Keeping Medicare Healthy

Far too many Canadians are holding on to an ideal of our healthcare system that is not sustainable.

The Canadian identity includes a notion of a universal healthcare service providing world-class treatment, whenever and wherever Canadians need it, untouched by the hand of capitalism. This mindset, unfortunately, can be an obstacle to innovative reform necessary to keep the system itself healthy.

The reality is quite simple. Canadian healthcare costs are growing faster than government revenues and have been for years. Nationally, healthcare as a share of GDP has surged to 12 per cent, up from just 7 per cent 25 years ago. Projections see the figure hitting 19 per cent by 2030 based on our current trajectory.

At the rate Ontario is proceeding, healthcare will account for 80 per cent of provincial government spending by 2020, up from 45 per cent today. Recent efforts to contain costs in some provinces have been successful, but many question if these measures will endure another political or macroeconomic cycle.

These calculations come from the KPMG report Fiscal

Sustainability and the Transformation of Canada’s Healthcare System, completed by the Mowat Centre and the University of Toronto’s School of Public Policy and Governance. The results align with other studies, which all point, unequivocally, to the need for new ways of thinking about our health system if we want to maintain the ideals of equitable and universal care enshrined in the Canada Health Act.

A Timely Proposal   

A logical and promising reform all provinces should consider introducing is alternative service delivery models called “focused clinics” for high volume, low risk surgeries and procedures, fully funded by government but delivered by private enterprise.

Unfortunately, the mention of the word “private” anywhere near the term healthcare gives many Canadians anxiety. Presumably they consider it a harbinger of an eventual two-tier system, or they have visions of the costly and ineffective system in the U.S. These outcomes are not inevitable and the potential for accelerating the introduction of these private focused clinics may yield significant benefits.  

From medical services to pharmacies and laboratory services to diagnostic imaging, billions of dollars worth of services are already provided every year by the private sector in the publicly funded, publicly administered healthcare systems across Canada.

Family physician offices, for example, are largely private businesses within the system, with market-driven billing programs. Indeed, by some estimates, as much as 40 per cent of our healthcare costs already flow to the private sector.

Private focused clinics are a means to inject competition, productive disruption and choice into our cherished health system. The goal is to improve both efficiency and quality of care, and although that may sound like a concept too good to be true, the results we have from early Canadian experiments, as well as from abroad, are compelling.


First, some background.  The architects of Canada’s universal medicare system made hospitals the core at a time when the emphasis was on curing illnesses.

Today our focus has shifted more towards prevention and the management of complex patients who often have numerous chronic conditions. Many of these services are provided in the community, but acute care hospitals have maintained their central role within the system, and many Canadians still believe the safest place for them to be if they are ill or injured is in the hospital. This is unfortunate as hospitals are the most expensive setting for delivering care, with the average daily cost of a hospital bed running $842, according to the Canadian Life and Health Insurance Association Inc.

It is now time to transform and modernize existing service delivery models and complement them with ones more reflective of today’s needs. Years of innovation and medical breakthroughs within hospitals have turned what were once cutting-edge operations into commonplace proceedings. Hip and knee replacements, cataract surgery, gall bladder removals and hernia operations are all examples of treatments that have been standardized and routinized through technological and procedural advancements. In many cases, they no longer need to be performed in a hospital setting and can be delivered more cost effectively outside the hospital.

In private industry, these kinds of productivity advancements pass on to the bottom line, where they can be withdrawn as profits, passed on as savings to customers or reinvested into the business. Unfortunately, in Canada’s healthcare system, the financial benefits of innovation are rarely transferred back to the investor, in this case federal and provincial governments. Physicians’ fees for low risk surgeries, for example, have failed to come down, with rare exceptions, as technology has improved the process.

Private clinics 

Privately run health services can be optimized to do a small number of related procedures really well and more efficiently than hospitals. Through lower overhead costs, simpler staffing requirements, streamlined procurement methods and properly structured contracts and financial incentives, private clinics may be able to perform selected day surgeries much more economically than current hospitals. Their singular focus can also allow them to see patients without lengthy wait times and to deliver results with improved quality.

Saskatchewan is known as the birthplace of Canadian medicare and today it is helping lead the way with reforms. In 2010, the province asked its two largest health regions to contract with a privately run surgical clinic to provide outpatient surgeries. The move was part of an initiative to shorten wait times for elective surgeries to no more than three months by 2014.

In just three years, the number of patients waiting more than six months for surgery has dropped by 64 per cent. Moreover, the overall cost of performing the 34 different procedures – from cataract surgery to knee replacements to operations to remove tonsils – has proved to be 26 per cent cheaper than in a hospital. 

We simply cannot ignore these kinds of results. 1

Other examples of specialized private clinics achieving better outcomes at lower costs than hospitals include Sunnybrook Hospital’s nurse practitioner colonoscopy service, the Shouldice clinic for hernia repair in Toronto and the Alberta Bone and Joint Institute.

Although Canadians are conditioned to think of hospitals as the best location for care, this is often not the case. If a specialist working inside a hospital performs a dozen surgeries a month and her colleague in a private clinic performs 60 a month, who do you think offers the patient greater experience?

Specialization and focus reduce the risk of medical error 2. Furthermore, every visit to an acute care facility carries the risk of hospital-acquired infections among other risks.

In Britain, early efforts to separate routine medical procedures from complex and emergency care have also shown positive results. The British Medical Journal concluded last year that there was enough evidence to support the claim that private clinics can improve the quality of care and could “encourage innovations in the process of care.” 3

Public Design, Public Control

Canada can no longer maintain the status quo. Consideration should be given to innovative solutions such as private focused clinics. The process would be designed not to cause any disruption to hospitals, at least until the concept was sufficiently tested and validated. Governments, or hospitals themselves, could contract the clinics to perform a specific roster of services and would impose very detailed quality assurance, monitoring and reporting regimens. Patient safety could remain paramount and each clinic would have close relationships with nearby hospitals and other local services and supports.

The trials should occur in large population centres where there is a high volume of both suitable procedures and low-risk patients. Our expectation is that patients would see shorter waiting times and better outcomes through specialization, and that the government would benefit from cost savings.

The early evidence to date supporting private clinics is indisputable. Where is the resistance then? Certainly there are many players, from unions to hospital administrators, who are committed to high quality and efficient health services and the need for health system transformation, but who maintain personal stakes in the status quo.  Indeed, many hospitals perform these procedures in ways that are extremely efficient and high quality, but more progress is required. 

There are also political risks to introducing change within a nationally cherished institution. Some stakeholders and a nervous public, for example, would surely amplify any mistakes and oversights within new private clinics. Yet we know that we confront serious cost and quality concerns in our current system. A new model of service delivery is needed where contracts are built from day one not on inputs or outputs, but on achieving outcomes, a concept that has proven elusive in the current system.

Public fears of private delivery include preferential access for the wealthy, an increased role in decision making by insurance companies, provisions of unnecessary services and a motivation to choose profit over the health and safety of patients.

Proper design and oversight can mitigate these concerns, as Saskatchewan’s trials have shown. For example, patients for the private surgical clinic in Saskatchewan are chosen by a publicly administered health district, not by insurance companies and not by the clinics themselves.

These suggested reforms are not about the “privatization of medicare.” From the consumers’ point of view, there would be no noticeable difference in how funding works. They would continue to need nothing more than their health card and their doctor’s referral.

The biggest challenge faced by Canada’s healthcare system today is sustainability. As a country, we have generally been trying to tackle the problem using old solutions. If we don’t take bold steps to get more value for the money we’re spending, we will inevitably be looking at materially unattractive options, such as the closure of small regional hospitals, delisting of insured services, increases in taxes or a reduction in other government services to accommodate the growing demands for health expenditures. Private delivery of some publicly funded services under carefully constructed contracts should be explored further. We don’t have another decade to maintain the status quo.

By Joshua Lawson

Joshua Lawson, Partner, KPMG LLP, Advisory – Strategy & Operations

1 Government of Saskatchewan, Three Year Report, May 2013

2 Government of Saskatchewan, Three Year Report, May 2013

3 British Medical Journal, Outcomes of elective surgery undertaken in independent sector treatment centres and NHS providers in England: audit of patient outcomes in surgery, 2011