A healthy dose of market reality
David Reevely
Ottawa Citizen | 23 January 2007 | C4
Getting a cataract removed in Ontario costs about $580. We know that thanks to a doctor who had the nerve to tell the government that starting to fix public health care would mean subjecting it to market forces.
The doctor is Alan Hudson, assigned by Health Minister George Smitherman to slash waiting times for key surgical procedures in Ontario.
Hudson is a South-African-born neurosurgeon, former chief executive of Toronto's University Health Network (UHN). Teaching awards and a research chair are named after him at the University of Toronto. When he met the Citizen's editorial board last week on a swing through Ottawa, he wore the pin that marks him as an officer of the Order of Canada.
Imagining a heavier hitter in Canadian medicine is impossible. And he knows something about market incentives -- the provincial salary disclosure list says Hudson made $374,002 in 2005.
Yet when he was made chief executive of the UHN, Hudson described it to an interviewer as like making a poacher the head gamekeeper, and he's brought that attitude to the job he's been doing since 2004. The health system is full of perverse incentives, he says, the most obvious being that doctors are paid to see patients, while hospitals are paid by the government regardless of how many patients they treat.
"A hospital gets one bag of gold to run for a year," he says. "It's called a global budget. So your incentive in running a hospital, like I was running UHN, is to look after one patient. That's all. You look after two, you've just doubled your costs. There's no profit, there's no margin. So you're incented to look after one patient a year.
"Before I became the CEO I was a surgeon on a piecework, pay-for-performance deal. So my incentive was to operate as much as I could -- maximize my income. So within one company, you've got one incentive going this way, one incentive going the other way."
In 2004, everybody knew the situation was out of hand, but nobody knew how bad it was. Ontario had no system for tracking how long people were waiting for cataract surgery, joint replacements, heart surgery, or anything else. Nobody even knew what those procedures cost.
With half a billion public dollars at its disposal, Hudson's team figured out a way to solve both problems at once: "[We] take a hospital and say, 'Here's your global budget. You've been doing X cataracts a year. God only knows how you ever got that number because there's no system and no way of measuring it, but that's sort of what you did, and presumably you did a little bit more than last year.' So we said: 'That's your base, that's it ... Now on top of that, how many additional cataracts do you want to do at $750 a pop?'
"This is a voluntary contract. So your CEO comes back and says, 'We'll do another 200 or something, on top of' “the cataract surgeries the hospital was already doing.
Before a hospital executive can decide to do 200 more cataract surgeries for $750, he or she has to figure out whether the hospital's per-procedure costs are more or less than that.
Dr. Brian Day, the president-elect of the Canadian Medical Association, is controversial because his regular job is running a private surgical centre in Vancouver, but he's said his proudest accomplishment has been to force B.C. hospitals to figure out how much their procedures cost them. Sometimes they contract out overflow public cases to Day's private clinic. Before any hospital started doing that, its administrators had to find out whether paying Day's fees was cheaper than finding more staff and space for the hospital to do the operations itself.
Here's the clever part of Hudson's plan: Every time the waiting-times team dispenses surgery contracts, it offers less for each procedure. Cataract procedures started out at $750, but by the time the team was done paying out for the last bunch of surgeries, Hudson says, the wait-times team was spending only $580 per procedure. It's like a series of auctions. He's says he's convinced that before long, the price will be down to $400.
Hospitals that wanted to make more money by doing more operations had to join the wait-times information system. The result: 80 per cent of Ontario's hospitals have joined and waiting times for the five procedures Hudson has been assigned to deal with have been slashed almost everywhere in the province.
The next set of conditions the wait-times team is putting on its hospital contracts is participation in a province wide system for tracking safety and quality standards, which is also meant to ensure that hospitals aren't allowing operations on patients who don't really need them.
Smitherman, the Ontario health minister, for all his public raging in defence of the existing public system, has done nothing about Hudson's work other than take credit for it. Good decision. Call it what you like -- pay-for-performance, marketizing, whatever -- as long as you call it progress.
David Reevely is a member of the Citizen's editorial board. E-mail: dreevely@thecitizen.canwest.com
Listen to a recording of the editorial board's meeting with Alan Hudson at 'current features' on ottawacitizen.com .
