The Health Care Cost Curve: Bending if Necessary but not Necessarily Bending?

The Canadian Institute for Health Information (CIHI) has put out their 2013 National Health Expenditure Report and the big story seems to be that the numbers show that public sector health care costs in Canada are declining.  Real per capita public sector health care spending (in 1997 dollars and I used the Health Care Implicit Price Index to construct these estimates) was $2,792 in 2011 and is forecast at $2,784 in 2012 and $2,774 in 2013.  These estimates also represent annual percent declines of -0.4 in 2011, -0.3 in 2012 and -0.3 in 2013.   As Figure 1 shows, this is the first time in a long time – since the early 1990s to be precise – that per capita spending has gone down. The question is, does this represent the result of successful attempts to reform public health care spending?

If these declines are the result of successful transformative change attempts that control health care spending in a manner that maintains or boosts services and reduces costs, then this is a good thing.  If this is simply being accomplished by reducing services, then this is not a good result.  Part of the answer may lie in where the declines are occurring. Figures 2 and 3 plot the annual growth rates for real per capita spending from 2011 to 2013 for the main categories of public sector health spending as laid out by the CIHI.  The results are interesting.

There have been consistent increases over the last three years in real per capita public sector health spending for physicians, vision care and other professional care.  Hospitals saw increases in two out of the last three years.  Drugs, administration, research and all other health spending (eg. Home care, etc…) all saw consistent declines across all three years.  Capital spending, dental and public health saw decreases in two out of the last three years. 

 

So is there a story here?  Well, the biggest declines seem to have occurred in areas that have seen high growth rates over the last few decades of health expenditure growth – especially drugs.  Hospitals and physicians, the traditional core of public health care, have actually gotten off lightly from recent restraint even though they still represent the bulk of spending.   Hospitals and physicians still account for 60 percent of Canadian public sector health spending.  Capital and research have been particularly hard hit but they are politically the easiest ones to hit given that any effects of reducing spending here will materialize over the longer term. If there has been one consistent area of success when it comes to controlling costs it does appear to be public drug spending as the annual growth rate of real per capita spending there has been below 2 percent since 2007 and 2010 to 2013 has seen negative growth each year.  My guess is that the decline in real per capita health spending will be short-lived given that the brunt of the decline has been borne by 40 percent of public sector spending – unless the next wave of restraint/reform  also affects hospitals and physicians.

Comments

[Benoit Essiambre]

It would be interesting to see this data adjusted for age in some way. Per capita is not quite right with this analysis as an aging population requires more health services.

If the cost is going down per capita while the population is aging we are either doing quite well or neglecting aging patients.

[Livio Di Matteo]

Benoit: I agree. The CIHI also reported that spending on "old seniors" was three times that of "young seniors."

[Livio Di Matteo]

Benoit: Just to fill out my previous comment more fully - the CIHI reports that provincial/territorial health spending per capita in 2011 was $26,336 for seniors aged 90 years + and $24,003 for those in the 85-89 category and $6,431 in the 65-69 age category.

[Shangwen]

There was a similar slowdown in all HC spending in the US. The consensus there is that it's almost all attributable to the recession. Given the politics of HC in this country, I find it hard to see any other reason for the slowdown here.

Benoit: It appears from the report that home care spending had a brief setback. In demographic terms, home care is our major institutional bulwark against the potential financial ruin caused by a huge expansion of inpatient long-term care. So if home care spending isn't growing, there likely isn't a lot of fundamental reform going on. Having said that, it's not clear from the definition used by CIHI that they're talking about what most people in healthcare would call home care (see here, p.42).

Livio: a tweak on spending is that some of the spending coded as "private insurance" is health care benefits paid to public sector workers and retirees. The PS is relatively small but has generous pay and very generous benefits compared to private. Public sector wages in 2012 were $16.5 billion (sadly, a terminated data series). If we estimate an additional 10% of that for employee health benefits (and not including retirees), that's $1.6 billion that's actually government. A drop in the bucket, relatively speaking, but it's worth noting that both CIHI and OECD code that as private.