Is Drummond realistic? The challenge of achieving zero increase in physician compensation

The Drummond Report recommended no increase in total compensation for Ontario’s doctors.

A number of factors affect how much Ontario pays doctors including the number of doctors in practice, how many patients they see, and how much they are paid for each service.

Achieving zero growth would require difficult decisions and trade-offs.

The February 2012 Commission on the Reform of Ontario’s Public Services (commonly referred to as “the Drummond Report”) made a number of recommendations regarding Ontario doctors. Two recommendations explicitly addressed how much doctors should be paid:

  • Recommendation 5-60 says “it is reasonable to set a goal of allowing no increase in total [physician] compensation.”
  • Recommendation 5-61 states there is a need to “adjust fee schedules in a timely manner to reflect technological improvements, with the savings going to the bottom line of less expenditure on health care.”

If the Ontario government chose to accept these recommendations, could they be implemented? In this article, we examine some of the challenges and implications of a policy of no increase in total compensation for Ontario physicians.

How are Ontario doctors paid?

Ontario’s doctors are paid through both “fee for service” and alternative funding arrangements.

Fee for service means doctors are paid for each service they provide, according to a set fee listed in the OHIP Schedule of Benefits. If doctors see more patients or do more procedures, they are paid more.

Alternative funding arrangements do not pay doctors strictly on the basis of the number of services provided, but focus on factors such as whether they provide teaching to medical students, the number of patients in their practice (which is called capitation), the complexity of the patients in their practice, or their ability to meet certain quality targets (such as the proportion of their patients who receive the influenza vaccine).

Currently, about 70% of family doctors in Ontario are paid through some form of alternative funding arrangement, while the other 30% still get their income exclusively through fee for service. Roughly 50% of specialists in Ontario receive at least some pay through an alternative funding arrangement.

The proportion of publicly funded earnings by Ontario doctors coming from alternate funding arrangements is currently about 30%. The Drummond Report recommends reversing this ratio, so that roughly 30% of physicians’ earnings come from fee for service billing and 70% from salary or capitation.

How much do Ontario doctors earn?

A recent report from the Institute for Clinical and Evaluative Sciences examined publicly funded payments to Ontario’s doctors and found that:

  • The average doctor in Ontario received payments from the public purse of about $335,000 in 2010 (virtually all doctors need to pay some office expenses from this income)
  • There were large variations in payments to doctors between specialties, with radiologists and ophthalmologists earning an average of about $600,000 per year, surgeons and medical specialties that do a number of procedures (e.g. cardiology and nephrology) between $400,000 and 500,000 per year, family doctors an average of $300,000 per year and non-procedure medical specialists (such as geriatricians) earning $200,000 to 300,000 per year.

Can the goal of no increase in total compensation be achieved?

Total public compensation to Ontario physicians is determined by the number of practicing doctors, the number of patients they see or procedures they perform in the fee for service system, and the amount of the fees provided by the fee for service and alternate payment mechanisms.  Because of these different factors, it is impossible to describe all of the possible scenarios by which zero growth in total physician compensation could be achieved. However, we will highlight a few important factors that will need to be carefully considered.

Changes to the Schedule of Benefits

The government could try to achieve zero percent growth by freezing the fee schedule.  However, a fee freeze would still see total payments to doctors increase, since the number of doctors practicing in Ontario is increasing. In addition, individual physicians could respond by increasing the volume of services they provide.

Freezing the fee schedule might also have some unintended consequences.  The current Ontario government has indicated that they would like physicians to make more house calls. One way to do this would be to make house calls more financially attractive by increasing the fee paid for house calls. But this option would be off-limits if fees are frozen.

Alternately, the government could aim for a zero net increase by allowing for fee balancing, where fee codes could be increased for some services, while decreasing the fees for others, taking into account the projected volume of these services.  Although it hasn’t happened often, fee codes have been decreased before. For example, technological advances have allowed cataract surgery to be performed much more quickly than in past.  As a result, the volume of cataract surgeries, along with ophthalmologists earnings, increased markedly.  In response, Ontario decreased the fees for cataract surgery in 2011.

Growing Numbers of Doctors Entering the Workforce

In the past decade Ontario, along with most Canadian provinces, has substantially increased the number of students in medical school. In 2000, there were 571 students accepted to medical school in Ontario. In 2011, there were 952.

This means that the number of medical school graduates entering the profession now outnumbers the number of doctors retiring. As well, more doctors are retiring later in their careers and fewer are leaving practice when they reach 65.

Bob Evans, a health economist at the University of British Columbia has written that “while others talked, Canada’s medical schools have acted. The money is pre-committed.” With a large cohort of newly graduating doctors across Canada, many of whom wish to practice in Ontario, the only way that total payments to doctors can remain constant is to either restrict the number of internationally trained physicians who can come to Canada, or decrease the earnings of some individual doctors.

Responding to Incentives & Changes to Practice

One of the major health care priorities of the Ontario government in the past few years has been to decrease wait times for services like cataracts, joint replacements and CT/MRI scans. This has been achieved by paying hospitals and doctors to do more procedures. Therefore, it is not surprising that the earnings of ophthalmologists, radiologists and anesthesiologists have increased.

Ontario’s population continues to grow, and the need for some of these procedures will slowly increase as the population ages. Therefore, even if there is a decrease in some fees, this will be at least partially offset by an increase in the number of procedures being done. As the numbers of procedures increase, it will be important to carefully monitor the appropriateness of procedures such as cataracts and diagnostic scans.

Changing models of practice also influence physician earnings. Most family doctors in Ontario now work in practices where they are paid through alternate funding arrangements. The same is true for about 50% of Ontario’s 13,000 specialists. The transition to these alternatives was associated with significant increases in physician earnings.

The Drummond Report suggested increasing the amount paid to doctors through alternate funding arrangements even further, in an attempt to reward quality over quantity of care.  As this shift takes place, if total earnings are to remain unchanged, then the increases in earnings through alternate funding arrangements must be matched by decreases in earnings through fee for service. This will require sophisticated modelling of future practice, and such modelling often turns out to be inaccurate.

Caps on salaries

In the past, the Ontario government has put caps on the amount that individual doctors or groups of doctors can earn. Earnings above these caps must be paid back to the government, either in total or according to a sliding scale (e.g. a physician returns 25% of the first $50,000 of earnings above the cap, 50% of the next $50,000, etc).  The previous cap was removed in 2005 as part of the Ontario Government’s contract negotiation with the Ontario Medical Association.  These caps were unpopular with physicians and it is not clear whether the government would consider them seriously.

Does Focusing on Zero Growth in Payment Ignore Other Important Issues?

Doctors’ earnings account for about 20% of Ontario’s health care costs. However, doctors also play a central role as gatekeepers and cost drivers in the health care system – for example they order medications that account for about 16% of health care costs. Doctors also order most of the expensive tests that are conducted by hospitals. One way to control health care costs would be to make physicians collectively more accountable for total health care system costs. In a future story, we will explore how that might be done.

Do you think that zero growth in doctors’ total earnings should occur?

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  1. Roger Chafe

    I think articles like this one, and the one you reference by Bob Evans, are really needed now to help start a serious debate on the type of choices that will be needed to achieve either the targets proposed by Drummond or the new federal health accord proposal. Everyone supports targets until they see what achieving them will require for the availability of services and individual salaries. Great job.

  2. Ritika Goel

    Thanks for this piece. I’m wondering if there have been any plans to actually negotiate reimbursement rates in the Fee Schedule. I think this is actually drastically needed for procedures such as cataract surgery that historically took much longer to perform and are now paid the same but take 5 mins. This means we have ophtos earning on average $455,000 in 2004-2005, and that is just the average. While I disagree with much of what Drummond has proposed, a decrease in physician salaries is something we seriously have to look at.

  3. Mark MacLeod

    Andreas and Karen:

    I applaud you for a challenging article. This is not easy information to grab on to and talking about it is something that we as a profession don’t do often or well.

    On the productivity piece we collectively missed the boat along time ago. A plant worker who is made 4 times more efficient by use of a new tool is not paid 4 times as much. The productivity dividend is accrued to the owner or the investors. Physicians are not “employees” in the common sense of the word but they are system employees like it or not. They are not the owners or the investors so the productivity dividend should not have accrued to them. Agreements should have been structured to automatically adjust fees with anticipated new technologies. A number of specialties have seen their incomes skyrocket because of technology and nothing else. As a profession we have been reluctant to move on them because of legal challenges by specialty groups in the past and because I think we all hope one day “our turn will come”. It’s been ethically and intellectually bankrupt. Hence now the huge relativity problem between non-procedural specialities and procedural specialties. It would be a fair proposal to look at target incomes and adjust fees accordingly. That’s the consequence of living in a closed loop system such as we have now in Canada.

    Moving to Zero net increase is a tougher proposal because in reality it will mean turning incomes backward for many physicians. If compensation is not just from “fees” but from utilization (how much services are provided) then zero net growth means not only stopping fee increases but stopping additional services. I havn’t seen the goverment talk about which services they want stopped or limited (and there are many that could be) zero net growth means that the usual increase in services on an annual basis (for population growth, aging population etc) will have to stop. Is society ready for that.

    There are some easy measures that could be instituted. I think every provider and every patient should know what every test, treatment, and delivery costs in the system. Order sheets should have costs beside them and every patient would benefit to know what their medical care actually costs (because we all right now think it is “free”).

    Is Drummond doable – anything is doable if realpolitik approves. However, right now, I don’t think we are anywhere near ready as a society for the sting of Drummond. If the Harris period in Ontario is any indication, turning down the screws can be tolerated only for so long.

  4. Ben Klein

    Populations in Canada generally punish their respective provincial governments when they perceive their health care has been cut. It will be difficult to cut this much out of health care without actually providing less health care services to the receiving population. You can legislate all you want, it is very unlikely the same level of services will be provided to the population with these types of cuts. The population is aging and requires more, not less heath care. Medical advances often equate with more health care costs. Look at the advances in curing cancer over the years; obtained at a huge expense. Likewise organ transplants in children; mortality in children from certain diseases has decreased at huge lifelong expense for every child saved. Great article, but I fear the population may be jolted by the outcome of this cost cutting, which could translate into unpredictable outcomes for the Government of Ontario and it’s people.

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