Rethinking the Welfare State: The prospects for ... - e-Library

Health care 113
pay for is an entirely distinct issue and is discussed below. Nevertheless, in a sector that
provides services so fundamental to the well-being of the population, certain regulations
are necessary. Traditionally in Canada, there has been a tendency toward passivity by
provincial governments in their regulation of health care quality, and malpractice laws
and professional self-regulation have been the primary mechanisms used to ensure the
quality of health care services supplied to the public. Similarly, the assurance of quality
in hospitals has been through a voluntary accreditation process. This relatively passive
role of the government stems from the formidable information barriers faced by
regulators with respect to patients’ health needs and furthermore from the near
impossibility of effectively monitoring the treatment of all patients. These informational
challenges have recently become more tractable as governments are now able to collect
information about treatment and referral patterns and to compare this information with
studies showing optimal treatment and referral patterns, and many governments have
begun to institute various physician and hospital auditing procedures, although much
more needs to be done to provide consumers with the information required to make
effective choices among physicians, hospitals, and other health care institutions.
However, the major driver of cost-effective behaviour by physicians is the system of
remuneration. The three major options are fee for service (FFS), capitation, and salary.
FFS most clearly exposes the information asymmetries inherent in a physician-patient
relationship. Patients generally rely on their physician to diagnose problems and
recommend treatments. From a purely economic perspective, physicians have an
incentive to supply as many services as possible in order to maximize their incomes or to
ignore externalities that their behaviour imposes on other elements of the health care
system. However, economic theory predicts that individuals seek to maximize utility both
in personal income and lifestyle. As a result, physicians may, in fact, work less but
perform more expensive services. 90 A study comparing 19 OECD countries found that on
aggregate, all else being equal, FFS increased health care spending by 11 percent. 91
Numerous alternatives exist for paying physicians. The two most prominent options
are capitation and salary. Under capitation, physicians receive a lump sum for each
patient managed over a given period of time. Although, in the short term, this system
appears to create incentives for physicians to minimize the number of services provided
to each patient, it institutes long-term incentives by encouraging health care specialists to
keep their enrolled population healthy through preventative services. A patient falling ill
in the future poses high service costs to a medical caregiver. If physicians are charged
with the long-term care of their patients, this higher cost will create immediate incentives
for continued preventative treatments (assuming they are responsible for long-term costs
and cannot shift these to other payers).
Capitation would replace the incentives under FFS of offering increased services to a
larger number of patients, with a sharper focus on overall patient health. However, it may
be inefficient for a physician to insure against the potential high costs of one of her
patients becoming extremely ill. As a result, any capitation payment scheme would have
to require or encourage groups of physicians to form cooperative group practices in order
to diversify risk. Further, if capitation were implemented through practice groups,
including physicians and other health professionals, systemic incentives would ensure
that each professional used his or her skills fully and in the most appropriate settings.
Physicians have the most thorough information regarding the health of their patients, and