Before You Begin Reading This Chapter PDF

Before you begin reading this chapter, write down—even if it is just a guess—what you think Canada spends on health care in one year and how much you think a visit to your family doctor for an intermediate assessment (e.g., for an earache, a sore throat, or a cold) might cost. Next, write down how m...

Before you begin reading this chapter, write down—even if it is just a guess—what you think Canada spends on health care in one year and how much you think a visit to your family doctor for an intermediate assessment (e.g., for an earache, a sore throat, or a cold) might cost. Next, write down how much you think a knee replacement, a hip replacement, and an appendectomy might cost, or being hospitalized with COVID-19, acute anxiety, or depression. Keep these numbers handy to compare with the figures you will see later in the chapter for the true costs of these services. Can you imagine going to the doctor for an ear infection and having the administrative assistant ask for cash or a credit card to pay for the visit? Or a parent, aunt, or uncle having cardiac bypass surgery or critically required heart surgery and being sent an invoice? Remember that, in addition to these procedures, the patient would need a preoperative physical examination, blood work, and perhaps an X- ray, magnetic resonance imaging (MRI), an arteriogram, or a computed tomography (CT) scan. They would have to pay for the hospital stay, tests, nursing care, and supportive care (e.g., physiotherapy, respiratory therapy)—and would even be charged for the use of the equipment to remove the sutures and the bandages covering the wound. What would you do if you needed such a procedure and knew it would cost you thousands of dollars? Even worse, can you imagine needing the heart surgery and being denied because you did not have the money to pay for it? Many Canadians feel fortunate to have insured health care services. When they are sick, they seek care, present their health card, and ultimately receive the medical attention they need. If their case proves urgent, the appropriate care is almost always provided within a reasonable time frame. Most of the time, they do not pay for their care. Many Canadians believe that health care is free, perceived because they do not have to pay at the point of service, at the end of the month, or when discharged from a hospital. The reality is that Canadians do pay for their publicly funded health care services. The money comes from the taxes they pay to all levels of government. Only residents of Ontario pay health care premiums (see Chapter 3). It is also true that today our health care system is facing extraordinary challenges resulting in long waits for surgery and diagnostic procedures, long waits to be seen in the emergency department, and a shortage of health professionals. Many describe the Canadian health care system as being on the verge of collapse and without the capacity to care for the number of people requiring health care services. Also up for debate is how to meet these challenges. Is more funding the answer? Better use of the funds already in the system? Restructuring of the entire system? Perhaps it is a combination of all of these factors. This chapter examines the actual costs of health care and how health care is funded. The numerous statistics and dollar values presented are approximate, because costs change yearly, monthly, and sometimes even daily. The Role Of Profit And Nonprofit Funding For Health Care Services The funding and delivery of Canada’s health care are accomplished through a mix of public and private— both for-profit and nonprofit—businesses and organizations. Funding refers to how health care is paid for, and delivery refers to how health care services are managed, structured, and distributed. In Canada, all medically necessary services are publicly funded but, for the most part, are delivered by either private for-profit or private not-for-profit businesses or organizations. For example, physicians (unless salaried) operate as private for-profit businesses. They deliver health care services and are paid, using varying payment formulas or plans by the government, or both (see Chapter 5). The services they deliver however, are very much controlled by the government. Physicians in private practice pay for their own business expenses, including office space, supplies, and addition to staff salaries and medical software systems (although sometimes these are subsidized by external funding). Physicians who work in and are employed by hospitals are paid by the facility in which they work. The cost of their services comes out of the hospital’s budget. Hospitals and other facilities (which include those providing acute care, extended and chronic care, rehabilitation and convalescent care, as well as psychiatric care, and nursing stations or outpost hospitals) are licensed or approved as such either by a provincial/territorial government or are operated by the federal government. Other institutions that are publicly funded include group homes and residential care facilities, which also must be approved by provincial or territorial governments. In these facilities, there is a mix of health care and social services provided; most direct patient care is provided by registered nurses, registered practical nurses, and personal support workers (or the equivalent). Although hospitals are primarily private, not-for-profit organizations, the majority of services in a hospital—food and meal preparation, maintenance, cleaning, security (including cybersecurity), and sometimes IT support, and laundry—are delivered by private, for-profit businesses. The hospital negotiates for cost-effective services and pays for them out of the funds allotted them by the government. The majority of laboratory and diagnostic services are other examples of private, for-profit services. Some nonessential services within a hospital—for example, a semiprivate or private room, television, or telephone—must be paid for directly by the patient or by a third party, such as through private insurance. That said, most patients have cell phones, tablets, or laptops which they are permitted to use in the hospital. Most facilities offer free Wi-Fi access to the internet, but usually with some limitations. Patients also have choices with respect to some treatment options. For example, if Paul fractures his leg, he can have a plaster cast applied, or opt for a lighter fibreglass cast. If he is having cataract surgery he can opt for a superior-grade lens to be inserted rather than the standard lens. Because the fibreglass cast and the superior lens are considered enhanced products, legally, he can be charged for them. An analogy would be buying a car with standard features and wanting an upgrade (e.g., leather instead of cloth seats), which the customer would have to pay for. A patient must also pay for any diagnostic services or treatment not deemed medically necessary, such as an ultrasound to determine the gender of an unborn baby. Any cosmetic surgery not deemed medically necessary is not covered by insurance (either public or private). Patients are also charged for some laboratory tests that are not included in the province or territory schedule of benefits (e.g., prostate-specific antigen [PSA], vitamin D levels). Levels Of Health Care Funding Canada’s public health insurance is funded, for the most part, by the federal, provincial, territorial, and municipal governments through a blend of personal and corporate taxes and by Workers’ Compensation Boards. Some provinces also use revenue from sales taxes and lotteries for health care. At the community level, many volunteer organizations (e.g., hospital auxiliaries, service clubs) also raise money for local hospitals to support such initiatives as expansion, updating the facilities, and purchasing new equipment or building a hospice. Often the provincial, territorial, or municipal governments will match funds raised or a portion thereof. A significant portion of health care that is not deemed medically necessary is funded privately, through private insurance, particularly services such as massage therapy, physiotherapy, eye examinations, physical assessments requested by a third party, and some eye examinations. Chapter 8 discusses private health care in Canada that is provided in conjunction with the law. Federal to Provincial Funding Transfers The exact dollar figure that the federal government transfers to the provinces and territories is almost impossible to calculate, and the amounts given are continually debated among the jurisdictions. This has become even more challenging given the complexities of the 2016 health accord negotiated between provinces, territories, and the federal government (see Chapter 1). The exact amount of money spent on health care at the provincial and territorial level is also difficult to determine, in part because of the complexity of the various formulas used to calculate the federal government’s transfer payments to each jurisdiction, which are made in the form of both cash and tax points (see Chapter 1). Federal funding mechanisms are calculated using a complex formula and are distributed through four main transfer models, discussed below. Canada Health Transfer The Canada Health Transfer (CHT) is the largest annual cash transfer of funds from the federal government to the provinces and territories and is based on the funding formula discussed in Chapter 1, wherein the amount paid to provinces and territories is tied to the gross domestic product (GDP) and guaranteed not to fall below 3% of the GDP (Department of Finance Canada, 2017). The CHT is estimated to increase from $43.1 billion in 2021–2022 to $55.2 billion by 2029 (Department of Finance Canada, 2021). The CHT payment grew by 4.8% in 2020–2021 (Department of Finance Canada, 2021). See Canada Social Transfer The Canada Social Transfer (CST) provides funding to the provinces and territories through a two-part payment formula, cash and tax points. The dollar value of the CST transferred is calculated on an equal per capita cash basis to ensure that the funds are equally distributed. Table 4.2 shows the amount of money by jurisdiction for 2022–2023. The CST is supposed to continue to increase at 3% per year until 2024, although there is no current plan to change this beyond that date. The CST funding targets social programs, including post-secondary education, social assistance, and services programs for children (e.g., child care, early childhood education, and early child development and learning programs). Although provinces and territories can allocate the money as they see fit, it must be assigned to the programs outlined by the federal government. In 2022 and 2023, continued requests by provinces for increased funding (primarily through the CST) were met with resistance as the federal government wanted the jurisdictions to be accountable for how the money was spent, something the provinces opposed. See Table 4.1 for year-over-year increases between 2019 and 2023. Territorial Formula Financing The federal government uses the Territorial Formula Financing (TFF) to calculate money given to the territorial governments for public services. This money is allotted to these jurisdictions because of their unique geography, population distribution, and related high cost of delivering health care and other public services. Funding is provided by the federal government through taxes paid by Canadians across the country. In 2022–2023, TFF projected payments to the territories are $4.553 billion: $2.037 billion for Yukon, $1.579 billion for Nunavut, and $1.256 billion for the Northwest Territories. The TFF payments are in place of the equalization payments (discussed below) and are calculated by a different formula. Equalization Payments Equalization payments refer to the federal-to-provincial transfer of funds to address fiscal inequities among the provinces (note that equalization payments are not made to the territories). Some provinces have more money than others and thus can provide more public services to their residents. Provinces with less money cannot provide equivalent services and therefore receive equalization payments to ensure that they have sufficient revenues to provide reasonably comparable levels of public services at reasonably comparable levels of taxation. Money for equalization payments, for the most part, comes from federal taxes. Provinces do not contribute money to this program. Moreover, there are no restrictions on how this money is spent. Provinces with more money are sometimes referred to as the “have” provinces and those that have less money, the “have not” provinces. A province receiving equalization payments will receive the difference between its fiscal capacity (i.e., its ability to generate income) and the 10-province standard (i.e., the national average). Without equalization payments, these provinces would have to raise their taxes significantly to generate revenue. Table 4.3 shows the amount of money received by eligible provinces from 2022 to 2023. The concept of equalization payments was established in the Constitution in 1982. The related legislation is reviewed by the government on a periodic basis. The next review is due in March 2024. All provinces are consulted before the program is renewed. Controversy Over Equalization Payments There is controversy among some provinces as to how fair the process is of determining what jurisdictions should receive equalization payments. For example, the Alberta government is dissatisfied with how the federal government determines what provinces receive equalization payments. The government added a referendum question to the ballot during the municipal elections in October 2021 asking Albertans if they wanted the equalization program reviewed (Box 4.1). A majority “yes” vote would mean that Albertans are calling on the federal government and other provinces to enter into discussions on a potential amendment to the Canadian Constitution regarding equalization payments (e.g., how they are calculated and the formula determining what provinces receive them). The ballot results were that 61.7% voted “yes,” so the Government of Alberta is pursuing the issue with the Government of Canada. In addition to these major transfers, the federal government continues to provide provinces and territories with financial assistance to support initiatives related to the COVID-19 pandemic. Amounts transferred are fluid and respond to changing trends related to variants of the coronavirus and the needs of provincial/territorial health care systems. This makes it difficult to predict, even in general terms, what spending in this category will be in the future. Provinces and territories collaboratively estimated spending on COVID-19 health-related initiatives was $3.6 billion in 2020 and 22.9 billion in 2021 (Canadian Institute for Health Information [CIHI], 2022a). In March 2022, the federal government authorized the transfer of $2.2 billion as a one-time transfer to address the backlog of surgeries and other procedures resulting from the pandemic. The money has been distributed equally per capita to provinces and territories. In addition, a new spending category called the COVID-19 Response Fund takes up about 7% of the total health budget. This has included federal, provincial, and territorial spending for such activities as treatment, testing, contact tracing (as required), and vaccines. The cost of antiviral medications has been an added expense. By April 2022, Health Canada had authorized the use of the antiviral drugs nirmatrelvir and ritonavir (Paxlovid) to treat symptomatic adults who are at risk of serious illness. These were the first (oral) medications authorized to be taken at home. There is no doubt that health care in Canada, by federal, provincial, and territorial governments, has changed significantly as a result of the COVID-19 pandemic and will continue to do so over the next few years. There will likely be continued shifts in health care spending as well as spending categories, such as in long-term care. This will include investigating ways to minimize the spread of the coronavirus and its variants and the corresponding mortality and morbidity rates within the facilities. Funding primary care initiatives will also change, as evidenced by the move to virtual and telephone visits between patients and physicians and the increasing roles of non-physician primary care providers. The role of public health is likely to remain more prominent, which will involve continued investments to maintain and advance population health initiatives. Trends in Health Care Spending Canada’s total health care spending in 2019 was an estimated $265.5 billion, representing 11.5% of Canada’s GDP. This expenditure rose to about $308 billion in 2021, following an upswing in spending in response to the COVID-19 pandemic in 2020. This represents a 12.8% increase in expenditures (three times the growth rate experienced between 2015 and 2018, which was 4.4% per year). The estimated growth rate for 2021 was a comparably modest 2.2%, more in line with prepandemic growth rates. Over the past few years, spending on health has consumed approximately 40% of both provincial and territorial health care budgets. As a result of the pandemic, health care resources have been strained to almost unthinkable limits, with spending on the health sector reaching heights not seen in recent memory. The economic decline and the unprecedented spending on health care resulting from the pandemic will undoubtedly result in future financial constraints and have a significant impact on health care spending and system growth. Per Capita Spending A number of factors influence the per capita spending among the provinces and territories, including the services paid for by the public plan (i.e., what is considered medically necessary), the type and extent of social programs, the mix of health care providers delivering health care, the relative age of the population (e.g., community and home care programs), the number of individuals in publicly funded health care facilities (e.g., long-term care), and the population density versus geographic profile of the jurisdiction. Note in Fig. 4.1 that per capita health spending in the Northwest Territories, Yukon, and especially Nunavut is considerably higher than in other jurisdictions. These regions have a lower population base, but their large geographic area and distance between communities make the delivery of health care more complicated and more expensive. For example, population health initiatives, such as doing routine screening for colon and breast cancer and educating people on disease prevention and health promotion, are more difficult to achieve, as is managing diagnosed chronic health problems. Health-related expenditures of the federal, provincial, territorial as well as municipal governments have increased exponentially over the past two and a half years because of the pandemic. This includes both direct and indirect health spending. The average estimated per capita spending on health care in Canada was $7,932 in 2019 and an estimated $8,019 in 2021 (CIHI, 2022b). Compared to this average, Ontario’s per capita spending was lowest, at $7,773, and excluding the territories, Newfoundland and Labrador’s spending was the highest, at $9,585 (CIHI, 2021a). Of the territories, Nunavut had the highest per capita spending, at $23,023. To determine federal and provincial per capita spending, analysts use the most recently revised population estimates, as reported by Statistics Canada. These statistics (found in the Appendices of the NHEX database) are applied to the reported spending data for the respective year and jurisdiction. This is done at a national level as well as for each jurisdiction. The Cost of Poor Health We often think that the cost of poor health relates only to the expenditures associated with direct health care services and treatments required to provide care for individuals who are unwell. Direct health care services include nurses’ salaries, the cost of hospitalization, doctor visits, surgery, diagnostic services, rehabilitation, and long-term care. However, loss of productivity and earnings while workers are incapacitated because of a disability or illness is staggering for the general Canadian economy, as well as for individuals. Indirect costs of health care are greatly affected by the socioeconomic determinants of health, almost always negatively. It is not a surprise that governments at all levels want to find ways to reduce health care costs while still providing high-quality health care. Disease prevention and health promotion, early diagnosis, and prompt intervention are deemed some of the most effective approaches to achieve this goal. Financial investments in such initiatives (e.g., focusing on primary care models that educate individuals about a healthy lifestyle to reduce the incidence of such conditions as diabetes, and heart disease) are believed to be effective upstream strategies with long-term cost-saving benefits. The social determinants of health directly and indirectly affect the physical and mental health of Canadians, the economy, and the health care system, both in terms of resource utilization and expenditures. As discussed in Chapters 6 and 7, these determinants include a person’s socioeconomic status, their level of education (which impacts the type of employment they have), where they live and living conditions, employment circumstances (income level, job satisfaction, including work–life balance), and their social support networks (particularly in times of high stress and adversity). Absenteeism costs Canadian employers approximately $1.6 billion annually. This loss in productivity amounted to an estimated $20 billion in 2020. A large portion of absenteeism from work is due to mental health issues, affecting roughly 72% of all employees (Mercer, 2018). Stress and other mental health issues are the leading cause of disability and absenteeism in Canada. Addressing the social determinants of health is important for improving health and reducing longstanding disparities in health and health care. Inequities and disparities associated with the social determinants of health affect the physical, mental, and emotional wellness of a person. Increased funding for social programs (what some refer to as Canada’s “social safety net”) is as necessary as providing adequate funding across the health care spectrum. Canada’s social safety net refers to any programs that provide benefits to individuals, their families, or both. Examples include social security and employment insurance (EI), as well as medicare. To truly address inequities related to the social determinants of health, all levels of government must work together, collaborating with numerous organizations. Providing affordable housing is just one (albeit a significant) example. Ensuring that the minimum wage across Canada is congruent with a living wage (which differs with regions and jurisdictions) would also help individuals to pay for the necessaries of live (lifting many out of low-wage poverty) and promote improved physical and mental health. A living wage refers to an income level that allows an individual or a family to afford to pay for a place to live and adequate food and maintain a reasonable standard of living, one that, at least in the best case scenario, prevents them from living in poverty. Although all jurisdictions have a minimum wage, what would be considered a living wage in any region is frequently higher. Table 4.4 illustrates current minimum wage by jurisdiction. Note that minimum wage in some jurisdictions are reviewed annually, while others have a phased-in plan for increasing minimum wage over a designated time frame. For example, Nova Scotia is in the midst of a five-step plan to bring the wage to $15/hour by April 1, 2024. Beginning April 1, 2025, the minimum wage rate will be adjusted with inflation plus an additional 1% each year. Saskatchewan is also moving to link minimum wage rates to inflation. A study published by the Canadian Medical Association supports a strategy of spending less on direct health care and more on social programs that address inequities related to the social determinants of health. The study concluded that this strategy would, in essence, equate to treating the root causes of disease and illness but would be far more effective both in terms of the health of Canadians and the cost to both the economy and the health care system. (Dutton et al., 2018). Hospital Funding and Expenditures As mentioned previously, most Canadian hospitals are not-for-profit facilities. Community-based not-for- profit corporations, religious organizations, and sometimes universities or municipal governments “own” and run these facilities. The province or territory is the main source of revenue for most hospitals. Hospitals are, by far, the leading health care expenditure in Canada, as is evident in Fig. 4.2. Many different types of health care facilities exist, including general and acute care facilities, long-term care facilities, chronic care facilities, rehabilitation centres, and psychiatric hospitals. All are publicly funded, in part or in whole. cost of providing health insurance programs by the government and private health insurance companies and all costs for the infrastructure to operate health departments. This category includes, for example, expenditures for the human resources and finance departments within ministries of health. OHS, Other health spending. Numbers do not add up to 100 due to rounding. Source: Canadian Institute for Health Information. (2022). National health expenditure trends, 2021—Snapshot. https://www.cihi.ca/en/national-health-expenditure-trends-2021-snapshot A horizontal bar graph for share of total health expenditure by health spending category, Canada, 2021 shows data in percentage as follows: Hospital, 25; drugs, 14; physicians, 13; other institutions, 11; other professionals, 8; COVID-19 response funding (public sector), 7; public health, 5; O H S: Other Health Spending, 5; O H S: Home and Community Care (provincial or territorial government only), 4; capital, 4; and administration, 3. Other facilities may be covered only in part by provincial or territorial health plans, in which case patients pay a portion of the services they use. This varies with jurisdictions. Psychiatric hospitals and also the services of psychiatrists are fully covered in all provinces. National problems that have faced hospitals, communities, and individuals over the past few years include cuts to health care services, reductions in acute care and alternative level of care hospital beds, closure or restricted hours of emergency departments (EDs), centralization of some specialized services, reductions in staff members amidst a shortage of human health resources, and outright closure of smaller hospitals. The following sections will examine how hospitals are funded, how they operate, why operational costs are high, and what is being done to lower costs. Hospital Funding Mechanisms The provincial or territorial ministry, or department of health, provides the majority of funds to hospitals to deliver services to the community. The hospital is then expected to operate as a business, ending the fiscal year with a balanced budget. In all jurisdictions, hospitals are accountable for their operational plan and how they manage their funding allotment. To whom they are accountable may vary, but it is usually to a ministry of health or a central or local health authority. Much like any business arrangement, most hospitals sign agreements outlining target goals, as well as financial and performance outcomes. The specific terms and conditions under which this money is allotted depend on the funding model that guides a hospital’s function. As previously mentioned, in all jurisdictions the government is the largest source of funding, with monies flowing from the provincial/territorial ministry of health (or federally in the territories), either through a provincial/territorial health authority or through local regional authorities as approved by provincial/territorial budgets. On average, this funding covers anywhere from 85 to 100% of the costs of operating hospitals, with additional revenue obtained from such sources as parking, cafeterias, and additional federal revenue, including services rendered to veterans (covered by the federal government). Funds are also raised by community organizations (especially for specific expenditures such as a new wing or diagnostic equipment), grants, donations, and charitable giving, through hospital foundations, for example. Many hospitals also operate on a 3P platform—a public/private partnership/government—where required services are provided by a third party based on a revenue-sharing agreement. There are numerous funding models used to determine the amount of money the government provides to a hospital. Almost without exception, the bottom line is how efficiently a facility operates both in terms of cost-effectiveness and the provision of quality care using best practices guidelines. The more efficiently a hospital operates, the more funds it usually receives. For example, a given hospital may be allotted a certain amount of money for 100 hip replacements within a certain time frame. If the hospital achieves the set goal (under budget), the government, seeing that the hospital is performing efficiently, may provide the hospital with additional funds to do more joint surgeries. Governments will also compare hospitals offering similar services and address concerns if one ED, for example, is spending less than another, which may identify both efficiencies and inefficiencies relative to patient volume in how the ED is managed. There are several funding modes used for hospitals across Canada. Two that are widely used are activity-based funding and global or block funding. Activity-Based Funding The activity-based funding model is popular and used in several jurisdictions (Esmail, n.d.; Wittevrongel & St. Onge, 2020). This model pays hospitals in accordance with the number and types of (selected) services the facility provides to each patient based on the condition that needs to be treated, including any complications that may arise. The goal of this model is to make the facility more efficient and reduce wait times. Implemented first in Ontario, the model was used to reduce wait times for services such as cataract surgery, cardiac bypass surgery, and joint replacement. Under activity-based funding, patients are deemed a source of revenue, where fewer patients result in reduced revenue. Alberta has recently moved to activity-based-funding from the global funding model. Block or Global Funding A hospital’s funding amount is determined by its previous year’s expenditures and an annual lump sum of money is provided on the basis of that analysis. The block funding model can be problematic, as there is no consideration of the population the hospital serves, or their specific health care needs. In addition, there is no incentive for a hospital to provide high-quality care using a best practices approach. Global funding is also thought to disconnect funding from the provision of services to patients. This model does, however, encourage administrators to implement protocols to discharge patients early to either home care or other facilities in an effort to control costs. Saskatchewan is one example of a jurisdiction using a global funding model, overseen by the Saskatchewan Health Authority (Health Canada, 2022). Additional funds may be provided to hospitals for specialized services and for unforeseen emergency services, such as the pandemic program response. Requirements for Funding Every hospital must be accountable for the funds it requests. After completing its budget, the hospital assesses its financial needs, prepares documentation, and negotiates with the minister of health for appropriate funding. To facilitate these activities, the hospital must track the expenses of all departments and services. At the end of the fiscal year, a hospital must report on its financial status—whether it is in the black (i.e., posting a surplus) or in the red (i.e., posting a deficit). A hospital in the red must look for ways either to reduce costs or to be approved for extra funding—not an easy task. It must critically examine the services it offers and the cost of each and determine where cuts can be made. A hospital may have to reduce services and staff, close beds, or decrease operating time to keep within its budget. Under certain circumstances, the ministry or department of health may grant extra money to hospitals with budget shortfalls. This is the case with most hospitals as a result of the COVID-19 pandemic. THINKING IT THROUGH Are Hospital Services Free? Many Canadians think that being admitted to hospital and all the treatments and services they receive have no financial consequence. In addition, there is usually little thought given to the cost of items ranging from sundries such as facial tissues, toothpaste, meals and snacks to cleaning and laundry services. These items come out of the hospital’s budget (which is reliant on government funding generated through tax dollars). In attempts to save money, some hospitals actually require patients to bring many items formerly given to patients “for free” (such as facial tissue, soap, toothpaste, even diapers for newborns). 1. If people were given a receipt showing an itemized list of all costs incurred during their hospital stay, do you think they might use health care services more prudently? 2. How would you feel or respond if you were given a list of things to bring in for personal use because the hospital would not pay for them? Or if you were charged for every nonmedically necessary item you used? 3. Can you suggest some reasonable cost-saving measures a hospital in your jurisdiction could employ? The Cost of Hospital Care Hospitals offer diagnostic tests, treatment, and both inpatient and outpatient (also referred to as ambulatory) care. Patients admitted to hospital usually have serious illnesses and diseases in an acute phase, which cannot be managed outside of the hospital setting. In outpatient or ambulatory care, or day surgery, patients are admitted to hospital, but not for an overnight stay, sometimes also referred to as same-day discharge. These visits can include diagnostic services, clinic visits, outpatient surgery, and ED visits. Many services will include a physician’s assessment and treatment or a consultation (usually with a specialist), but these costs are, in many cases, billed separately and do not come out of the hospital budget. In 2021, the total amount of money (public) spent on the hospital sector was 25% of the total health care expenditure (for the calendar year 2020–2021) of $308 billion (see Fig. 4.2). This represents the largest financial output of any other health care spending category (CIHI, 2021b). As a result, hospitals are under significant pressure to operate as efficiently and cost effectively as possible—not an easy task. It can also generate concern among Canadians, especially when they experience long wait times, and in many cases, actual or perceived deficiencies in care, but are unaware of the financial parameters that a hospital must function within. Factors That Affect Hospital Costs The types and mix and location of hospitals in any jurisdiction affect hospital expenditures, as do the mix of inpatient and outpatient admissions and related procedures. Larger hospitals with more inpatient beds, such as teaching hospitals and those that conduct research, typically have higher expenditures. For example, larger hospitals typically carry out more complex surgeries and have higher admission rates of acutely ill patients; both groups of patients have longer hospital stays (see Fig. 4.3 for the average length of stay [LOS] for various conditions). A major factor increasing a hospital’s expenditures are employee wages and collective bargaining goals achieved by hospital unions. Costing Details The average cost of a standard hospital stay in Canada in 2020 was $6,349. The costs vary across the country, as illustrated in Fig. 4.3. The highest costs were in British Columbia, Alberta, Saskatchewan, Manitoba, Nova Scotia, Prince Edward Island, Yukon, and the Northwest Territories. Ontario, Québec, New Brunswick, and Newfoundland and Labrador were in the mid-range. The largest cost driver for hospitals is staff compensation (salaries), consuming about 71% of the total budget. Hospital supplies consumed 11.2%; sundry, 6.4%; equipment, 5.3%; in-hospital drugs, 4.9%; building and grounds, 4.8%; and lastly, services that were contracted out, 4.6%. Physicians’ services are excluded from hospital-based salaries because they are typically paid directly by provincial/territorial medical plans (CIHI, 2021c). There are some exceptions, for example, physicians hired by a hospital and who are paid a salary (either full-time or on contract) for specific services. This may include hospitalists and emergentologists (Fig. 4.4). In terms of services within hospitals (referred to as functional areas), nursing services were the most expensive, responsible for 19% of expenditures, followed by support services at 17%. Administrative support takes up 4.9% of the expenditures (more than the operating room or the ED). Surprisingly, operating rooms consumed just under 7% of expenditures; medical imaging, 4.6%; and the EDs, 4.5%. In an attempt to reduce expenditures, many hospitals limit the amount of time an operating room can be used. In 2020–2021, across Canada approximately 3 million people were admitted to acute care hospitals. When grouped by category, the top five reasons for admissions to an acute care hospital were (in order of the numbers of admissions per category) patients giving birth, chronic obstructive pulmonary disease (COPD and bronchitis), heart attacks, heart failure (HF), and osteoarthritis (CIHI, 2022c). Osteoarthritis often results in surgery for joint replacements. Hospitalizations for low-risk vaginal deliveries are decreasing because of the number of parents choosing to have their babies delivered by midwives at home or in birthing centres. Caesarian births were the most common surgeries, followed by knee replacements and hip replacements (Table 4.5). The cost of hip and knee replacements in terms of the actual surgical procedure has not changed significantly, but the related cost of hospital care has, because of early and same-day discharge procedures. Although the average LOS for hip and knee replacements in Table 4.5 is 2.2 days, many patients are discharged the day after surgery, with an increasing number of patients discharged the same day as the surgery. Patients having Caesarian births frequently go home the day of or the day after surgery, and patients who have had an uncomplicated vaginal delivery in hospital most often go home within hours of the delivery (the average LOS calculated by the CIHI is 1.8 days). The majority of Canadians remain unaware of how much the government pays for hospitalization for various procedures. Table 4.5 provides a list of the costs of some of the more common procedures and conditions for which individuals are admitted to hospital. Patient Care Costs Health care professionals providing patient care at various levels include registered nurses, licensed/registered practical nurses, nurses’ aides, orderlies, and personal support workers. In analyzing their costs, most hospitals calculate the cost of nursing services for inpatient care separately, although these expenditures must be included in the facility’s overall costing allowance. Expenditures for other nursing staff may be accounted for in the costs of specialized departments (e.g., outpatient clinic, renal dialysis, and chemotherapy units). Using the funds allotted to a hospital, various departments are expected to function within given parameters—even an individual nursing unit must be mindful of how much it spends on all costs, from communication tools to paper. Each unit also calculates the number of hours nurses spend delivering direct care to patients. This is calculated using a workload or time-based costing formula and dictates the number and mix of nurses required by a patient care unit for a given time frame (discussed below). Other hospital departments, such as the operating room, for example, have specific expenses, including costs for its use, supplies, instruments, and other equipment (e.g., devices implanted into a patient, such as an artificial hip) and staff with specialized skills. Likewise, those managing an ED must do so with their budget in mind. Some EDs employ nurse practitioners to see patients with less serious conditions to offset the costs of an employed emergentologist as well as to increase efficiencies. COVID-19 Admissions According to the Public Health Agency of Canada (PHAC), between September and October 2022, an average of 4,700 individuals were admitted to Canadian hospitals with COVID-19. Québec was among the provinces showing the largest number of admissions. The average cost of a hospital stay for a patient admitted with COVID-19 is often in excess of $23,000 per patient per hospital stay. This is roughly three times more than the cost of a hospital stay for a patient admitted because of a major heart attack, and almost as much as a person admitted for a kidney transplant, which costs approximately $27,000. Moreover, a patient admitted with COVID-19 typically has a much longer hospital stay than other patients (an average of 11.9 days). A COVID-19 patient is also more likely to require treatment in a Critical Care Unit (CCU), sometimes also referred to as an ICU or Intensive Care Unit. For patients requiring care in a CCU the average cost is $50,000, more than three times the cost of a patient admitted to the unit with a heart attack ($8400). The estimated total cost of caring for patients with COVID-19 in Canada (excluding Québec) in 2020–2021 was a staggering $1 billion. Cost-Reduction Strategies Reducing both the number and length of hospital admissions are two of the most successful strategies to reduce overall hospital costs. This is punctuated by the move from hospital-based to home and community care. There are concurrent advantages to patients, who tend to recover more quickly at home, along with the reduced risk of developing a hospital-acquired infection (nosocomial infection). The following strategies have helped to reduce the length of stays in hospitals across Canada. Length of Stay and Bed Capacity The longer a patient stays in the hospital, the higher the cost, detracting from the hospital’s operational budget. Therefore, decreasing the length of hospital stays is an important way to reduce costs and make beds available for new admissions. The province or territory determines the cost of an insured bed in a hospital (paid for out of the allotted budget) by estimating the services required by the person occupying the bed. For example, a patient in an acute care bed recovering from cardiac bypass surgery would be deemed more expensive than one recovering from an appendectomy. It is worth noting that a hospital “bed” does not refer simply to a bed in a hospital room. A “bed” includes all of the services, care, interventions, and treatments the person occupying that bed requires. The person recovering from cardiac surgery will require more care (perhaps specialized care) than the patient recovering from an appendectomy. Likewise, the cost of a “bed” occupied by a patient recovering from an organ transplant would cost the hospital more than the person who had the bypass surgery. During the COVID-19 pandemic it was not uncommon for hospitals to have physical beds available for patients but lack the other elements required to care for the patient, from nurses trained to care for critically ill patients and physicians to respiratory therapists and sometimes medical equipment such as ventilators. To cope with such situations, hospitals deferred elective procedures in addition to adding more CCU beds and redeploying qualified staff. Some hospitals transitioned recovery rooms and operating rooms to temporary CCUs. When a hospital had no more capacity to provide the care patients required, they were transferred to other hospitals, many out of their province or territory of origin. All of these albeit necessary but expensive interventions related to bed capacity placed added strain on the hospital’s budget as well as taking an immeasurable toll on the hospital staff and paramedics. Type of Accommodation The type of room (referred to as the type of accommodation) the hospital bed is in is also part of the cost of that bed. In some cases, the type of accommodation the patient has can generate income for the hospital. Public health insurance covers the cost of a “standard” room or ward. If the patient wants a private or a semi-private room, they must pay for the difference. Most often, this is covered by private insurance (Case Example 4.1). There are exceptions to this. If a patient is very ill, or palliative, the attending physician might order that the patient be placed in a private room. The hospital would absorb the cost. The same holds true if a patient must be placed in isolation (e.g., patients admitted who are COVID-positive). Same-Day Admissions In the past, patients scheduled for major surgery were admitted a day or two before the operation for preoperative preparation (tests) and patient education (about what to expect from their hospital experience and recovery). Now, in most cases, required diagnostic tests and patient education are completed prior to admission, shortening the patient’s hospital stay and reducing costs. Day Surgery Because of technological advances in many fields, particularly in laparoscopic surgery, an increasing number are now done on an outpatient basis. These procedures range from routine removal of the gallbladder (called a cholecystectomy), hernia repairs, and some surgeries for cancer to knee and hip arthroplasties (for selected patients). Bed Management Efficient bed management is a priority for health care facilities across Canada because of chronic bed shortages, costs associated with prolonged hospital stays, and inappropriate assignment of beds to patients. Bed management is sometimes called bed allocation management, patient access and flow, electronic bed management, or patient navigation. All terms refer to a system of policies and procedures used by hospitals to coordinate efforts that will facilitate patient access to the right care in the right place at the right time. These systems address the need for timely admission and discharge from an acute care hospital to the appropriate discharge destination. Bed management systems collaborate with home and community care and long-term care facilities to optimize efficiency. Timely Discharge Even in the presence of effective bed management strategies, hospitals endeavor to discharge inpatients before noon, setting routine discharge times as 10 or 11 o’clock. Hospitals will be charged for an additional 24-hour period if a patient is not discharged in a timely manner (usually noon). If a discharged patient cannot arrange to leave before the discharge time, the nurses will, if possible, have the patient vacate the bed and wait in a lounge so that the room can be cleaned and readied for an admission, as well as to avoid incurring the cost of an extra day for the patient going home. Outpatient and Community Support Many patients can be managed on an outpatient basis, including those taking chemotherapy for various types of cancer and those on renal dialysis. Outpatient cancer treatments are made possible, in part, because of improved chemotherapy drugs and related management regimens, which result in fewer adverse effects, especially severe nausea and vomiting. Patients needing intravenous antibiotics used to be hospitalized; now they are also managed as outpatients. A patient can either return to the hospital or to a designated clinic when their antibiotic is scheduled to be given, or a nurse can come to their home to administer the medication if the patient is not ambulatory. A device called a saline lock/PRN adaptor (or similar) is inserted into a vein in the patient’s arm, keeping a vein patent. Patients receiving chemotherapy have a more complicated device inserted that can remain in place for long periods of time and through which chemotherapeutic agents are administered (called a PICC line, or a peripherally inserted central catheter). Home care services provide nursing assessments and care, managing many of the medical needs of patients that were previously done in hospital and, on occasion, teach family members to do some procedures. Tax Credits for Caregivers Financial relief is available for individuals who care for infirmed family members, in the form of nonrefundable tax credits. Prior to 2017, there were three categories under which individuals could apply for a nonrefundable tax credit when caring for family members at home: the infirm dependent credit, caregiver credit, and family caregiver credit. From 2017 onward, these credit options were consolidated into the Canada Caregiver Credit (CCC), which was revised in January 2022. This remains a nonrefundable tax credit that an individual can claim if they support a spouse, common-law partner, or a dependent with a physical or a mental impairment. Dependents include parents, grandparents, siblings, aunts, uncles, nieces, and nephews. These individuals are eligible if they reside in Canada at any time during the year in which the claims submission is made. The amount a person can claim depends on such variables as the claimant’s relationship to the person they are claiming the tax credit for and the person’s net income (Government of Canada, 2022). Centralizing and Integration of Services The concepts of merging and integrating services were introduced in Chapter 3. Here we expand on these concepts, looking at how they affect the cost of health care services. A merger may involve two to several facilities and include acute care hospitals, specialty hospitals, or long-term care facilities. Mergers typically involve hospitals that are located in one geographic area and are headed by a single administrative body or corporation. Hospital mergers occur in two main ways: 1. The horizontal model merges several hospitals under one administration—one board, one CEO, one budget—but maintains several sites. 2. The vertical model merges specific programs within a single organization; however, the administration of various programs may remain independent of one another, thus not be under the direction of one board. The advantages of merging are broad: reduced duplication of services, higher levels of efficiency, lower administration and management costs, and the ability to offer more services with better results for patient care and recovery. Larger institutions are also believed to attract more staff. However, studies have shown some negative outcomes when larger hospitals merge, particularly the adverse effects on staff. Mergers often result in disruption of a hospital’s culture, lost seniority, and displacement of staff members, either through a reorganization of positions or layoffs. Mergers of smaller hospitals appear to be more successful because the resulting facility broadens its service base while retaining staff and improving care. Whether or not successful mergers reduce costs remains controversial. The aim of integrating services is to prevent the duplication of services, provide care at the necessary level within a community, and use resources more effectively. For example, in Kitchener, Ontario, cardiac and cancer services are centralized—St. Mary’s Hospital has become the cardiac centre, and Grand River Hospital, the cancer centre. Government funds are invested in both hospitals to continually update, upgrade, and expand services in these specialty areas. Obstetrical services are offered only at Grand River Hospital, although both hospitals maintain a viable ED. Eliminating the duplication of services saves money and improves the level of care. In addition, more sophisticated and technologically advanced equipment can be purchased and operated by highly skilled health care providers. Many smaller, rural hospitals have been closed over the past few years, whereas others have remained operational through relocation of services. For example, in one mid-sized community, cataract surgery and rehabilitation services were moved from a larger hospital to a smaller one several kilometers away. Although more cost-effective, this is a disadvantage to patients who have to travel out of their community to receive care. Home, Continuing, And Long-Term Care In Canada As of July 2022 there were about 7,329,910 Canadians 65 years of age and older. This accounts for approximately 18.8% of the total population, who, collectively, use 45% of the total health care expenditures. The average spending on someone over the age of 60 is seven times more than that for those under the age of 60 (CIHI, 2022b). By 2030, those in the over-75 population group is expected to double. The Canadian population over the age of 65 is expected to increase by 68% over the same time frame (by 10.4 million people) (CIHI, 2017). The population in Nunavut (of those over the age of 65) is expected to increase by 5.7 times its current population (the largest increase in Canada) and by 1.9 times in Saskatchewan (the smallest increase). Statistics Canada estimates that the number of Canadians over the age of 65 will account for one-fifth of the total population by 2025. This significantly outnumbers the population growth involving children between birth and the age of 14 years, which is expected to remain stable at about 15% over the same time frame (Statistics Canada, 2020). People in the older age category are more apt to have complex medical conditions, often combined with mobility limitations and dementia, and therefore require more intensive support, both medically and in terms of general care (Fig. 4.6). DID YOU KNOW? The Impact of COVID-19 on Canadian Population Statistics In Canada there were over 300,000 deaths in 2020, with just over 16,000 of those related to COVID-19 (5.3% of the total deaths in the country in that year). According to Statistics Canada, the average life expectancy for Canadians dropped by 7 months the same year. Mortality rates linked to the COVID-19 pandemic are thought to have contributed significantly to this decline. COVID-19 was the leading cause of death in 2020, followed by cancer and heart disease, respectively. Financing and Continuing Care Continuing care refers to measures necessary to support and care for individuals who cannot manage independently; these services can be provided in their private homes, in a seniors’ residence, or in long- term care facilities. Under the Canada Health Act, continuing care is described in vague terms as “extended” services that are not subject to the terms and conditions of the Act. As a result, individuals can be charged for continuing care services. Moreover, services do not have to be publicly owned or operated, offered on a universal basis, or accessible to everyone. The provinces and territories select which continuing care services are publicly funded, by whom and by how much. All jurisdictions publicly fund a huge portion of home care, community care, and long-term care services, although configuration and delivery of these services vary. Despite these variables, provinces and territories are collectively examining frameworks to improve the sustainability of continuing care in a cost-effective manner. This involves examining existing models of delivering care within the community and in residential and long-term care facilities. The challenges are greater in jurisdictions with older populations. The 2022 figures show that Newfoundland and Labrador have the oldest population with a median age of 47.8 (Table. 4.6). New Brunswick is next, where the median age is 45.7 years, and then Nova Scotia, with a median age of 44.2. The jurisdictions with the youngest median age are Nunavut, Northwest Territories, and Manitoba. British Columbia is the only Western province whose population is older than the Canadian average of 41.4 years. It is also the only jurisdiction with a higher-than-average population of individuals over the age of 65 (Dimmell, 2021). Alternative Level of Care The rising need for continuing care services across the country is, in part, demonstrated by the large numbers of individuals in hospitals who cannot return to independent living and are waiting for home care services or placement in a long-term care facility. These individuals are referred to as alternate level of care (ALC) patients, those who occupy more expensive acute care beds that should be used by those requiring an intensive level of care. This creates a backlog of acute care patients who languish in the hallways of EDs and nursing unit corridors. Some refer to this as hallway medicine, a costly scenario that imposes an emotional and physical burden on patients, their families, and health care providers, and a financial burden on hospitals. Home Care and Community Care Home care and community care, although different, are closely connected, and the organizations collaborate with each other to provide seamless services for the individuals they support (see Chapter 3). In most communities, publicly funded home care is available through a central agency to which an individual must apply. In general, supporting individuals at home is more cost-effective than supporting them in long-term or residential care, and certainly more cost-effective than in an acute care bed in the hospital. The challenge is to find more efficient ways to use current resources and implement new strategies to contain the costs of home care and improve services to meet the growing demand (see Chapter 10). Matching an individual with the proper community resources is an important step in deciding who can be managed at home instead of in long-term care. This decision making is highly dependent on the availability of community and health human resources. Residential Care Residential care refers to living accommodations that offer a variety of support needs, usually for older persons. These accommodations include lodges (public or private), assisted living or supportive services in the community (e.g., supportive housing), and long-term care facilities. The cost of most residential facilities, or portions thereof, are covered by public health plans. Private residences Older Canadians who can afford it and want to avoid long-term care facilities may choose to live in private residential facilities where they can select the type of accommodation and level of care required. Private residential accommodation can be very expensive across Canada, with monthly fees ranging from $1453 to $4500 and higher (Comfort Life, 2020). Monthly costs vary with location and the “luxury” components of the facility. Choice of accommodation ranges from a single room to larger, more spacious suites. The more services required, the higher the cost. Maximum care would be similar to that provided in a long-term care facility. Federal, provincial, and territorial governments are not responsible for any costs incurred, and the resident pays the facility directly. A person living in a private residence can still have the services of publicly funded home and community care. Long-Term Care Facilities (Nursing Homes) Most jurisdictions use the term long-term care facilities, or nursing homes, although personal care homes is used in Manitoba, special care homes in Saskatchewan, continuing care homes in Alberta, and residential care homes in British Columbia. These facilities provide varying levels of care to individuals— from those who require less support but are unable to live on their own, to those who require total care and supervision for physical or cognitive reasons—24 hours a day, 7 days a week. Levels of care are classified as independent, semi-independent, and dependent (Case Example 4.2). Provincial or territorial governments oversee long-term care for all Canadians, with the exception of those individuals eligible for federal care through Veterans Affairs Canada, Workers’ Compensation Boards, federal government acts, and medical health insurance. Licensed by the provincial and territorial ministries of health, long-term care facilities (often privately owned) must meet standards regarding staffing levels, training, food preparation, pricing, and medical care, including the administration of medications. Unsubsidized and unlicensed residences also exist, but they offer limited or no nursing care and are usually regulated by municipal bylaws, which do not control the quality of care. Provincial and territorial governments control the number of publicly funded long-term beds in their jurisdiction. Public funding provides revenue to subsidize these nursing home beds; however, in addition to the fact that beds in public (or government-funded) nursing homes in most jurisdictions are subsidized, the patient must pay a flat rate for basic accommodation (called a copayment). The exception is Nunavut. The portion of costs that residents must pay may depend on their financial circumstances (Case Example 4.3) and whether they have a spouse living in the community. If they have a spouse, payment would be adjusted so that the spouse can retain enough money to remain in their home. All jurisdictions have alternative funding options for those unable to pay, and no one can be denied accommodation or care. CASE EXAMPLE 4.2 A Long-Term Care Facility or a Secure Unit? Seventy-two-year-old O.P. has had a stroke. She is fully cognizant and can manage some activities of daily living but needs assistance with dressing, eating, and moving about. Because she was unable to manage at home despite home care support, she is now in a long-term care facility, semi-dependent, and receiving a moderate level of nursing supervision and supportive care. However, if O.P. had advanced Alzheimer’s disease (i.e., had little or no memory, wandered, and could not feed herself) and fell and broke her hip, she would be placed in a secure unit with maximum nursing supervision and be almost completely dependent. CASE EXAMPLE 4.3 The Cost of Moving to a Long-Term Care Facility After falling and breaking her hip, 80-year-old I.B. can no longer live independently at home. Arrangements have been made for her to move to Happy Meadows, a long-term care facility close by. I.B. has concerns about being able to afford long-term care and is even more worried about what will happen to her life’s savings and her house. “They will take all of my money,” she laments. “What will happen to my house? I heard they take everything to pay for staying there!” What might happen to I.B.? The answer depends on what province or territory I.B. lives in and the type of long-term care facility she is moving to. In most jurisdictions, the patient’s monthly income must be used toward payment for the accommodation. I.B. need not worry about her house and savings, however. These assets would be protected (although the amount of protection varies across jurisdictions) and would not be accounted for in the assessment of her ability to pay. If I.B.’s monthly income from her pensions is $2000 and the copayment is $3000/month, I.B. would have to surrender the bulk of her income for her accommodation, but would not be required to make the full copayment. The government would cover the balance, leaving her with enough money for personal expenses. I.B. would be eligible only for basic accommodation. If I.B.’s monthly income were $3000 and the cost of her standard accommodation were $2,500 monthly, I.B. would be required to pay the full amount, leaving her with $500 left over to spend as she pleases. During the first 2 years of the pandemic, the highest mortality rates were among residents in long-term care facilities (both private and publicly owned and operated). As a result, the quality and sustainability of long-term care facilities (under current circumstances) across Canada have been brought into question. Numerous problems have been exposed, ranging from the (until recently) absence of a national long-term care strategy, inadequate funding, lack of human health resources, and the built environment, to infection prevention and control policies and related resources (see Chapter 10). Rates for a standard long-term care bed, copayments residents are required to pay (usually based on after-tax income), and the breakdown of how those copayments are used (e.g., for meals, accommodation) vary across Canada. Regardless of an individual’s financial situation, all jurisdictions leave a percentage of the resident’s income for their personal use (on average, 15%). This means that if the resident is unable to pay even the minimum amount for standard accommodation, the person’s stay (as with I.B.) will be subsidized and they will be left with a stipulated percentage of their income for personal expenses. Table 4.7 shows the cost of long-term care across Canada. Some facilities offer standard accommodation (up to three or four people in a room), although that level of accommodation is becoming increasingly rare. Depending on what type of accommodation is “basic” in a facility, if a person wants to change that accommodation, they must pay the difference between whatever is considered basic and the preferred accommodation. Beyond the costs of long-term care are concerns around quality—for example, substandard resident and patient care, abuse of residents by staff members, abuse of staff members by residents, and abuse among residents themselves, racism being one of the factors. Other causes include inadequate staffing levels and poor training of staff members. Underlying it all is chronic underfunding, with the result that nurses and other staff are underpaid, and insufficient numbers of care providers are hired for the number of residents, who increasingly have more complex needs. These problems have been exacerbated during the pandemic, prompting all jurisdictions to review the whole concept of long-term care facilities and how care is delivered. Public, for-profit private and not-for-profit long-term care facilities in Canada Currently there are 2,076 long-term care homes in Canada. Of these, 46% are publicly owned, and 54% are privately owned. Of the privately owned facilities, 29% are for profit, and 23% are not-for-profit (CIHI, 2021d) (Table 4.8). In Yukon, Nunavut, and the Northwest Territories, long-term care facilities are all funded publicly. Of the long-term care facilities in Newfoundland and Labrador, 98% are publicly funded, and in Québec, 88%. In contrast, New Brunswick has no publicly funded long-term care facilities, and in Ontario only 16% of the 627 long-term care facilities are publicly funded. See Fig. 4.7, which illustrates the number of long-term facilities in Canada. The Rising Cost Of Medications According to the Canadian Institute for Health Information (CIHI, 2022d), spending on medications increased by 4.6% in 2020, compared with a slightly lower increase in 2019. What public programs spent on prescription medications varies with jurisdictions, which in 2020 ranged from just under 32% in New Brunswick, 34% in Newfoundland and Labrador, to about 47% in Manitoba. Private insurance spent $12.7 billion on prescription medications, and Canadian households spent approximately $6.9 billion (out-of-pocket) (CIHI, 2020). Note that public drug spending estimates do not include medications used in hospitals or those dispensed through specialized public programs such as cancer agencies. Calculated separately, the Canadian Agency for Drugs and Technologies and Health (CADTH, 2021) reported that spending on medications administered to patients in Canadian hospitals in 2020 cost $4.9 billion. Source: Based on Canadian Institute for Health Information. (2021, June 10). Long-term care homes in Canada: How many and who owns them? https://www.cihi.ca/en/long-term-care-homes-in-canada- how-many-and-who-owns-them Thinking It Through Percentage of Drug Spending In 2020, 2.7% of the population in Canada accounted for a staggering 42.9% of total drug spending. That means that the rest of the Canadian population accounted for about 58% of drug expenditures. 1. With the costs of newer medications rising, do you think that the money spent on medications for a small percentage of the population is sustainable? Why or why not? 2. Do you think it is equitable? Support your answer. Major Cost Drivers for Drug Expenditures Increased drug expenditures can be attributed to several factors, including the rising cost of some newer medications and the fact that more people are taking more medications. Medications used for high blood pressure, high cholesterol, and gastrointestinal disorders are among those most commonly prescribed. Older Canadians have a significantly higher per capita spending related to medications, compared to other cost drivers. Pharmaceutical companies are researching and producing more specialized—and more expensive— medications. These include a class of drugs called biologics (e.g., immunosuppressants, anti- inflammatory, and cancer drugs). Biologics are derived from living material and are growing in popularity, along with “targeted drugs” that require biomarker testing to ensure they are right for the patient. In 2021, the top four spending categories were used to treat rheumatoid arthritis and Crohn’s disease, age- related macular degeneration, autoimmune diseases, and antirejection drugs (for organ transplant recipients) (CIHI, 2022d). DID YOU KNOW? Biologic versus Biosimilar Drugs Biologic drugs are among the most expensive medications used in Canada. They are used for such conditions as rheumatoid arthritis and other autoimmune and inflammatory diseases. They are made from living cells, human or animal protein. The annual cost of some biologics can be overwhelming, between $10,000 and more than $50,000/month. A biosimilar drug is one that is similar to a biologic drug, but not identical. A biosimilar drug enters the market only after the patent of the biologic drug it mimics has expired, and after the drug has been authorized for use; in this case, approval must be given by Health Canada. There were only 18 biosimilar drugs approved by Health Canada as of January 2022. Biosimilar drugs are not the same as generic drugs, which are chemically sourced and more or less identical to their brand-name counterparts. Biosimilar drugs are, on average, 30% cheaper than biologics. Drug Coverage All provinces and territories provide some kind of drug insurance to certain groups, such as older Canadians, people with disabilities, and individuals who earn low incomes or are on social assistance. A copayment or deductible may apply (see Chapter 9), but some pharmacies will waive deductibles and copayments in certain circumstances. Canada is one of only a few developed countries without a national drug plan. However, most provinces and territories have some form of catastrophic drug coverage, meaning they will assume the cost of very expensive medications for specific health conditions when the family is unable to cover the expense. Québec has had a provincial drug plan since 1997 for those who do not have private drug insurance. However, as discussed in Chapter 3, there are plans under consideration to implement a national pharmacare plan, which, when implemented, should result in lower overall costs for medications (collectively) for provinces and territories (Canadian Health Coalition, 2021). A drug’s accessibility and coverage through an insurance plan are determined by its category; over-the- counter (OTC) medications can be purchased without a prescription and are rarely covered by public or private health plans; prescription medications can be purchased only with a prescription from a health care provider (e.g., family doctor or specialist, nurse practitioner, midwives, or, in some jurisdictions, a pharmacist or a holistic doctor [allowed to write prescriptions in Ontario and British Columbia]). There are limitations on medications that providers (other than physicians) can prescribe. Occasionally, a province or territory will remove a drug from the list of drugs that may be obtained only with a prescription. Once removed, however, insurance will no longer cover the drug, and the drug is considered to be OTC. Brand-Name and Generic Drugs Brand-name drugs—those that are owned and sold by the company that developed them—cost more than generic drugs. They are protected under a piece of legislation called the Patent Act. Currently, patents last 20 years from the time the pharmaceutical company applies to the board for approval to sell the drug in Canada. Once a patent expires, any p company can produce the drug (called a generic drug) and sell it at a lower cost (a quarter to a half of the brand-name counterpart). Brand-name drug names are always capitalized; generic drug names are not (e.g., ibuprofen is a generic drug; Advil is the brand- name for the same drug). Because they do not have to spend money on research and development, companies producing generic drugs can do so at a greatly reduced cost. Generic drugs contain the same active ingredients, although the other ingredients (called nonmedicinal ingredients) vary. All generic drugs go through an approval process and analysis similar to those of brand-name drugs. Some claim that brand-name drugs are of a higher quality and that different nonmedicinal ingredients can alter the action and efficacy of the medication. Unless a doctor specifically indicates on a prescription “no substitution,” pharmacists may substitute a generic drug for a brand-name one. Over the next few years, patents on a large number of brand-name drugs will expire; generic equivalents will become available, reducing the cost of prescription medications for patients. Most provincial and territorial formularies use generic drugs, although brand-name drugs are allowed by special permission if there is not a generic equivalent to effectively treat a specific condition. Controlling the Cost of Patented Drugs An independent government agency, the Patented Medicine Prices Review Board (PMPRB), regulates the price at which patentees—pharmaceutical companies—sell their patented medicines in Canada to wholesalers, hospitals, pharmacies, and others (e.g., clinics), called the factory-gate price. Although the PMPRB can ensure that drug companies themselves do not charge excessive prices, the board does not have jurisdiction over the prices retailers charge customers or pharmacists’ dispensing fees. For the duration of the patent, the PMPRB regulates the prices of all patented products, including medication available only through prescription, sold over the counter, and available through Health Canada’s Special Access Program. This program provides physicians with access to existing medications not currently on the market that might prove effective for treating serious or life-threatening conditions when mainstream medications have proven ineffective, are not readily available, or cannot be tolerated by a specific patient. The PMPRB has no authority to regulate the prices of nonpatented drug products (i.e., drug products that were never patented or for which the patent has expired). Health Human Resources The term health human resources (HHR) refers to almost all people who work in the health care field, from primary care providers and nurses, to technologists and administrative management. See the video on Evolve for a complete explanation. Nurses, followed by physicians, are the largest group of regulated health professionals in Canada. Physicians and nurses are also the two largest cost drivers of health human resources. How a health care organization best manages the skills and expertise of its employees greatly affects its financial bottom line. For example, it is essential to find the proper balance of nursing staff in hospitals to deliver high-quality care within budgetary guidelines. Achieving this balance without patient care suffering, or negatively impacting nursing staff, is a difficult task. Organizations assess the level of care that their patients or residents require and decide who can best competently deliver that care. Acute care hospitals employ registered nurses, licensed or registered practical nurses, and personal support workers. Typically, CCUs employ only registered nurses, most of whom have had additional training specific to the specialized unit they work in, where patient care is both complex and acute. On patient care units, there is likely to be a mix of registered nurses, licensed or registered practical nurses, and personal support workers working as a team depending on the nurses’ level of skill and scope of practice. Long-term care facilities usually employ more licensed or registered practical nurses and personal support workers than registered nurses. Money to pay employees in hospitals and other facilities comes out of the funding envelope assigned to the facility by the government. The mix of health professionals employed to fit within the budget is determined by the facility. It is important, for example, to ensure that the mix of professional nurses employed fits within budgetary guidelines. Hospitals frequently exceed their financial limits, ending up in the red. This is often because of the cost of human health resources. When hospitals and other facilities have to make up a deficit, it is often nursing staff that is reduced. Nurses in primary health clinics are paid through the clinic or by the physicians for whom they work. Nurse practitioners are paid by the government or by physicians directly. The Cost of Nurses Nurses working in hospitals usually are paid a higher wage than those working in other facilities such as long-term care, doctor’s offices, or a primary care setting. Other considerations related to how much a nurse makes include additional education and how long they have been in the workforce (this is for all categories of nurses). In 2022, the average remuneration for a registered nurse was $71,103, with a low of $57,336 for an entry-level position to a high of $81,628 for a nurse with more experience. The average annual remuneration for a registered/licensed practical nurse is $55,044. An entry-level position starts at approximately $50,479 annually, with more experienced nurses making approximately $64,327 per year (Talent.com, 2022). A personal support worker in an entry-level position makes between $30,000 and $35,100 yearly, with a more experienced personal support worker making up to $44,312 annually. These numbers vary and differ with jurisdictions as well as within jurisdictions. The Cost of Physicians In 2020, there were 92,173 physicians licensed to practice in Canada. Total gross clinical payments to physicians that year were $29.4 billion, which is an increase of 4.3% over 2019. The average payment made to physicians (before taxes) was $354,000, representing a 20% increase over the previous year (CIHI, 2021c). Of these physicians, 62% were paid fee-for-service (FFS), and 28% via alternate payment formulas. The payments were paid by provinces and territories for insured medical services—the majority for consultations and physician visits, including virtual and telephone visits (which have increased dramatically since 2020 because of the pandemic). Physicians and other providers saw selected patients in their offices or clinics but managed a large portion of their patients’ appointments virtually. In terms of specialties, 52% of the total number of physicians were working in family medicine, the rest in either medical or surgical specialties. Physician Funding Mechanisms As mentioned above, FFS is the oldest and, for the moment, most widely accepted method of physician payment in Canada. Using this method, doctors charge the provincial or territorial plan for every service they perform (see Chapter 1). Doctors (or more likely, their medical office assistant) must submit a claim to the ministry in their province or territory for each insurable assessment made and service provided. Each province or territory has slightly different parameters for FFS billing. Invariably, though, the amount the doctor bills relates to the complexity and length of the patient visit as well as the location of that visit. Most jurisdictions have three or four main categories for “visit fees” that a physician can charge for a minor assessment, an intermediate assessment, and a full assessment (e.g., a physical examination). In Ontario, a physician would bill about $36.85 for an intermediate visit and assessment, such as P.K.’s visit described in Case Example 4.4. Within the FFS model, doctors can also bill for things other than the actual office visit. For example, doctors who make house calls can charge more to ensure they are compensated for travel, for seeing a patient away from the office, for the time of day or night the house call is made, and for the office patient visits cancelled if making a house call during office hours (although that is rare these days). Doctors may also bill for procedures, such as giving an injection or suturing a wound, or for visiting a patient in hospital. In general, family doctors across Canada are claiming that they are underfunded for the amount of work they do, which, more recently, includes enormous amounts of administrative work. This situation is, at least in part, discouraging new graduates from choosing family medicine as a career and contributing to doctors leaving the profession. In late 2022, British Columbia introduced a new funding formula for family doctors which includes remuneration for the administrative work that doctors do. Capitation- or Population-Based Funding Capitation-based funding (also called population-based funding) pays the doctor an annual fee for each patient in their practice. Some primary care groups have the option of rostering patients. How much the physician receives for each patient depends on the patient’s age, general health status, and sometimes gender. Under this model, the amount the doctor is paid remains the same regardless of how many times they see the patient. Capitation-based funding is also applied to primary care groups that roster patients. Rostering requires a patient to sign an agreement with the physician stating they will only seek nonemergent care from that physician. If they go elsewhere, the doctor that the person is rostered to loses the amount of money charged for that other visit. Assume a patient who is rostered to one doctor goes to see a different doctor for a health problem. The second doctor submits a claim to the ministry for $25. The ministry, knowing that the patient is rostered to the first doctor, will pay that claim, but will also deduct $25 from the first doctor’s next payout from the ministry. The fundamental components of capitation-based funding are summarized as follows: The physician receives a guaranteed income based on the defined population base of their practice. The physician may enter into other compensation schemes; for example, a portion of their practice may still be FFS. Incentives provided to the physician incorporate a strong element of disease prevention and health promotion to result in better health outcomes for patients of the practice. Global Budget Doctors practising in underserviced areas are paid a certain fee for maintaining these practices. The global budget plan also usually includes ample vacation time and educational leave. Salary and Contract Doctors on salary receive a negotiated amount of money per time frame (usually a month). Larger hospitals, medical centres, clinics, and some nonprofit clinics often employ this model. A physician would be paid on a contract if hired for a specific period of time by either a hospital or a clinic. Specialists employed by hospitals, emergentologists, and hospitalists are salaried positions. Specialists usually have private practices as well and bill fee-for-services for patients they see. Blended Funding Most physicians in Canada who engage in a form of funding other than FFS also partake in another method of payment. For example, a physician in a primary health care network group can have a certain portion of their practice non-rostered and on an FFS funding scheme, and another portion calculated on capitation-based funding. Telephone and Virtual Visits During the COVID-19 pandemic, most primary care physicians began to conduct patient “visits” virtually or over the telephone in order to reduce viral transmission. Provincial and territorial governments issued physicians with special billing codes so that they could submit a claim for each visit. This was welcomed by many patients, but viewed with some skepticism by others who would rather see their provider in person. Not all health complaints can be adequately assessed unless the patient sees the provider in person, while others can be managed quite adequately without an in-person visit. INFORMATION TECHNOLOGY Funding for IT services in public facilities such as hospitals and long-term care facilities ultimately are provided by the provincial and territorial governments. For the most part, physicians are responsible for any expenses related to medical software systems used in their offices, primary health groups, or clinics, although in some jurisdictions the provincial/territorial government will offer grants to selected recipients (see Chapter 10). The information systems in hospitals are both complex and varied. There are currently several major platforms used in hospitals across Canada, including Cerner, Meditec, and Epic. All hospitals are digitalized, but to varying degrees. Hospitals assume the financial responsibility for both changing and upgrading their systems, although under some circumstances, the ministry will allot extra funds for this purpose. Hospitals tailor the system they use to suit their own needs. Systems are managed by a busy IT department and numerous IT experts who both initiate and implement changes as well as troubleshoot for hospital staff as required—all of these activities are expensive. IT departments also manage IT security. The Canada Health Infoway Canada Health Infoway is an independent nonprofit organization (NPO) that was established by the Canadian government in 2001 to provide digital solutions for Canada’s health care system. The Infoway invests in projects that contribute to a national digital framework that expands and improves information technology and connectivity across the health care spectrum and provides prompt access to digital charts. Canada Health Infoway’s most recent projects include PrescribeIT and ACCESS Health. The PrescribeIT project, in collaboration with Health Canada, provinces, territories, and health care organizations, began expansion in 2018. The goal is to replace the current patchwork of pharmacy- related connectivity among prescribers and organizations with a national system offering enhanced security management, connectivity to Canada-wide electronic health record systems, and seamless integration with current facility and clinic operating systems (Canada Health Infoway, 2022a). ACCESS Health is a digital solution enhancing patient accessibility to their own health information, facilitating the concept of patient-centred care. Canada Health Infoway also supports e-mental health solutions, including online help and crisis support (phone line assist, text support, access to online chat and support groups, and hot-spot notifications). The organization supports a national initiative called the Circle of Care Project (overseen by Indigenous organizations) to improve health care services through the integration of community electronic medical records and a citizen health portal (Canada Health Infoway, 2022a). Over the past several years, funding from the federal government for the Infoway totalled over $2.5 billion for over 370 e-health projects Canada-wide. This includes a $50 million commitment for virtual care made in 2020 (Canadian Health Infoway, 2022b)..Diagnostic and Imaging Devices Although offering improved diagnostic outcomes, imaging options such as CT scanners, MRI scanners, and positron emission tomography (PET) and PET/CT scanners are expensive to purchase, maintain, and operate. Added to that is the cost to our publicly funded system each time a diagnostic imaging is ordered for a patient. The least expensive devices are CT and MRI scanners, with the most expensive being PET scanners and PET/CT scanners. PET/CT scanners produce specialized views fusing images from two platforms, giving the physician views of the targeted body part or organ on two different planes with one examination. CT scans and MRI scans are publicly funded services when considered medically necessary. Both services can also be purchased privately in some regions. The cost of having a CT scan ranges from just over $200 to approximately $650; an MRI examination costs between $900 and $2500. Prices fluctuate with jurisdictions and the specific imaging ordered. For hospitals or diagnostic facilities to purchase these devices, a CT scanner can cost as little as $65,000 for a basic refurbished device. A larger and brand-new CT scanner can cost as much as $2.5 million. An MRI device costs on average about $3 million. The average cost of an installed PET/CT scanner is $7 million. This would include the construction of the nuclear and molecular facility required to accommodate the scanner, and the price of other necessary equipment needed to run it, such as a cyclotron, which generates the nuclear power to run the scanner. The PET/CT scanner itself costs between $2.5 and $4 million. In terms of diagnostic imaging ordered for patients, the cost of a single PET scan varies from $956 in Québec (possibly because of the large number of scans done there) to $1500 in Ontario and $1800 in Manitoba (Statista, 2022). The manner in which equipment is funded varies with provinces and territories. In 2020, Québec had 23 PET/CT scanners, the most in Canada. Ontario has 20 such scanners, Alberta has 4, and British Columbia has 4, with 3 in Alberta, 2 in New Brunswick, 1 in each of the remaining provinces, and none in Yukon, Nunavut or the Northwest Territories (Tolinsky, 2020). In Ontario, such scanners are usually funded by local organizations along with money from the local hospital’s operational costs. Most jurisdictions cover the cost of PET scans only for specific conditions, such as selected cancer and cardiac conditions. Scans are also covered for people who are part of a Health Canada clinical trial. In 2020, Québec’s Ministère de la Santé et des Service Sociaux funded a $7 million project (including another $3.8 million to construct a facility to accommodate the PET scan). The device was installed in the hospital in the mining town of Val d’Or, 525 kilometres north of Montreal, The PET/CT scanner serves 135,000 people in the town and surrounding community. The project was part of a strategy initiated on the part of the Québec government to ensure that advanced medical imaging was available to individuals outside of major centres. Kelowna, British Columbia, and Sudbury, Ontario also acquired PET/CT scanners in 2020 (Tollinsky, 2020). Information from the Canadian Agency for Drugs and Technology in Health (CADTH) indicates that in 2019 there were 67,849 PET/CT scans done in Québec and only 23,554 in Ontario. This equates to 1.6 scans per 1000 individuals for Ontario and 8 per 1000 individuals in Québec (CADTH, 2021). In most jurisdictions, selected diagnostic imaging services are contracted out to private facilities. The provincial/territorial plan covers the cost of the scans, paying the facility for their services. The financial arrangements made with private companies vary among jurisdictions. Conclusion Have you found the answers to the questions you were asked at the beginning of the chapter? How close were your estimates? Review the prices noted in the chapter. Were your estimates close? Did you expect the cost of the services to be less, or more? How would paying out-of-pocket for some of these services impact you or your family? What does the future of health care in Canada hold? It is nearly impossible to know, although change is certain. Resources are limited, and services may need to be rationed—an alien concept to Canadians. Excluding people from the treatment they need (or want) based on factors such as age, health status, or type of disease seems unthinkable, but it may become a reality. We must use health care resources wisely and continue to promote healthy lifestyles and disease prevention. During the pandemic, several hospitals came close to having to ration services, particularly for those requiring a CCU bed and ventilators. Larger centres across Canada had to develop triage protocols. Risk assessments were based on the patient’s chances of survival beyond a certain time frame, considering risk factors such as age, comorbidities, and acuity of their current illness. Can you imagine how difficult a decision that would be for some physicians to make? How would you feel if your loved one had COVID-19 and required a ventilator but was triaged with a decision made that the ventilator went to someone else who had a higher chance of survival? Simply preserving the level of care in hospitals across the country as it is today will require enormous increases in funding by all levels of government. To improve this care and be prepared for the next pandemic will require even more funding, as well as a coordinated and critical look at how and where current funds are spent in addition to improving system-wide inefficiencies. Summary 4.1 In Canada, all medically necessary services are publicly funded but, for the most part, are delivered by either private for-profit or private not-for-profit businesses or organizations. For example, most hospitals are private nonprofit facilities, and although funded by the government, many of the services they deliver are done so by private businesses. Often publicly funded health services contract businesses to deliver those services, including some home care organizations. Doctors, although paid for with public funds, can be considered small business owners. They are responsible for all of their expenses and either bill the province/territory for services rendered or are remunerated with alternative payment plans. Although medically necessary services are covered by public health insurance, Canadians either pay directly or through insurance or employee benefits plans, or both, for supplementary health services. 4.2 Public funding for health care in Canada is provided by the federal, provincial and territorial, and municipal governments through a blend of taxes and tax points as well as by Workers’ Compensation Boards. Some jurisdictions also use revenue from sales taxes and lotteries for health care. Only Ontario residents pay health care premiums. At present, the federal government makes transfer payments to the provinces and territories through the Canada Health Transfer, the Canada Social Transfer, the Territorial Funding Formula, and equalization payments (which remain controversial, especially in Alberta). In addition to these major transfers, the federal government continues to provide provinces and territories with financial assistance to support initiatives related to the COVID-19 pandemic. The indirect costs of health care, including illness, injury, and premature mortality, have a negative effect on the Canadian economy. 4.3 Hospitals, medications, and human health resources represent the three top health care expenditures in Canada. The provincial or territorial ministry or department of health provides the majority of funds to hospitals to deliver services to the community. Most hospitals are nonprofit facilities and in addition to government funding use an array of private businesses and organizations to deliver their services. Human health resources account for the bulk of hospital spending. The major funding models for hospitals are global funding and activity-based funding. Many Canadians are unaware of the high cost of hospitalizations. The average cost of a hospital stay for a patient admitted with COVID-19 is often in excess of $23,000. This is roughly three times more than the cost of a hospital stay for a patient admitted because of a major heart attack. 4.4 Canada has an aging population, which is proving costly when it comes to providing for the health care system. Currently, older persons (over the age of 65) account for about 18% of the total population, who, collectively, use 45% of the total health care budget. The average spending on someone over the age of 60 is seven times more than for those under that age. Care provided for older Canadians (and others) is provided by home and community care services, residential accommodation, and long-term care facilities. It is more cost-effective to care for individuals at home with the support of home and community care services. Long-term care facilities in Canada are primarily publicly funded and are regulated by the provincial and territorial governments. The copayment that residents make is largely dependent on their annual income. Private facilities are popular but can be expensive, offering varying levels of care and accommodation. 4.5 After hospital services, medications represent the next largest health care expenditure. Spending on medications increased by 4.6% in 2020, slightly more than the previous year. Contributing factors include increased use of prescription medications, particularly by older persons with multiple health problems. A major contributor is the high cost of newer medications, in particular biologics, although biosimilar drugs, which are slowly being approved by Health Canada, are less expensive. Generic drugs are less expensive than brand-name drugs. Most physicians order generic drugs for that reason, although there are occasions when a brand-name drug takes priority. A pharmacist can fill a prescription with a generic drug unless the physician notes that there is to be no substitution. Canada does not have a national drug-funding program, but all jurisdictions cover the cost of most medications for certain groups, including older person, disabled persons, and those on assisted income. 4.6 Human health resources (HHR), collectively, are a significant expense to the health care system, with physicians and nurses being the two largest cost drivers. Physicians and nurses are the largest of the regulated professions and account for the largest financial output for the HHR sector. How a health care organization best manages the skills and expertise of its employees greatly affects its financial bottom line. For example,