Wednesday, June 2, 2010

A funny thing happened on the way to Canada

Technically, this doesn't qualify for Nancy's Nuances: a journey of discovery as nothing specific to the ObamaCare legislation is revealed but as we travel down the road to socialized medicine this is certainly what we can expect.

From the Reuters article Soaring costs force Canada to reassess health model:

Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies when it said earlier this year it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.

British Columbia is replacing block grants to hospitals with fee-for-procedure payments and Quebec has a new flat health tax and a proposal for payments on each medical visit -- an idea that critics say is an illegal user fee.

And a few provinces are also experimenting with private funding for procedures such as hip, knee and cataract surgery.

It's likely just a start as the provinces, responsible for delivering healthcare, cope with the demands of a retiring baby-boom generation. Official figures show that senior citizens will make up 25 percent of the population by 2036.

"There's got to be some change to the status quo whether it happens in three years or 10 years," said Derek Burleton, senior economist at Toronto-Dominion Bank.

"We can't continually see health spending growing above and beyond the growth rate in the economy because, at some point, it means crowding out of all the other government services.

"At some stage we're going to hit a breaking point."

(italics, ours)
In a world where the government is not interfering with setting the price of goods and services, "incentive fees" would be known as "profits".

And the allegedly illegal user fees, "fee for procedure" and "payments on each medical visit" and "private funding" sound suspiciously like "paying for your own health care" a radical idea that is coming back into vogue with nations confronting the reality of unsustainable socialized medicine.

Brian Golden, a professor at University of Toronto's Rotman School of Business, said provinces are weighing new sources of funding, including "means-testing" and moving toward evidence-based and pay-for-performance models.

"Why are we paying more or the same for cataract surgery when it costs substantially less today than it did 10 years ago? There's going to be a finer look at what we're paying for and, more importantly, what we're getting for it," he said.

Why indeed?

The losers could be drug companies and pharmacies, both of which are getting increasingly nervous.

"Many of the advances in healthcare and life expectancy are due to the pharmaceutical industry so we should never demonize them," said U of T's Golden. "We need to ensure that they maintain a profitable business but our ability to make it very very profitable is constrained right now."

This represents a self-inflicted bind of socialized medicine: The government places itself in the position of determining how much profit can be generated by the pharmaceutical firms. By limiting the profit margin, however, the government is also limiting the incentive for the pharma firms to produce and to invest in research and development. It's effectively a price control that stunts service and innovation in the medical field.

Scotia Capital's Webb said one cost-saving idea may be to make patients aware of how much it costs each time they visit a healthcare professional. "(The public) will use the services more wisely if they know how much it's costing," she said.

"If it's absolutely free with no information on the cost and the information of an alternative that would be have been more practical, then how can we expect the public to wisely use the service?"

But change may come slowly. Universal healthcare is central to Canada's national identity, and decisions are made as much on politics as economics.

"It's an area that Canadians don't want to see touched," said TD's Burleton. "Essentially it boils down the wishes of the population. But I think, from an economist's standpoint, we point to the fact that sometimes Canadians in the short term may not realize the cost."

Since the cost of doctors visit are invisible to the consumer because it's all "free", there is simply no incentive for the consumer to self-ration, something that we all do every single day of our lives when making purchasing decisions.

The idea of socialized medicine simply wishes away the fundamental fact that the more frequently you pay for goods and services out of pocket, the more transparent the cost structures in an economy become and no amount of 5-color PSA brochures are going to change that fact.

The article seems unwilling to admit it but the overwhelming conclusion to be gained from the evidence presented is: Paying for your own health care represents the most efficient health care model.

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