TD Bank Financial Group began their special report on sustainable health care in Ontario arguing that rising health costs are a window of opportunity for some much needed program re-design. To read the full report released May 27, 2010 click here

The report emphasizes the urgency of making changes that ensure Ontarians get “biggest bang for their [health care] buck”. This is not just about dollars and cents. The proverbial carrot is “successful reform would benefit Ontarians in the form of a higher quality of life”.

TD’s recommendations are premised on evidence of surging health costs both now and in the future. Their future spending projection, unpacked exactly what powers “the Pac Man”. (Pac Man is the nickname for the portion of program spending devoted to health care. The term was coined by TD economist Don Drummond.)

The study identifies several drivers of health spending growth: inflation, utilization and, of course, demographics. Like inflation, demographics counts as two drivers, one for population aging and another for population growth. It is important to point out though, that the impact of aging on the health care budget is only 1% growth per year compared to 2% for general inflation and another 2% for utilization. Moreover, the report acknowledges fewer youngsters mean lower investments in public schools, which helps to lessen budgetary pressures.

According to TD’s calculations, the Pac Man’s hunger will keep growing. By 2030, it will “gobble” up almost 80% of Ontario program spending. However this all depends on underlying assumptions – the reports’ authors admit that there are x factors, such as economic growth, that could mean that health spending comes in closer to a 65 % share. Nonetheless, they rightly point out that 65% is still a large chunk of program spending.

TD’s analysis concludes with a stern warning: the Health Care Pac Man is a threat to Ontarians’ future quality of life (especially since it is a post-surplus world and Ontario is not starting with a balanced budget).

What to do? Follow POLICY 101 and begin with research. Next, highlight lessons learned from other jurisdictions: 1. no jurisdiction has all the answers; 2. cost containment means increasing value per dollar; 3. quality improvements require additional revenue; and 4. private financing does not equal public saving.

Next, present a compelling case for reform. TD notes that simply starving programs without reforming them (the strategy of the 1990s) fails to generate sustainable savings. Consequently, TD argues, it is important to restructure how things are done in the health care system today, if we are to have sustainable savings in the future.

This conclusion informs TD’s blueprint for change – a ten point reform package focused on improving information use, changing financial incentives, and bringing in new revenue to improve system efficiency.
TD’s How-To Guide:

Use information to increase the efficiency of the health care system:
1. Engage in health promotion.
2. Get some good data on health inputs and outputs by expanding IT usage.
3. Form yet another committee to provide advice on value for quality health care (are the Kirby Report and the Romanow Commission not enough?).

Alter incentives to improve system efficiency:
4. Shift to a blended physician remuneration model (rather than straight fee for service).
5. Pay hospitals for “episodes of care” not individual services preformed.
6. Allow nurse practitioners and other non-physician health professionals to take on some physician functions.
7. Make the Ontario Drug Benefits Program means-tested rather than age-tested.

Use new revenue to improve efficiency (at the margin):
8. Develop a new revenue source by pre-funding drug coverage.
9. Create more new revenue by adding a health-care benefit tax to the income tax structure.