Performance-based funding: A carrot in the quest for better health care

VICTORIA — The Globe and Mail

Surgeon Dr. Elaine McKevitt, (L) assisted by Dr. Anne Wachsmuth during a "lumpectomy"-- the removal of a benign lump at Mount Saint Joseph Hospital in Vancouver September 22, 2010. Mount Saint Joseph Hospital is one of Providence Health Care's hospitals. (John Lehmann for The Globe and Mail/John Lehmann for The Globe and Mail)

The words "health-care costs" were affixed to the phrase "not sustainable" nearly five years ago in a Throne Speech in the B.C. Legislature.

At the time, the provincial government promised to tackle the tough questions of how to keep a public health-care system alive in the future. And in every budget since then, it has aimed to bend down the cost curve - and largely failed. The gap between rosy spending forecasts and actual spending, in the last five years, adds up to an overrun of $2.5-billion.

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This week, Health Minister Kevin Falcon rolled out performance-based funding to hospitals, the latest innovation to "ensure we have a sustainable health-care system."

It's just one reason he thinks he'll be able to deliver on a challenging target, to cap health spending increases at just 2.8 per cent - less than the expected rate of inflation and population growth - in the budget year of 2012.

The changes he announced trace their roots back to that February, 2006 Throne Speech commitment. Premier Gordon Campbell would travel Europe that year to examine how other countries were handling the demographic challenge of ever-fewer taxpayers supporting ever-more seniors with increasingly complex needs.

The notion of bringing pay-for-performance into B.C. hospitals came out of that tour.

Reining in costs in the health-care system, Mr. Falcon acknowledged in an interview this week, is a slow and hard-fought battle.

"The only way you are going to reduce that cost curve in health care is you have to be willing to change things," he said. "And the forces of the status quo in health care are extremely strong."

To counter that strong push back against change, Mr. Falcon has elected to use a carrot - a total of $250-million over two years is pledged to designated "pay for performance" surgeries and diagnostic tests.

"Sometimes the only thing the system will react to is dollars," he said, "and I'm absolutely willing to do that."

Just the first round of contracts, worth $23-million, is supposed to generate 33,000 more surgical operations or procedures. It's a relatively modest amount of money as far as health-care spending goes, Mr. Falcon said, "but the behaviour change it drives in the system is quite significant."

Health-care spending in B.C. has nearly doubled in the last decade. What alarms the keepers of the treasury, however, is what they see coming: an aging population. B.C.'s fastest growing demographic is the over-80 cohort. There are also the demanding baby boomers who want their MRIs and their hip replacements. Plus there is the rapidly inflating cost of pharmaceuticals.

Mr. Falcon has also been busy on other fronts. In his 15 months in this portfolio, he has announced a new generic drugs deal which he says will reduce annual drug costs by $380-million by 2015. He has committed $137-million over two years to promote primary-care reform - that is, using family doctors to do more to reduce demands on the more expensive acute-care side. He is pushing shared services between the health authorities to reduce administrative costs.

Health policy consultant and academic Steven Lewis believes Mr. Falcon's prescriptions can result in new efficiencies, but it's all on the margins.

"It's very optimistic to assume that tweaking a funding formula here or there is going to get the job done," he said. "If you want to alter the cost curve to even the rate of the inflation, you'll have to do some more fundamental things."

Mr. Lewis said the challenge - and it's one that has been avoided so far by every government in Canada - is to question if the goal really should be more MRIs and hip replacements. "Is this a commodity that you can never get too much of, or is it possible to conceive of too much?"

Mr. Falcon has hinted at this but has yet to take it on directly. In the midst of his presentation on patient-focused funding, he mentioned that B.C. has been "deluged" with MRI requests. He provided funding for an additional 14,000 exams, but at the same time, "we will also be putting in place parameters for the appropriateness of MRI procedures to ensure they are based on best practices."

The comment was lost in the news of the day, but foreshadows the next wave of Mr. Falcon's quest for a sustainable health-care system.