits on ultrasounds codes that can be
billed together
o In Alberta, X315 ( Ultrasound, pelvis, female, transvesical scan) may not
be claimed with X314 ( Ultrasound, pelvis, female, including endo-vaginal
scan)

15 Do not do MRIs in the knees of middle age persons unless specific criteria are met.
$-2.1M
 This is a recommendation to examine for appropriateness.
 The use of magnetic resonance imaging (MRI) has become routine in the
evaluation of musculoskeletal conditions.
 Research has indicated that there is concern over whether MRI is overused in
patients with musculoskeletal conditions.
o Knee pain, especially without discrete trauma, is often secondary to
nonsurgical conditions such as tendinopathy and patellofemoral
syndrome. The treatment for these common conditions usually involves
muscle strengthening and stretching, and physical therapy. This would not
be dependent on MRI results. Most patients will improve within a few
weeks or months.
Source: Popman, D.C. (2011, April 15). Appropriate Use of MRI for Evaluating Common
Musculoskeletal Conditions. American Family Physician. 83(8) : 833-884.

16 Do not fund the use of Echovist.


$-2.1M
 This is a recommendation to remove from the Schedule as Echovist is no longer

Tab 10 Appropriateness Page 30


available in Ontario.
17 Implement a daily cap on GP/FP visits using sliding discounts on services exceeding
a 50 per day threshold.
$-29.5M
 Overview of the discount:
o 1-50 daily services would receive full payment
o 51-65 daily services would be discounted at 50%
o 66+ daily services would be discounted at 100%
 This is a recommendation to review the appropriateness and implementation of
such a discount.
 British Columbia has had volume-based discounts in place for GPs since 1996.

18 Do not do meniscectomy for degenerative meniscal tears in middle age adults.


$-8.3M
 This is a recommendation to examine for appropriateness.
 A review of the literature indicates that there is significant overtreatment of knee
pain with arthroscopic partial meniscectomy when alternative, less invasive and
less expensive treatment options are equally effective.
o The literature suggests first-line treatment of degenerative meniscus tears
should be non-operative therapy focused on analgesia and physical
therapy to provide pain relief as well as improve mechanical function of
the knee joint.
o Further it is suggested that arthroscopic partial meniscectomy should be
considered as a last resort when extensive exercise programs and
physiotherapy have been tried and failed.
Source
Azam, M., and Shenoy, R. (2016). The role of arthroscopic partial meniscectomy in the
management of degenerative meniscus tears: A review of the recent literature. The Open
Orthopaedics Journal. 10: 797- 804. DOI: 10.2174/1874325001610010797.

19 Do not do a breast reduction to treat minor back pain.


$-4.0M
 This is a recommendation to examine for appropriateness.
20 Do not insert grommets for glue ear without a 3 month period of watchful waiting.
$-2.1M
 This is a recommendation to examine for appropriateness.
 Review of the literature indicates that glue ear is common, affecting many children, and

Tab 10 Appropriateness Page 31


can interfere with language acquisition and education.
o Effective therapeutic options, other than surgical insertion of grommet
ventilation tubes, are few.
Source

Del Mar, C. (2015). Autoinflation: an effective non drug intervention for glue ear. Canadian Medical
Association Journal. 187(13): 949-950. DOI: https://dx.doi.org/10.1503%2Fcmaj.150527.
21 Don’t do tonsillectomy for sore throats
$-2.3M
 This is a recommendation to examine for appropriateness.
22 Do not do hemorrhoidectomy without trial of conservative treatment
$-2.3M
 This is a recommendation to examine for appropriateness.
 Review of the literature indicates:
o Haemorrhoids are common, affecting up to one quarter of all adults according
to some estimates.
o Given the polysymptomatic nature of the disease, it is difficult to effectively
judge which treatment option is best.
o Given haemorrhoids are such a common condition; first-line therapy should be
prevention and minimally interventional therapy particularly in the community
setting. Diet and lifestyle undoubtedly play an important role in haemorrhoid
management.
Source:
Brown, S.R. (2017). Haemorrhoids: an update on management. Therapeutic Advances in Chronic
Disease. 8(10): 14-147.

23 Don’t do any surgical intervention, including ablation, for abnormal uterine bleeding
until medical management (including the progesterone intra-uterine system) has been
offered and either declined or found unsuccessful.
$-0.4 M
 This is a recommendation to examine for appropriateness.
24 Do not do surgery for early stages of Dupuytren’s contracture
$-1.5M
 This is a recommendation to examine for appropriateness.

25 Do not surgically remove asymptomatic ganglion cysts


$-1.2M

Tab 10 Appropriateness Page 32


 This is a recommendation to examine for appropriateness.

26 Do not do carotid endarterectomy for asymptomatic high risk patients with limited life
expectancy.
$ -0.66M
 This is a recommendation to examine for appropriateness.
 Review of the literature indicates that Carotid endarterectomy (CEA) is performed
commonly in asymptomatic patients with life limiting conditions. Given the high rates
of postoperative stroke/death in these patients, as well as their limited life expectancy,
the net benefit of CEA in this population remains uncertain.
27 Do not perform colonoscopy in a person older than 50 with a diagnosis of constipation
but no diagnosis of anemia, weight loss, family or personal history of other diseases of
the digestive system in the previous 12 months.
$-0.82M
 This is a recommendation to examine for appropriateness.
28 Do not perform Endovascular repair of aneurysm, with diagnosis of abdominal aortic
aneurysm in the episode and ASA.
$-0.03M
 This is a recommendation to review for appropriateness.

Conclusion

Opportunities for savings without reduced patient care abound.

While the Ministry continues to review and accept many of these agencies’
recommendations, it is almost impossible to implement recommendations given the lack
of engagement by the OMA in a productive environment within which to discuss
necessary changes to the Schedule with the OMA. Clearly, at this point in the
bargaining cycle, we are asking the Board to mandate a target that the parties must
achieve, using the substantive body of evidence available to eliminate or reduce the
existing inappropriate or overused medical practices.

Tab 10 Appropriateness Page 33


TAB 11 GOVERNMENT OVERSIGHT OF PHYSICIAN BILLING

The very nature of the contractor relationship between Government and Physicians and
the distinct service relationship between the patient and the physicians mandates a
degree of oversight on the billings for said services.

However, as a practical matter in a historical relationship pre the new Framework for
Dispute Resolution that allowed Government other high level levers to control costs, the
actual oversight of the level and type of billings is minimal.

We set out in this section the current state of Government oversight.

Overview of Payment Accountability

In Ontario, physicians are paid for insured services through a variety of mechanisms including
the oldest and still dominant method which is fee-for-service (FFS). Almost all physicians in
Ontario derive some portion of their income from FFS. The ministry pays over $8 billion/year in
FFS claims to approximately 30,000 physicians.

The Schedule of Benefits for Physician Services

Insured physician services are listed in the Schedule of Benefits for Physician Services (the
Schedule). The Schedule describes the terms and conditions for payment for various types of
services that are clustered typically by the specialty type of the physician.

The ministry does not restrict the nature of a physician’s practice within Ontario’s publicly
funded health care system. Under the Health Insurance Act (HIA), any legally qualified medical
practitioner (as licensed by the CPSO) lawfully entitled to practice medicine in Ontario is entitled
to submit claims and to be paid by OHIP. Within general practice or specialty practices, there
is a broad range of services an individual physician may provide, and there are few formal
restrictions on what services a physician may bill OHIP. Physicians from one specialty are able
to use codes from other specialties largely without restriction.

Tab 11 Overview of Payment Accountability Page 1


All insured services have components or elements of the service that are defined within the
HIA, Regulation 552 or the Schedule. Some elements are common to all services and each
service will have other elements that apply to classes of services or are specific and unique to
a particular service. The Schedule has over 7000 distinct services listed. Over 300 million FFS
claims are submitted by physicians each year (a claim may include one or more fee codes).

Physicians are responsible for the appropriate submission of claims to the government. At its
core, Ontario’s health insurance system works on an honour system. It is assumed that claims
submitted by physicians are for services that are medically necessary for the individual patient,
do not misrepresent the service, and are provided within professional standards. It is also
assumed that appropriate documentation exists in the patient’s clinical record that supports that
the service claimed was actually performed

The physician ultimately controls all documentation that can support the appropriateness of a
service or that can demonstrate a payment for a claim as submitted was authorized.

Unauthorized Payments

An unauthorized payment means any payment that does not comply with the requirements and
conditions for payment set out in the HIA, Regulation 552, or the Schedule.

There is a wide spectrum of scenarios that might result in unauthorized payment ranging from
not complying with payment rules in the Schedule to fraud, where the physician knowingly and
intentionally breaches the requirements. Unintentional errors may include clerical errors such
as typographic or keystroke mistakes, using the wrong fee codes, and/or misunderstanding or
misinterpretation of the payment rules. This is in contrast to a circumstance, for example, where
the service was not rendered but a claim was purposefully submitted for payment, which could
warrant a referral to the Ontario Provincial Police (OPP) for a fraud investigation (in the last 5
years, the ministry has referred 2 to 3 cases to the OPP each year).

Tab 11 Overview of Payment Accountability Page 2


Accountability Framework

The ministry undertakes payment accountability activities to ensure physicians do not receive
and/or retain unauthorized payments. In general, these payment accountability activities can
occur before or after the physician is paid.

Accountability for the FFS payment model is set out in the HIA, and the current Act places
significant limitations on the ministry’s legal authority to investigate and directly recover all
unauthorized payments. There is a Payment Correction List (PCL) that sets out the very limited
circumstances in which the Ministry can take straightforward pre-payment action in response
to a claim for payment by a physician. The PCL circumstances include: clear typographical
errors (e.g. substitution of S for A); duplicate claims; claims exceeding maximum number;
claims for service date after physician is deceased; and claims rejected by medical rules (the
ministry’s computerized checks). Any additions or changes to the PCL require the approval of
the OMA.

If the ministry thinks a payment to a physician is unauthorized for any other reason outside of
the PCL, the process for review and recovery is much more onerous.

PCL corrections are performed in part by using some pre-payment controls in the OHIP claims
system, such as automated medical rules, where, for example, a claim for a hysterectomy on
a male patient would be rejected. However, the ministry’s computer payment system cannot
encompass all of the many fee code eligibility rules in the Schedule given the complexity of the
pre-programming that would be required. It is also evident that payment conditions related to
medical judgment cannot be enforced through an electronic claims system.

The ministry also employs some limited pre-payment manual review by claims adjusters in the
local OHIP claims offices. This review is undertaken only for complex and/or unusual surgical
procedures given the massive volume of claims submitted, and the time-intensive nature of the
review. It would be administratively impractical for the efficient management of the OHIP system
to subject a greater quantity of claims to manual review given the serious implications these
reviews would have for the timely provision of payment to physicians which could impact access
to services for patients.
Tab 11 Overview of Payment Accountability Page 3
Important payment conditions described in the Schedule that relate to medical necessity,
medical judgment or clinical standards, cannot be translated into a claims payment rule in the
electronic claims system. For example, x-rays of the back for lower back pain are only insured
services and payable when certain clinical ‘red flags’ are present. The claim system cannot
determine if a patient has these ‘red flags’. As a result, the claims are paid as submitted, trusting
that the physician will only submit the claim if the conditions are met. Currently, the only way
to review these claims is through an intense review of medical records in a post-payment audit.

Education of billing requirements and payment rules can support physicians in appropriate
billing. Education can also help reduce unauthorized payments due to errors or
misunderstandings. It is the ministry’s experience that physicians generally respond positively
to targeted individual education initiatives, and some unauthorized payments can be reduced
or avoided through this approach. However, it appears that, for certain physicians, education is
not effective.

The Health Services Branch (HSB) of the ministry is responsible for oversight of the annual 300
million FFS claims submitted and for enforcing the HIA provisions. As stated above, it would
be administratively impractical for the efficient management of the OHIP system to subject a
greater quantity of claims to manual review given the serious implications this would have for
patients and physicians. As a result, the ministry must also employ post-payment audits.

Following a post-payment audit finding that an unauthorized payment has been made, a
physician can voluntarily offer to pay back the ministry. However, there is no direct post-
payment recovery of unauthorized payments outside of a formal review process which requires
the ministry to obtain an order of the Physician Payment Review Board (PPRB) to recover
unauthorized payments.1

Additionally, the ministry can only recover an unauthorized payment after the physician is
educated about the billing issues, continues to bill in that same manner, and is then given notice

1 If a claim falls in a circumstance on the PCL, the ministry can give notice to the physician that it intends to
recover the unauthorized payment, and if the physician decides not to appeal to the PPRB then the ministry can
recover after 20 business days have passed from the notice.

Tab 11 Overview of Payment Accountability Page 4


of the unauthorized payment. As well, following a hearing, the PPRB would need to agree and
issue an order requiring the physician to re-pay the ministry specific claims that the ministry is
required to prove should not have been paid to the physician.

The PPRB is the appeal body established under the HIA to review issues related to physician
payment. The PPRB is required to have between 26 and 40 members appointed by the
Lieutenant Governor in Council on recommendation of the Minister of Health and Long-term
Care. Between 20 and 30 of the members are physicians, one-half of whom are selected by
the OMA for the Minister’s recommendation. Between six and 10 members are non-physicians
(public members). Appeals to the PPRB are heard by a panel of four made up of three
physicians and one public member. One of the three physicians must be a member of the
same specialty group as the physician who is a party to a hearing.

Tab 11 Overview of Payment Accountability Page 5


Historic Context

In 2003, a tragic incident relating to a physician who had undergone a post-payment audit
resulted in the ministry’s commission of Peter Cory (a retired Supreme Court of Canada Justice)
to conduct an external review of Ontario’s medical audit system (Exhibit 13).

Prior to Justice Cory’s recommendations, the following features were central to the ministry’s
audit of physician payments:
 The General Manager had authority to require a physician to reimburse OHIP for an
amount paid for a service if the General Manager was of the opinion that specified
circumstances exist (direct recovery).
 The Medical Review Committee (MRC), an agency of the government administered by
the College of Physicians and Surgeons of Ontario (CPSO) provided an opportunity for
peer review of a physician’s claims when there was a dispute between the physician and
the General Manager over the payment of claims.
 A physician could request the MRC to review a direct recovery.
 The ministry could pursue interest awards in cases of an MRC audit.
 The physician was charged an additional amount towards the cost of the MRC audit,
calculated in a manner to be prescribed by regulation.
 The General Manager had authority to make specified information public, following a
review by a full panel of the MRC.
 The General Manager had authority to suspend OHIP payments to a physician who
refused to cooperate with an MRC audit.
 The General Manager could facilitate collection of a debt by setting off charges against
future payments.
 The General Manager could directly recover overpayments for any claims without
providing notice or obtaining an order of an appeal board.
 The ministry could extrapolate from a statistically significant random sample of claims to
determine the total amount of unauthorized payment for recovery; and
 The MRC could conduct onsite audits.

Tab 11 Overview of Payment Accountability Page 6


The Cory Report was released by the ministry on April 22, 2005 and contained 118
recommendations. The recommendations proposed fundamental changes to how physician
payments were audited and included:
• Focusing on educating physicians to comply with the billing requirements of OHIP;
• Providing a more transparent system for auditing physicians’ OHIP claims; and
• Making use of a new body (the Board), independent of the ministry, to conduct hearings
where a physician’s billing may be in question.

In response to these recommendations, and the intense public and professional concerns
raised by the tragic episode referenced above, the ministry implemented sweeping changes.
This resulted in legislative changes to amend the HIA which were implemented in 2007. The
ministry implemented 52 recommendations through legislative changes. A number of
recommendations (38) were addressed by existing ministry processes or implemented through
policy changes. There were 3 recommendations that were repeats or consolidations. The
remaining 22 recommendations were not implemented by agreement with the OMA.

Taken together, the legislative changes made in response to the Cory Report have severely
restricted the ministry’s ability to account for physician payments and to directly recover
unauthorized payments.

Tab 11 Overview of Payment Accountability Page 7


Current HIA Post Payment Authorities and Medical Audit Program

Following changes in the HIA in response to the Cory Report, the burden of proving that a
payment was authorized shifted from the physician to the ministry. This is highly unusual in any
professional contractual model.

The post-Cory medical audit system emphasizes education and billing support. With some
limited exceptions2, the General Manager may refuse to pay or recover amounts only following
a hearing at the PPRB and obtaining an order from the PPRB requiring the physician to repay.

The GM can only seek to recover an amount paid to a physician where the GM has the evidence
that a specific circumstance exists, including if the service: was not rendered, was
misrepresented, was not medically necessary, or the service did not meet the requirements of
the HIA, regulations or payment rules in the Schedule.

In order to accomplish post payment recovery, the GM must follow an extremely onerous
process described as the “standard path” below:

 The ministry undertakes 200-300 reviews each year, either based on referrals (from
peers, public or the CPSO) or data analytics that demonstrate a potential issue.

 The ministry will review the physician’s claims and where billing concerns are identified,
the ministry will require the physician to provide medical records to validate that certain
payments were authorized.

 The ministry does not have onsite inspection powers, but does have the power to request
records and information from physicians. This authority is used in every case where a
file is opened.

 The ministry will review the medical records provided to determine if there are billing
concerns.

2 See footnote 1 above. Physicians may also voluntarily agree to re-pay the ministry.

Tab 11 Overview of Payment Accountability Page 8


 Following the ministry's initial request for records, physicians often seek legal
representation and ask for extensions to the deadline to provide records. Often many
extensions or clarifications are requested by legal counsel stretching out requests for
records over a period of months.

 Once the ministry receives the records, additional information may be sought and every
record for each claim is reviewed by ministry staff (including physician consultants from
the appropriate specialty).

 The ministry then interacts with the physician by sending an Education Letter explaining
the identified billing concerns to the physician.

 The ministry may only request voluntary repayment from the physician since the ministry
has no legislative authority to directly recover funds without a PPRB order, other than as
previously described in the PCL after giving notice to the physician and only if the
physician doesn’t appeal the notice to the PPRB.

 At this stage, the ministry may also refer the matter to the CPSO, if there is a potential
practice issue or to the OPP if fraud is suspected.

 After a period of time to allow the physician to correct the incorrect billing behaviour, the
GM can review the physician’s claims and medical records again (each time the ministry
wants to review medical records it must make a request to the physician to provide the
medical records to the ministry) and if, after this review, the GM is of the opinion that a
listed circumstance still exists, then notice of initial opinion is given to the physician.

 After another period of time passes, and the GM continues to be of the opinion that the
listed circumstance continues to exist, then the GM can give the physician final notice.

 The final notice must include reasons for the GM’s opinion and notify the physician that
unless the physician submits future claims for those services in accordance with the

Tab 11 Overview of Payment Accountability Page 9


GM’s opinion, then future claims may be referred to the PPRB and payments for those
future services may be subject to reimbursement after the date of the notice.

 The physician may request the PPRB hold a hearing with respect to the final notice. If
the physician does not request a hearing, and the GM is of the opinion that a listed
circumstance continues to exist after reviewing more claims and medical records, then
the GM may ask the PPRB to hold a hearing.

 As a result, the ministry has not referred many cases to the PPRB. This is due to the fact
that either the test for an expedited case is too high to meet, or because in the standard
path, the physician changes billing behaviour before the case can be referred. If the
physician changes to correct billing, then no further action is needed; if the physician
changes to a different incorrect billing pattern or issue (which often occurs), then the
standard audit path begins again and the ministry has no legal authority to recover the
initial unauthorized payments.

 Experience has demonstrated that it can take 2 years or more before the ministry is able
to bring a case forward to the PPRB for review.

 While there is an expedited path that exists for referral to the PPRB, the onus is on the
GM to prove the unauthorized payment and that the physician knew or out to have known
that each claim was false. Given the onus on the GM to prove the above, the ministry
has been able to refer only three cases in ten years using the expedited path

Tab 11 Overview of Payment Accountability Page 10


The ministry also has a random verification process which sends out 20,000 letters per month
to patients, to ask whether they saw a specific physician for a specific service on a specific
date. The ministry reviews all adverse responses, and also looks for trends.

Due to the number of physicians and volume of claims, unauthorized payments are not always
detected. It is difficult for the ministry to effectively reach the over 30,000 physicians with
education, communication and audit initiatives. Review of medical records to determine
whether claims are appropriate is a resource intensive task. Smaller provinces with fewer
physicians (i.e. PEI) are able to audit all physicians (see Exhibit 14). This is not practically
feasible in Ontario.

Tab 11 Overview of Payment Accountability Page 11


Policy Gaps and Risks Subsequent to Changes Made - Cory Recommendations

Under the FFS physician payment model, financial risks arise from limitations in legal
authorities in the current medical audit process in the HIA as follows:

 The HIA contains no on-site inspection powers and gives limited authority to recover
unauthorized FFS payments.

 There are time period restrictions related to notice and recovery, such as the ministry
cannot recover against claims more than 12 months old.

 When it comes to the burden of proof that an unauthorized payment has occurred, the
onus is on the ministry to prove a payment was unauthorized, rather than on the
physician to prove it was authorized.

 However, it is the physician that controls the evidence (e.g. medical records) required to
prove or disprove the payments were authorized.

 The ministry cannot inspect records on site and must rely on physicians to comply with
the HIA and send their records to the ministry without modification.

 Recovery, except in limited circumstances, is only permitted following a hearing at the


PRRB, and only based on a specific pattern of incorrect billing that continues after
education, initial notice and final notice from the GM to the physician.

 In addition, the ministry must prove each separate instance of an unauthorized payment,
even if a clear pattern of violations has been identified. This may require independent
investigation and proof at a PPRB hearing of thousands of identical claims.

 For repayment, the use of statistical inference (drawing conclusions based on random
sample of sufficient number of records to achieve confidence that the sample properly
represents the whole) to estimate amounts owed is only permitted in very limited

Tab 11 Overview of Payment Accountability Page 12


circumstances.3 This means it is a very lengthy and onerous process to prove the
amount of funds to recover, and only a portion of the unauthorized payments may be
recovered.

Conclusion

Given the limitations on oversight available to the Ministry to even address unauthorized
payments, the need for a joint OMA/Ministry mandated process to address issues of
overused and inappropriate medical services becomes even more apparent and
important.

3
The only circumstance when statistical inference can be used under the HIA is by an order of the PPRB. The PPRB can
only make this order if it also finds the physician must repay OHIP, and there has been a previous finding or order by a
review panel that the physician repay OHIP, and the physician has continued to make billing errors despite documented
efforts to educate the physician regarding billing requirements.

Tab 11 Overview of Payment Accountability Page 13


TAB 12 EXAMPLES OF COLLABORATIVE DISCUSSIONS TO MITIGATE
INAPPROPRIATE GROWTH

Recent Example of an agreement to find targeted savings from the Schedule of


Medical Benefits based on Evidence

Alberta and the Alberta Medical Association (AMA) negotiated a landmark re-opener
agreement in 2016 which amended an existing agreement (expiry date March 31, 2018)
to find savings from their Physicians Services Budget.

To their credit, the AMA came to the table, notwithstanding an existing agreement not yet
expiring, and agreed to substantial mid-term savings.

An integral part of that savings was to meet after ratification and find a targeted
amount of annual savings (specifically $100 million dollars) largely from rule changes
to the Schedule of Medical Benefits (SOMB). While Radiologists, Cardiologists and
Ophthalmologists contributed approximately $15 million from actual fee reductions, all
other sections of the Alberta Medical Association were committed to contribute the
remainder of the savings through rule changes and not fee reductions.

It is important to note that the AMA agreed to allow Alberta Health to withhold the
payment of a COLA Provision worth approximately $60 Million in the 2017-18 year and
an existing Retention Benefit worth approximately $73 Million per year for both the
2016-17 year and the 2017-18 year, pending a reconciliation. If the $100 Million SOMB
savings was realized, the withheld amount would be paid in part or in whole, depending
on the results of the reconciliation process.

It is also important to note that a $100 Million savings in the Alberta Physicians’
bargaining is equivalent to at least $300 Million savings in Ontario.

Tab 12 Examples of Collaborative Discussions to Mitigate Inappropriate Growth Page 1


The entire signed amending agreement is available for review (Exhibit 15), but the
specific $100 Million SOMB provision from that agreement is set out below

SCHEDULE 8
Savings from the SOMB

1. The parties agree to create of a joint working group (SOMB Working Group), as of the
Effective Date of the Amending Agreement, whose members are as follows:

(a) three (3) representatives from AH (including representation from AHS); and

(b) three (3) representatives from AMA.

2. The SOMB Working Group will be co-chaired, with each of AMA and AH selecting one of
their respective members to act in this position (the Co-Chairs).

3. The purpose of the SOMB Working Group is to create a list of SOMB savings initiatives
(the List), amounting to $100 million in annualized savings, for recommendation for
implementation by the Management Committee to the Minister of Health as follows:

(a) by November 15, 2016 for implementation on January 1, 2017 and/or April 1, 2017;
and

(b) by February 3, 2017 for implementation on April 1, 2017.

4. In creating the List, the SOMB Working Group must consider at least the following
information:

(a) existing savings initiative lists (for example, the initial list proposed by AH on July
8th, 2016, the Choosing Wisely Canada List, AH/AMA/AHS System Wide Efficiencies
and Savings List); and

(b) additional evidence-based initiatives identified by AMA, AHS or AH.

5. The creation of the List will be guided by principles selected by the SOMB Working Group
and, as determined by the SOMB Working Group, the List should:

(a) where applicable, be informed by one or more of the Choosing Wisely Canada
recommendations;

(b) be driven by best available evidence and national guidelines for high quality
patient care

(c) consider the need to reduce inappropriate variation in Physician practices;

(d) be objective, transparent, and driven by peer reviewed literature, other reliable data
or necessary consultations with field experts;

(e) improve alignment of incentives driving high quality patient care practices across
different modes of payment; and

Tab 12 Examples of Collaborative Discussions to Mitigate Inappropriate Growth Page 2


(f) simplify existing complexity and modernize the SOMB.

6. The SOMB Working Group will decide on the contents of the List, for recommendation to
the Management Committee, through a majority vote, with each member having a single
vote.

7. If the SOMB Working Group achieves a majority vote in support of the contents of the List,
the SOMB Working Group will provide the List to the Management Committee for
recommendation to the Minister of Health for implementation.

8. If the SOMB Working Group fails to achieve a majority vote on the contents of the List, the
Co-Chairs will notify the Management Committee, at least two (2) weeks in advance of
each of the dates identified in Clause 3 above, of the failure to achieve a majority vote.
When providing such notice, the Co-Chairs will also provide the Management Committee
with the proposed list which identifies the items of dispute (the Draft List).

9. Within five (5) days of receiving notice and the Draft List as per Clause 8 above, the
Management Committee will submit the Draft List to Mr. Vince Ready and Dr. David Naylor,
or any other independent third party(ies) agreed upon by the parties. Such third party(ies)
will engage in a final offer selection of the Draft List, based on the principles outlined in
Clause 5 above and with the goal of creating a List that results in the savings as
contemplated in subsection 5(f) of the AMA Agreement.

10. Within one (1) week of receiving the Draft List, the third party(ies) will recommend the List
to the Minister of Health for implementation. For clarity:

(a) the List recommended by the third party(ies) is not subject to vote of the SOMB
Working Group;

(b) the contents of the List recommended by the third party(ies) is limited to the
contents in the Draft List; and

11. The parties agree that, once engaged, Mr. Vince Ready and Dr. David Naylor, or any other
the third party(ies) agreed upon, will remain seized of the process outlined in this
Schedule 8 throughout its duration.

This process and the entire amending agreement was endorsed and
recommended by negotiating teams, the government and the AMA Board.

The settlement was ratified by a significant majority.

The AMA spoke publicly and positively about the settlement, sustainability and
the implementation of the $100 Million SOMB savings endeavor.

Tab 12 Examples of Collaborative Discussions to Mitigate Inappropriate Growth Page 3


The following excerpts from the document entitled “Backgrounder - Proposed
Amendments to the AMA Agreement” (Exhibit 16) capture the AMA’s strong
endorsement of the SOMB savings initiative and the goals of the amendments:

Purpose & Outline (Page 2)

The overall goal of the amendments is to support a sustainable health care system that
promotes fiscal stability and improves care for patients while keeping physician practices
viable.

Stewardship and Advocacy (Page 6)

If, however, the goal is not simply financial sustainability, but also to sustain quality and access,
then physician participation is critical. Physicians bring expertise in the benefits and limitations of
medical care. Working with patients, they have the responsibility to ensure that whatever
resources are available are used to best effect.

Short-term efforts to save dollars typically rely on cuts to fees or reduced access for patients.
Whatever immediate impact they may have, they are not sustainable because they do not truly
address the underlying issue that drives costs upward in the first place.

Shared Budget Responsibility (Page 10)

The amendments include three initiatives designed to reduce cost while maintaining value for
patients.

• A list of Schedule of Medical Benefits (SOMB) rule changes will be developed to reduce
expenditures by $85 million in 2017-18. These changes will be based on best evidence obtained
from efforts such as Choosing Wisely Alberta and a survey of section leaders that took place in
2012 under the SWES Consultation Agreement (which is under the 2011-18 AMA Agreement).
The commitment is to establish a list that the parties estimate will find the desired savings. The
amendments describe a process that initially engages the profession, but ends, if required, with
two arbitrators named in the amendment package.

• Savings from the first round of the individual fee review process of the Physician Compensation
Committee (PCC), worth about $15 million per year, will be contributed to the SOMB rule savings
target. SOMB rule savings are the only price reductions being considered as part of the $100
million under the SOMB rules initiative. The proposed amendments recognize this as a one-time
exception to the general provision for PCC that fee adjustments are budget neutral.

Reconciliation (page 11)

The Reconciliation process compares the Available Amount with the Actual Expenditures and
establishes the consequences when the two amounts are out of sync.

The Withholds are fundamental to the Reconciliation process. The Withholds are payments that
will not be made until the Reconciliation process is completed each year. The amount of the
Withhold that is paid out depends on how closely the Available Amount and Actual Expenditures
match.

There are three important things to note regarding the Reconciliation process:

Tab 12 Examples of Collaborative Discussions to Mitigate Inappropriate Growth Page 4


• The savings initiatives (see page 10) are best efforts in nature, that is, there is no guarantee that
they will be achieved. It is, however, in the interests of physicians and government that they be
reached: for physicians so that the remaining Retention Benefit and COLA can be paid; for
government because it will assist in staying on budget.

• The maximum amounts that physicians can “lose” are the two remaining Retention Benefits and
the April 1, 2017 COLA. While we are not downplaying the impact of the potential loss, we hope
there is perceived value in the loss being limited.

• “Withhold” means just that – the amount that is held back until Reconciliation is completed. That
period will be 60 days after the end of the fiscal year. Most importantly, therefore, in the 2017-18
fiscal year, there will not be an automatic SOMB price adjustment on April 1, 2017. Rather,
following the Reconciliation for 2017-18, there may be an adjustment that is implemented
retroactively to April 1, 2017. That Reconciliation is scheduled to be complete by June 1, 2017.

Withholds

• 2016 Retention Benefit


• 2017 Retention Benefit
• April 1, 2017 COLA (SOMB, ARPs, some benefit program rates)

Reconciliation

• If Actual Expenditure is LESS than Available Amount:


o Pay out COLA and Retention Benefit
• If Actual Expenditure is MORE than Available Amount:
Withhold some or all of COLA and Retention Benefit

Concluding Comments (page 15)

The proposed package of amendments to the AMA Agreement is intended to be a proactive


approach to some of the challenges facing Alberta, both in the general economy and within the
health care system. It puts some short-term cost-saving measures in place and also launches key
strategies for the long term. It positions the AMA and government for future negotiations,
providing an 18-month window to implement and assess new approaches.

What is being proposed builds on an already strong AMA Agreement. It introduces a shared
budget responsibility model with an allocation of responsibility and authority. Some important and
specific new provisions and strategies build on the existing general model of consultation with the
profession.

The parties ultimately agreed to $100 Million savings which were implemented. The
reconciliation process will conclude in June of 2018.

This example illustrates clearly that if motivated by a clear and mandatory target (with
consequences if that target is not met), Physicians, their Associations and Government
can achieve significant evidence-based savings within the Schedule of Medical
Benefits.

Tab 12 Examples of Collaborative Discussions to Mitigate Inappropriate Growth Page 5


TAB 13 SUSTAINABILITY IN THE CONTEXT OF THE FRAMEWORK

The Framework Appendix for Negotiation, Mediation and Arbitration (“the Framework”)
defines a quasi labour relations model of dispute resolution with one very unique and
important criterion which enables a dispute resolution process designed for an
employment relationship to work for the unique and atypical contractor relationship with
physicians.

Therefore, from the Government’s perspective, sustainability of the publicly funded


health care system is the most important factor which allows the “square peg”
(determination of physician compensation) to fit into the “round hole” of a labour
relations dispute resolution process intended for employer/employee relations.

Indeed, both parties agree that sustainability is a fundamental principle of any Physician
Services Agreement. The Framework is part of a larger agreement between the parties:
the 2012 Representation Rights Agreement (Exhibit 17). That agreement provides the
context within which the Framework must be interpreted and applied. The principle of
sustainability is at the forefront of the Representation Rights Agreement to achieve a
PSA. Most notably, section 3 of the Representation Rights Agreement, which
incorporates the Framework, states (emphasis added):

3. The Minister and the OMA will consult and negotiate in good faith with each for
the purpose of entering into Physician Services Agreements to establish
physician compensation for physician services and related accountabilities in the
publicly funded health care system. The Parties anticipate that any Physician
Services Agreement would be based on shared objectives including a patient-
centered sustainable health care system. The Parties will use the [Framework
Appendix] set out in Appendix “A” to negotiate Physician Services Agreement or
any periodic re-openers of such an agreement.

Tab 13 Sustainability – The Framework Page 1


We note two points from the above:

1. Any PSA (whether negotiated by the parties or determined by the arbitration


board) must have a patient-centered sustainable health care system as its
objective.

2. The OMA and the Ministry have placed the principle of a patient-centered
sustainable health care system at the heart of each PSA. This is a shared
objective, not just an objective of government.

We reference the Framework agreement at paragraph 25 which captures the criteria for
the arbitration decision:

Criteria for Arbitration

25. In making a decision or award on any matters falling within the scope of
arbitration, the arbitration board shall take into consideration the following factors
and any other factors it considers relevant:

(a) The achievement of a high quality, patient-centred sustainable publicly


funded health care system;

Tab 13 Sustainability – The Framework Page 2


We again reference the Framework agreement at paragraph 21 which captures the
scope of issues appropriate for the arbitration decision:

Scope of Arbitration
21. The following issues fall within the jurisdiction of the arbitration board for inclusion
in a PSA:

(d) With respect to the PSB:

(i) what components are to be included in the PSB, with the condition that all
of the following components must be included in the PSB:

1. the detailed list of the payments currently made by the MOHLTC to


physicians attached as Appendix A, including those payments made to
physicians known as fee-for-service (FFS) payments, alternate payment
plans (APPs) and alternate funding plans (AFPs), primary health care
(including physician compensation in FHTs such as the blended salary
model and FHT sessional fees), hospital on-call coverage (HOCC) and
sexually transmitted disease (STD) services, compensation for CHC
and AHAC physicians, and flow-through top up for public health
physicians, and physicians in divested psychiatric hospitals and
assertive community treatment teams;

2. Payments for clinical services paid by other ministries;

(ii) the “baseline” of the PSB, or of separate components of the PSB;

(iii) any changes to the PSB in each year of the agreement (in addition to any
changes in physician payments as set out above) based on change in
population number, ageing and other demographic changes including
chronic disease prevalence, technological change, change in the numbers of
physicians, change to the cost of new or changing programs/services/fees,
impact of allied health professionals, and any other factors relevant to
changes in expenditures for physician services. The parties recognize that
these factors may be interrelated and these interrelationships must be
considered in determining the overall change to the PSB, rather than
considering each factor individually; and

(iv) determination of the consequences (if any) and of the extent to which
either party should bear responsibility, if expenditures on physician services
exceed the PSB or a component of the PSB (if any) in a given year.

Tab 13 Sustainability – The Framework Page 3


From the Ministry’s standpoint, the references in the Framework are material and
significant components of the Framework, which cannot be overlooked or read out of
this governing document.

There would be no purpose to define the “baseline of the PSB” as is referenced in 21.
(d) (ii) unless the Board of Arbitration considers some form of limitation on the growth of
the PSB.

Simply determining the “baseline of the PSB” would have no impact on the outcome
unless the Board makes some determination under 21.(d) (iv).

(iv) determination of the consequences (if any) and of the extent to which
either party should bear responsibility, if expenditures on physician services
exceed the PSB or a component of the PSB (if any) in a given year.

Similarly. there would be no purpose to determine “ any changes to the PSB in each year
of the agreement” as is referenced in 21. (d) (iii) unless the Board of Arbitration
considers some form of limitation on the growth of the PSB.

Tab 13 Sustainability – The Framework Page 4


Ministry Proposal

1. Baseline of the PSB

Given the passage of time, the Ministry acknowledges that it would be difficult to
retroactively apply 21. (d) (iv) and to:

“determination of the consequences (if any) and of the extent to which either
party should bear responsibility, if expenditures on physician services
exceed the PSB or a component of the PSB (if any) in a given year.”

Therefore the first Baseline of any relevance becomes the baseline for 2019-20.

In our respectful submission, the baseline for 2019-20 should be the actual
expenditures for 2018-19.

This number is yet to be determined as it is comprised of the actual expenditures for


2017-18 (capturing the growth in expenditures absent price) as adjusted by any
determination of fee adjustments by the Board for 2017-18, followed by the actual
growth in expenditures (again absent price), as adjusted by any determination of fees
adjustment by the Board for 2018-19.

Actual expenditures would be determined in accordance with the Framework.

The actual growth in 2017-18 will not be finally determined until later this year, but the
Ministry is reasonably confident with the billings received to date that it will be in the
order of 2.5%.

The expected growth for 2018-19 will not be known for over a year, but the Ministry
estimates that number to be in the order of 3.2%.

Tab 13 Sustainability – The Framework Page 5


Therefore the 2019-20 base line will be approximately 5.8% higher (with compounding)
than the 2016/17 year, plus the impact of any changes in fees determined by the Board.

We doubt that this calculation would be contentious, but respectfully request that the
Board remained seized of any dispute as to the calculation of the 2019-20 baseline.

2. Changes in the PSB for 2019-20 and 2020-21

As the Board will know from our earlier presentation, the Ministry proposes that it be
responsible for the first 1.9% of growth in 2019-20 and 2020-21. The growth number
would be augmented by any changes to price as awarded.

The Board will also know that the Ministry proposes to mitigate the growth (absent
price) in those two fiscal years by asking the Board to set a mandatory target of $200
million in each year of changes to fees and rules arising from inappropriate or overused
services.

Tab 13 Sustainability – The Framework Page 6


3. The consequences (if any) and of the extent to which either party should
bear responsibility, if expenditures on physician services exceed the PSB
or a component of the PSB (if any) in a given year

The Ministry proposes that the physicians be responsible for any growth that in 2019-20
exceeds:

The sum of:


The baseline for 2019-20
Plus 1.9%
Plus any price changes awarded for 2019-20.

Growth will be mitigated substantially by $200 million arising from the Ministry-
proposed Appropriateness and Overuse work.

The Ministry proposes that the physicians be responsible for any growth that in 2020-21
exceeds:

The sum of:


The lower of (the actual expenditures for 2018-19) or (the baseline for 2019-20
as adjusted above)
Plus 1.9%
Plus any price changes awarded for 20-21

Growth will be mitigated substantially by $200 million arising from the Ministry-
proposed Appropriateness and Overuse work.

If the growth does exceed the target, the parties would determine the methods to offset
the excess and PSC and the Board would remain seized of the matter if the parties had
different views as to the solution.

Expectation

The Ministry would expect that, with the $200 million reduction in growth due to
inappropriate billing or overuse, there would be a low to moderate risk that the target
would be exceeded.
Tab 13 Sustainability – The Framework Page 7
In any event, the Ministry would not expect the excess to be large.

However, the importance and significance of an overall limit to the expenditures in this
major component of the overall Ontario budget should not be understated.

It is not appropriate to have an open-ended expenditure on an element of provincial


expenditure that is so important to those needing the services.

Tab 13 Sustainability – The Framework Page 8


TAB 14 SUSTAINABILITY IS NOT A NEW CONCEPT

Sustainability is not a new or novel concept. A few significant and recent


examples are provided below:

IN THE MATTER OF A CONCILIATION


Under the OMA Representation Rights and Joint Negotiation and Dispute
Resolution Agreement, 2012
Conciliator's Report The Hon. Warren K. Winkler, Q.C.
December 11, 2014

It was referred to extensively by retired Chief Justice Warren Winkler in his Conciliation
recommendation to the parties (Exhibit 18).

At page 1 of the conciliator’s report, the Honourable Warren Winkler states:

The MOHLTC is the primary funder of Ontario's publicly funded health care
system. The mandate of the MOHLTC is to establish, manage and
maintain a patient-focused, results-driven, integrated and sustainable
publicly funded health system.

At page 6 of the conciliator’s report, the Honourable Warren Winkler states:

It is apparent that these positions are irreconcilable in the longer term.


Absent some rationalization, the system may not be sustainable.

Tab 14 Sustainability Is Not a New Concept Page 1


At pages 6 and 7 of the conciliator’s report, the Honourable Warren Winkler states:

Both the Task Force and the Minister's Roundtable would include
representatives of important stakeholders in the health care system,
especially the public. The purpose of the Task Force would be to conduct a
long-term study and analysis of the sustainability of Ontario's health- care
system with the mandate of advising and making recommendations for
systemic changes to the delivery and funding of physician services.

At page 7 of the conciliator’s report, the Honourable Warren Winkler states:

The Parties' agreement to embark on these initiatives was an important


development as it enabled them to focus their discussions on the pressing
matters required to agree on the 2014 PSA, with the comfort that the
broader systemic issues impacting the sustainability of health care in
Ontario would be appropriately and collaboratively addressed in a larger
forum. I tabled language that reflected the substance of the consensus
reached in these two important areas.

At page 8 of the conciliator’s report, the Honourable Warren Winkler states:

During the Conciliation, much progress was made towards achieving a


three-year PSA. A three-year PSA would be a significant win for the public,
the health system and the Parties. The third year is a cost- neutral year
that offers a meaningful payment toward physicians' cost of practice. It
would afford the Parties the time required to focus on the Task Force, the
goal of which is to collaboratively address the systemic issues threatening
the sustainability of Ontario's publicly funded health system. If the Parties
can take advantage of the opportunity that the Task Force provides to
them, they will have provided an invaluable service to the citizens of our
province.

The OMA’s own Mission statement (from its website) recognizes the importance of
sustainability:

As the representative of Ontario’s physicians, we advocate for the well-being of


our members and the health of Ontarians, and provide leadership for an
accessible, sustainable, high-quality health-care system.”

Tab 14 Sustainability Is Not a New Concept Page 2


The Alberta Re-opener

Sustainability was referred to by the Alberta Medical Association (AMA), Alberta’s


Minister of Health (AH) and the CEO of Alberta Health Services (AHS) when the AMA,
AH and AHS achieved a settlement to reopen their existing agreement and achieve
substantial savings.

We refer below to the public pronouncements (Exhibit 19) at the time of signing the final
agreement by the Minister of Health, the AMA President and the CEO of AHS:

“This agreement marks a renewed relationship based on trust and collaboration


between government and the AMA as we work together to deliver high-quality
health care that is affordable and sustainable. The Physician Resource Plan is
an example of the commitment to patient care and innovation that we share with
the AMA and all of its members as stewards of our health system.”
Sarah Hoffman, Minister of Health

“The physicians of Alberta are committed to quality care for patients. We also
recognize that we need to be part of making the health-care system fiscally
sustainable. That is why we entered into negotiations for an amending
agreement. We are pleased that what we have achieved moderates health-care
expenditure growth and provides for collaboration and shared responsibility in
needs-based physician resource planning, savings initiatives and other things.
The AMA looks forward to working with the minister, her team, and AHS to
implement this agreement. We are optimistic regarding all that we can
accomplish together.”
Dr. Padraic Carr, President, Alberta Medical Association

“As an organization, and as a province, we’re making great strides in delivering


health care that’s both high-quality and financially sustainable, and this
agreement with the AMA represents further progress on both these goals.
Albertans will continue to receive outstanding physician care as we continue to
build a sustainable health-care system for all Albertans.”
Dr. Verna Yiu, President and CEO, Alberta Health Services

Tab 14 Sustainability Is Not a New Concept Page 3


The OMA Representation Rights and Joint Negotiation and Dispute Resolution
Agreement

The 2012 Representation Rights Agreement governs the relationship between the
parties.

The Binding Arbitration Framework (BAF) which governs the dispute resolution process
is an appendix to the Representation Rights Agreement.

The concept of sustainability is throughout the Representation Rights Agreement

In the preamble the parties agree as follows:

AND WHEREAS the Parties acknowledge that physicians are independent


professionals who practice within a publicly funded health care system and that
the services that physicians provide are integral to the achievement of a high-
quality patient-centred sustainable system;

In paragraph 3 the parties further agree:

3. The Minister and the OMA will consult and negotiate in good faith with each other
for the purpose of entering into Physician Services Agreements to establish
physician compensation for physician services and related accountability in the
publicly funded health care system. The Parties anticipate that any Physician
Services Agreement would be based on shared objectives including a patient-
centred sustainable health care system. The Parties will use the Joint Process
set out in Appendix “A” to negotiate Physician Services Agreements or any
periodic re-openers of such an agreement.

The concept of sustainability of the health care is integral to the recognition


rights of the OMA and the bargaining and arbitration framework that is the
foundation of the current process.

Tab 14 Sustainability Is Not a New Concept Page 4


TAB 15 THIS HISTORICAL ISSUE OF PHYSICIAN SERVICES UTILIZATION

The Ministry has already provided a significant overview of the history and evolution
of the relationship between the Government and the OMA at Tab 3 of its First
Submissions to this Board. As already described, at many points throughout the
relationship between the Government and the OMA, the parties have looked to third
parties or independent neutrals to review publicly funded physician services and
recommend and report on physician compensation.

Each report, from the first Pickering Report in 1973 to the more recent Winkler
Report in 2012, have grappled with how to deal with fee increases in the face of
increasing utilization of physician services and its subsequent impact on the growth
of the PSB. The growth in utilization of physician services has historically been
identified as a major factor impacting the sustainability of physician services
expenditures.

Remarkably and most troubling, the Ministry’s current day evidence that physician
compensation increases outpace price increases is not new. This has been an
issue identified and reviewed in every single report we outline below - that individual
physicians can choose to increase their services provided at a rate well above
average population increases.

Despite this issue continually permeating every dispute between the parties on an
appropriate adjustment to the fee schedule since the inception of Medicare, it is one
that remains unresolved. In absence of a resolution, as will be shown, health care
and physician expenditures continue to balloon and eat up a larger portion of
government expenditures, crowding out any funding for other important programs.

We detail below the relevant excerpts from each report which review this historical
pattern.

Tab 15 The Historical Issue of Physician Services Utilization Page 1


The Pickering Report – 1973:

As previously described, when “Medicare” was enacted in Ontario in the late 60’s,
the Government became the only insurer/payer of services, while fees were set by
the OMA with Government reimbursing at 90% of those rates.

In 1972, the OMA deferred their revision to fees scheduled for May 1, 1974, and
commissioned a report by Dr. Edward Pickering to consider, among other things,
how to manage revisions of physician fees particularly since physician revenue now
comes largely from government and therefore the taxpayer.

The Pickering report was published in the April of 1973 (Exhibit 20 – The Pickering
Report, Part I).

In reviewing physician fees, Pickering noted ambiguities in the fee schedule that
allow physicians to “improve his income by sophisticated billing” on page 109:

The Schedule contains ambiguities which make it possible for the


individual doctor to improve his income by sophisticated billing. The
Schedule should be an effective instrument for minimizing the range of
billing interpretations while ensuring that doctors are adequately paid
for services rendered.

Pickering further noted that there had been technological and other medical
advances which have caused fees to be outdated (e.g. fees no longer reflecting a
reduced amount of time spent by a physician on a procedure):

Many organizations and individuals have suggested that technological


advances and other developments in modern medicine have made
some parts of the Schedule anachronistic. The favourite illustration is
the payment of a fee for chronic dialysis which, when originally
introduced, required several hours of physician's personal time in
performing the process. Today it is largely the work of technicians.

Tab 15 The Historical Issue of Physician Services Utilization Page 2


Other examples have been suggested as warranting investigation: for
example, certain procedures in laboratory medicine, in
electrocardiography, endocrinology and metabolism, ophthalmology
and others.

Pickering was the first to recognize that physician productivity improvements could
result in raised income levels for physicians beyond fee increases.

Tab 15 The Historical Issue of Physician Services Utilization Page 3


The Weiler Report – 1981

By May 1978, the Ontario government decided to amend legislation and create the
Schedule of Benefits (SOB) of Government funded services and prices rather than
an OMA schedule of defined services and prices. The initially legislated SOB
adopted the OMA’s description of fees but not the OMA prices. The OMA retained
responsibility for allocating the money across the specialties. Nevertheless, the
Ontario Government did not seek to restrain the ability of physicians to generate
income by manipulating “utilization”.

The parties then entered into their first formal agreement on June 21, 1979. The
agreement provided a Joint Committee on Physicians Compensation (JCPC) with a
mandate to negotiate a global revision to the SOB on behalf of the parties. The
OMA would determine the allocation to specialties but for the first time Government
would approve those allocations. The JCPC began negotiations but could not reach
an agreement. Paul Weiler was appointed as a “fact finder” and the report was
published in February, 1981.

The Government focussed on overall expenditure and on the physicians’ total


income. Over the seven year period in question, Ontario’s internal government
expenditures had increased by 132%, the Ministry’s budget had increased by
136%, and OHIP payments to physicians were up by 130% (paragraph 20, Exhibit
21).

22. Whatever be the nature and significance of these interprovincial


comparisons, they pale by comparison with the major issue lurking beneath
the surface of these aggregate figures of OHIP expenditures and physicians'
services. How can it be the case that the price increase in the OHIP Fee
Schedule has lagged behind the rate of inflation in the last seven years,
while the total Government bill for doctors fees has consistently increased in
real terms? The answer is quite simple. The total OHIP bill is a function not
only of price, but of volume as well. While the OHIP Benefit Schedule has
been increasing at a relatively modest pace in the past seven years, the
utilization of doctors' services in Ontario has been steadily growing during

Tab 15 The Historical Issue of Physician Services Utilization Page 4


that period. It is the combination of the two which has generated the
increasing share of OHIP's expenditures in the Government's budgetary
resources.

The Report found that the overall amount of payments for physician’s fees had
consistently increased over time, even as increases to the OHIP fee schedule
lagged behind the rate of inflation. In fact, the total amount of OHIP payments made
to physicians in 1980 was 18% more than they had been just a year earlier in 1979.
Weiler estimated that the utilization of physicians’ services in Ontario had been
increasing at an average rate of more than 2% per year (paragraph 23, Exhibit 21).

23. These are the relevant figures (from Table 3): from Fiscal Year 1973-74
through FY 1980-81, OHIP payments to doctors increased by more than
12.8%, for a total of more than $600 million. During this seven-year period,
the cumulative price revision in the Benefit Schedule produced a 63%
increase in OHIP expenditures, accounting for slightly over $300 million.
During that same period the rate of utilization of doctors services by Ontario
residents increased by 38%, and this accounted for approximately the same
dollar increase in the total Government bill for doctors' services; again,
slightly over $300 million. However, less than one-third of this volume
increase is accounted for by this physician-population factor. The largest
share by far comes from an increase in the services provided by individual
physicians to their patients. This ratio has been increasing at a rate of more
than 2% a year for the past seven years, and has produced a $210 million
hike in OHIP expenditures over that period. By itself, this growing utilization
by individual Ontarians of their own doctor has generated more than one-
third the total increase in OHIP payments for physician services.

24. In no year has the impact of this last factor been more starkly displayed than
in the current one. As I described earlier, the increase in the OHIP Benefit
Schedule amounted to 11.5% as of January 1, 1980. But the overall
utilization factor increased by more than 6%, made up of a 3% increase in
the supply of physicians (as contrasted with an increase in the Ontario
population of only 0.9%) and a further 3.1% increase in the amount of
services provided by the average Ontario doctor to his patients. The result is
that in 1980 the total OHIP payments to doctors were fully 18% (and $200
million) higher than they had been in 1979. These are the budgetary
problems which confronted the Government as it received the OMA's
proposal for a major hike in the price level for 1981.

25. Increases in this physician-utilization ratio are pertinent not just because of
their impact on the Government's aggregate OHIP budget; they directly

Tab 15 The Historical Issue of Physician Services Utilization Page 5


influence the income of physicians as well. An individual doctor's annual
income is the product of the price charged for his individual services times
the volume of services which he provides to his patients. Even if the price
schedule is enjoying only modest increases, doctors' earnings can move
sharply ahead if the per capita utilization factor pushes volumes upwards.
The OMA argued that such changes in utilization should not be ultimately
decisive in determining OHlP price levels. The Government representatives
on the Committee disagreed. I shall consider their respective arguments in
the next section of this Report. In this section I shall try to set out the
relevant facts underlying that debate.

Weiler characterized the debate over the impact of the per-physician utilization
factor on the income of physicians as being “at the core of the dispute between the
Government and the OMA” (paragraph 43, Exhibit 21).

43. One cannot so easily dismiss the relevance of the per-physician utilization
factor and its impact on the income of doctors. This is the issue which is at
the core of the dispute between the Government and the OMA. What is to be
the basic criterion for translating society's measurement of the economic
value of a doctor's work: the fees paid for each individual service, or the flow
of net income received over a year (or some other relevant period)?

And at paragraph 49, Weiler goes on to state the conundrum of price increases as
compared to compensation increases.

49. But the most significant item in a medical practice which has to be covered
in the fee is the doctor's own time and labour. Herein lies the most puzzling
issue in this entire dispute. How are we to interpret the continuing increase
in volume experienced by individual practitioners ever since the institution of
OHIP in 1971 (which has produced average income gains for doctors far in
excess of increases in the price schedule)? Has the "cost" of satisfying this
demand - in the sense of the personal effort expended by the doctor - gone
up comparably, such that the increase in annual incomes should be
ignored in changing the price of the doctors' individual services?

Weiler considered whether doctors were working harder to earn their increased
income or whether major efficiencies in medical practice had translated into higher
net income for Ontario doctors. If the former, physicians should not be unduly
punished for an increased workload, and if the latter, the government, and most

Tab 15 The Historical Issue of Physician Services Utilization Page 6


importantly the taxpayer, should be able to benefit from the enhanced efficiencies.
In a standard commercial context, market forces limit the provider’s ability to
unilaterally gain from productivity increases. At paragraph 53, Weiler concludes:

53. My personal intuitive sense is that both tendencies have been operative in
medical practice in the province. In the last decade Ontario doctors have
had to work somewhat harder to achieve their current income levels under
an eroding scale of prices, but they have also profited from the economies of
scale and time which flow from higher service volumes under Medicare. I do
not have – nor do a I think anyone now has – accurate estimates of how
much of these recent income increases should be attributed to each of these
trends. Until these estimates are available, we cannot make a final
judgement about the extent to which the OHIP Benefit Schedule should be
adjusted.

Tab 15 The Historical Issue of Physician Services Utilization Page 7


The Weiler Report – 1982

Negotiations continued in 1982 but no agreement was initially reached. Weiler was
again appointed as fact-finder and the parties presented similar, yet more
extensive, evidence as they had in 1981.

Evidence was proffered that the fee schedule prices had increased at a slower rate
than the Consumer Price Index (“CPI”) and average industrial incomes. As stated in
the report “the cumulative percentage change in doctors’ fees was 89.2% for 1971-
81 inclusive, while the CPI rose a total of 143.7%, and for average industrial
earnings, the cumulative decline was 40.1%.” The OMA argued the erosion of the
value of the Ontario fee schedule relative to economic trends justified their position
on fee increases. The OMA also argued their fee schedule had eroded compared to
physicians’ fees in other provinces.

However, Weiler raised concerns with focusing on price alone in reviewing the
appropriate physician compensation, stating at page 21 (Exhibit 22):

I confess that I am even firmer now in my judgment that we cannot focus


simply on price in appraising the need and the justification for increases in
physicians‘ compensation. The kinds of real income gains which have been
enjoyed by Ontario doctors in the last two years simply have to be a central
factor in our inquiry this year (subject, as I noted above, to an analysis of the
nature of and reason for this income increase).

The major problem with focussing on fees alone is that it tells us nothing
about how much the price is to go up.

Weiler reviewed the historical rankings of the value of the fee schedules in each
province against the historical inter-provincial rankings in average doctors’ income.

The tables show that Ontario physicians’ incomes experienced a significant bump in
1978 and 1979, without a similarly significant increase in the fee schedule. As
Weiler states at page 18:

Tab 15 The Historical Issue of Physician Services Utilization Page 8


In 1978 and 1979 his relative income situation changed dramatically, as
Ontario doctors moved all the way up to third place in each category. One
would not have anticipated this trend by considering price alone, since there
was no comparable turnaround in the relative value of the Ontario’s benefit
schedule during those two years.

Again, Weiler reiterates that fee increase alone cannot account for the growth in
doctors’ compensation.

Initially recent trends seem puzzling. How can it be that Ontario doctors’
incomes have been growing so much faster than doctors’ prices? The
answer is to be found in the rate of increase in utilization of physicians’
services in Ontario, the middle factor in the equation: price times volume
produces income.

Weiler concluded that a real improvement in physician income results from a


recognition that the OHIP plan removes the pricing discipline that would otherwise
constrain an increase in volume of services from the increased utilization of medical
services. Weiler found that, after accounting for volume usage due to population
growth, demographic forces, and an increase in the number of doctors, there had
been a 16% increase in the volume of services provided to the average citizen by
the average physician over the previous eight years. This averaged out to the same
2% annual increase that he had estimated in his 1981 report:

In 1973-74 through 1981-82, OHIP payments to doctors increased by 164%.


The yearly price increases themselves generated an 87% hike in the OHIP
payments. But flowing through this higher price schedule was another 41.2%
rise in the volume of services being paid for by OHIP (Which taken together
account for the total 164% increase in expenditure). More than half of the
volume increase was the result of normal population growth and the increase
in the number of Ontario citizens needing medical care. But after all these
factors have been accounted for, there still remain a 16% increase in the
volume of services rendered by the average Ontario doctor to the average
Ontario citizen, a 2% annual increase for each of the past eight years. From
the Government’s point of view this has already added $370 million to the
cost of OHIP. If roughly the same trend in per capita utilization continues,
another $50 million will be added to the OHIP bill next year. At the same
time, these extra expenditures constitute additional revenue doctors. This is

Tab 15 The Historical Issue of Physician Services Utilization Page 9


the ingredient in the system which has been pushing the income of Ontario
doctors up at a faster pace than their price level.

Weiler again turned his mind to the possible causes for the isolated 2% annual
increases in volume. He found no strong evidence that physicians were working
significantly longer hours than they had been previously. Although there was a
slight increase between 1978 and 1980, there was nothing to suggest a workload
increase equivalent to 16% over eight years. As a reminder, Weiler stated at page 8
that the average doctor works roughly 55 hours per week on direct patient care,
administration of his practice and hospital or medical committees.

Ruling out that doctors work time does not fully account for the annual 2% increase
in volume, Weiler also considered that a higher volume of medical service use that
coincided with productivity gains could lead to real returns for the service provider
and the consumer, as a physician could complete more tasks in a shorter amount of
time with the same fixed overhead costs. Finally, he posited that a change in patient
demand, perhaps due to an aging population, could also have led to greater
demand for more expensive and higher quality treatments. The taxpayers should be
able to share in the benefits of these productivity gains, while physicians should be
able to maintain some benefit from working more hours.

Unfortunately, Weiler found that he did not have evidence or statistics before him
which could substantiate these explanations. In the end, Weiler found that “one
cannot readily separate price from income. Adjusting the doctors’ price upwards (as
the OMA wants), taken together with increasing volume will push incomes up
further and faster than would seem appropriate.” (page 37, Exhibit 22).

Tab 15 The Historical Issue of Physician Services Utilization Page 10


Baillie Report – 1987

The OMA rejected Weiler’s proposal for settlement and the parties continued
negotiations. From the period of 1982 to 1986 they were then able to enter into a
negotiated settlement regarding adjustments to the fee schedule.

In 1986, the province significantly affected physician compensation by banning


extra-billing, among other things, with the Health Care Accessibility Act. This was in
response to federal legislation (the Canada Health Act) that would financially
penalize provinces starting in 1987 if provinces did not have Medicare plans that
complied with the federal legislation.

The OMA (unlike any other physician association in Canada) called for a physician
strike in response to the provincial legislation.

Despite the significant publicity surrounding the 25-day physician strike, the parties
nevertheless continued to negotiate fee increases. The parties retained James
Baillie as a fact-finder.

Baillie, like Weiler, also found that utilization was an issue.

Baillie viewed the OHIP Benefit Schedule as a surrogate for what would occur in a
freely competitive market. At page 33 (Exhibit 23), Baillie considered how
productivity gains in a freely competitive market should, or in the normal course of
business would, impact fees:
While the details may be controversial, one thing seems to me clear: in a
realworld competitive situation, at least a portion of at least some of the gains
(perhaps in particular those flowing from improvements in efficiency as
distinct from quality) would be flowed through to patients. The exact extent of
the sharing and how it would affect fee levels would be determined by a host
of factors. In concept, the global revision should attempt to replicate this
result if physicians' remuneration is being increased in circumstances where
a competitive market would dictate a sharing of the increase.

Tab 15 The Historical Issue of Physician Services Utilization Page 11


How the increase was to be shared was less easily established. There was a lack of
data on if or how new technologies and medical advances had led to concrete
gains. However, even the OMA was prepared to accept that the component of
utilization comprising of productivity gain may be an element to be taken into
account when arriving at global revisions to the fee schedule, as stated on page 19
of the report:

The OMA agreed with the Government that utilization is an important issue
and expressed willingness to cooperate towards it solution, but said that
January 1, 1988 was an unrealistic target date.

Baillie found that he could not responsibly recommend that utilization be ignored as
a factor in arriving at an increase to the OHIP Benefit Schedule. He found that:

per physician utilization is increasing., i.e., that even apart from increases to
the OHIP Benefit schedule there is a gradual increase in per physician
income. I am also satisfied that at least part of this increased volume of
services reflect a gain that should be shared – i.e. a portion of which should
be “credited” to the Government as a surrogate for what could happen in a
competitive market.

In quantifying the portion that should be “credited” to the Government, Baillie


endorsed a 1.5% increase due to non-price related factors as a conservative
estimate. He then assigned a 50-50 share of accountability, reducing the global
revision by 0.75%.

The parties accepted Baillie’s recommendations.

Tab 15 The Historical Issue of Physician Services Utilization Page 12


Baillie Report – 1988

The parties were unable to reach an agreement for fee increases in 1988, and
Baillie was again jointly re-approached to act as fact-finder as to the appropriate
one-year global revision.

Again, utilization was raised as the “single most important and difficult issue of
principle discussed during the negotiations … it pervades the entire debate and is
likely to continue to do so unless and until a resolution is found” (Exhibit 24).

The OMA attempted to persuade Baillie that his findings and recommendations
regarding utilization in his previous report were in error. The OMA again argued that
doctors are working longer for this increased income, as the fee schedule is:

designed to compensation physicians as professionals, on the basis of


services rendered. Accordingly, if a physician elects to work longer hours or
is able to organize his or her time more effectively, than he or she should be
entitled to reap the benefits through increased fees (page 12).

The OMA argued that a utilization adjustment would only be fair “if there is evidence
which shows a balance of probability that physician earnings, based on price and
volume, are increasing without a corresponding increase in effort.”

Again, the Government provided data which indicated that total OHIP payments
have consistently increased at a rate more rapid than explicable by demography or
by increase in the number of physicians. The Ministry argument in today’s interest
arbitration process echoes the same Government concerns raised in the Baillie fact
finding process, that utilization has been a concern since before 1974, and that:

it is difficult to accept, considering human limitations and finite number of


hours in a day, that utilization growth over this protracted period was
achieved by more and harder work alone. (page 15)

Tab 15 The Historical Issue of Physician Services Utilization Page 13


Baillie again finds that the steady increase in volume of services rendered per
physician has not been attributable solely to harder work by physicians.

In his second examination of the utilization debate, Baillie identified a significant


difference between the real-world competitive market and the medical system that
he had not highlighted the year before:

This is that the price discipline that constrains the volume of demand for most
products or services does not affect the Ontario market for OHIP-insured
services. Accordingly, it may be that the volume of services provided by
physicians is increasing more rapidly than would be the case in a conventional
free market. If physicians are benefitting from demand for their services in excess
of what would occur in a price- disciplined market, perhaps the community is
justified in calling on them to share some portion of their gain attributable to this
component of increased demand (page 17).

Baillie considered evidence regarding the increases experienced within categories of


physicians (page 19), evidence that he had been reluctant to consider in 1987. He
found that the variation in gains between categories was statistically significant (see
Table III). Categories of physicians that relied less upon technology, such as psychiatry,
saw much lower rates of utilization growth when compared to specialities such as
cardiovascular medicine.

Ultimately, Baillie recommended an increase which the Government rejected, and


ultimately the Government terminated the negotiations with the OMA. The Government
proceeded to give a lesser increase to the fees on April 1, 1988.

For 1989 and 1990, there were no negotiations and no increases. However, as part of
the negotiations that occurred for the 1991 agreement, the Government agreed to make
a lump-sum payment to physicians for 1989-1990 and 1990-91.

Tab 15 The Historical Issue of Physician Services Utilization Page 14


Patrice Dutil – The Impact of Health Care on the Ontario Budget - 2011

In a paper published in 2011, Patrice Dutil (an Associate Professor in the Department of
Politics and Public Administration at Ryerson University) reviews the Ontario Budget
between the years 1960 to 2004, and its impact on Health Care (Exhibit 25).

It is most striking that since the introduction of Medicare, the Ontario budget was
changed dramatically, with health care expenditures growing every year and continuing
to take up more and more of government expenditures despite the various responses of
the Government to try and control heath care spending. This history is reviewed in detail
below.

In 1959, health care expenditures in Ontario constituted 5% of the provinces budget. By


2003, the health care budget had grown to assume 41.25% of the budget (page 322).

Ontario was spending money in health care before those years on hospitals, public
health programs, and asylums for the mentally disabled, but it was telling that in the
period 1943-62, the province spent a total of $2,186,762,710 on education. Highways
and roads had consumed $1,596,200,411 and health $1,085,553,037. Ontario was
spending on children and universities, and building its infrastructure. Health care was
lower priority.

However, since the introduction of universal health care, it has become the first priority
in government, growing from a marginal concern of the Government of Ontario to its
prime occupation.

Dutile found that the Ontario budget grows faster than inflation, and the prime reason is
explained by the fact that health care expenditures consistently run at a higher rate of
inflation and keep growing, assuming a larger share of the Government’s budget. When
it comes to health care, any attempt of the Ministry of Finance to control the budget
expenditure has failed.

Tab 15 The Historical Issue of Physician Services Utilization Page 15


In the years prior to the Government becoming the only insurer/payer of services, it was
able to control spending to a certain degree. As pointed out by Dutile “Total spending on
health care actually declined in 1969-70 as a result of reduction in construction grants
for hospitals, and because of a reduction in the Government's contribution to the Ontario
Hospital Care Insurance Program. It was, in the words of the 1970 budget, 'a policy of
severe and deliberate expenditure restraint.' All the same, health care expenditures now
constituted 16 per cent of the total budget.”

Between 1970 to 1975, the health insurance plan consumed a rapidly growing share of
the Government tax revenues and created a drain on the provinces economic
resources. In 1976, health care costs amounted to 28 per cent of expenditures, while
education cost 26 per cent. Expenditures were expected to grow by 14.5 per cent in
1976-7 and 9.2 per cent in 1977-8.

The Ministry of Finance at the time noted that the utilization rate was a serious problem,
citing that “Ontario medical visits per person are 20 per cent higher than they were four
years ago, and the rate of hospital admission is now double the rate of population
increases (page 329). The Minister blamed the principle of universal medicare, which
had “build-in price incentives for people to seek frequent medical attention and the high
doctor-to-population ratio.”

The paper then reviews the period of the Bill Davis government, and its appointment in
1977-78 of a small committee of senior public servants and OMA executives to
“recommend cost control possibilities in the health care field where expectations and
mounting expenditures are outstripping resources” (page 329). The committee came to
the conclusion that the “health care system was rife with misuse of facilities, duplication
and waste” and that “solving this problem would be difficult, for the various components
of the health care delivery system are highly interdependent and there is danger in

Tab 15 The Historical Issue of Physician Services Utilization Page 16


attempting specific correction in one area for fear of creating new inequities or new
imbalances in the other.”

On March 7 1978, in his budget speech, Minister McKeough declared that 'the control of
health costs continues to be a high priority' and proposed a dramatic 37.5 per cent
increase in OHIP premiums. (This represented an increase of $6 per month per person,
for a total payment of $22 or $264 per year, while families would pay an additional $12
per month for a total of $44 or $528 per year.) Intended to generate an additional $271
million, the premiums would cover one-third of the costs of services. Health care was
allocated an additional $276 million, an increase of 8.1 per cent.

The Opposition did not hesitate to threaten to defeat the minority government if it
pursued this approach, and by the end of April a compromise was reached. OHIP
premiums would be increased by 18.75 per cent — $3 per person or $19 a month and
$6 per family or $38 a month — half of what the Minister of Finance had proposed. The
resulting loss in revenues was calculated at $145 million. To make that up, the
Government committed to find $73 million in cuts elsewhere — the Ontario
Development Corporation's loan program, the Ontario Housing Corporation, highway
construction, university capital fund projects, and the Northern Regional Priority
Program were declared major targets — and increased the corporate income tax rate by
1 per cent.

Ultimately, the Government increased OHIP premiums and also agreed to create a
Select Committee on Health Care Financing and Costs, tasked with reviewing Ontario’s
health care costs, health care financing methods and alternative methods of financing
the health care system. The committees report cited a study by Professor Robert Evans
that found one of the key factors in rising medical costs from 1950s to 1977 was
“directly attributed to increases in physician incomes and in the number of physicians in
the province.”

Tab 15 The Historical Issue of Physician Services Utilization Page 17


The defeat of the Progressive Conservative government led by Frank Miller in 1985
changed the situation in terms of funding trends. The first budget presented by Robert
Nixon of the Liberals committed to an increase of 8.3 per cent in funding for the
operations of hospitals.

Ontario estimated that it would lose $16 million, but still expected to collect $1,653
million from OHIP premiums. At the same time, payments to physicians and
practitioners grew by $65 million, payments to discharge hospital bridge financing by
$126 million, and the Drug Benefit Plan by $41 million. By 1987, the health care budget
had passed the $11 billion mark, amounting to $1200 per person, while the Government
simultaneously reduced the number of Ontarians who paid OHIP premiums by an
estimated 40,000 people. It was now becoming even more difficult to estimate health
costs.

Meanwhile, the Ministry was estimating that it would spend $1.2 billion more on health
care in the following year:

Expenditures for OHIP payments to physicians and other practitioners have


quadrupled, from $.9 B in 1977 to $3.6 B in 1987-88. Annual percentage
increases in OHIP expenditures have fluctuated in a range from 9.7 per cent
recorded in 1979-80 to a high of 19.7 per cent in 1982-83, averaging 15 per cent
over the period as a whole. On a per capita basis, OHIP expenditures rose from
$108 to $391, an average annual rate of 13.8 per cent over the period. More
recently, for the period from 1981-82 to 1986-87, OHIP expenditures grew from
$1.5 B to $3.2 B, representing an average annual rate of increase of 15.5 per
cent.

In response to increased pressure on the health tax bill, the Peterson Government
decided to study the issue more intensely and established a Premier's Council on
Health Strategy. It delivered its report, From Vision to Action, in 1989. The committee
focused on funding of the health care system, and on physicians because it concluded
that the oversupply of doctors and the multiplication of procedures on patients were
adding heavily to the cost of health care.

Tab 15 The Historical Issue of Physician Services Utilization Page 18


It pointed out that total OHIP payments had gone from $900 million in 1977-78 to $3.6
billion in 1987-88 — a growth rate of 15 per cent per year. It concluded that a 'mix' of
payments ranging from fee-for-service, capitation, and salaries be pursued. As Dutile
points out, the response would be very slow in coming: in 1987-8 Ontario doctors were
given a fee hike of 4.8 per cent, adding up to a 66.58 percent increase since 1981.

Financing the health care system in Ontario took two important turns in 1989.

 Health care, now consuming 33.3 per cent of the budget, needed more revenue.
It was estimated that the loss of $1,843 million in OHIP premiums would be made
up with revenues of $2,114 million from the Employer Health Levy.

 The Liberals were defeated in 1990 and the province's first New Democratic
Party government took power.

The NDP’s budget, even with its commitments to dramatic funding increases, reflected
concerns that were familiar: 'The costs of our health system are threatening to
overwhelm all other Government expenditures. The Government's response was to deal
first with the payments to physicians. It capped payments to doctors and immediately
reduced payments for medical services received outside the country. A year later,
reflecting on average annual increases of 11.2 per cent over the previous ten years,
Laughren announced that 'this high level of growth is simply not sustainable' and
expected to hold the increase in health care expenditures to 2 per cent in 1991-2 and to
1 per cent in 1992-3.

Key among the reforms was the introduction of differential fees for new physicians in
areas of oversupply and a reduction in medical school enrolments, ideas that had been
advanced by the various study groups spawned by previous governments.

The measures succeeded, and for the first time in thirty years, health expenditures
actually declined.

Tab 15 The Historical Issue of Physician Services Utilization Page 19


The Harris government brought a new approach to budgeting, slashing 14.2 per cent of
the 1994-5 Ontario budget. The health sector was not spared: the new budget bill
proposed user fees for prescription drugs used by seniors and low-income earners. By
1996, 25 per cent of the 32,000 acute-care beds that had existed in 1991 had been
closed.

In his November 1995 economic statement, Finance Minister Eves announced plans to
reduce the grants to hospitals by $1.3 billion. A year later, the Government's subsidy of
malpractice insurance ($36 million) was eliminated, and then restored, and while the
clawback on physician billings was continued, it was reduced, while at the same time
the total income cap that had been imposed on physicians by the Rae government was
lowered. In 1997 the clawbacks were ended, and a 1.5 per cent increase was allowed.

Health care spending in the Harris government would indeed continue to grow. For
1997-8, it was predicted that $18.5 billion would be spent on all aspects of health care,
ranging from services to restructuring and capital construction.

In the Harris years, health-based operating spending increased by $6.1 billion, bringing
total health care costs to over $25 billion in 2002-3, and assumed a larger portion of the
budget than ever. In 1995-96 base health care operating spending made up 38 per cent
of government prograem expenditures (excluding capital costs and public debt interest).
Health care's share grew to 45 per cent in 2001-02 and would increase to 47 per cent in
2002-03 as a succession of finance ministers (James Flaherty assuming the position in
2001, and Janet Ecker in 2002) tried in vain to control costs.

From 1994-95 to 2002-03, Ontario's health care spending (operating and capital)
increased by $10.3 billion. Ottawa's CHST transfers to Ontario did not keep up.

Tab 15 The Historical Issue of Physician Services Utilization Page 20


In 2001, Jim Flaherty, the Minister of Finance, noted that 45 per cent of the programing
budget was spent on health, and predicted that by 2006, 60 per cent of programing
dollars would be consumed by heath. 'This rate of increase simply isn't sustainable.

The McGuinty Liberals came in with similar pledges to control health care costs when
they were elected to office in the fall of 2003. Within ten years, from 1994 to 2004,
expenditures on health care had consumed another 5 per cent of the budget.

Finance Minister Greg Sorbara emphasized that the Government wanted the health
care system 'measured ... on results [with ...] funding ... targeted to ensure that the
results Ontarians want are met, including reduced wait times and access to primary
care.

Sustainable health care spending is not about cutting health care spending — that is
neither desirable, nor realistic. It is about investing wisely in a system that delivers
tangible results in an accountable, efficient and cost-effective manner and that not only
focuses on curing illness, but also on health promotion and prevention. Health care
costs cannot continue to grow faster than the rate of economic growth over the long
term. The province is devoting an increasing share of its program spending to fund
health services... There are many pressures on the health care system such as an
aging and growing population, rising utilization for existing service, the costly demand
for access to new medical technology, wage settlement and emerging public health
threats from an increasingly connected world. This rate of increase is not sustainable,
and can only lead to the continued 'crowding out' of available funding for other priorities
in the future.

Dutile concludes his paper with the following figure which shows the net health care
disbursements growing exorbitantly as a percentage of expenditures for the period of
1960 to 2005.

Tab 15 The Historical Issue of Physician Services Utilization Page 21


Conclusion:

As all of the above reports and articles demonstrate, the issues before this Board today
are not new. Certainly, sustainability is not a new or novel concept, but an issue that
many independent neutrals have considered.

And at the core of the sustainability debate is this – how does one deal with the
evidence that physician compensation increases outpace price increases? How is a
sustainable health care system achieved when individual physicians can choose to
increase services at rate well above average population increases?

The Ministry provide evidence and examples in the following tabs to assist the Board in
coming to a determination on these issues.

Tab 15 The Historical Issue of Physician Services Utilization Page 22


TAB 16 UNCONTROLLED GROWTH IN THE PSB (ABSENT THE IMPACT OF
PRICE CHANGES) FOR THE NEXT 25 YEARS

The consequences of an “open-ended” health system without budgetary restraint on the


costs of physician’s services is not sustainable. The consequences may not be immediately
apparent over a 4-year time frame but when considered over the long term, the inexorable
increases at a higher rate than every other public service would inevitably cause the
elimination of our treasured public services or cause irrefutable harms to the other
components of the health care system.

What are the root causes of the conclusion that the consequences result in a health system
that is not sustainable?

1. The size of the expenditures for physician contracted service already comprises over
9% of provincial program spending.

2. Absent any overall limit, the discretion to affect these expenditures rest with the
physician contractor, not the funder of these services.

3. History has shown that these expenditures increase year over year at a rate that
exceeds the population growth and a factor for ageing.

4. History has shown that the average incomes of physicians grow at a rate which
exceeds the increase attributable only to fee changes.

5. History has shown that physician expenditures have grown dramatically as a


percentage of the overall budget.

6. History has shown that the overall health care budget has grown dramatically as a
percentage of the overall budget.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 1
7. Although there have occasionally been periods of severe restraint, these periodic
retrenchments have not been sufficient to mitigate the continued dominance of these
expenditures for physicians services and health services in general within the overall
expenditures of the provincial government.

8. Now that binding interest arbitration has replaced the government’s ability to impose
any controls, the need for a more structured and embedded restraint mechanism is
required.

Review of Relevant Studies:

Several studies over the last decade have drawn attention to the rising share of Ontario's
health spending in total program studies. These studies have cautioned to the grave
consequences if this trend is not moderated (I say moderated rather than the harsher
"arrested" because the trend could and likely will continue to rise, but hopefully not at
anything like the pace of the past 20 years).

We highlight particularly relevant comments from some of these studies as it relates to the
issue of sustainability and file the complete papers as Exhibits.

1. 2017 Study - CHT and The Federation, Past Present and Future (Exhibit 26)

Author: Randall Bartlett, CFA, Chief Economist


IFSD Institute of Fiscal Studies and Democracy

This 2017 paper reviews the recent Canada Heath Transfer (CHT) negotiations and the
resulting health accord. The author highlights the negotiations and the ultimate provincial
acquiescence to reductions of the Federal contribution to health care costs. We quote
directly from the study below:

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 2
Provincial Territorial Resolve Fades
 Then, one by one, they entered into bilateral agreements with the feds –
Manitoba is the only exception
 P-T governments complained but inked the deal nonetheless
 By signing these agreements, P-T governments will receive billions of dollars
less in health funding than they asked for
 P-T governments were left with little choice

The following slide in the study highlights the impact of the health accord and the diminishing
federal contribution across all provinces.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 3
The following slide identified the Federal Health Funding Gap for each province.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 4
2. Canadian Institute for Health Information (CIHI) Study
National Health Expenditure Trends, 1975-2017 (Exhibit 27)

This 21st annual health expenditure trends publication states at page 4 under the heading
Key Findings:

Total Health expenditure expected to reach $242.0 billion or $6,604 per Canadian in
2017
 It is anticipated that, overall, health expenditure will represent 11.5% of
Canada’s gross domestic product (GDP) in 2017. The trend over the last 40+
years shows that when there is more economic growth, more is spent on health
care.
Canada’s per capita health care spending among the highest internationally
 Among 35 countries in the Organisation for Economic Co-operation and
Development (OECD) in 2015, the latest year for which comparable data is
available, spending per person on health care remained the highest in the
United States (CA $11,916). Canada’s per capita spending on health care was
among the highest internationally, at CA $6,782 – less than in the Netherlands
(CA $6,639) and more than in France (CA $5,677), Australia (CA $5,631) and the
United Kingdom (CA$5,170)

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 5
At page 6 the report illustrates an increase of very significant proportions over the past 42
years in the Total Health Expenditure as a percentage of Canada’s GDP. As can be seen
from Figure 2 below, Health’s share of GDP moved from 7% in the mid-1970s to 11.5% in
2017 which represents a 64.3% increase in the share of an increasing GDP. We reproduce
page 6 below:

Health as a share of GDP has trended upward


It is anticipated that, overall, health expenditure will represent 11.5% of Canada’s
gross domestic product (GDP) in 2017. The trend over the last 40+ years shows that
when there is more economic growth, more is spent on health care.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 6
At page 10 of the CIHI report, a review of OECD countries is provided:

International comparisons
Canada is among the highest spenders in the OECD
Among 35 OECD countries in 2015, the latest year for which comparable data is
available, spending per person on health care remained highest in the US (CA
$11,916). Canada’s per capita spending on health care was among the highest
internationally, at CA$5,782 – less than in the Netherlands (CA$6,639) and more than
in France (CA $5,677), Australia (CA $5,631) and the United Kingdom (CA$5,170)

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 7
3. April 2011 C.D. Howe Institute Commentary
Chronic Healthcare: Spending Disease: A Macro Diagnosis and Prognosis
(Exhibit 28)

Authors: David A Dodge, Richard Dion

In the opening comments at page 1 of the paper, the authors confirm the conclusions of the
other analyses that the growth in expenditures for health services has growth significantly
from the mid 1970s. We quote directly from the report at page 1 below:

The expansion of the scope and quality of healthcare services, coupled with apparent
low rates of productivity growth in the healthcare sector, has meant that the share of
national income devoted to healthcare has increased substantially over the last
decades.

In the United States this share has doubled since 1975, in the United Kingdom it has
increased by over 60 percent, and in Canada it has risen by over 70%, from 7 to 12
percent. In other words, over the last 35 years or so in Canada, we have collectively
devoted, on average, roughly an additional 0.15 percent of national income each year
and every year to the consumption of healthcare services.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 8
At page 8 of the report it captures the concern that the increasing health care spending
relative to GDP can have adverse implications for any other spending. We quote from the
report below:

Implications for Non-Healthcare Spending


Our projections of healthcare spending-to-GDP ratio and nominal GDP allow us to
extract the trajectory of health care expenditures over the next two decades. In our
base case, the annual increase in nominal healthcare spending per capita is set to
rise from about $250 in the last decade to $675 in the 2020s. This would bring total
annual spending per capita after inflation to about $7,400 in 2021 and $10,700 in 2031,
up from nearly $4,900 in 2009. Even in our optimistic case the annual increase in
current dollars is set to rise to about $600 in the 2020s and in our optimistic policy-
induced case to about $2,900. The implication of our base case is that in the 2020s,
Canadians will be spending 31 cents of every dollar of increase in their nominal
incomes on healthcare, thus bringing the average share of healthcare spending in
GDP up to nearly 17 percent. Even in our optimistic case 20 cents of every additional
dollar of income will be directed to healthcare. These figures contrast with an average
of about 11 cents between 1976 and 2001, but do not wildly differ from the roughly 20
cents in the first decade of this century.
In our base case the amount of real additional per capita income, expressed in
constant 2009 dollars, that would be left over each year to be spent on all other goods
and services would fall over the next two decades from over $1,500 on average in the
years 2010 to 2012, to $1,000 on average in the years 2021 to 2031, while in our
optimistic case it would rise to $1,600 (Figure 6). Clearly this optimistic case is
preferable to the base case but in neither case does the increased spending on health
care “eat up” all, or even a majority of the gains in income.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 9
At page 11 the C.D. Howe Institute concludes by illustrating 4 unacceptable options to
financing increasing health care costs. These options illustrate that unbridled increases in
health care costs are unsustainable. We quote from page 11 of the report beow:

Conclusion
Even if we in Canada are incredibly successful in improving the productivity,
efficiency and effectiveness of the healthcare system -our optimistic case – we face
difficult but necessary choices as to how we finance the rising costs of healthcare
and manage the rising share of additional income devoted to it.
In addition to increased spending by individuals – and employers – for services
currently uninsured by provinces, some combination of the following actions will be
necessary to manage the “spending disease:”
1) A sharp reduction in public services, other than healthcare, provided by
governments, especially provincial governments;
2) Increased taxes to finance the public share of healthcare spending;
3) Increased spending by individuals on healthcare services that are currently
insured by provinces, through some form of co-payment or through delisting
of services that are currently publicly financed;
4) A major degradation of publicly insured healthcare standards – longer queues,
services of poorer quality – and the development of a privately funded system
to provide better-quality care for those willing to pay for it, as in the UK and
many European countries. This two-tier option would not have much effect on
the rate of growth of total spending but, like option 3 above, would alter the
public-private split and have distributional implications.
None of these options is appealing; there is no easy way to manage the chronic
healthcare spending rise. In this paper we have attempted to provide a diagnostic of
spending disease and a prognosis of its evolution. The prognosis is not good, even
if we are incredibly successful in improving the efficiency and effectiveness of
healthcare delivery. But the spending disease must be managed. It is now up to
Canadians to have an adult discussion about how to manage it.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 10
4. May 2010 TD Economics Special Reports
Charting a path to Sustainable Health Care in Ontario (Exhibit 29)

Authors: Don Drummond Derek Burleton

In the Foreword to the report the authors highlight their concerns about sustainability. We
quote directly from that section below:

Serious fiscal challenges threaten the system


Ontario is confronted with a serious fiscal issue. Every year, government spending
on health care increases more than revenues. As a result the amount available for
other government spending decreases. If current trends prevail, health care
expenditures would make up 80 per cent of total program spending by 2030, up from
46 per cent today. All other programs, such as education, would be funded out of the
remaining 20 per cent. This is not feasible.
Moreover, there are serious consequences if we do not act quickly to address the
mounting fiscal pressures. Ultimately, we fear, the government will be forced to make
deep cuts that would jeopardize the quality and access of care. Ontarians
experienced this first hand, when sever cutbacks in the 1990s drove down the quality
of the health care system. We should learn from history, not repeat it.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 11
In the Executive Summary to the report the authors identify that status quo as it related to
the question of health care spending is unsustainable. We quote directly from page 6 of the
report below:

Executive summary

Our key premise for urgent action is straight-forward. The status quo featuring rapid
growth in health care spending is not sustainable. If anything, the status quo will see
even more rapid growth in expenditures due to ageing of the population. That is
currently being accommodated by squeezing out virtually all other forms of provincial
government spending. But there are limits and they are close to being reached. Moves
to place the system on a more sustainable footing would help to reduce the potential
for fiscal pressures to sow the seeds for even greater cuts in the future, thus
jeopardizing the quality of care. And Ontario’s residents saw first hand in the 1990s
how severe cutbacks in health spending can drive down the quality of- and
confidence in – the health care system. It ultimately took more than a decade of
massive investment by the Ontario and federal governments to repair much of the
damage.

At page 12 of the report, the authors identify that the growth in health care costs relative to
GDP across Canada has , not surprisingly, been experienced in Ontario as well. We quote
directly from page 12 below:

Health spending has been absorbing a growing share of both provincial GDP and the
annual government budget. In 2009, total public and private outlays are expected to
reach 13% of Ontario GDP compared to about 8% a quarter century ago. What’s more,
about 46% of provincial program spending is now dedicated to health care, up from
31% in 1976. The corollary of this expanding health share is that other government
programs have been making up a diminishing share of the Ontario budget. In the last
decade, Ontario program outlays excluding health have risen at a 5% average annual
rate, compared to health’s 8% pace. Moreover, stripping away both health care and
education (the second largest budget component) would leave provincial program
outlays up by only about 4.5% on average.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 12
5. Office of the Parliamentary Budget Officer
Fiscal Sustainability Report 2016 (Exhibit 30)

This 2016 federal study identifies the increasing cost of health care at the provincial level as
a portion of GDP, projecting a continuation of the existing trend. We quote from page 11
of that report below:

5. Subnational Government

Health care spending
The primary driver of subnational spending growth as a share of GDP is health care,
which is in turn driven by ageing demographics and excess cost growth. Health
spending rises from 7.3 per cent of GDP in 2015 to 12.5 per cent at the end of the
projection period. (Figure 5-1).
Excess cost growth
Excess cost growth is the increase in spending that cannot be accounted
for by increases in the population, an ageing population, real per capita
income growth and general price inflation.

On page 12 of the report Figure 5.1, reproduced on the following page, illustrates the trends
graphically and the report continues on that page, stating that the rate of increases has
accelerated since 2012.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 13
Health care spending has been revised upwards in recent years relative to the
preliminary estimates by the Canadian Institute for Health Information in PBO’s
sustainability assessment last year. Average annual spending growth from 2012 to
2015 is now estimated to have been 2.6 per cent; previously it was estimated at 2.3
per cent.
The revised estimates for growth in health care spending, along with new GDP data
and historical revisions, have also increased PBO’s assumptions for excess cost
growth of health care. Excess cost growth is assumed to be equal to its 1982-2015
average of 0.29 per cent, up from 0.26 in FSR 2015.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 14
The grave consequences of these five formal analyses are essentially a "crowding out" of
other critical elements of program spending. In brief, if health grows faster than the average
growth of program spending then everything else combined must grow slower. To a degree
that was feasible over the past several years because the school age population was
declining. But that period is about to end and the school age population will soon be again
growing at the same rate as the total population.

These other studies warn that health must be reformed to curb extreme crowding out of
everything else. But they do not look at the components of health care. They implicitly
argue that all or at least the average of all components of health must have their growth
reined in.

The following analysis begins from the premise of these previous studies but adds another
dimension. Crowding out can occur not only within total program spending (health at the
expense of everything else) but as well within health spending (physician compensation at
the expense of everything else). It is to this second form of potential crowding out that is
the focus of the following analyses in this section. If some degree of restraint is applied to
total health spending and compensation to physicians continues grows quite strongly, then
the significant components of our health care system outside physician compensation health
will get crowded out.

I summary, our analysis will illustrate that there is the threat of health crowding out all other
spending, but as well there is a real threat that physician compensation will crowd out all
other elements of health spending.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 15
We model a system 25 years hence to project and measure the impact (absent any
consideration of redress or price) to determine where an uncontrolled system might
lead.

Assumptions:

The graph, chart and table below are constructed on the following assumptions:
1. There is no redress applied to the Physicians budget.
2. All program spending budget lines have not been adjusted for price or inflation.
3. The physician budget before price adjustments grows unrestricted by population
aging and those other factors being discussed at this hearing. No limits or targeted
changes for overuse or inappropriate or unnecessary physician services are
implemented. The assumption in the data is 3.6% growth before price changes.
4. The Health Budget (excluding the PSB and inflation) grows by 1.9% per annum
(population and aging).
5. The overall budget (absent inflation) grows in line with growth in population.

Summary of the findings based on these assumptions:

Scenario 1
 The portion of the total budget taken up by Physicians services would almost double
to approximately 17%.

 The overall Health Budget would move to almost 60% of every dollar spent by the
Ontario Government.

 The program spending for the remaining budget items (Primary and Secondary
Education, Post-Secondary Education and Training, Children’s and Social Services,
Justices and all other programs) would reduce from their current 57% of the overall
budget to 41% of the budget. To accomplish this would require a 39.0% reduction in
the program spending for the “non health” programs, if applied equally.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 16
Scenario 2
 The portion of the total budget taken up by Physicians services would almost double
to approximately 17%.

 The “not health” program spending for budget items (Primary and Secondary
Education, Post-Secondary Education and Training, Children’s and Social Services,
Justices and all other programs) would maintain their current 57% of the overall
budget.

 The Health Budget outside the PSA would reduce from its current level of 34% to
26% of the overall budget, a result that could not possibly be achieved in a publicly
funded health care system.

We review the various scenarios on the following pages:

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 17
Scenario 1

Program Spending by Sector Actuals Subtotals Projected Subtotals Difference


2016-17 2016-17 2041-42 2041-42 From
($M) (%) ($M) (%) 2016-17
Education 26,204 20% 24,649 14% -6%
Other Programs 18,979 15% 17,853 10% -5%
Postsecondary and Training 10,131 8% 9,530 6% -2%
Children's and Social Services 16,076 12% 15,122 9% -3%
Justice 2,681 2% 2,522 1% -1%
All Non-Health 74,071 57% 69,676 41% -16%
PSB 12,114 9% 29,328 17% +8%
Other Health 43,831 34% 71,909 42% +8%
All Health 55,945 43% 101,237 59% +16%
Total 130,016 100% 170,913 100%

Change in Health and Non-Health Budgets as a % of Total Program Spending


Budget Over 25 Years
100

90

80

70
Total Budget (%)

60

50

40

30

20

10

0
2029
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028

2030
2031
2032
2033
2034
2035
2036
2037
2038
2039
2040
2041

Physician Services Other Health Education


Other Programs Children's and Social Services Postsecondary and Training
Justice

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 18
Based on Actuals (Subtotals 2016-17)
Children's and Justice
Social Services 2%
Postsecondary 12%
and Training
8% PSB
9%

Health
Other programs Other
43%
15% Health
34%

Education
20%

Based on Projected (Subtotals 2041-42)

Children's and Justice


Social Services 2%
9%
Postsecondary
and Training PSB
6% 17%

Other programs Health


10% 59% Other
Health
42%

Education
14%

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 19
Scenario 2

Program Spending by Sector Actuals Subtotals Projected Subtotals Difference


2016-17 2016-17 2041-42 2041-42 From
($M) (%) ($M) (%) 2016-17
Education 26,204 20% 34,447 20% --
Other Programs 18,979 15% 24,949 15% --
Postsecondary and Training 10,131 8% 13,318 8% --
Children's and Social Services 16,076 12% 21,133 12% --
Justice 2,681 2% 3,524 2% --
All Non-Health 74,071 57% 97,370 57% --
PSB 12,114 9% 29,328 17% 8%
Other Health 43,831 34% 44,215 26% -8%
All Health 55,945 43% 73,543 43% --
Total 130,016 100% 170,913 100%

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 20
Based on Actuals (Subtotals 2016-17)
Children's and Justice
Social Services 2%
Postsecondary 12%
and Training
8% PSB
9%

Health
Other programs Other
43%
15% Health
34%

Education
20%

Based on Projected (Subtotals 2041-42)


Children's and Justice
Social Services 2%
Postsecondary 12%
and Training
8%
PSB
17%

Health
Other programs
43%
15%
Other health
26%

Education
20%

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 21
Increase in Health Budget as a % of Total Program Spending
Budget Over 25 Years
100

90 Total Health Budget (% of Total Program Spending Budget)


Health Budget Excl. Physician Services (% of Total Program Spending Budget)
80 Physician Services Budget (% of Total Program Spending Budget)

70

60
% of Budget

50

40

30

20

10

Date

% of Total Program Spending Budget (5 Year Intervals)

Budget 2016 2021 2026 2031 2036 2041


Physician Services Budget 9.32% 10.53% 11.90% 13.44% 15.19% 17.16%
Health Budget Excl. Physician Services 33.71% 35.24% 36.84% 38.51% 40.25% 42.07%
Total Health Budget 43.03% 45.77% 48.74% 51.95% 55.44% 59.23%

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 22
% of Total Program Spending Budget Each Year

Year Physician Services Budget Health Budget Excluding Total Health Budget
Physician Services
2016 9.32% 33.71% 43.03%
2017 9.55% 34.01% 43.56%
2018 9.78% 34.31% 44.10%
2019 10.03% 34.62% 44.65%
2020 10.27% 34.93% 45.20%
2021 10.53% 35.24% 45.77%
2022 10.79% 35.55% 46.34%
2023 11.05% 35.87% 46.92%
2024 11.33% 36.19% 47.52%
2025 11.61% 36.51% 48.12%
2026 11.90% 36.84% 48.73%
2027 12.19% 37.16% 49.35%
2028 12.49% 37.49% 49.99%
2029 12.80% 37.83% 50.63%
2030 13.12% 38.17% 51.28%
2031 13.44% 38.51% 51.95%
2032 13.77% 38.85% 52.62%
2033 14.11% 39.19% 53.31%
2034 14.46% 39.54% 54.01%
2035 14.82% 39.89% 54.71%
2036 15.19% 40.25% 55.44%
2037 15.56% 40.61% 56.17%
2038 15.95% 40.97% 56.92%
2039 16.34% 41.33% 57.68%
2040 16.75% 41.70% 58.45%
2041 17.16% 42.07% 59.23%

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 23
Conclusion

We respectfully submit that the evidence provided illustrates to the Board that the
history of increases in the expenditures to physicians (even with the occasional periods
of retrenchment included) could not be repeated without an impact on the sustainability
of a publicly funded health care system.

We have modelled the potential impact of a continuation of the trends (even absent the
impact of any portion of redress pursued by the OMA).

The models illustrate fiscal scenarios which could not occur without irreparable damage
to the services provided by the Ontario Government outside heath care, or irreparable
damage to the funding of health care services which are not physicians’ services.

Elsewhere in these presentations, we have offered solutions to mitigate the growth


without adverse impact to patients.

Elsewhere in these presentations, we have illustrated that physicians’ incomes have


traditionally increased at a much faster pace than the fee changes would otherwise
indicate. Certainly curtailed growth would perhaps stop that historical pattern and we
would find income growth for physicians in line with fee increases. We respectfully
submit that if that were a consequence it is by no means a harsh or unreasonable result.

In this very unique and foundational interest arbitration, we submit that the Board must
balance the interests of physicians, patients and the province of Ontario.

Tab 16 Uncontrolled Growth in the PSB for the next 25 years Page 24
TAB 17 SUSTAINABILITY OF HEALTHCARE SPENDING IN ONTARIO –
DRUMMOND (2018)

Donald Drummond, a highly respected economist, was retained to prepare a report on


the arbitration criterion to consider “the achievement of a high quality, patient-centred
sustainable publicly funded health care system”.

His report is filed at the end of this section. His curriculum vitae is provided at Exhibit 31.

The authorities referenced in his paper can be made available if requested.

Drummond’s 2018 report probes into the conditions that would make Ontario’s healthcare
“sustainable” or “unsustainable” in the future.

All of the ideas and assumptions contained in this summary are from that report.

It is important to note that Drummond bases his report on the Ontario 2017 Budget (not
the 2018 Budget, which has neither legislative nor political standing) and the accounting
conventions used by the Ontario Government, as represented in that Budget.

Context

According to Drummond, the sustainability of a public sector spending component has at


least three dimensions1:

1) Overall Fiscal Sustainability

Healthcare spending must be considered within an overall fiscal position in Ontario


that is itself “sustainable”.

1 Drummond, pp. 2-4

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 1


Ontario would be in a more “sustainable” fiscal position if it had a lower debt
burden, which in turn would contain the costs of managing the debt. As a result,
more taxpayer dollars would be available for programs, including healthcare, as
opposed to financing the debt.

Maintaining balanced budgets in the future is the loosest fiscal position that would
support sustainability, while surpluses are preferable to lower the province’s debt
burden sooner and by a larger amount.

2) Sustainability Within Overall Public Spending

Spending on any public sector spending component cannot grow so rapidly that it
“squeezes” out other spending components to an unacceptable degree.

Rates of growth among spending components can vary as long as overall growth
is sustainable, but healthcare spending, for example, cannot grow so large that it
unduly diminishes spending on education.

3) Sustainability Within Healthcare

Spending within any program spending component, including healthcare, can only
be considered “sustainable” if it is delivering acceptable quality with acceptable
effectiveness and efficiency.

Cost pressures on the health budget, particularly in the areas of mental health and
homecare, can only be met in a sustainable fashion if there are further gains in the
effectiveness and efficiency with which healthcare is delivered.

Sustainability must be measured and analyzed over a term longer than the four years of
this arbitration. Drummond’s report focuses on the next 12 years (from 2017-18 to 2029-
30).

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 2


It is a significant issue to consider insofar as fiscal unsustainability could lead to, among
other things, a sharp curtailment of program spending growth and deterioration in the
access and quality of health services (i.e. even longer wait times).

In Fall 2017, the Financial Accountability Office of Ontario (FAO) released economic and
fiscal projections for Ontario extending to 2050-51. Under a “status quo” representation
of conditions, Ontario’s net debt-to-GDP ratio grows from 37% in 2017-18 to 63% by
2050-51, while debt interest payments rise from 8¢ of every revenue dollar to 22¢.

The FAO does not explicitly state that such a result would be fiscally “unsustainable”, but
the danger is clearly evident. For Drummond, the FAO’s work suggests that there should
be sufficient concern over Ontario’s fiscal sustainability to probe further2.

What Overall Fiscal Sustainability Looks Like for Drummond

Drummond sets out to determine how fast Ontario’s program spending can grow within
the context of overall fiscal sustainability.

He asserts that from the base of a balanced budget in 2017-18, balanced budgets can
only be maintained if total spending grows in line with total revenues. The net debt-to-
GDP ratio will lower gradually as GDP grows (a faster reduction in the debt burden will
require spending to grow less rapidly than revenues). This assumes that tax rates remain
unchanged and revenue grows with the pace of economic activity.

A “permissible” rate of program spending growth is calculated by Drummond as a residual


from the desired fiscal outcome, interest on the public debt and revenues.

2 Drummond, pp. 6-7

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 3


This calculation occurs in three steps:

1) Set a fiscal target

Drummond examines two different targets: (a) budget balances, and (b) annual
surpluses to bring the debt burden down faster.

2) Apply economic and other assumptions to project revenues.

Revenues include: (a) own source, and (b) transfers from the federal government.

3) Calculate program spending as a residual in order to hit the chosen fiscal target.

Drummond’s projection of “own source” revenue exploits the fairly tight relationship
between revenue growth and nominal GDP growth. In other words, he uses projections
of Ontario’s nominal GDP growth to predict revenue growth in his examination of fiscal
sustainability.

Projections of nominal GDP growth require assumptions for Ontario’s real GDP growth
plus inflation (the GDP deflator).

Real GDP Growth3

The report looks at all available sources for Ontario potential growth rates, discusses the
assumptions and methodologies embedded in various estimates, and examines the
upside and downside risks to the projections.

Drummond identifies a range of long-run real GDP growth projections covering 2017 to
2040 (or close) from 1.5 per cent to 2.2 per cent.

3
Drummond, pp. 8-12

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 4


On the low end of the range, the 1.5 per cent potential growth rate was projected by
Drummond himself through work done with the CSLS in 2015 and updated in 2018.

On the high end, the 2.2 per cent growth rate was projected by the University of Toronto,
while the remaining forecasters had projections that were somewhere in between
(typically 2 per cent).

A range of forecasts for real GDP growth from 1.5 per cent to 2.2 per cent is not that
large, nor does it capture the full degree of uncertainty about the future as forecasters
could cite downside or upside risks to their views. Drummond argues that greater
attention must be paid to the downside risks, given the fiscal vulnerability facing Ontario
as a result of its large debt burden.

Inflation4

The Bank of Canada’s inflation target remains at 2 per cent, a level that it has been highly
successful in maintaining until recently (low inflation has been a worldwide phenomenon
of late). This target is measured as the CPI.

The GDP deflator tends to increase slightly less rapidly than the CPI (i.e. 1.8 per cent per
year vs. 2 per cent), although the relationship fluctuates.

In 2018, Drummond and the CSLS calculated the average increase in Ontario’s GDP
deflator to be 1.81 per cent from 2000 to 2017.

By applying 1.81 per cent annual increases in the GDP deflator to the CSLC’s 1.46 per
cent real GDP growth rate, it results in annual growth of 3.3 per cent in nominal GDP (or
just above 3 ¼ per cent).

4 Drummond, pp. 12-13

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 5


According to Drummond, forecasters with 2 per cent real GDP growth projections tend to
feature GDP deflator increases of 2 per cent, which results in 4 per cent nominal GDP
growth (or 4 ¼ per cent in the case of the strongest forecast available of 2.2 per cent real
GDP).

Nominal GDP Growth5

The report thus indicates a range of 3 ¼ per cent to 4 ¼ per cent for annual nominal GDP
growth, with downside or upside risks to the projections. Once again, Drummond cautions
that particular attention should be paid to the downside risks.

Transfers from the Federal Government6

Drummond anticipates that the three major transfers Ontario receives from the federal
government will constrain “permissible” program spending growth as follows:

1) Canada Health Transfer (CHT)

As per the federal-Ontario agreement, CHT will grow at the higher of 3 per cent or
a 3-year-moving-averge of nominal GDP growth. This is a departure from the
previous 6 per cent growth rate, and as such represents a constraint on spending
growth.

When using the CSLS estimate of nominal GDP growth, Drummond grows the
total CHT payments at 3 ¼ per cent nominal GDP growth and then applies
Ontario’s population share.

5 Drummond, p. 13
6
Drummond, pp. 13-14

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 6


For the higher growth scenario, Drummond grows the total CHT payments at 4 per
cent per annum, thereby implicitly assuming similar growth in Ontario and in
Canada as a whole.

The federal-Ontario agreement also features an additional $2.3 billion over 10


years for homecare and $1.9 billion for mental health. Ontario’s share of these two
new funds provides $462 million in 2027-28. If CHT were to grow at 3 ½ per cent
per annum, these funds would raise the growth rate for total healthcare transfers
to 3.74 per cent for the 10 years, after which it would return to 3 ½ per cent.

2) Canada Social Transfer (CST)

According to Drummond, CST is legislated to remain at its historical growth rate of


3 per cent per annum.

3) Equalization

Drummond expects that equalization payments to Ontario will phase out over the
next few years as Ontario’s GDP per capita returns to its higher position relative to
Canada.

This will be a major constraint on total revenue growth relative to the recent past,
and hence to “permissible” program spending growth.

Permissible Program Spending Growth7

“Permissible” program spending growth is defined as the maximum pace at which


program spending can grow while achieving defined fiscal objectives.

7 Drummond, p. 14

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 7


The fiscal targets chosen should relate to the concept of fiscal sustainability (theoretically,
the idea that current government debt should be matched by net future primary surpluses
measured in present value terms).

The report suggests that practical definitions or “tests” of fiscal sustainability


should feature: a fairly timely lowering of the debt-to-GDP ratio, then a stable or
declining debt-to-GDP ratio and a downward trend in the portion of each revenue
dollar required to pay interest on the debt.

The Ontario Government recognized the need to bring down the debt burden in the 2017
Budget when it identified its goal to return the net debt-to-GDP ratio to 27 per cent, which
was the ratio prior to the 2008 financial crisis and recession.

A reduced debt burden would help the Province to achieve the objective of limiting the
portion of revenues going to service the debt and, over time, making more taxpayer
dollars available for programs.

While the Government did not attach a year to the 27 per cent target, the Budget projects
that this ratio should be attained by 2029-30.

Drummond argues that this outcome is not consistent with fiscal “sustainability”. Instead,
he asserts that the 27 per cent net debt-to-GDP target referenced in the 2017 Budget
would need to be achieved by 2027-288.

In determining “permissible” program spending growth he examines two fiscal targets:

1) Balanced budgets each year from 2017-18 to 2029-30

8 Drummond, p. 17

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 8


The net debt-to-GDP ratio declines gradually and modestly: from 37.1 percent in
2017-18 to 29.1 per cent (lower growth scenario) or 26.7 per cent (higher growth
scenario) by 2029-30.

2) Net debt-to-GDP ratio of 27 per cent in 2027-28

Once the target outcome has been chosen, Drummond acknowledges that there are
major uncertainties involved in making fiscal projections. His projections include the
following assumptions and/or decisions9:

Nominal GDP Growth

Drummond examines two growth paths based on the range set out above – 3 ¼ per cent
and 4 per cent (rather than the high end of 4 ¼ per cent, which is more of an outlier).

His preferred scenario is the low end of the range examined.

Interest Rates

Drummond shows the sensitivity of “permissible” program spending to two interest rate
scenarios:

1) lower scenario featuring 1 ½ per cent at the short end of the term structure and 4
per cent at the long end

2) higher scenario featuring 3 ½ per cent at the short end and 5 per cent at the long
end

He adjusts the benchmark federal rates up 20 basis points for 3-month Treasury Bills and
100 basis points at 10-years to represent the spread between Ontario and federal issues.

9 Drummond, p. 18-19

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 9


Revenue Elasticity

As mentioned above, Ontario’s own-source revenues tend to grow along with Ontario
nominal GDP, but the exact relationship is a bit less than one.

Drummond shows scenarios using 1 and 0.95 per cent for the own-source revenue
elasticity to GDP.

The four charts below show the “permissible” program spending growth rates under the
alternative assumptions regarding the fiscal target, revenue elasticity, economic growth
and interest rates discussed above.

I. Elasticity of 1 Between Own-Source Revenues and Nominal GDP

A. Balanced Budgets Every Year

Ontario Interest Rates (Short-Term/Long-Term)


3.7/6.0 (high) 2.7/5.0 (low)
Nominal GDP Growth Range Permissible Program Spending
3.25 (low) 3.1 3.2
4.0 (high) 3.7 3.8

NOTES10:

1) The permissible program spending rate is always a bit below the nominal GDP
growth rate because CST transfers only grow 3 per cent per year, equalization
disappears, and in the higher interest rate scenario, interest on the public debt
grows faster than nominal GDP.

10 Drummond, p. 21

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 10


2) The lower interest rates only raise the permissible program spending growth rate
0.1 per cent, and hence the scenarios are not very sensitive to the interest rate
assumption.

3) The higher nominal GDP growth rate does raise the permissible program spending
growth rate considerably, but not by the full 0.75 per cent.

Net Debt-to-GDP11

In the 3.25 per cent nominal GDP growth scenario, the net debt-to-GDP ratio in 2029-30
is 29.1 per cent. In the 4 per cent growth scenario, ratio is 26.7 per cent.

In both cases, the debt burden declines over time, satisfying that fairly non-stringent
condition of fiscal sustainability.

However, in the 3.25 per cent growth scenario the debt burden remains above the 27 per
cent target, while in the 4 per cent growth scenario the debt burden just barely hits the
target.

Interest on Public Debt12

In the 3.25 per cent growth scenario, interest on the public debt raises from 8¢ of every
revenue dollar to 9.3¢ in 2029-30 (higher interest rate scenario) and remains fairly steady
at 8¢ in 2029-30 (lower interest rate scenario).

In the 4 per cent growth scenario, interest on public debt rises from 8¢ to 8.7¢ in 2029-30
(higher interest rate scenario) and declines slightly to 7.9¢ in 2029-30 (lower interest rate
scenario).

11 Drummond, p. 21
12 Drummond, p. 21

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 11


The fiscal sustainability test of a declining share of revenue dollars going to service the
public debt is failed in the 3.25 per cent growth scenario (regardless of interest rates) and
passed in the 4 per cent growth scenario with lower interest rates, but not with higher
interest rates.

On balance, the results of the various scenarios under sustained budget balances show
a very tenuous satisfaction of fiscal sustainability. For Drummond, these results warrant
the analysis of a more stringent fiscal outcome.

B. 27 in 27 (27 per cent net debt-to-GDP ratio by 2027-28)

Ontario Interest Rates (Short-Term/Long-Term)


3.7/6.0 (high) Low: 2.7/5.0 (low)
Nominal GDP Growth Range of Permissible Program Spending
3.25 (low) 2.9 3.0
4.0 (high) 3.5 3.6

This scenario lowers the growth rate of program spending sufficiently to create the
required surpluses by 2027-28 to achieve a net debt-to-GDP ratio of 27 per cent in that
year.

Drummond assumes that after 2027-28, restraint on program spending would be


alleviated, but that spending would not boom. He applies increases of 5 per cent in 2028-
29 and 2029-30 (the net debt-to-GDP ratio continues to decline in these years)13.

The permissible program spending growth rates in these scenarios are 0.2 per cent lower
than their counterparts in the annual budget balance scenarios.

13 Drummond, p. 22

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 12


The “27 by 27” scenarios require a fair bit of spending restraint through 2027-28, then
allow for increased spending in the two years following.

For example, in the 3.25 per cent GDP growth scenario with higher interest rates, the 2.9
per cent permissible program spending growth rate from 2017-18 to 2029-30 is a
combination of 2.5 per cent growth rates through 2027-28 and 5 percent in the final 2
years.

Program spending growth of 2.5 per cent is a fair degree of restraint, and not much faster
than the actual growth of 1.7 per cent in program spending from 2010-11 to 2016-17,
which is widely acknowledged as tight spending restraint.

Net Debt-to-GDP14

Having achieved 27 per cent by 2027-28, the net debt-to-GDP ratio continues to decline
to 24.4 per cent by 2029-30 in the 3.25 nominal GDP growth scenario, and 22.8 per cent
in the 4 per cent growth scenario.

Interest on Public Debt15

In the 3.25 per cent economic growth scenario, interest payments as a share of each
revenue dollar decrease from 8¢ in 2017-18 to 7.7¢ in 2029-30 (higher interest rate
scenario) and 7¢ in 2029-30 (lower interest rate scenario).

In the 4 per cent growth scenario, interest payments decrease from 8¢ in 2017-18 to 7.2¢
and 6.6¢ in 2029-30 (higher and lower interest rate scenarios respectively).

In other words, the tests of fiscal sustainability are passed under all economic growth and
interest rate assumptions when the fiscal target is hitting “27 by 27”.

14 Drummond, p. 22
15 Drummond, pp. 22-23

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 13


The following tables show similar scenarios to the above, but account for revenue
elasticity of 0.95 per cent:

II. Elasticity of 0.95 Between Own-Source Revenues and Nominal GDP

A. Balanced Budgets

Ontario Interest Rates (Short-Term/Long-Term)


3.7/6.0 (high) 2.7/5.0 (low)
Nominal GDP Growth Range of Permissible Program Spending
3.25 (low) 3.0 3.1
4.0 (high) 3.6 3.7

B. 27 in 27 (27 per cent net debt-to-GDP ratio by 2027-28)

Ontario Interest Rates (Short-Term/Long-Term)


3.7/6.0 (high) 2.7/5.0 (low)
Nominal GDP Growth Range of Permissible Program Spending
3.25 (low) 2.8 2.9
4.0 (high) 3.4 3.5

In total, Drummond presents 16 scenarios in which the “permissible” growth rate of


program spending is calculated. The range is as follows:

Low – 2.8 per cent average annual growth in program spending 2017-18 to 2029-30
(lower debt burden, lower growth, higher interest rates, lower revenue elasticity)

High – 3.8 per cent average annual growth in program spending 2017-18 to 2029-30
(balanced budgets, higher growth, lower interest rates, higher revenue elasticity)

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 14


According to Drummond, something closer to the low end of the range (i.e. 3 per cent
through 2029-30) is recommended as preferable for fiscal planning. For much of the
period program spending growth should be lower than that in order to hit the
Government’s net debt-to-GDP ratio target of 27 per cent no later than 2027-2816.

The lower end is preferred because:

1) Under balanced budgets, net debt-to-GDP remains high, not hitting the
Government’s 27 per cent target until 2029-30 or later

2) In most scenarios with higher permissible program spending growth, interest on


the public debt continues to take a rising share of every revenue dollar

3) Many of the stronger economic growth forecasts assume Ontario returns to a


strength in productivity growth that has not been sustained for decades

4) Stronger nominal GDP growth rates show a firmness in inflation (GDP deflator)
that may not materialize

5) Planning should not be done on the basis of a scenario that depicts the mid-point
in the perceived range of outcomes if the consequences of error in either direction
are not symmetrical (Ontario’s high public debt burden leaves a serious
vulnerability should there be any economic downturn)

Drummond believes that it is wise to be prudent in the underlying assumptions and


therefore favors a permissible program spending growth rate of no more than 2.5 per cent
until the Government’s target of a 27 per cent net-debt to GDP ratio is attained, which is
not likely to occur until 2027-2817.

16 Drummond, p. 24
17 Drummond, p. 25

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 15


This program spending growth rate eases substantially the degree of spending restraint
of the past 6 years but does not allow spending to return to the much faster pace of the
2000s.

Scenarios that would facilitate faster growth in program spending18

Revenue growth could be raised through persistent, perhaps even annual, hikes in tax
rates. Drummond asserts that little weight should be assigned to this type of scenario,
given the economic and political limitations involved.

Major transfers from the federal government could be raised. The overall federal
healthcare transfer is down to one-quarter of provincial cost and is likely to remain there
or shrink further under the new agreement. As the agreement was just made for 10 years,
this does not seem like a feasible scenario.

Scenarios that would facilitate faster healthcare spending within the permissible
program spending range19

In the absence of attractive options for raising permissible program spending growth
through tax increases, that leaves a scenario whereby healthcare spending grows faster
than the total of other programs.

Not all components of program spending need to grow at the same pace, but if one
component (particularly one as large as healthcare) is to grow faster than the total, then
other spending must be crowded out to a significant degree. There are significant
economic, social and political limits to how far this could happen, however.

For Drummond, there is little scope for healthcare spending to increase more rapidly.

18 Drummond, pp. 26-27


19 Drummond, pp. 27-28

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 16


Healthcare spending increases of (for instance) over 5 per cent per year from 2017-18 to
2029-30 and almost 4.5 per cent through 2027-28 can only be sustainable if:

 Economic growth runs according to the optimistic end of the available forecasts
 Interest rates do not rise to pre-financial crisis and recession levels
 Ontario’s own source revenues keep pace with nominal GDP growth
 Non-healthcare spending is severely constrained (“crowded out”) to the degree
that it declines 0.5 per cent per year in real, per capita terms
 It is accepted that the Government’s 27 per cent net debt-to-GDP target is not
achieved until 2029-30

For every condition in the above list that is relaxed, the pace at which healthcare spending
could rise has to come down. As these conditions are somewhat unreasonable, they
should be relaxed as follows if there is to be a prospect of sustainability:

 Economic growth will most likely track at the lower end of the forecast range
 It is prudent to expect interest rates closer to historical levels
 It’s unrealistic to assume that non-healthcare spending can be persistently lowered
 On the other hand, it is unlikely that own-source revenue elasticity will be less than
one; the Ontario Government would adjust tax rates and user fees accordingly
 Fiscal sustainability dictates hitting 27 per cent net debt-to-GDP no later than 10
years from now (2027-28)

Drummond’s bottom line is that program spending and its two major components
of healthcare and non-healthcare spending cannot increase faster than 3 per cent
per year over the next 12 years through 2029-30 and only around 2.5 per cent over
the next 10 years through 2027-28.

Notably, both these figures exceed the actual 1.7 per cent growth rate of program
spending from 2010-11 to 2016-17.

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 17


Significance of future pressures on healthcare spending20

Projections of healthcare spending are usually more a reflection of cost pressures rather
than estimates of how spending will grow, since the Government has a fair degree of
control over healthcare spending.

Spending is heavily influenced by policy decisions, which in turn are heavily driven by the
overall economic and fiscal environment.

Several “external” projections of healthcare spending are explicitly or implicitly based on


the “status quo” and can be useful for highlighting the pressures that will likely be exerted
on healthcare spending. The cost pressures considered in these projections typically
include population growth, ageing, healthcare inflation, trends in compensation, intensity
of healthcare usage, and catch up pressures following several years of severe restraint.

Drummond refers to a number of projections of healthcare spending growth in Ontario


and Canada that range from 4.5 per cent to over 6 per cent per year. He warns that these
projections must be interpreted cautiously, and that the pressures do not need to be
accepted and passively financed.

Based on the range of cost pressures set out above, even the more modest projections
would strain sustainability. Clearly, Drummond points out, something “has to give”.

Drummond notes that the 2017 Budget foresees annual healthcare spending increases
of 3.4 per cent to 2020-21, a forecast that reflects budgetary planning and decisions rather
than the projection of cost pressures.

20 Drummond, pp. 29-33

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 18


Implications for physician compensation in the healthcare sector21

Just as there is uncertainty around how much health care spending can account for a
given pace of overall spending growth, there is uncertainty around what can happen to
physician compensation within any given healthcare spending envelope.

The 2017 Budget estimates that OHIP payments account for 26.6 per cent of total Ontario
health spending in 2017-18 (most of these payments go to physicians). Payments to
physicians are approximately one quarter of total healthcare spending, which means that
they heavily influence the overall spending increases for health.

However, there is clearly some room for differentiated growth rates between
compensation and non-compensation within any given increase in the total spending
envelope. The key question is whether there is a major spending component of healthcare
that can grow substantially less than the pace of total healthcare spending and hence
create room for faster growth in physician compensation.

According to the 2017 Budget, the answer is no. Only capital spending and is projected
to grow significantly less than total healthcare spending, but drugs and community care
are projected to grow quite rapidly.

For this reason, Drummond probes outside of the Budget.

According to the three dimensions of sustainability, healthcare spending can likely only
increase 2.5 per cent per year through 2027-28.

This is similar to the 2.7 per cent actual growth rate recorded for public health spending
in Ontario from 2010-11 to 2016-17. OHIP payments grew at 2.5 per cent per year over
the same timeframe. Long-term care spending was average at 2.7 per cent, hospitals and
drugs grew less rapidly than total spending at 1.3 per cent and 1.8 per cent respectively,

21 Drummond, pp. 33-36

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 19


while capital and community care grew much faster than total spending at 7.2 per cent
and 5.4 per cent respectively.

Drummond suggests that it is unlikely that spending on hospitals and drugs will remain
so subdued. As an example, the 2017 Budget allows for 3 per cent growth in hospital
spending and 7 per cent in drug spending from 2016-17 to 2020-21.

Pressures have built in hospitals as they have faced restraints on resources but few
reductions in demands for services (any relief from better homecare or long-term care
services has not been felt).

The low spending growth on drugs was a sharp break from the longer-term history. It was
the result of policy changes and other initiatives that lowered the level of drug prices but
will not restrain the spending growth rate in the future. Drummond anticipates that there
will likely be a shift in the recent pattern of few new innovative drug treatments being
introduced in the Canadian market (i.e. Hepatitis C and Cancer medications).

Hence, hospitals and drugs will not likely be a source of restraint that will allow for faster
growth in other healthcare spending components.

Drummond concludes that it is inevitable that Ontario will be increasing the budget for
community care at a fairly rapid pace. In theory, growing emphasis on homecare should
relieve pressure on long-term care (and to a degree this is reflected in the 2017 Budget’s
allocation to long-term care operating costs, which grow a bit less rapidly than total
healthcare spending), but the rising number of elderly and increase in the acuity of their
care needs will still be reflected in a spending pressure on capital budget for long-term
care facilities.

Capital needs for long-term care plus the deferred maintenance budget for hospitals will
represent substantial pressures against the 2017 Budget’s allocation of 2.1 per cent
growth over 4 years in capital spending. With these pressures and the fact that capital is

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 20


a small portion of the total healthcare budget, it is unlikely that it will create large savings
that can be allocated to other healthcare spending components.

Drummond’s review suggests that drugs and community care will represent major
spending pressures, but that it’s difficult to identify large spending components that can
grow at much less-than-average paces.

If drugs and community care grow faster than total health spending and hospitals, long-
term care and capital grow around the average pace, then by definition OHIP payments
must grow less rapidly than 2.5 per cent per year.

Furthermore, not much can be done about cost pressures outside the program lens,
particularly population increases and ageing. Expansions in homecare and mental health
alone suggest that it will be difficult to not have some increase in the “intensity” of
healthcare usage.

Drummond notes that payment per physician or payment per service may even need to
increase less rapidly than the 2.5 per cent for total OHIP payments as some of the
increase will go to new doctors, existing doctors performing more interventions due to a
larger population or increases in the intensity of healthcare usage.

He states that the only viable way out of this constrained box is through major efficiency
gains. Squeezing out inefficiencies could significantly reduce cost pressures and should
be relentlessly pursued.

Conclusions22

With a return to balanced budgets and good economic policies, Ontario can avoid or
mitigate the damage from wild economic cycles that might necessitate sharp curtailment
of spending in healthcare or other areas.

22 Drummond, pp. 36-37

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 21


According to Drummond, the reality is that this is a new era of modest economic growth.
Program spending will need to come under continued restraint. Healthcare spending
cannot increase much faster than 3 per cent going forward without unduly squeezing out
other valuable public services.

Total program spending cannot increase faster than 3 per cent over the next 12 years,
but only 2 ½ per cent over the first 10 years. It is unlikely that non-healthcare spending
can be held to a lower growth rate than this total. This means that there is little scope for
healthcare to increase faster than the 2 ½ to 3 per cent pace.

The past 7 years is generally described as a period of fiscal restraint that extended to
healthcare. Drummond asserts that it can be more accurately described as a “bridge to
new fiscal circumstances flowing from the ‘new normal’ of slower economic growth”.23
Economic and fiscal outlooks, in addition to the limited prospects it has to severely “crowd
out” other major spending programs, suggest that the pace of health spending should
stay in the same realm as that established since 2010/11 (2.7 per cent annually).

Healthcare spending cannot grow at the pace of most estimates of the cost pressures the
sector faces, but it will be difficult to curtail those pressures.

Drummond notes that over the past 7 years, OHIP payments have increased by 2.1 per
cent annually. Drummond asserts that it is difficult to envision a faster pace of growth
being sustainable given the pressures in other areas of health spending.24

To keep compensation growth to this kind of limit will necessitate further productivity
improvement and taking advantage of efficiency gains in technology.

23 Drummond, p. 37
24 Drummond, p. 37

Tab 17 Sustainability of Health Care Spending in Ontario – Drummond (2018) Page 22


Sustainability of Healthcare in Ontario

Don Drummond
Stauffer-Dunning Fellow
School of Policy Studies
Queen’s University

March 30, 2018

Sustainability of Healthcare in Ontario

Postscript

This document was completed March 30, 2018. That was 2 days after the Ontario 2018 Budget.
A decision was made not to base this report on the assumptions, projections or fiscal goals of
the 2018 Budget. That Budget shows several years of significant deficits and, for several years,
a rising net debt-to-GDP ratio. As such, it violates the conditions discussed in this report for
“sustainability”. It is quite likely that whatever Party comes to power in Ontario after the June
7, 2018 election will have to put forward a fiscal track that is quite different, likely featuring
lower spending. Furthermore, with the election, that Budget has neither legislative nor political
standing. For these reasons, the point of departure in this report for examining “sustainability”
is the 2017 Budget.

Two other relevant documents have been released since March 30, 2018. However, the
essential contents of both are referred to in this report and hence the report has not been
updated to reflect the release of these documents. In “Review of the 2018 Pre-Election Report
on Ontario’s Finances”, the Office of the Auditor General repeated the criticism of two
important aspects of the accounting conventions used by the Ontario Government. The
Auditor General states that the budget balances for 2018-19, 2019-20 and 2020-21 would be
worse, respectively, by $5.0, $5.6 and $6.0 billion if a) payments to power generators and
interest on borrowing to finance an electricity price reduction and b) unrecorded pension
expenses, were properly accounted for. In its “Economic and Budget Outlook: Spring 2018”
the Financial Accountability Office of Ontario sides with the Auditor General on the accounting
disagreement and presents its own fiscal projections on the basis of the accounting
recommended by the Auditor General.

A decision was made to base the current report on the accounting conventions used by the
Ontario Government, as represented in the Budget and other documents as, at this time that is
the only “official” convention. However, it is noted that the points made by the Auditor
General may well require the next Ontario Government to address larger deficits that
presented in the 2018 Budget. Again this may require planning lower spending.

1
Sustainability of Healthcare in Ontario

The purpose of this paper is to discuss conditions that would make Ontario’s healthcare
“sustainable” or “unsustainable” in the future.

Definition of “sustainability”

Sustainability of a particular public sector spending component has at least 3 dimensions.

1. Overall Fiscal Sustainability


- Healthcare spending must be compatible with an overall fiscal position in Ontario that
is itself “sustainable”. The overall fiscal situation would be less relevant for programs
with smaller budgets. But with healthcare accounting for 39.0 per cent of Ontario’s
total spending (Ontario 2018 Budget estimate for 2017-18) and 42.4 per cent of
program spending (total excluding interest on debt), it is a major determinant of the
overall fiscal position and must be cast in a broad fiscal context.
- Fiscal sustainability is often, and superficially, thought of being balanced budgets over
the course of an economic cycle. That is appropriate only if the jurisdiction carries an
acceptable debt burden. A high debt burden can lead to unsustainability and this would
call for the accumulation of budget surpluses.
- Ontario is estimated to have returned to budget balance in 2017-18, indeed to be in
slight surplus (Ontario 2018 Budget estimate), after many years of large deficits. The
deficits have left a high debt burden relative to Ontario’s history and other jurisdictions.
- Ontario has demonstrated a pronounced long-term pattern to its debt burden. The
burden ratchets up with each economic down cycle and then stays up at an elevated
level even once the economy has returned to more normal performance. For example,
the debt burden (defined as the net debt-to-GDP ratio) was 26 per cent prior to the
financial crisis of 2008 and recession of 2009 and 2010 and now, a decade later and
after several years of economic growth and provincial spending restraint, it is more than
11 percentage points higher than that.
- With balanced budgets, the debt burden will come down over time as the economy (as
measured by nominal GDP) grows. But the decline would be modest and gradual and
the debt burden would remain elevated for many years.
- With extremely low interest rates, the burden of financing that debt may appear
manageable at this time but interest rates will likely return to more “neutral” levels over
time and this will drive up the debt management costs.
- One sign of the cost of carrying such a large debt is that a larger portion of each revenue
dollar must be assigned to paying interest on the debt now than in 1990-91 despite the
effective interest rate on the debt now being just over one-third as high as it was in
1990-91.
- Ontario would be in a more “sustainable” fiscal position if it had a lower debt burden
and this in turn would contain the costs of managing the debt (and in turn, make more
of the taxpayers’ dollars available for programs, including healthcare, as opposed to
financing public consumption that has already taken place).
- Hence maintaining budget balance in future should be considered as the loosest fiscal
position that would support overall fiscal “sustainability”. It would be preferable for the

2
Sustainability of Healthcare in Ontario

province to accumulate surpluses in order to lower its debt burden sooner and by a
more significant amount.
- A sounder projection for fiscal “sustainability” would feature the debt burden returning
to the pre-recession level. In Ontario’s 2017 Budget the government specified an
“aspirational target” of a net debt-to-GDP ratio of 27 per cent (the Government linked
the 27 per cent to attainment of the pre-recession level but that would be 26 rather
than 27 per cent) with an interim goal of 35 per cent by 2023-24. The Government did
not specify a year for hitting the 27 per cent target and this will be addressed in this
report. The “aspirational target” and the interim target are abandoned in the 2018
Budget. The net debt-to-GDP ratio in that Budget remains elevated at 37.7 per cent in
2023-24 and only slightly lower at 36.5 per cent by 2025-26, the last year for which a
projection is provided. The 2018 Budget means that the debt burden would only be
slightly lower in 2025-26 than in 2017-18 (36.5 compared to 37.1 per cent).
- The 2016 fiscal sustainability report of the Parliamentary Budget Office (PBO) noted
that sub-national governments in Canada could only be fiscally sustainable (meaning
stabilization of the public debt burden) if they ran quite large primary surpluses
(equivalent to 1.5 per cent of GDP) over the next 75 years. Note that the PBO’s
scenarios are heavily predicated on a projection that sub-national healthcare spending
will rise sharply relative to GDP and hence relative to sub-national revenues. More on
this projection below.
- A pre-2018 Budget analysis from the C.D. Howe Institute (Dachis 2018) declared that
“balanced budgets will not be enough for Ontario’s finances to become fiscally
sustainable.” It is recommended that the net debt-to-GDP ratio decline to the pre-
recession level of 26 per cent by 2033-34. This, however, is on the basis of accounting
that incorporates some recommendations from the Auditor General of Ontario that are
not reflected in the Government’s Budget. Using the Government’s accounting
conventions, the 26 per cent debt burden would be attained several years earlier in the
C.D. Howe’s scenario.

2. Sustainability Within Overall Public Spending


- Spending on any public sector spending component must not be so large or grow so
rapidly that is “squeezes” out other spending components to an unacceptable degree.
- Scenarios will be described that derive the rate of program spending growth that can be
supported within the context of overall fiscal “sustainability.”
- This does not mean, however, that all spending components have to grow at this rate;
nor does it mean that a particular component cannot grow faster than the overall
spending growth rate – provided the other components, in aggregate, grow less rapidly
- But there is a limit to the degree to which any component, healthcare or otherwise, can
“squeeze out” other public spending. The province, its economy and its residents have
needs for a broad array of public programs and public services and the overall fiscal
situation could not be considered “sustainable” if so much of public resources were
devoted to one particular area that other public service needs were not being met.
- It might be conjectured that demographics (tilt toward the older and away from the
young) creates a natural accommodation of more rapid health spending in that

3
Sustainability of Healthcare in Ontario

education spending might be under diminishing pressure. However, the reprieve from
demographic forces on education spending has been slight and is mostly over with the
youth population poised to return to growth. This is analyzed below.

3. Sustainability Within Healthcare


- Spending within any program component, including healthcare, can only be considered
“sustainable” if it is delivering acceptable quality with acceptable effectiveness and
efficiency.
- Ontario’s healthcare is one of the better performing within Canada. The Conference
Board of Canada pegs the health status of Ontarians as second best within Canada.
Data from the Canadian Institute for Health Information (CIHI) show Ontario has the
best “healthcare system performance” within Canada and the second lowest per capita
spending. The C.D. Howe Institute, using methodology developed for the
Commonwealth Fund’s international comparisons, finds Ontario’s overall health system
performance score third among Canadian provinces (lagging Alberta and British
Columbia), but just slightly above the Canadian average
- However, any evaluation of Ontario’s performance relative to other Canadian
jurisdictions must be mindful that Canada’s healthcare in total does not fare well by
international standards. Health outcomes and the result of healthcare interventions are
pretty much “middle-of-the-road” by the standards of other developed countries while
spending on healthcare is in a cluster of jurisdictions as the second-most-expensive (as
defined relative to GDP or U.S. $s per capita) (see the Organization for Co-operation and
Development and the Commonwealth Fund as representative sources of international
comparisons).
- The Commonwealth Fund finds that Canada’s healthcare system performs better than
only France’s and the United States’ among 11 countries compared. The C.D. Howe
Institute (Colin Busby, Ramya Muthukamaran and Aaron Jacobs, “Reality Bites: How
Canada’s Healthcare System Compares to International Peers”, E-Brief, January 25,
2018, C.D. Howe Institute) finds that Ontario lags the Commonwealth Fund’s
international standard for overall healthcare performance. Relative to that standard,
Ontario’s notable deficiencies are in affordability, timeliness, equity and healthcare
outcomes.
- The international comparisons suggest that all jurisdictions, including Ontario, need to
shore up the quality of care. Particular areas requiring greater attention, and funding, in
future are mental health and homecare. The federal government is providing
incremental funding for these areas and will be seeking “accountability” agreements on
how that money is used.
- There are other sources of cost pressures on the health budget that will be discussed
below. The pressures can only be met in a sustainable fashion if there are further gains
in the effectiveness and efficiency with which healthcare is delivered.

What is the relevant time period to study “sustainability?”

4
Sustainability of Healthcare in Ontario

Sustainability is by definition a very long-run concept. As noted above, the Parliamentary


Budget Office examined the fiscal stability of provinces by doing 75-year projections. However,
things get pretty cloudy going out that far with huge uncertainties about economic
performance and policy decisions. It is also understandably difficult for Governments to relate
current policy decisions to things that may or may not unfold decades in the future.

On the other end of the time spectrum, Ontario budgets typically focus on the coming few
years. But that is far too short a period to test fiscal sustainability.

On balance we feel this report should focus on the next 12 years, being 2018-19 through 2029-
30. Another appeal of extending the analysis to 2029-30 is that is the year the 2017 Ontario
Budget says that internal Ministry of Finance projections show the “aspirational target” for the
net debt burden is achieved. That claim is not, however, repeated in the 2018 Budget and is
likely not applicable given the new spending proposed in that Budget.

Why does “sustainability” matter?

To answer this we need to consider what might happen if things are “unsustainable”, in
perception or actuality. We know from experience in Ontario, other Canadian provinces and
other countries what happens when a Government thinks it is in the midst or heading toward
overall fiscal unsustainability. We saw this in reaction to the fiscal imbalances in the 1990s. We
saw it again beginning in 2011 when Ontario and most jurisdictions around the world applied
fiscal restraint, mainly through cutting the growth rate of spending, following 2 years of fiscal
stimulus in the wake of the financial crisis and 2009-10 recession. Governments tend to slam
on the fiscal brakes. Restraint is typically concentrated on a sharp curtailment of program
spending growth with less reliance on tax increases. Among other things, this restraint usually
involves compensation and public service employment constraints. The focus tends to be on
securing short-term fiscal savings as opposed to efficiency/effectiveness gains. In general, they
are stressful periods for residents and government employees.

The risk of fiscal “unsustainability” can also have a financial market impact through credit
downgrades, higher interest rate premiums to reflect risk and even difficulty in borrowing
required sums to meet debt payments.

“Unsustainability” in the relative sense would feature spending in some areas being squeezed
so much to accommodate a more rapidly growing component that pressure would mount for
change. The most obvious example would be education because after health it is the second
largest spending component. If health spending, in this hypothetical example, grew so rapidly it
aggressively squeezed out education spending, then there would be a strong backlash from
many quarters. Parents and students would complain a deterioration in education quality was
compromising economic and social prospects. Business would complain that a key for Ontario’s
competitiveness is being deteriorated.

5
Sustainability of Healthcare in Ontario

Unsustainability within health could lead to severe consequences as well. Residents would
complain about a deterioration in the access and quality of health services. This might, for
example, be reflected in longer wait times when they are already long by international
standards. Health care providers would complain about a deterioration in working conditions
and challenges in meeting their clients’ health needs. Few would consider Ontario to be at the
brink of unsustainability from the perspective of access and quality of health services. Care
must be taken in healthcare policy planning to ensure there is little risk of this happening.

A Note on Accounting

This report adopts the accounting conventions used by the Government of Ontario for its public
representations of fiscal matters, such as through budgets. It must be noted, however, that there
is controversy over aspects of these accounting conventions. Ontario’s Auditor General has
criticized the treatment of the government’s jointly sponsored pension plans and believes the
full cost of the Fair Hydro Plan is not being correctly accounted for. The Financial Accountability
Office of Ontario sides with the Auditor General and adopted the two recommended accounting
changes for its Fall 2017 Economic and Fiscal Outlook. The C.D. Howe Institute (Dachis 2018) also
adopted the accounting changes for its pre-Budget report in March 2018. The two accounting
changes add $4 billion to Ontario’s deficit in 2017-18 and larger amounts in later years. So the
impact on debt and the debt burden becomes very large.

The decision to use the Government’s accounting conventions for this report risks understating
the fiscal sustainability challenge. However, it was felt that it would be confusing to show
projections that differ in accounting convention from those presented by the Government. The
Auditor General’s criticisms of the Government’s accounting conventions should, however, be
considered an additional consideration favouring the creation of budget surpluses (at least as
represented under the Government’s accounting) in the interest of fiscal sustainability.

The Financial Accountability Office of Ontario’s Take on Fiscal Sustainability

In Fall 2017 the Financial Accountability Office of Ontario (FAO) released economic and fiscal
projections for Ontario extending to 2050-51. While the Office does not explicitly address the
issue of fiscal sustainability, inferences can be drawn from their projections. The FAO uses a set
of economic projections consistent with averages drawn from private sector forecasts (more on
this below), and assumes program spending grows at the rate of population, inflation and past
trends in “enrichment” (e.g. the extent to which program spending has grown faster than
inflation and population growth). On average, program spending grows 3.9 per cent per annum,
led by healthcare spending at 4.8 per cent. Revenues grow roughly in pace with nominal GDP.
The projections can be loosely interpreted as representing the “status quo” whereby neither
spending growth nor tax rates are adjusted to target certain fiscal outcomes.

Under this “status quo” representation, Ontario’s net debt-to-GDP ratio rises from 37 per cent in
2017-18 to 63 per cent by 2050-51. A key aspect of the projections that has strong implications
for fiscal sustainability is the result that debt interest payments rise from the recent 8 cents of

6
Sustainability of Healthcare in Ontario

every revenue dollar to 22 cents. The FAO does not categorically state that such a result would
be fiscally “unsustainable” but the danger is clearly evident. Not only might the province have
difficulty borrowing such a large amount at reasonable interest rates, but the commitment to
servicing the debt would crowd out the ability to finance spending on priorities such as health
and education.

The potential vulnerability of Ontario’s fiscal prospects are shown even more clearly through
alternative scenarios performed by the FAO. If nominal GDP growth were just ½ percentage point
per annum weaker (a result that is closer to what this report argues is the most likely outcome –
see below), the net debt-to-GDP ratio would soar to 95 per cent. Interestingly, this is almost 50
per cent higher than the peak debt burden the federal government reached during what was
perceived as a fiscal crisis in the mid-1990s. And the federal government has greater capacity to
finance debt than a sub-national government.

If growth were ½ percentage point higher per annum than in the base case, the net debt burden
would settle at 33 per cent by 2050-51. This is slightly below the current burden, but still not
back to the level attained prior to the 2008 financial crisis.

The FAO’s work suggests there should be sufficient concern over Ontario’s fiscal sustainability to
probe further. In particular, rather than just examine the results of continuing in a “status quo”
environment, the question should be posed of what policy stance would be required to lower the
risks of fiscal “unsustainability”. To this question we now turn.

How fast can Ontario’s program spending (total excluding public debt charges) grow within the
context of overall fiscal sustainability?

From the base of a balanced budget in 2017-18, balanced budgets can only be maintained if total
spending grows in line with total revenues. This will gradually lower the net debt-to-GDP ratio
as GDP grows. A faster reduction in the debt burden will require spending to grow less rapidly
than revenues. We are particularly interested in the pace of program spending because that is
the variable for policy decision with interest on the public debt being more recursive of the level
of debt and interest rates (and public debt management decisions of course). This report does
not contemplate the role that tax rate increases could play because the rate of revenue growth
could only be increased in the longer-term if tax rates were raised persistently and that is not
likely for economic and political reasons. Therefore, we assume that tax rates and the design of
tax bases remain unchanged and revenues grow with the pace of economic activity.

A “permissible” rate of program spending growth can be calculated as a residual from the desired
fiscal outcome, interest on the public debt and revenues. A first step is then to set a fiscal target.
Two are examined. First, annual budget balances. Second, annual surpluses in order to bring
down the debt burden faster. Economic and other assumptions are applied to project revenues
(own source and transfers from the federal government are generated separately) and interest
on the public debt. Program spending can then be calculated as the residual in order to hit the

7
Sustainability of Healthcare in Ontario

chosen fiscal target. In this sense, the calculation is of “permissible” program spending growth.
This contrasts with the approach in the FAO’s longer-term study where they took the rate of
program spending growth as a given and the fiscal outcome was the residual.

The projection of own source revenues exploits a fairly tight relationship observed between
revenue growth and nominal GDP growth. Hence the examination of fiscal sustainability must
specify a pace of nominal GDP growth. For our purposes we look at a range of possible outcomes.
Most forecasters and media reports on forecasts focus on real GDP growth. But taxes are applied
to nominal economic activity, being both the real and the price components. So we need
assumptions for Ontario’s real GDP growth and inflation (the GDP deflator in this case).

Ontario’s future economic growth rate

A fairly substantial part of the paper will be devoted to an evaluation of projections of Ontario’s
“potential growth rate” – real and nominal. By “potential” it is meant the longer-term sustainable
rate that averages through any economic cycles. We ultimately want the nominal GDP growth
because that is what drives revenues. But that needs to be aggregated from analyses of the real
rate of growth and inflation (in the GDP deflator for our purposes as opposed to the more typical
inflation measure using the CPI).

This paper will look at all available sources of Ontario potential growth rates. That will include,
but not be restricted to, work this author did in 2015 with the Centre for the Study of Living
Standards for the Council of the Federation, a 2018 update to that work, the Ontario Ministry of
Finance long-term economic projections, the projections of the FAO and private sector
projections. From sources (like the CSLS, Conference Board of Canada and TD Economics) that
provide both national and Ontario potential growth rate projections, we will determine the
differential. In fact, those sources have similar growth rates for Ontario and Canada (not that
surprising when Ontario is around 40 per cent of national GDP). From this finding we will
conjecture that some high profile national potential growth rate estimates (Finance Canada, Bank
of Canada, the Parliamentary Budget Office for example) have relevance for an inferred Ontario
pace of growth.

We will discuss the assumptions and methodologies embedded in the various estimates. We will
examine the risks (upside and downside) to the various projections. From the analysis we will
recommend a projection to be used in the context of “stabilization” but note this should be
considered to have an uncertainty band around it.

As would be expected, this author is most comfortable with the work done personally with the
Centre for the Study of Living Standards for the Council of the Federation in 2015 and updated in
2018. In 2015 Ontario’s potential real GDP growth rate (ie a trend measure, removed from
economic cycles) was calculated as 1.42 per cent from 2014-2038 (where 2014 established the
base level meaning the first annual growth rate in the calculation is from 2014 to 2015). In 2018
the projection was updated and yielded a real GDP growth rate of 1.46 per cent from 2017-2038
(with the level of real GDP in 2017 being the base). The update did not just reflect incorporation

8
Sustainability of Healthcare in Ontario

of three new years of data (2015, 2016 and 2017). It also reflects revisions to previous data and
a more recent population projection from Statistics Canada. A key assumption in both the 2015
and 2018 projections is a continuation of the actual productivity trend since 2000.

Ontario’s long-run real GDP growth rate of 1.46 per cent can be broken into its two major
components: 0.91 per cent growth from labour productivity and 0.55 per cent from increases in
total hours worked. In turn, total hours worked can be decomposed: 0.82 per cent from
increases in the working-age population, -0.08 per cent from a decline in the total labour force
participation rate and -0.16 per cent from a decline in average hours worked.

The main reason for the slightly higher real GDP growth for Ontario between the 2015 and 2018
calculations is the impact on the average productivity growth rate from 2000 by adding the strong
gain for 2017. In both 2015 and 2018 Ontario’s potential growth rate was calculated to be similar,
but just below, the Canadian average (a gap of 0.14 and 0.09 percentage points respectively).

The table below presents the available long-run real GDP growth projections for Ontario. The
period covered is 2017-2040 or something close to that range of years.
The projections are the most recent available through February 2018 (March 2018 for CSLS) and
in all cases, other than for CSLS, were provided by the Ontario Ministry of Finance.

Long-Run Real GDP Growth Rate Projections for Ontario

Ont. Finance FAO Conference Board U. of Toronto CSLS

Real GDP 2.0 2.0 2.0 2.2 1.5

Labour Productivity 1.2 1.1 1.1 1.2 0.9

Labour Supply 0.8 0.9 0.9 0.9 0.6

The Ontario Ministry of Finance, the Financial Accountability Office of Ontario and the
Conference Board of Canada project Ontario’s real GDP to grow 2.0 per cent per annum over
the long term. The University of Toronto’s forecast is slightly stronger at 2.2 per cent. Not only
do the non-CSLS forecasters have similar real GDP projections, but the respective contributions
from labour productivity and labour supply are also almost the same. We have not included a
forecast from the Centre for Spatial Economics because it only extends to 2025 but through
that year it features real GDP growth rate forecasts similar to those of the FAO. The 2018
Ontario Budget provides some detail on a fiscal projection to 2025-26 but the underlying
economic assumptions are only given to 2021.

A question then is why are these forecasts considerably stronger than that of the CSLS (a 0.5
percentage point difference for most and 0.7 percentage points for the University of Toronto).
Or looked at from the other perspective, why is CSLS’s projection considerably weaker. This of

9
Sustainability of Healthcare in Ontario

course leads to the second important question of which projection should receive greater
weight in the discussion of fiscal and healthcare sustainability.

As indicated above, CSLS assumes labour productivity continues to grow at the average pace of
0.91 per cent recorded from 2000 – 2017. The Ministry of Finance reached back a lot further
and assumes the future matches the historical average growth rate from 1982 to 2015. The
University of Toronto has a similar approach. The Conference Board approaches the projection
from a somewhat different methodology in that they focus on total factor productivity (so the
productivity flowing from labour and capital whereas labour productivity implicitly includes the
contribution of capital accumulation). The Conference Board projection hinges upon
expectation of 0.6 per cent annual growth in total factor productivity. This seems very
optimistic given that Statistics Canada reports a 0.2 per cent annual average decline in total
factor productivity from 2000 to 2016 (the Statistics Canada figure is for the business sector so
it may differ somewhat from the Conference Board figure which is intended for the entire
economy).

In brief, the Ministry of Finance, the FAO, the Conference Board of Canada and the University of
Toronto assume future productivity growth rates that are much stronger than recorded over
the past 18 years. One must wonder, however, whether it is not more realistic to assume
continuation of this 18-year trend, particularly as the period 2000 to 2017 represents a
complete cycle so it not biased from a net impact of economic downturns or recoveries (in
other words, the economy was operating at around normal capacity in both 2000 to 2017 so
the averages over the 18-year period should reflect trends as opposed to cyclical influences).

The Ontario Ministry of Finance recognizes the uncertainty of the labour productivity growth
rate and provides alternative scenarios. Their scenario based upon weaker productivity growth
features a real GDP growth rate similar to the CSLS projection. The FAO does not specify the
source of weaker growth in their less optimistic projection, but it too is similar to the view of
CSLS.

The Ministry of Finance, the FAO, the Conference Board of Canada and the University of
Toronto do not provide nearly as much detail on their labour assumptions as CSLS. However, it
appears that the first 4 forecasters do not account for any future decline in average hours
worked even though this has been a prominent trend in the actual data for many years.
Indeed, the Ministry of Finance document describing their long-term economic projection does
not even address hours worked. In the CSLS projection a continuation, albeit at a slower pace,
of the decline in average hours worked knocks 0.16 percentage points off long-term real GDP
growth. This likely explains much of the difference between the labour supply contributions to
growth between the CSLS projection and the other 4. It is also possible that the other 4
forecasters did not project the labour force through the age cohorts of the labour force.
Analyzing only the total labour force would understate the impact of population ageing in
lowering the labour force participation rate.

10
Sustainability of Healthcare in Ontario

Where forecasters provide outlooks for both Ontario and Canada, the real GDP growth rates
tend to be similar. This is the case for the CSLS where Ontario’s real GDP growth rate is just a
bit below the Canadian average. The Conference Board has similar growth rates for Ontario
and Canada but in their case Ontario’s exceeds the Canadian average by a small margin. The
same applies with the University of Toronto. The similarity of Ontario and Canada forecasts is
not surprising given that Ontario accounts for around 40 per cent of Canadian real GDP.
Assuming Ontario’s longer-term economic prospects for real GDP growth are similar to
Canada’s, it is informative to analyze some longer-term projections for Canada even though
these forecasters do not give an Ontario outlook. We can infer, however, that the Ontario
outlook would be fairly similar to their Canadian growth rate.

The table below shows some longer-term real GDP growth forecasts for Canada. The period
covered in the projections is 2017 – 2040 or something close to that range (except for the
Parliamentary Budget Office where we assume their 2022-2090 projection can be applied as
well to the years 2017-2040).

Longer-Term Real GDP Growth Projections for Canada

Conference Board Finance Canada PBO CSLS

Real GDP 1.8 1.8 1.7 1.5

Labour supply 0.7 0.6 0.6 0.6

Labour Productivity 1.1 1.2 1.1 1.0

We can see that at the national level other forecasters tend to be closer, but still a bit higher, to
the CSLS projection. Once again a major difference comes through the labour productivity
contribution and again this reflects other forecasters going back much further to establish the
trend they apply to the future. Finance Canada, for example, bases its 1.2 per cent average
growth in future labour productivity on the average recorded from 1970 to 2016. As was the
case for Ontario, one has to question whether data recorded almost 50 years ago and not
repeated over the past 18 years should receive such weight. Like CSLS, Finance Canada’s
projection features a continuation in the decline of average hours worked (-0.1 percentage
points per year compared to CSLS’s -0.16 percentage points). As was the case with Ontario
projections, other forecasters either ignore this variable and its prominent downward trend, or
implicitly assume the trend is over.

The Bank of Canada does not release a longer-term economic forecast. However, their
estimates of the Canadian economy’s potential growth rate are relevant for the longer-term
future as potential growth rates put emphasis on supply-side considerations and abstract to
some degree from the cyclical position of the economy.. For 2019, the Bank provides a range of

11
Sustainability of Healthcare in Ontario

1.1 to 1.9 per cent for the potential growth rate of Canada, with the mid-point being 1.5 per
cent.

In summary, the CSLS projects Ontario’s real GDP growth rate to average 1.46 per cent in the
longer-term while other forecasters are clustered at 2.0 per cent. However, it must be noted
that the other forecasters explicitly or implicitly assume stronger productivity growth than
sustained in many years and immediate cessation of the prominent trend toward lower average
hours worked. Some prominent national forecasters such as Finance Canada and the
Parliamentary Budget Office are much closer to the CSLS view for Canada and given the likelihood
of Ontario and Canada tracking fairly similar real GDP growth rates, these perspectives have
relevance for Ontario and give some credence to the lower growth rate projections of CSLS.

While great attention has been paid to the differences across real GDP growth forecasts for
Ontario, we should note that the range of 1.5 to 2.2 per cent is not that large. Furthermore, we
should not consider that this range captures the full extent of uncertainty about the future. The
CSLS can no doubt cite some downside risks to their forecasts just as the others can likely cite
some upside risks to their view. In the context of the fiscal discussion below we will, however,
argue that greater attention needs to be paid to the downside risks given the vulnerability facing
Ontario given its large debt burden.

We now turn to the price component of nominal GDP. The Bank of Canada and the Government
of Canada have renewed the Bank’s mandate to target 2 per cent inflation (within a band from 1
to 3 per cent). The Bank has been highly successful in maintaining the 2 per cent regime since it
was put in place in the 1990s. However, inflation has of late been running under the target (this
is pretty much a worldwide phenomenon of late). The target is measured as the CPI, a fixed-
weighted price index. The chain-linked GDP deflator tends to increase slightly less rapidly than
the CPI (it might, for example, rise 1.8 per cent per annum when the CPI rises 2 per cent) although
the relationship fluctuates depending upon such variables as commodity prices.

In 2015, the CSLS assumed 2.0 per cent annual increases in the GDP deflator for all jurisdictions
but also ran an alternative using the actual increase in the deflator since 2000. In Ontario’s case
that average was 1.78 per cent. We could reach back further to the inception of inflation
targeting in 1992. From 1992 to 2016 the CPI increased an average of 1.8 per cent per annum in
Ontario whereas Ontario’s GDP deflator increased 1.6 per cent. So again we see this -0.2
percentage point differential between the two inflation measures but in this case, both have
increased less rapidly than the 2 per cent inflation projection that seems fairly standard. In its
2018 update to the projections, the CSLS calculated the average increase in Ontario’s GDP
deflator to be 1.81 per cent 2000-2017. Again this warrants consideration of using a GDP deflator
projection that is below 2 per cent.

If we apply 1.81 per cent annual increases to the GDP deflator to CSLS’s 1.46 per cent real GDP
growth rate we get 3.30 per cent annual growth in nominal GDP, or just above 3 ¼ per cent. The
forecasters with 2.0 per cent real GDP growth forecasts tend to feature GDP deflator increases
of around 2 per cent so 4 per cent nominal GDP growth. The nominal GDP growth figure would

12
Sustainability of Healthcare in Ontario

be closer to 4 ¼ per cent if we took the strongest growth forecast available, that being from the
University of Toronto.

In conclusion on longer-term economic projections, our review indicates a range of 3 ¼ per cent
to around 4 ¼ per cent for annual nominal GDP growth, with the bottom end of the range
deserving of greater attention in our view. We have emphasized that the range of 3 ¼ to 4 1/4
per cent annual nominal GDP growth should not be considered as containing all the risk to the
outlook. No doubt each forecaster believes their projections represent something of a mid-point
within a distribution of likely outcomes. So there are downside risks to the lower economic
growth projections just as there are upside risks to the stronger projections. As the current high
debt burden in Ontario presents a lot of fiscal vulnerability, we think particular attention should
be paid to the downside risks to future economic performance. The world economy remains very
fragile even almost a decade past the financial crisis. There are still under-capitalization problems
in the banks in many countries and excessive debt burdens. Monetary policy has to perform a
difficult task of re-normalizing almost everywhere. Ontario exemplifies the risk of monetary re-
normalization with its high household debt burdens and the possibility of over-heated housing
markets in large parts of the province. There are dangers of trade protectionism from many
quarters. Ontario’s preferential access to the U.S. economy could be jeopardized in key sectors
such as forestry and autos. More generally, the threat of the U.S. pulling out of NAFTA would
hurt the Ontario economy.

Moody’s Investor Services (Moody’s 2018) has identified Ontario and the second most vulnerable
province to termination of NAFTA after New Brunswick. This is because exports to the United
States represent 26 per cent of Ontario’s GDP and those exports are concentrated in areas that
would be especially affected by termination, such as manufacturing including automobiles. With
or without NAFTA Ontario could continue to face competitiveness challenges within the global
economy. The Bank of Canada, like other monetary authorities, could continue to face challenges
re-inflating to the 2 per cent target. The scariest prospect across the globe is that if there were
a major economic shock of the like of the 2008 financial crisis there would be little the policy
authorities could do. Interest rates are already close to zero and central bank balance sheets are
bloated. Most governments are still operating with elevated debt burdens and would not likely
conclude they could stimulate their economies in the fashion they did in 2009 and 2010. In brief,
Ontario’s economy, like that of any other jurisdictions, is in a precarious position as to future
prospects and this warrants careful consideration of downside risks.

Transfers from the federal government will constrain “permissible” program spending growth

The 3 major transfers Ontario receives from the federal government are the Canada Health
Transfer (CHT), the Canada Social Transfer (CST) and equalization. CHT was growing at 6 per cent
per annum but in the recent federal-Ontario agreement it will grow at the higher of 3 per cent or
a three-year-moving-average of nominal GDP growth. When using the CSLS estimate of Ontario’s
nominal GDP growth we will grow total CHT payments at the CSLS estimate of national nominal
GDP growth and then apply Ontario’s population share. For the higher growth scenario we will
grow total CHT payments at 4 per cent per annum, thereby implicitly assuming similar growth in

13
Sustainability of Healthcare in Ontario

Ontario and in Canada as a whole. The agreement with the federal government also features an
additional $2.3 billion over 10 years for homecare and $1.9 billion for mental health. For Ontario,
the total of these 2 new funds provides $462 million in 2027-28. To give a feel for how these
incremental payments will change the rate of growth for federal health transfers, if the CHT were
to grow at 3 ½ per cent per annum, the incremental funds for homecare and mental health would
raise the growth rate for total healthcare transfers (CHT plus these special funds) to 3.74 per
cent. After that, the growth rate would be assumed to drop back to GDP growth, or 3 ½ per cent
in this illustration. It must be noted that the incremental funding for homecare and mental health
is earmarked for those areas with accountability agreements to come and hence that money is
not available for other things such as compensation.

CST has been growing at 3 per cent per annum and is legislated to remain at that pace.

Equalization payments can swing with Ontario’s revenue capacity relative to the program’s
standard, but the growth in overall equalization payments is capped at nominal GDP growth.
Ontario received $2.4 billion of equalization in 2015-16 and $2.3 billion in 2016-17. This reflects
Ontario dipping below the national average GDP per capita and in turn this reflects the previously
strong commodity prices bolstering GDP in some of the other provinces. The series of lags in
equalization payments meant this was not fully reflected in equalization payments for some time.
Ontario has returned to its more traditional position of having GDP per capita above the national
average (very slightly at the moment). With most forecasters showing similar growth rates for
Ontario and Canada, it is reasonable to assume that Ontario’s GDP per capita will remain close
to the Canadian average. Once the lags have worked out, this should take Ontario back out of
equalization and it will likely remain out. We therefore project that equalization payments to
Ontario will phase out over the next few years and be zero beyond that. This will be a major
constraint on total revenue growth (relative to the recent past) and hence to “permissible”
program spending growth. The fading of equalization payments is featured in Ontario’s 2018
Budget where the projection shows this revenue source dropping from $2.3 billion in 2016-17 to
$1.0 billion in 2018-19.

“Permissible” Program Spending Growth for the Ontario Government

“Permissible” program spending growth is defined as the maximum pace at which program
spending can grow while achieving defined fiscal objectives. The fiscal objectives are set by
choice. Own-source revenues are projected from the relationship between revenues and
provincial nominal GDP. Interest on the public debt is projected on the basis of the stock of
debt and projections of interest rates.

The fiscal targets chosen should relate to the concept of fiscal sustainability. From a theoretical
perspective, fiscal sustainability means that current government debt should be matched by net
future primary (budget balance less interest payments) surpluses measured in present value
terms (the future surpluses are discounted to relate them to today’s dollars). Expressed in a
more functional form, in the long run the growth rate of debt should be less than the risk free
interest rate. The reference to the long run is relevant and in turn reduces somewhat the

14
Sustainability of Healthcare in Ontario

relevance of this theoretical perspective on fiscal sustainability because it requires doing fiscal
projections out many years. Yet government policy would likely react to changing
circumstances.

The fiscal sustainability exercise conducted by the Parliamentary Budget Office demonstrates
the issue. The PBO argues provincial governments will become fiscally unsustainable because
healthcare spending will increase for a very long time at a pace reminiscent of the past when
there was stronger economic and revenue growth. But provinces would likely rein in
healthcare spending once they realized they were heading to a fiscal cliff. So the prediction of
fiscal unsustainability is somewhat suspect although it does provide a useful warning that policy
needs to change.

The same could be said of the FAO’s baseline longer-term fiscal projections. The result that
Ontario’s net debt to GDP burden might rise to 69 per cent from the current 37 per cent seems
alarming, but program spending need not, should not and hopefully will not grow as rapidly as
the FAO assumes for the purpose of this exercise. Indeed, that should be the central message
taken from the FAO’s work.

Here we avoid one of the problems with some of these examinations of fiscal sustainability by
targeting on a fiscally sustainable outcome and then calculating the permissible growth rate of
program spending that would achieve it. In short, we examine the behavioral change required
of governments to avoid the fiscal abyss. The relevant question is then whether governments
are willing and able to make the required behavioral change.

We still need to identify the fiscally sustainable outcome. We can examine the theoretical
concept of the growth in debt being less than the risk free interest rate. We cannot directly
observe this interest rate but we know that it is quite low. This means that debt can only grow
at a modest rate. If the risk free interest rate is close to the growth rate of nominal GDP (and
that is likely), then in practical terms this theoretical perspective boils down to saying that in
the long term, the debt-to-GDP ratio must be stable or declining. Budget deficits would be
feasible, but they would have to be sufficiently modest that they are less than interest on the
public debt (so there would be primary surpluses) and sufficiently small that the stock of debt
did not growth faster than the risk free interest rate (which we have suggested might be similar
to the growth rate of nominal GDP).

In addition to seeking a debt-to-GDP ratio that is stable or declining, practical measures of fiscal
sustainability typically include having interest on the public debt trending down as a share of
total revenues (this has been labelled the “interest bite”).

One of the problems with focusing on the very long term is that it gives little weight to the
current situation of a high debt burden in Ontario, represented by a net debt-to-GDP ratio of 37
per cent for 2017-18. This is more than 10 percentage point higher than the 26 per cent prior
to the financial crisis and recession. The prominent pattern of the debt ratio jumping up with
each economic downturn and not returning to its pre-cycle value means that such a high debt

15
Sustainability of Healthcare in Ontario

burden leaves Ontario in a very vulnerable fiscal position. Further, despite extremely low
interest rates (the effective interest rate on Ontario’s outstanding stock of debt was only 3.5
per cent last year, compared to 10.9 per cent in 1990-91), 8.0 cents of every revenue dollar is
siphoned off to finance the debt (it was 7.7 cents in 1990-91 when the effective interest rate
was almost triple today’s level). That is money diverted to essentially pay for programs and
services that have already been consumed and it is not available to meet today’s needs of
Ontarians.

A broad indicator of a jurisdiction’s ability to ultimately handle its debt burden is the ratio of
net debt to revenue. Ontario’s is the worst in Canada. Even though Ontario’s net debt-to-GDP
ratio is lower than Quebec’s, Ontario’s net debt-to-revenue ratio is much worse, in good part
because Quebec receives proportionally more federal transfers. Just as disturbing as Ontario’s
relatively poor net debt-to-revenue ratio is that it has increased well over two-fold since 1990-
91.

We can look at Ontario’s debt burden from an even broader perspective and compare it to sub-
national governments around the world. Ontario is the second largest sub-national
government borrower in the world after North Rhine-Westphalia, Germany. New York State
and California have on occasion attracted global attention to their precarious fiscal situations.
Yet today their debt issuance volumes are, respectively, 29 and 20 per cent of Ontario’s despite
both having larger economies than Ontario’s. Ontario’s net borrowing per capita is the third
highest among subnational governments in the world after Madrid and Catalonia in Spain.

Ontario’s fiscal vulnerability due to the high debt and the diversion of revenues to pay the debt
suggest an appropriate fiscal target for Ontario should be somewhat more ambitious than
simply limiting future debt growth to a modest pace. That would only be appropriate once the
debt burden has first been lowered.

The above discussion suggests that practical definitions of fiscal sustainability should feature: a
fairly timely lowering of the debt-to-GDP ratio, then a stable or declining debt-to-GDP ratio and
a downward trend in the portion of each revenue dollar required to pay interest on the debt.

The importance of recording budget surpluses in the face of a high debt burden is evidenced in
S&P Global’s recent credit upgrading of Quebec. Quebec has historically had a higher debt
burden than Ontario and still does. Yet Quebec’s debt rating was upgraded and Ontario’s was
not. In fact, for the first time, S&P has a better rating for Quebec than Ontario, regardless the
relative debt burdens. A primary factor given by S&P for the credit upgrading for Quebec was
their recent budget surpluses and plan for more. Indeed, the only provinces to have a worse
rating from S&P than Ontario are Prince Edward Island and Newfoundland & Labrador (Kiladze
and Lundy 2018).

In the 2017 budget the Ontario Government recognized the need to bring down the debt
burden. They identified the goal of returning the net debt-to-GDP ratio to 27 per cent. The
logic behind 27 per cent as a target is that this was the ratio prior to the financial crisis of 2008

16
Sustainability of Healthcare in Ontario

and the ensuing economic recession (the actual figure was, however, 26 per cent rather than
27). Returning to this figure would break the pattern Ontario has exhibited over recent
economic cycles of a sharp rise in the debt burden during recessions but a failure of the burden
to return to its pre-cycle level once the cycle has been completed. In other words, the debt
burden has been steadily ratcheting up with each economic cycle. This is clearly a very
dangerous trend that must be broken.

A 27 per cent net debt-to-GDP ratio would also put Ontario in a more competitive position with
other provinces and the federal government, but the debt ratio would still be much higher in
Ontario than in Alberta, British Columbia and Saskatchewan. Bringing down the debt burden
would facilitate achievement of the objective of limiting the portion of revenues going to
service the debt and over time, making more of taxpayers’ money available for programs.

The Ontario Government did not attach a year in the 2017 Budget to the target of returning to
a 27 per cent net debt burden. It was simply noted in the 2017 Budget that the Ontario
government projects this ratio should be attained by 2029-30. The 2017 Budget shows this
longer-term projection of the net debt-to-GDP ratio but provides no details so it is not feasible
to do an evaluation. Presumably the projection is based on the Ministry’s real GDP growth rate
forecast of 2.0 per cent with increases in the GDP deflator in the same range. As we have
argued above, we find both have important downside risks. Further, it can be argued that
hitting the 27 per cent target in 13 years is a long way off and leaves the province vulnerable
fiscally in the meantime. It would be preferable to achieve the 27 per cent sooner.

Of greater concern than the time taken in the 2017 Budget to get the net debt burden down to
27 per cent is the absence of any reference to such as “aspirational target” in the 2018 Budget.
Indeed, the 2018 Budget accepts the net debt-to-GDP ratio rising from the 2017-18 level until
2025-26. This is driven by accumulated deficits of $31.9 billion from 2018-19 through 2023-24.
Key features driving the return to deficits include: arresting the downward profile of program
spending-to-GDP in place from 2010-11 to 2016-17, program spending growing faster than
revenues in 2018-19 and 2019-20 and rising interest payments on debt.

For our purposes we do not find the fiscal outcomes in either the 2017 or 2018 Budgets to be
consistent with fiscal “sustainability”. The 2017 Budget is at least closer than the 2018 Budget.
Here we have chosen the 27 per cent net debt-to-GDP target references in the 2017 budget but
apply it to 2027-28. This is still hardly ambitious as it gives 10 years from today but 20 years
from the last time such a ratio was achieved.

We note that while the Ontario Government ties the logic of returning to a 27 per cent net
debt-to-GDP ratio to restoring the debt burden to its pre-crisis magnitude, the ratio was
actually 26 per cent in 2007-08, the last full fiscal year before the financial crisis hit. We will,
however, use the Government’s 27 per cent figure, keeping in mind that returning to the actual
pre-crisis debt burden would require somewhat larger fiscal surpluses and hence more
restrained program spending.

17
Sustainability of Healthcare in Ontario

Two fiscal targets are examined. The first preserves balanced budgets each year from 2017-18
through 2029-30. Under this scenario the net debt-to-GDP ratio declines gradually and
modestly. The ratio declines from the 2017-18 figures of 37.1 per cent to hit 29.1 per cent by
2029-30 in the lower growth scenario and 26.7 per cent in the higher growth scenario. The
second scenario targets a 27 per cent net debt-to-GDP ratio in 2027-28.

The major uncertainties surrounding a fiscal projection, once a target outcome has been
chosen, are:

- The economic growth rate, both real and nominal. Most projections of Ontario’s real
GDP growth rate over the longer-term fall in a range of 1.5 to 2.2 per cent. (In a draft
Commentary of the C.D. Howe, Ontario’s long-run real GDP growth rate is projected at
1.24 per cent from 2016 to 2047. We have not incorporated this projection because: a)
the report has not been published; b) the projection is longer than the period we are
concerned with and; c) the C.D. Howe report assumes 2 per cent annual increases in the
GDP deflator compared to 1.8 per cent in the lower growth scenario we use meaning
that the two nominal GDP growth paths are similar). Our preferred scenario is the lower
end of this range because we feel that is a more realistic depiction of Ontario’s labour
force prospects and likely productivity performance. Most forecasts project inflation (in
this case, the relevant inflation measure is the deflator for GDP) at around 2 per cent.
However, we note that if the CPI increases at 2 per cent, the target in the agreement
between the Government of Canada and the Bank of Canada (for Canada as a whole),
the GDP deflator could over time increase somewhat less than the CPI and has done so
in the past. Indeed, from 1992 to 2016, Ontario’s CPI increased 1.8 per cent on an
annual average basis while the GDP deflator increased 1.6 per cent. The relationship
between the two price indices is, however, sensitive to the time period chosen. The
Centre for the Study of Living Standard’s alternative scenario using the recent trend in
actual GDP deflator increases is one of the few projections to show the GDP deflator
increasing less than 2 per cent per annum and less than the pace of the CPI. This is our
preferred scenario because we feel it best depicts the historical inflation patterns and
the most likely future inflation scenario. Putting the real GDP and price sides together
suggests a range of nominal GDP growth rates from 3 ¼ per cent (1.46 per cent real and
1.81 per cent price) to around 4 ¼ per cent (2.2 per cent real and 2 per cent price). For
the purposes of this study we examine two nominal GDP growth paths – 3 ¼ per cent
and 4 per cent. We chose 4 per cent rather than the high end of around 4 ¼ per cent
because the central tendency of the non-CSLS projections is at this figure while the
University of Toronto is somewhat of an outlier. As per the discussion above, our
preferred scenario is at the low end of the range examined.

- Interest rates. It is widely accepted that interest rates across the term structure have
been at extraordinary low levels and the increases seen of late will continue. There is a
legitimate debate as to how high they will rise and how quickly. In the mid-2000s, it was
generally considered that a “neutral or normal” interest rate would be around 3 ½ per

18
Sustainability of Healthcare in Ontario

cent for a 3-month Treasury bill (being 150 basis points above the rate of inflation) and
around 5 per cent for a 10-year Government of Canada bond. More recently and after
an extended period of interest rates much lower than this, some contemplate “neutral
or normal” being as low as 2 ½ per cent at the short end and 4 per cent at the longer
end. In Fall 2017 the Bank of Canada (Jose Dorich 2017) stated their current estimate of
the neutral rate (referring to the Bank’s policy rate) was 0.5 to 1.5 per cent in real terms,
down from an estimate of 1.0 to 2.0 per cent three years ago. If we add in 2 per cent
inflation, this means the estimate for the nominal neutral rate is now 2.5 to 3.5, down
from a previous range of 3.0 to 4.0. For our purposes we show the sensitivity of
“permissible” program spending to a lower interest rate scenario featuring 2 ½ per cent
at the short end of the term structure and 4 per cent at the long end and a higher
scenario with 3 ½ per cent at the short end and 5 per cent at the long end. The
benchmark federal rates are adjusted up 20 basis points for 3-month Treasury Bills and
100 basis points at 10-years to represent the spread between Ontario and federal
issues.

- Relationship between own-source revenues and nominal GDP (the revenue elasticity).
Ontario‘s own-source revenues tend to grow along with Ontario nominal GDP. But what
is the exact relationship? The Commission on the Reform of Ontario’s Public Services
analyzed this and concluded that the relationship was close to, but a bit less, than one.
This was a mixture of the elasticity being greater than one for the (progressive due
largely to higher rates applying to higher income brackets) personal income tax, around
one for corporate income tax and HST and less than one for specific taxes and user fees.
However, the Ontario Ministry of Finance observes that from 1994-95 to 2015-16,
Ontario own-source revenues (excluding transfers from the federal government) grew
at only 90 per cent the pace of nominal GDP (including transfers from the federal
government the relationship was 96 per cent). While this might be suggestive of a
revenue elasticity significantly below 1, it must be noted that this observation has at
least two factors that could distort its relevance for the elasticity: there were many tax
rate changes over the period and those affect revenue growth but not the elasticity and,
there were shifts in tax bases and shares of GDP that may not be applicable for the
future. The observation does, however, prompt us to show the sensitivity of
“permissible” program spending growth to the own-source revenue elasticity. To
demonstrate this we show scenarios using 1 and 0.95 per cent for the own-source
revenue elasticity to GDP.

Before proceeding to the fiscal projections there are two other issues that must be addressed.
First, should the 2017 or 2018 Budgets form the basis for the projections in the short-term?
Second, how should the contingency reserve be treated in the projections? In the 2017 Budget,
a reserve of $600 million was applied to 2017-18 and 2018-19 and $0.9 billion to 2019-20. If
the reserve was not needed (reflecting perhaps revenues and interest on the public debt
coming in on forecast), then the budget would be in surplus to the amount of the reserves
rather than in balance, as shown in the Budget. That is, if the Government did not spend the

19
Sustainability of Healthcare in Ontario

amount of the reserves once it realized they were no longer needed to cover contingencies.
The profile of the reserve is somewhat altered in the 2018 Budget to be $0.7 billion per year.

Despite a lot of changes within revenues and spending, the 2017 and 2018 Budgets have very
similar bottom lines for 2017-18. Indeed, the surplus of $0.6 billion estimated for 2017-18 in
the 2018 Budget is on a net basis simply the assumption that the $0.6 billion reserve will not be
needed and it can go to the bottom line.

As argued above, we do not interpret the 2018 Budget as conventional in that it may never be
enacted. Its fiscal outcomes in terms of many years of deficits and a high debt burden are
inconsistent with fiscal “sustainability”. Given these challenges with the 2018 Budget and the
similarities in the base year 2017-18, we have sided putting more emphasis on the short-term
projections from the 2017 Budget.

Given some vulnerabilities to the Ontario economy, such as the possibility of a significant
weakening in the housing market, there are some downside risks to the own-source revenue
projections in the budgets. The simplest and most realistic way of proceeding is to assume that
the contingency reserves are needed each year to cover shortfalls against the own-source
revenue forecast. The additional prudence factor is warranted given the high level of debt in
Ontario and the asymmetry this imparts to forecast risk with the consequences being much
more serious of over-estimating revenues.

The charts below show the “permissible” program spending growth rates under alternative
assumptions regarding the fiscal target, revenue elasticity, economic growth and interest rates.

“Permissible” Program Spending Growth Rate (Compound Annual Growth Rates 2018-19 to
2029-30)

I. Elasticity of 1 Between Own-Source Revenues and Nominal GDP

A. Balanced Budgets Every Year

Ontario Interest Rates 3.7/6.0 2.7/5.0

Nominal GDP Growth

3.25 3.1 3.2

4.0 3.7 3.8

20
Sustainability of Healthcare in Ontario

The “permissible” rate of increase in program spending is always a bit below the rate of
nominal GDP increases because: CST transfers only grow 3 per cent per annum; equalization
disappears and; in the higher interest rate scenario, interest on the public debt grows faster
than nominal GDP due to the combination of increases in net debt (as capital outlays exceed
amortization) and rising interest rates.

Note that the lower interest rates raise the “permissible” program spending growth rate 0.1
percentage points. In other words, the scenario is not that sensitive to the interest rate
assumption.

The higher growth rate, on the other hand, does raise the “permissible” program spending
growth rate considerably. But it does not raise it to the full extent of the 0.75 percentage point
faster nominal GDP growth (0.6 percentage points rather than 0.75). That is because the faster
economic growth rate only changes CHT revenues within the transfers from the federal
government (CST, equalization and the new transfer for mental health and homecare being
insensitive to economic growth) and with the maintenance of balanced budgets, the
outstanding stock of debt and hence interest paid on the debt also do not change.

With a 3 ¼ per cent growth rate for nominal GDP the net debt-to-GDP ratio is 29.1 per cent in
2029-30. With higher GDP in the 4 per cent growth scenario, the net debt burden in that year is
26.7 per cent. In both cases the debt burden declines over time, satisfying a fairly non-stringent
condition of fiscal sustainability. In the lower economic growth scenario the debt burden
remains above the “aspirational target” of 27 per cent the Government set in the 2017 Budget
throughout the period while it just barely hits the target in 2029-30 under the higher growth
scenario.

In the scenario with 3 ¼ per cent nominal GDP growth, interest on the public debt rises from 8.0
cents of every revenue dollar in 2017-18 to 9.3 cents in 2029-30 with the higher interest rate
assumption while it remains fairly steady at just over 8 cents with the lower interest rates.

With nominal GDP growth of 4.0 per cent, the interest on public debt share of every revenue
dollar rises from 8.0 cents to 8.7 cents in 2029-30 with the higher interest rates and declines
slightly to 7.9 cents with the lower interest rates.

So regardless of the interest rates, the fiscal sustainability test of a declining share of revenue
dollars going to service the public debt is failed with nominal GDP growth of 3 ¼ per cent
whereas the test is passed with growth of 4 per cent at the lower interest rates, but not with
the higher rates.

On balance, the results of the various scenarios under sustained budget balances show a very
tenuous satisfaction of fiscal sustainability. The results warrant the analysis, reported below, of
a more stringent fiscal outcome.

B. 27 in 27 (27 per cent net debt-to-GDP ratio by 2027-28)

21
Sustainability of Healthcare in Ontario

This scenario lowers the growth rate of program spending sufficiently to create the required
surpluses by 2027-28 ($11 billion surplus in that year) to achieve a net debt-to-GDP ratio of 27
per cent in that year. An assumption must then be made as to what fiscal path should follow
the achievement of this goal. The assumption is made that the restraint on program spending
would be alleviated but that spending would not boom. Program spending is assumed to rise 5
per cent per annum in 2028-29 and 2029-30. Despite the faster pace of spending growth, the
net debt-to-GDP ratio continues to decline, albeit at a more modest pace than in the earlier
years.

Ontario Interest Rates 3.7/6.0 2.7/5.0

Nominal GDP Growth

3.25 2.9 3.0

4.0 3.5 3.6

It will be noticed that all the “permissible” program spending growth rates in the “27 in 27”
scenarios are 0.2 percentage points per annum lower than their counterparts in the scenarios
with annual budget balances. This may at first seem surprising. But it should be pointed out
that getting to the 27 per cent net debt-to-GDP ratio by 2027-28 requires a fair bit of spending
restraint through that year, and then it is assumed the growth rate of program spending rises
substantially thereafter. So, for example, the average program spending growth rate of 2.9 per
cent from 2017-18 to 2029-30 under the 3 ¼ per cent nominal GDP growth assumption with
higher interest rates is a combination of only 2 ½ per cent growth in spending through 2027-28
and 5 per cent in the final 2 years. The 2 ½ per cent pace represents a fair degree of restraint as
it is about a ½ percentage point decline in real, per capita terms each year. Put in another
context, it is not that much faster than the actual growth rate of 1.7 per cent registered in
program spending from 2010-11 to 2016-17 and that is widely acknowledge as tight spending
restraint.

Having achieved the target debt ratio of 27 per cent in 2027-28, the ratio continues to decline
to 24.4 per cent by 2029-30 in the 3 ¼ per cent nominal GDP growth scenario and 22.8 per cent
when growth is 4 per cent per annum.

In the lower growth scenario interest payments as a share of each revenue dollar go from 8
cents in 2017-18 to 7.7 cent and 7.0 cent under higher and lower interest rates respectively. In

22
Sustainability of Healthcare in Ontario

the 4 per cent growth scenario the interest payment share goes from 8 cents to 7.2 and 6.6
cents respectively under the higher and lower interest rate scenarios.

In brief, the tests of fiscal sustainability are passed under the alternative economic growth and
interest rate assumptions when the fiscal target is hitting a 27 per cent net debt-to-GDP ratio by
2027-28. Hence our greater comfort with this fiscal scenario than with the less stringent
objective of maintaining annual budget balances.

II Elasticity of 0.95 Between Own-Source Revenues and Nominal GDP

A. Balanced Budgets

Ontario Interest Rates 3.7/6.0 2.7/5.0

Nominal GDP Growth

3.25 3.0 3.1

4.0 3.6 3.7

B. 27 in 27 (27 per cent net debt-to-GDP ratio by 2027-28)

Ontario Interest Rates 3.7/6.0 2.7/5.0

Nominal GDP Growth

3.25 2.8 2.9

4.0 3.4 3.5

23
Sustainability of Healthcare in Ontario

Sixteen scenarios are presented above in which the “permissible” growth rate of program
spending is calculated. The range is from a low of 2.8 per cent average annual growth in
program spending 2017-18 to 2029-30 (lower debt burden, lower growth, higher interest rates,
lower revenue elasticity) to 3.8 per cent (balanced budgets, higher growth, lower interest rates,
higher revenue elasticity). While this may seem a fairly wide range, it certainly should not be
perceived as encompassing all possible or even likely outcomes. No doubt each economic
forecaster considers their projection to represent close to the mid-point within a distribution of
likely outcomes. The CSLS can no doubt cite downside risks to their economic growth
projection, which is at the low end of the available forecasts. Similarly, those with stronger
growth projections likely consider there are some possible upside risks. Furthermore,
considered in the context of historical program spending growth, the range is not that wide. As
noted, program spending growth averaged only 1.7 per cent per annum from 2010-11 to 2016-
17 whereas it averaged 6.8 per cent from 2001-02 to 2010-11. In all scenarios conducted here,
restraint does not have to be as tight as over the past 6 years. But nor can spending grow at
anywhere near the pace it did through the 2000s – both the low end and the high end of the
range are fairly close to just half that pace. Another way of looking at the range is that it goes
from about zero to 1 per cent annual real per capita program spending growth.

Something closer to the low end of the range for “permissible” program spending growth, say 3
per cent through 2029-30, is recommended as preferable for fiscal planning. For much of the
period program spending growth should be lower than that, at around 2 ½ per cent, in order to
hit the Government’s net debt-to-GDP ratio target of 27 per cent no later than 2027-28.
Program spending growth could firm once that target has been attained.

The lower end of the “permissible” program spending range is preferred for several reasons.
First, under balanced budgets, the net debt-to-GDP ratio remains high, not hitting the
Government’s target of 27 per cent until 2029-30 or later. Second, in most of the scenarios
with higher “permissible” program spending growth interest on the public debt continues to
take a rising share of every revenue dollar. Third, many of the stronger economic growth
forecasts explicitly or implicitly assume Ontario returns to a strength in productivity growth that
has not been sustained in decades. Fourth, the stronger nominal GDP growth rates show a
firmness in inflation (measured by the GDP deflator) that may not materialize. Fifth, a case can
be made that planning should not be done on the basis of a scenario that depicts the mid-point
in the perceived range of outcomes if the consequences of error in either direction are not
symmetrical. This asymmetry arises because Ontario’s high public debt burden leaves a serious
vulnerability should there be any economic downturn.

If fiscal outcomes are better than projected the consequence will be getting to a lower debt
burden and lower interest payments sooner than planned. This is a favourable outcome in that
it more quickly relieves an element of potential fiscal unsustainability. If, on the other hand,
fiscal outcomes are worse than projected, the debt burden will stay high for longer and interest
payments will take a rising portion of each revenue dollar. That takes taxpayers’ money away
from providing the programs and services they need and desire. It will be that much harder to

24
Sustainability of Healthcare in Ontario

rein in the debt burden later. So when the consequences of error are not symmetrical, it is wise
to be prudent in the underlying assumptions.

On balance, we feel that achieving fiscal sustainability over the next decade or so means that
program spending growth should not exceed a pace of around 3 per cent per annum on
average through 2029-30 and be considerably less than that, no more than 2 ½ per cent per
annum, until the Government’s target of a 27 per cent net debt-to-GDP ratio is attained. That is
not likely to occur until 2027-28. Expressed differently, program spending growth should be
roughly flat on a real, per capita basis for the whole period with modest declines by this
measure over the next 10 years. This eases substantially the degree of spending restraint of the
past 6 years. But it does not allow spending to return to the much faster pace of the 2000s.

NOTES ON THE PROJECTIONS OF “PERMISSIBLE” PROGRAM SPENDING GROWTH:

1. 2017 Ontario Budget figures are used through 2019-20 except for own-source revenues
being lowered by the amounts of the contingency reserve and updating the transfer
from the federal government reflecting the recent federal-Ontario agreement.
2. Own-source revenues grow at the nominal growth rate of GDP multiplied by the
assumed revenue elasticity.
3. CHT grows with nominal GDP and the projection incorporates the recent agreement on
federal transfer supplements for mental health and homecare.
4. CST grows at 3 per cent per annum.
5. With Ontario returning to national average GDP per capita, it is assumed to fall out of
equalization entitlement and payments go to zero as the program lags work out.
6. Interest on the public debt is projected by applying the interest rate assumptions to the
stock of outstanding debt
7. At the expiry of the current infrastructure program, capital outlays are assumed to equal
amortization each year.
8. Program spending is calculated as the residual to generate the chosen fiscal outcome
(balanced budget or a debt target).
9. In the 27 in 27 scenarios, the net debt-to-GDP ratio continues to decline below 27 per
cent beyond 2027-28.

AN OBSERVATION ON VERY RECENT ECONOMIC DATA

The message of much more modest economic growth in the future may seem at odds with the
very strong economic data recorded for Canada and Ontario recently. At the time of the 2017
Ontario Budget, the average of private sector forecasts for Ontario real GDP growth in 2017
was 2.4 per cent. Of the 13 forecasters surveyed, the strongest outlook was for 2.9 per cent
growth and the second strongest 2.6 per cent. In the March 28, 2018 Budget, the estimate for

25
Sustainability of Healthcare in Ontario

real GDP growth in 2017 is 2.7 per cent and the growth rate for nominal GDP growth 4.4 per
cent.

As a representative example of the revisions to national economic growth forecasts, the OECD
raised the 2.8 per cent it predicted for 2017 in June 2017 to 3 per cent in a late November
release. However, they predicted in November that growth would slow to 2.1 and 1.9 per cent
respectively in 2018 and 2019.

Some may question whether the strength of recent data undermines the projection of much
slower growth in the longer-term. It does not. Economic data are quite volatile and a few
quarters of strong data do not change fundamentally the underlying dynamics of an economy.
It may have been the case that Canada and Ontario had some remaining slack in their
economies (the Bank of Canada’s measure of the “output gap” would support this conjecture)
and the burst of activity in the first half of 2017 may have reflected cyclical gains that absorbed
this slack.

Sustained strong growth will be much harder to achieve because over time the limits of
demographics (older workforce working fewer hours) and modest productivity gains will weigh
on growth prospects.

In summary, the recent strong economic data for Canada and Ontario are very welcome but
they do not indicate that future growth trends have improved.

******************************************************************************

Scenarios that would facilitate program spending growing faster than in the above fiscal
scenarios

Revenue growth could be raised through hikes in tax rates. However, it must be emphasized
that this could not just be one-time or even occasional tax rate hikes. In order to raise the
growth rate, the tax hikes would have to be persistent, perhaps even annual. Ontario’s
marginal personal income tax rates are already very high (the marginal tax rate for the highest
income bracket is 53.5 federal-Ontario combined and the 2018 Ontario Budget proposed to
raise that further) relative to history and other jurisdictions. Corporate income tax rates will
come under pressure now that the U.S. has reformed its corporate taxation and driven down its
tax rates. Of the major tax sources, that only leaves Ontario’s portion of the HST as a viable
means of persistently raising revenue growth.

Ontario could at least ensure that own-source revenue growth aligns with nominal GDP growth.
This might require raising the rate of specific taxes from time to time and on occasion raising
user fees (effectively indexing them to inflation) if they are not already indexed. This would,
however, just secure the results shown in the fiscal scenarios that assume a revenue-to-GDP
elasticity of one.

26
Sustainability of Healthcare in Ontario

There are economic and political limitations on how frequently and far any tax rate can be
raised, even the HST. Little weight should be assigned to a scenario whereby revenue growth is
permanently raised through frequent tax rate hikes.

Major transfers from the federal government could be raised. In a bygone era the federal
government transferred 50 per cent of provincial healthcare costs. But the transfers now have
nothing to do with actual provincial costs. The overall federal healthcare transfer is down to
about one-quarter of provincial cost and under the new agreement this will likely at best be
maintained and could well shrink further. As the agreement was just made for 10 years, this
does not seem a feasible way out of the constrained box.

Scenarios that would facilitate faster healthcare spending within the “permissible” overall
program spending range

In the absence of attractive options for raising “permissible” program spending growth through
tax increases, this just leaves a scenario whereby healthcare spending grows faster than the
total of other programs. In other words, healthcare “crowds out” or squeezes other spending.

Not all components of program spending need to grow at the same pace. But if one
component, especially one like healthcare that is close to half of all program spending, is to
grow faster than the total, then other spending must be crowded out to a significant degree.
But just as with tax hikes, there are real limits on how far healthcare, or any other spending
component, could be allowed to squeeze out spending on other programs.

Let us return to the range above for “permissible” program spending of 2.8 to 3.8 per cent per
annum. And we must keep in mind that if the 27 per cent net debt-to-GDP ratio is to be
achieved by 2027-28, program spending must grow considerably slower than these figures
(about 0.5 percentage points) from now until 2027-28. If non-healthcare spending is kept to 3
per cent annual growth, or flat in real, per capita terms, then the lower end of the range of
“permissible” program spending growth does not allow healthcare spending to even keep pace
with population growth and inflation. In this sense, it would be non-healthcare spending
crowding out healthcare.

Using the upper end of the range for “permissible” program spending, with 3 per cent growth in
non-healthcare spending then healthcare spending could rise 4.9 per cent per annum 2017-18
to 2029-30 but only 3.7 per cent over the first 10 years.

If non-healthcare spending is constrained to decline 0.5 per cent per annum in real, per capita
terms that works out to around an annual growth rate of 2.5 per cent for this 58.5 per cent of
total program spending. If “permissible” total program spending is 2.8 per cent from 2017-18
to 2029-30 and 2.3 per cent for the sub-period 2017-18 to 2027-28, then healthcare spending
could increase at an annual pace of 3.2 per cent over the whole 12-year period but only 2.0 per
cent for the first 10 years through 2027-28.

27
Sustainability of Healthcare in Ontario

Clearly with “permissible” program spending growth only 2.8 per cent per annum, healthcare
cannot grow much faster than this total spending pace unless non-healthcare spending declines
much more appreciably than 0.5 per cent per annum in real per capita terms. Indeed, to allow
healthcare spending to grow around 4 per cent per annum over the next 12 years (but only 2.7
per cent over the next 10 years), non-healthcare spending could not increase faster than 2 per
cent per annum and hence decline around 1 per cent per year on a real, per capita basis.

If “permissible” program spending growth is 3.8 per cent 2017-18 to 2029-30 and 3.3 per cent
2017-18 to 2027-28 and non-healthcare spending grows 2.5 per cent per annum (-.5 per cent in
real, per capita terms) then healthcare spending can rise 5.6 per cent over the whole period
and 4.4 per cent over the first 10 years. But declines in non-healthcare spending on a real, per
capita basis would be difficult to sustain economically, socially and politically. With education
(K-12 and post-secondary) almost half of non-healthcare program spending, a good part of the
restraint would need to fall on this component at a time when skills and competencies are so
crucial for competing in a knowledge-based global economy.

Spending pressures on education would abate substantially if the converse of ageing pressures
on health were fewer young people to attend K-12 schooling and post-secondary education
institutions. Actual data and Statistics Canada’s population projection (M1 projection, being
their mid or main scenario) suggest the abatement of education pressures from demographics
is limited. We will look at the age cohort 4-24 as that is the “prime age” for attending K-12 and
post-secondary education. The size of this cohort peaked in Ontario at 3,464,000 in 2013. It is
projected to decline until 2021, but only at an annual pace of 0.2 per cent, bringing the total to
3,406,400 in that year. From there the size of this cohort will increase at an annual pace of 0.6
per cent to 2030. From 2024 to 2031 the growth in the population of this cohort will match
Ontario’s total population growth, keeping the youth share at 23 per cent. In conclusion,
demographic relief for education spending has been limited and will soon be over as the size of
the “prime age” education population grows again.

The bottom line from the economic and fiscal scenarios: little scope for health care spending
to increase rapidly

A lot of scenarios have been presented above. Here we will review again the underlying
assumptions and drive to a bottom line on the pace of future healthcare spending that can be
maintained within an environment of “sustainability”.

We will start with the conditions that would permit healthcare spending to increase fairly
robustly.

Healthcare spending increases of over 5 per annum 2017-18 to 2029-30 and almost 4 ½ per
cent through 2027-28 can be “sustainable” IF

28
Sustainability of Healthcare in Ontario

- Economic growth (real and price) runs according to the optimistic end of the range of
available forecasts
- Interest rates do not rise to what was considered “neutral/normal” levels prior to the
financial crisis and recession
- Ontario’s own-source revenues keep pace with nominal GDP growth
- Non-healthcare spending is severely constrained (“crowded out”) to the degree that it
declines ½ per cent per annum in real, per capita terms and
- It is accepted that the Government’s target of a 27 per cent net debt-to-GDP ratio (the
target specified in the 2017 Budget but abandoned in the 2018 Budget) is not achieved
until 2029-30

That is a lot of IFS, all needing to be satisfied concurrently. For every condition above that is
relaxed, the pace at which healthcare spending could rise has to come down. And the
conditions needed to facilitate the rapid healthcare spending growth are suspect so should be
relaxed if there is to be a reasonable prospect of “sustainability. Namely:

- Economic growth (real and price) will most likely track the lower end of the range of
available forecasts
- It is prudent to plan on interest rates rising closer to historical levels
- It is unrealistic to assume non-healthcare spending can be persistently lowered on a
real, per capita basis.
- On the other hand, we do not attach much weight to the possibility of the own-source
revenue elasticity being less than one. We feel that if these revenues fail to keep pace
with (nominal) economic growth then the Ontario Government should adjust specific
tax rates and user fees accordingly
- Fiscal “sustainability” dictates hitting the Government’s 27 per cent net debt-to-GDP
ratio no later than 10 years from now (2027-28)

These positions on the various underlying factors drive to the following bottom line.

Program spending and its two major components of health and all non-healthcare cannot
increase faster than 3 per cent per annum over the next 12 years through 2029-30 and only
around 2 ½ per cent over the next 10 years through 2027-28. Both figures exceed the actual
growth rate of program spending of 1.7 per cent from 2010-11 to 2016-17.

How significant are future pressures on healthcare spending?

The ease or difficulty of limiting healthcare spending within certain parameters can be analyzed
by examining the cost pressures facing the health sector. Various attempts have been made to
do this. They often appear under the guise as projections of healthcare spending but are
usually more a reflection of cost pressures rather than estimates of how actual spending will
grow. For this reason, caution must be exercised in interpreting these projections because they
are all conducted under highly stylized assumptions. The reality is that the Ontario Government

29
Sustainability of Healthcare in Ontario

has a fair degree of control over health care spending. So projecting its future pace of growth is
not like forecasting GDP or other variables where there is not even indirect government
control. The wild swings in healthcare spending growth over the past few decades highlight the
influence of government policy. In Ontario there were 3 years of restraint in the late 1990s
which saw only modest increases in healthcare spending. This was followed by a decade of
almost 7 per cent growth per annum when revenue growth was substantial and the Ontario
Government was not experiencing deficits. And now, from 2010 to 2017 healthcare spending
has increased at only 2.7 per cent per annum in the context of a drive to return to budget
balance following the very large deficits at the end of the 2000s. So spending is heavily
influenced by policy decisions. And in turn those decisions seem to be heavily driven by the
overall economic and fiscal environment.

Several of the “external” projections of healthcare spending are explicitly or implicitly based
upon the “status quo”. This means that the Government is essentially playing a passive role,
letting healthcare spending rise with key pressures and historical patterns. These projections
are useful for highlighting the pressures that will be exerted on healthcare spending. But they
must not be interpreted as predictions of what will happen to actual spending because
Government can alter the “status quo”.

TD Economics (2010) projected status quo healthcare spending growth rates of 6 ½ per cent to
2030. That would have brought healthcare to 80 per cent of total program spending in the
province. Clearly this would have been highly unsustainable as it would not have left sufficient
room for other spending needs, including education. The TD Economics methodology was to
extrapolate healthcare spending in 3 broad categories of pressures: demographics (population
growth and ageing); inflation (noting inflation in healthcare tends to run faster than in the total
economy) and; “intensity of healthcare use” (typically calculated as a residual historically but
implicitly recognizing that over time healthcare spending tends to rise faster than would be
explained by demographics and inflation and reflects choices to allocate additional resources to
the sector).

Shortly after that report, David Dodge and Richard Dion (Dodge and Dion, 2010) calculated a
similar status quo growth rate for Canada, using a similar methodology.

In its 2012 report, the Commission on the Reform of Ontario’s Public Services (2012) assumed a
status quo growth rate of 4.9 per cent per annum 2010 – 2017, noting that some
efficiency/restraint measures were beginning to be put in place, hence the “status quo” had
and was shifting to some degree.

More recently, the Conference Board of Canada, in work for the Council of the Federation in
the context of discussions with the federal government on a new healthcare funding
agreement, projected healthcare spending for Canada to grow 5.2 per cent per annum. The
Conference Board did not do projections for individual provinces.

30
Sustainability of Healthcare in Ontario

The Parliamentary Budget Office (2016) projected sub-national healthcare spending to rise
from 7.3 per cent of GDP to 12.5 per cent over the next 75 years. Their methodology was
somewhat similar, being based on nominal GDP growth, ageing and “excess cost growth”
(which reflects the increase in intensity of healthcare use from 1981 to 2015).

In Spring 2017, the Institute of Fiscal Studies and Democracy (IFSD) projected “notional”
(essentially meaning, as per the discussion above, the cost pressures) healthcare spending in
Ontario to rise at an annual pace of 4.5 per cent 2019-2028 and 4.4 per cent 2029-2038. These
rates are down a bit from the “notional” increases of 5 per cent 2010-2018 (the fact actual
healthcare spending grew far less highlights how governments exercise considerable discretion,
at least in the short-term, as to the extent to which cost pressures will be accommodated).

The most recent extrapolation of Ontario’s healthcare spending comes from the Fall 2017
Longer-Term Budget Outlook from the Financial Accountability Office of Ontario (FAO). Using a
methodology similar to TD Economic’s and others, they projected healthcare spending to rise at
an annual average pace of 4.8 per cent from 2016-17 to 2050-51. This is broken down to 0.9
percentage points from population growth, 1.0 percentage points from population ageing, 2.2
percentage points from health inflation and 0.7 percentage points from enrichment.

Ontario’s population will likely grow about 1 per cent per annum and this will tend to increase
healthcare spending at a like rate. In recent years CIHI has estimated ageing to be adding about
1 percentage points to Canada’s healthcare spending growth (as individual spending rises by
age, especially in the latter years). TD Economics calculated that ageing would add about 1
percentage points to Ontario’s healthcare spending growth rate through 2030. The IFSD
assumption is ageing will add 1.1 percentage point to annual healthcare spending growth.

Studies typically assume healthcare inflation up to 1 percentage points faster than the general
rate of inflation (so if CPI grows at 2 per cent, healthcare inflation is often assumed to run at 3
per cent). Why? Healthcare is labour intensive so does not get as much offset to inflation as
other sectors where lower inflation in machinery and equipment has a greater weight.
Productivity improvements in healthcare often go to quality/intervention purposes rather than
cost saving. This lessens the ability of productivity improvements to offset any real increases in
wages. In Ontario’s latest long-term economic and fiscal projections they note that inflation in
Ontario’s healthcare sector rose at an annual average pace of 3.4 per cent 1982 to 2015
compared to 2.7 per cent for the GDP deflator. The IFSD is an exception on the inflation front
as they assumed healthcare inflation of 2.0 per cent, meaning no premium of this sector’s
inflation rate over the general, economy-wide rate. This assumption is questionable in that it
does not reflect a fairly consistent historical pattern. The FAO assumption of 2.2 per cent is
toward the lower end of the range of healthcare inflation.

As health features a large labour component, trends in compensation in the sector will be an
important determinant of future cost pressures. One of the more reliable economic
relationships used to be that real wages rose in line (trend) with productivity growth. Hence,
for example, wages could rise at 3 per cent per annum and if productivity growth increased one

31
Sustainability of Healthcare in Ontario

per cent per annum that would yield a 2 per cent rise in unit labour costs and be supportive of 2
per cent inflation and a one per cent rise in real wages. However, this relationship has broken
down in Canada and in almost every developed economy in recent decades. Real wages have
tended not to rise. The spoils of the more modest growth in productivity have gone more to
capital interests. In this general economic environment, one might not be so inclined to feature
rising real wages in projections of cost increases and this would reduce or potentially eliminate
the “inflation premium” in the health sector.

Finally, there is a trend rise in the “intensity” of healthcare usage. This is typically calculated as
a residual from total spending increases minus the above cost factors. On a trend basis it tends
to add about one percentage point per annum but it swings wildly, as residuals are wont to do,
as the government changes policies/practices on healthcare spending. IFSD ties the
“enrichment” explicitly to economy-wide real income gains (people wishing to “consume” their
real income gains through better healthcare) and assume a 0.5 percentage point annual
increase in healthcare spending pressures through 2028 from this source. It should be noted
that there will inevitably been an increase in resources related to mental health and homecare
(not least because the federal government is providing incremental funds for these areas and is
seeking “accountability” agreements from provinces and territories). This would be reflected
through an increase in the “intensity” of healthcare usage.

Finally, one must consider whether there are “catch up” pressures emanating from several
years of severe restraint. There was very rapid growth in healthcare spending in Ontario
following the restraint period of the 1990s. The deferred maintenance bill for hospitals (more
on this below) is an example of a potential “catch up” pressure. IFSD notes that a “notable
portion” of the healthcare savings from the restraint of 2010 through 2014 was due to a
squeeze on capital spending.

The bottom line is that the projections of very large healthcare cost increases must be
interpreted cautiously. They serve a valuable purpose in highlighting the cost pressures the
sector faces. But these pressures do not need to be accepted and passively financed. Indeed,
the higher cost projections would clearly render the overall fiscal situation and the balance
across spending categories unsustainable. Even the more modest projections of cost increase
pressures would strain sustainability.

With a range of cost pressure increases of 4 ½ to over 6 per cent per annum, plus the question
of catch up from capital deferral, it would seem inevitable that something “has to give”. That
could be:
- Not addressing catch up pressures
- Not fully accommodating the full extent of ongoing cost pressures (demographics,
inflation, “intensity” of healthcare use)
- Or, finally, and preferably, achieving further effectiveness and efficiency gains so health
outcomes can be achieved at lower, or at least at more slowly growing, costs. That in
turn means fundamental and wide-sweeping policy and operational reforms.

32
Sustainability of Healthcare in Ontario

While not in the same vein of projecting cost pressures, but rather reflecting budgetary
planning and decisions, we can also look at the healthcare spending plans embedded in the
2017 Ontario Budget. Again for purposes here we are not considering the projections in the
2018 Budget. That budget features several new spending initiatives in the health field but they
may not be enacted and are part of the spending thrust that brings the budget into
unsustainability territory in this author’s view. From the estimated spending base for 2016-17,
the 2017 Budget foresees annual spending increases to 2020-21 (four years of growth) of 3.4
per cent for total spending with hospitals up 3.0 per cent, OHIP payments growing 3.2 per cent,
community care 4.7 per cent, long-term care homes 2.8 per cent, drugs 7.0 per cent and capital
(including consolidations) 2.1 per cent.

Implications for physician compensation in the healthcare sector

Just as there is considerable uncertainty around how much healthcare spending can account for
a given pace of overall program spending growth (depending upon what happens to non-
healthcare spending), so too is there uncertainly around what can happen to physician
compensation within any given healthcare spending envelope.

In 2017-18 (per estimates in the 2017 Budget), Ontario Health Insurance Plan (OHIP) payments
account for 26.6 per cent of total Ontario health spending. Most, but not all, OHIP payments go
to physicians. Other major components of Ontario’s public health spending include hospitals at
32.2 per cent, community care 10.4 per cent, drugs 7.8 per cent, long-term care homes 7.7 per
cent, capital 3.0 per cent and a total of 12 per cent for all other components (including Cancer
Care Ontario, Public Health and Health Promotion, Emergency Health Services, Clinical
Education, Direct Operating Expenditures, Specialty Psychiatric Hospital, Canadian Blood
Services and other spending items).

With payments to physicians around one quarter of total Ontario public health spending, it is a
major spending component which heavily influences the overall spending increases for health.
But with three-quarters of the health budget being non-physician compensation, there is clearly
some room for differentiated growth rates between compensation and non-compensation
within any given increase in the total spending envelope. To better understand the magnitude
of such room we will examine recent spending patterns and then look at some of the future
non-compensation health spending pressures.

The key question is whether there is a major spending component of healthcare that can grow
substantially less than the pace of total healthcare spending and hence create room for faster
growth in physician compensation. The 2017 Budget does not show much opportunity. Only
capital spending is projected to grow significantly less than total healthcare spending and on
the other hand, drugs and community care are projected to grow quite rapidly. Indeed, OHIP
payments are projected to rise just slightly less rapidly than total healthcare spending.
Nevertheless, we will probe whether opportunities for non-compensation austerity exist that
may not be reflected in the Budget.

33
Sustainability of Healthcare in Ontario

In an earlier section it was argued that health spending could likely only increase in the vicinity
of 2 ½ per cent per annum through 2027-28 in the context of an environment that is
sustainable with respect to the 3 dimensions of sustainability: the overall fiscal situation; the
balance across major spending components and; fundamental requirements for healthcare.
This is similar to the 2.7 per cent actual growth rate recorded for public health spending in
Ontario from the base level of 2010-11 to 2016-17. OHIP payments grew at 2.5 per cent per
annum so just slightly below the pace of total spending. Long-term care home spending was
right on the average pace of 2.7 per cent growth. At 1.3 per cent and 1.8 per cent respectively,
hospitals and drugs grew less rapidly than total spending. On the other hand, at 7.2 per cent
and 5.4 per cent respectively, capital and community programs grew much faster than the pace
of total spending.

A first question is whether it can be expected that spending on hospitals and drugs will remain
so subdued? The health plan embedded in the 2017 Budget allows for 3.0 per cent growth in
hospital spending from the base level of 2016-17 to 2020-21, considerably higher than in recent
years but still below the 3.4 per cent pace of total spending growth over the next 4 years. The
3.0 per cent projected pace of hospital spending is less than the average increase of 3.5 per
cent from 2003-04 to 2015-16.

The notion has been in place for several years that pressures on hospitals would be relieved
through better homecare, long-term care and medical clinics. However, while hospital budgets
have been restrained, the pressure has not been relieved to any great extent. A Queen’s
University Policy Blog (Drummond et al, 2017) illustrates the pressures that have built in
hospitals as they have faced restraints on resources but few reductions in demands for their
services.

The low spending growth on drugs from 2010-11 to 2016-17 was a sharp break from the longer-
term history (average spending growth of 4.5 per cent 2003-04 to 2015-16 but 8.3 per cent
from 2002-03 to 2009-10) and very muted relative to the 7.0 per cent growth rate in the 2017
Budget plan for the next 4 years. Policy changes are partly responsible. The pan-Canadian
Pharmaceutical Alliance (pCPA) has resulted in some savings for Ontario. In 2010 Ontario
moved to lower generic drug prices to 25 per cent of the reference brand product for solid, oral
dosage forms and 35 per cent for non-solid dosage forms. Such initiatives have lowered the
level of drug prices, but will not restrain the growth rate over the future.

One tangible spending pressure for the future is the introduction of Children & Youth
Pharmacare which will add $365 million per year to the drug bill. Without this new initiative
the 2017 Budget plan would feature a growth rate for drugs of 5.6 per cent rather than 7.0 per
cent from the 2016-17 base through 2020-21.

More generally, there will likely be a shift in the recent pattern of few new innovative
treatments being introduced to the Canadian market. One example illustrates the impact new
treatments can have. CIHI reports that drug spending increased 9.2 per cent in Canada in 2015
and two-thirds of that spending increase reflected drugs dealing with Hepatitis C. Ontario will

34
Sustainability of Healthcare in Ontario

continue to face pressure from curative Hepatitis C medications. Cancer medications can also
be expected to apply pressure.

Efforts will need to be applied to keep a lid on drug cost growth. However, it seems very
unlikely drugs will be a source of restraint that will facilitate faster growth in other healthcare
spending components.

Care of the growing number of elderly is quite rightly focusing on community care and in
particular home care. It seems inevitable Ontario will be increasing the budget for community
care at a fairly rapid pace. Part of this increase will reflect the new transfer from the federal
government for homecare.

In theory a growing emphasis on homecare should relieve pressure on long-term care. To a


degree this is reflected in the Ontario Budget’s (2017) allocation to long-term care operating
costs which grow a bit less rapidly than total healthcare spending. But the sheer magnitude of
the rising number of elderly and the increase of the acuity of their care needs will still show up
in a spending pressure – in this case, on the capital budget for long-term care facilities.
Ontario’s Enhanced Long-Term Care Home Renewal Strategy envisions the redevelopment of
approximately 300 long-term care homes with 30,000 beds by 2025.

Above there was a reference to the deferred maintenance budget for hospitals. The Facilities
Condition Assessment Program (FCAP) estimates the hospital deferred maintenance deficit to
be $3.7 billion. Together with the capital needs for long-term care, there are substantial
pressures against the 2017 Budget allocation of 2.1 per cent growth over 4 years in capital
spending (including consolidations). To relieve this pressure the province will need to continue
seeking alternative ways of building and financing capital and seeking lower-cost options for
caring for the elderly. With these pressures and the fact capital is a small portion of the total
healthcare budget, it is not likely going to be a source of creating large savings that can be
allocated to other healthcare spending components.

This review of the major components of healthcare suggests that drugs and community care
will represent major spending pressures. But in the other direction, it is difficult to identify
large spending components that can grow at much less-than-average paces. Until or unless the
demands on hospitals are substantially rationalized, there will be pressure on their operating
and capital budgets. The shift to community and especially homecare will drive spending in
these categories without relieving that much pressure form long-term care. The period of
benign growth in drug spending is likely over, barring further policy and administrative changes,
that is.

In this context we return to the component missing from the analysis above – OHIP payments.
If drugs and community care grow faster than total health spending and hospitals, long term
care homes and capital grow around the average pace, or at best a bit below, then by definition
OHIP payments must grow less rapidly than the average pace for total health spending. That
would mean, in the context of the argument above that health spending should be restrained

35
Sustainability of Healthcare in Ontario

to the order of 2 ½ per cent growth over the next 10 years, OHIP payments would have to grow
less rapidly than 2 ½ per cent per annum. As drug and community care together account for
18.2 per cent of total public health spending in Ontario, OHIP payments might have to grow
considerably less than 2 ½ per cent per annum if total spending is to remain around that pace.

We can now take another look at the health spending pressures not through the program lens
but rather through the cost drivers identified earlier. There isn’t much that can be done to
avoid population increases directly increasing healthcare spending. Nor ageing. There are
widespread calls for a seniors’ strategy and better use of homecare. But these would not at
least in the short-term diminish very substantially the estimated 1 percentage point or so
contribution to healthcare spending growth from ageing.

Expansions in homecare and mental health alone suggest it will be difficult not to have some
increase in the “intensity” of healthcare usage. That just leaves the inflation component.

If healthcare spending needs to be restrained to 3 per cent per annum (and even less over the
next 10 years) then virtually nothing can come from the inflation side UNLESS there are further
depletions in capital and that would be highly undesirable. That means that whatever inflation
pressures there are will have to by necessity be offset through efficiency gains.

It should be noted that payment per physician or payment per service (such as under fee for
service) may need to increase less rapidly than the above figures for total OHIP payments. That
is because some of the increase in OHIP payments will go to new doctors, reflecting population
growth or existing doctors performing more interventions due to a larger population or
increases in the intensity of health usage.

The only viable way out of this constrained box is through major “efficiency gains”. In a 2010
study the OECD calculated that Canada spends 30 per cent more in public funding than would
be compatible with a hybrid (amalgamation of efficient parts from various international
healthcare systems), efficient system. Squeezing out inefficiencies could significantly reduce
cost pressures. Of course some of the restraint 2010 – 2017 can be attributed to this. And it
would be a lofty objective given that the OECD could not base “efficiency” on any country’s
healthcare system but had to append bits and pieces from various places. It suggests that
efficiency gains should continue to be relentlessly pursued and while this could turn down cost
pressures, or allow them to be channeled to other sources (such as compensation or intensity
of healthcare usage), feasible gains should be considered to be more modest than the OECD
estimate of the potential.

Ongoing fiscal restraint a feature of the new world of slower economic growth

With the return to a balanced budget and with good international, Canadian and provincial
economic policies, Ontario can hopefully avoid or at least mitigate, the damage from wild
economic cycles that might necessitate sharp curtailment of spending in healthcare and other
areas. But the reality of the new era of more modest growth that Ontario and other developed

36
Sustainability of Healthcare in Ontario

economies are entering is that program spending will need to come under continued (albeit
hopefully not as extreme as for a few years during the 1990s and recent years) spending
restraint. This does not mean that healthcare spending cannot increase faster than 3 per cent
going forward. But it cannot increase much faster than that without unduly squeezing out
other valuable public services.

Modest economic and hence revenue growth rates suggest that total program spending cannot
increase faster than 3 per cent over the next 12 years but only 2 ½ per cent over the first 10
years of that period. It is unlikely that non-healthcare spending can be held to a lower growth
rate than this total as the range suggests modest declines to flat spending in real per capita
terms. That means there is little scope for healthcare to increase faster than the 2 ½ to 3 per
cent pace. In other words, more of the same since 2010-11, in total. This conclusion has
important implications for how health spending over the past 7 years is evaluated and how
health budgets are designed for the future.

The past 7 years is generally described as a period of fiscal restraint that extended to health
care, all in the name of addressing the large deficits and the debt accumulation from the
financial crisis and ensuing recession. Yet to a large degree this period can alternatively, and
more accurately, be described as a bridge to new fiscal circumstances flowing from the “new
normal” of slower economic growth. Our look to the future does not suggest that the past 7
years was a fleeting episode of restraint from which there can be imminent reprieve. On the
contrary, the economic and fiscal outlooks, together with limited prospects to severely “crowd
out” other major spending programs, suggests that the pace of health spending should stay in
the same realm as that established since 2010-11 (2.7 per cent annually).

Healthcare spending cannot grow at anything like the pace of most estimates of the cost
pressures the sector faces. Nevertheless, it will be extremely difficult to curtail all the
pressures. Not much can be done about population growth and the ageing of the population
into more expensive cohorts for health care. Prior years’ constraint on hospital operational and
capital spending and the probability of new curative drug treatments mean these sources of
health spending will likely increase faster than average. The same can be said for community
care due to the increased attention this is drawing at the federal and provincial levels as the
best and most efficient way to look after the growing number of elderly. At a minimum,
spending on mental health will need to rise to the extent of the new federal grants.

Over the past 7 years OHIP payments have increased at an annual pace of 2.1 per cent. It is
difficult to envision a faster pace of growth in future being sustainable given the pressures in
other areas of health spending. To keep compensation growth to this kind of limit will
necessitate further productivity improvement as well as taking advantage of efficiency gains
from technology as has been seen in services such as cataract surgery and diagnostic imaging.

37
Sustainability of Healthcare in Ontario

References

Canadian Institute for Health Information. National Health Expenditure Trends, 1975 to 2016.
2016.

Centre for the Study of Living Standards. Economic Projections for Ontario and Canada, 2016 –
2038. Draft September 2017.

Commission on the Reform of Ontario’s Public Services. 2012.

Conference Board of Canada. Changing Course: New Ideas or Tough Choices Required to
Eliminate Provincial Deficits, January 2017.

Conference Board of Canada. How Canada Performs: Health. 2017

Dachis, Benjamin. Fiscal Soundness and Economic Growth: An Economic Program for Ontario.
C.D. Howe Institute. Commentary No. 505. March 2018.

Dodge, David and Dion, Richard. Healthcare Spending Disease: A Macro Diagnosis and
Prognosis. C.D. Howe Institute. April 6, 2011.

Dorick, Jose. An Update on the Neutral Rate of Interest. Bank of Canada Review. August 2017.

Drummond, Don and Burleton, Derek. Charting a Path to Sustainable Health Care in Ontario.
TD Economics. May 27, 2010.

Drummond, Don and Capeluck, Evan. Long-Term Fiscal and Economic Projections for Canada
and the Provinces and the Territories, 2014-2038. Centre for the Study of Living Standards. July
2015

Drummond, Don; Simpson, Chris; Sinclair, Duncan; Walker, David. The “Big Squeeze” in
hospital budgets in Ontario: Get Ready for the backlash. Queen’s Policy Blog. School of Policy
Studies. June 30, 2017

Finance Canada. Update of Long-Term Economic and Fiscal Projections. December 23, 2016.

Financial Accountability Office of Ontario. Economic and Fiscal Outlook Spring 2017. May 31,
2017.

38
Sustainability of Healthcare in Ontario

Financial Accountability Office of Ontario. Economic and Fiscal Outlook. Assessing Ontario’s
Medium-term Prospects. Fall 2017 Update.

Financial Accountability Office of Ontario. Long-Term Budget Outlook. Fall 2017.

Kiladze, Tim and Lundy, Matt. Ontario’s debt has exploded. Is the province in trouble? Globe
& Mail, March 23, 2018.

Moody’s Investor Services. NAFTA exit would weigh on states and provinces more than
national economies. March 15, 2018.

Ontario Ministry of Finance. 2017 Ontario Economic Outlook and Fiscal Review. Fall 2017.

Ontario Ministry of Finance. Ontario’s Long-Term Report on the Economy. February 17, 2017.

Ontario Ministry of Finance. The Ministry provided the long-term forecasts of the Conference
Board and the University of Toronto in a spreadsheet. The forecasts are the latest as of mid-
September 2017.

Organization for Economic Co-operation and Development (OECD). Health Care Systems:
Getting More Value for Money. 2010.

Organization for Economic Co-operation and Development (OECD). Health Statistics 2017.

Parliamentary Budget Office. Fiscal Sustainability Report 2016.

The Commonwealth Fund. Mirror, Mirror 2017: International Comparison Reflects Flaws and
Opportunities for Better U.S. Health Care. July 14, 2017.

The Institute of Fiscal Studies and Democracy. CHT Conundrum: Ontario Case Study. February
2017

The Institute of Fiscal Studies and Democracy. CHT and the Federation. April 2017

39