How Canada’s health care reformers quietly bent the cost curve

Health spending in Canada grew by only 2.6% this year, according to the Canada Institute for Health Information (CIHI). That’s a far cry from the 7% annual spending increases between  2000 and 2010.

This is the fifth straight decline in the growth rate and the third year that per capita health spending has dropped in real terms.  As a percent of GDP, Canada spends 11.2% today, down from a high of 11.6% three years ago. It’s fair to say that health care spending in Canada has essentially flat-lined since the economic downturn of 2008-09.

This all happened despite the almost universal belief among opinion leaders that health spending is out of control and will bankrupt provincial governments. Opinion pages were littered with experts convinced that Canada was doomed to crippling increases in health care spending as the population aged.

Depending on the particular political preference of those making the claims,  Canada either had to privatize the system, raise taxes to cover ballooning spending, or “have an adult conversation with Canadians about facing reality”. Those of us who suggested that sensible, practical reforms were possible within the current model were dismissed as denying reality.

So, now we know the “doomsday consensus” was wrong. What happened?

Well, looking at the most successful province, Ontario, the numbers are striking. For three years in a row, health care spending has increased by about 2% each year, less than the growth rate of the economy. As a percentage of GDP, Ontario is spending 6/10 of a percentage point less on health care than three years ago.

Quietly and effectively, Ontario policymakers have tackled each of the major cost areas within the system. For example, spending growth rates for hospitals, for physicians, and for drugs are down dramatically due to structural reforms in the system.

In reality governments were paying more than they necessary for health care during much of the past decade and growth was unreasonable. New technology investments produced real improvements in health care, but governments had not recouped the resulting productivity gains.  So, while many procedures were now easier and quicker to perform, prices had not come down.

The “true costs” of providing many health care services have been going down for a long time, but only recently did governments apply more disciplined pricing. We’re starting to see spending fall more in line with underlying costs.

Government reforms brought down the cost of generic drugs, the 2012 agreement with the Ontario Medical Association has had a real impact in slowing the growth of physician salaries, and Ontario hospitals have shown real leadership, encouraging the government to invest funds in community care and to introduce pricing reforms..

Most importantly, while spending has come down, Ontario appears to have maintained timely access to care. Surgical wait times declined by about 8% this year and Ontario now has the lowest wait times in the country. CIHI reports that the standardized mortality rate in hospitals has dropped by 11% over the last three reported years in Ontario. There is little evidence that access or quality has suffered over the past four years as we have wrestled real growth in spending close to zero.

But more needs to be done. We need to continue to explore different ways to compensate physicians. We need to continue to move patients more quickly from acute care in hospitals into community care. We need to expand telemedicine and electronic and mobile health technologies. We need to adopt more evidence-based practices known to improve patient outcomes. We need to continue to revisit difficult questions about end of life care. We can do all of this.

The reforms of the past few years are not complete. They are a work in progress. If we continue to drive health care reforms across the system, we’ll realize more savings.  We can expect several more years of low or no growth in health care spending which will allow fiscal room for other investments

We were told we’d go broke as spending rose 6-7% every year and baby boomers gobbled up services.  Well, data released last week suggest that the doomsday consensus was wrong. Let’s give credit to the reformers who have been making progress to improve our system – and continue to support their efforts.

Matthew Mendelsohn and Will Falk co-authored the 2011 report: Fiscal Sustainability and the Transformation of Canada’s Healthcare System, available at www.mowatcentre.ca.

The comments section is closed.

  • Pamela Velos MD FRCSC says:

    This opinion piece is a great example of self promotion and bias – which come to think of it, is exactly what opinion pieces are I suppose. These authors are part of a “think tank”which advises the Ontario government, currently Liberal, specifically the Ministry of Health.

    %featured%OF course the authors are going to say their advice has brought costs down … That’s what they’re paid to do .. advise the MOH on how to bring down costs. They’re happy about a measly 0.8% reduction. Never mind wait times for eye surgery across the province are skyrocketing….note that’s not in their opinion piece, nor are any other adverse consequences of their advice in the opinion piece or anything else they report%featured%

    Meanwhile the brand new 600+ bed Humber River Hospital at Keele and Wilson in Toronto will no longer provide eye surgery as of October 2015, to thousands of people in North west Toronto, many of whom rely on public transit. The closest Hospitals are 10, 11, 15, and 18 km away and they already have long waiting lists for eye surgery. I fail to see how denying people access to timely, quality eye surgery close to home is a good thing. This situation is a direct result of the advice of these authors to the MOH on how to save money.

    I’d love for the authors to be an example to us all and do as they say and not as they advise the rest of us do. Haven’t technology improvements made it easier for them to analyse data and publish it? Time for a pay cut I say and perhaps bring down the cost of health care consulting in Ontario.

  • Rob says:

    I am not a professional in this matter but surprised that in spite of spending > 11% of budget Canada is not able to provide good health care system. I feel that funds are not utilized properly. I live in Atlantic Canada and the population is only 2.4 million. All these provinces should have common health budget at least Nova Scotia, New Brunswick and PEI. It will definitely cut down the administrative cost and redistribution of the patients to cut down the wait list. It needs political will not statistics and it is high time people should understand it.

  • Dr. G. Attallah says:

    I am surprised to see so much focus on cost when we speak about health care. The economy of health care is about behavior, values, and events.

    Are we proud of the care that we deliver? Do we focus on what needs to change for better health and better health service? Does anyone make the distinction between health care and health service?

    %featured%Physicians and the medical community is focused on delivering the best health care. The government with the help of the OMA should be focused on delivering the best health service which is what is sadly lacking.%featured%

    Is it possible that the “cost” of health care will continue to go down as our population ages and dies. As the death rate increases the cost of healthcare could decrease because there are less people to care for. Is that how we should be measuring success?

    It is very inexpensive to die of lung cancer from smoking cigarettes. Dying quickly as in suicide does not cost the system. Is that what we want as a society?

    Dr. G. Attallah

  • Zenek Dybka says:

    The projections of out of control health care spending largely excluded the impact of continuous improving productivity due to adoption of new technologies. I refer to advances in therapies that actually improve health outcomes such as the relentless development of new and improved medicines in virtually every therapeutic area and advances such as surgical techniques (e.g. minimally invasive surgical techniques). Health care is a very labour intensive industry, remember something like 70-80% of costs in health care are labour, and health care labour is very expensive (doctors, nurses, and others). Health policy analysts should not forget basic economic theory. Improving productivity in the health care industry in Canada can mainly be accomplished by investments in 1. Capital (i.e. new technologies such as diagnostics, surgical instrumentation, new medicines), and 2. New Processes (i.e. the management function to continuous improve work processes to drive quality/improved outcomes). A few economists (e.g. Frank Lichtenberg, Columbia U.), have studied this and have measured a dramatic cost reduction in health care costs when newer vs older technology was used. I suspect the bending of the health curve in Canada can largely be traced to adoption of these new technologies that allowed improvements in health outcomes and thus allowed process improvements in hospitals, clinics, etc rather than just getting some better prices for drugs – although lower generic pricing in Canada was many years overdue.

  • Tom Brogan says:

    Much of the decline in spending has been a result of one time events. Drug spending alone likely accounts for a very large portion of the reduction in growth and this is due to patent expires over the past 4 years, and the very bold move to cut generic prices. Cutting some specialty prices (cataract) is another example. All of these are one time events and while lowering the spending line, these actions do not change the curve. We need far more efficiencies in health care delivery that have a permanent effect on costs and better ways to improve quality at the same time.

  • Robert Bear says:

    To the authors: Thank you for a thought-provoking post. However, like other commentators, I am uncertain about the genesis and sustainability of the flattening of the cost-curve. More importantly, I have grave reservations about the quality of services offered by our system – and am not reassured by high-level wait-list or SMR data. While each should inform the other, the cost of the system and the quality of service provided by it merit independent assessment. In regards quality, John Dean’s famous maxim: “Just follow the money” doesn’t work. Innumerable specific examples of major quality concerns are readily available. In my humble opinion, our health care system needs much more than ongoing, politically-acceptable “nibbling at the edges” with marginal effects on costs and little improvement in quality. This biased view offered in the spirit of “Healthy Debate.”

    • Michelle Goulbourne says:

      I agree with you Robert and would take it a step further to question the logic of the cost curve approach we have taken in Ontario. Current cost based results are nice but likley reflect the result of finally addressing low hanging fruit. The complexity of the task of addressing cost and quality have not really been addressed.

      • In a recent IRPP publication it was stated that “Bending the cost curve is technically simple: governments can decide to allocate less money, just as they did in the mid-1990s.”

      If population health is our goal then bending the cost curve in a sustainable way must have care quality as the starting point for change. Unfortunately, things are not as they were in the mid-1990s. Hospitals are developing increasingly diversified financial bases. So the impact of reduced allocations and percentage penalties for poor quality (if ever implemented in Ontario) will likely have less of an impact…if any at all.

      When poor quality hospitals thrive…we all have cause for concern.

  • Rob Sargeant says:

    The bending of the ‘cost curve’ was likely due, at least in part, to the slowing economy. It is important to remember that a significant portion of health care spending in Canada occurs in the private sector and is, therefore, ‘discretionary’. This exact same trend has happened to greater degree in the United Sates, partly because they had higher spending (as a % of GDP) to start with, and partly due to more of their system falling outside of the public sphere. The real challenge for everyone in terms of cost containment lies ahead, when the baby boom generation starts to get sick and die. We have hit a demographic sweet spot in Canada in recent years with declines in both birth rates and death rates (health care dollars get spent at the extremes of our lives). This won’t last much longer unless we figure out a way to live forever%featured%. This important point is not ‘doom and gloom’ – it is simple math – and is understood to be true for everything from pensions, to old age benefits, to health care. I agree that credit needs to be given where credit is due, but it is very short-sighted to assume that recent policy changes are the primary contributing factors to cost reduction, or that the recent happy results are at all sustainable.%featured%

    • Dr Merrilee Fullerton says:

      Excellent post. We need to look forward as well as back to understand the changes required. Complacency has no place in understanding what cones next.

  • Andreas Laupacis says:

    %featured%On the cost end, although the results are encouraging, we should remember that health care expenditures were flat lined in Canada from 1992-97, only to increase afterwards at a higher rate than before. So, I think we need many years of low growth before declaring victory on expenditures.%featured%

    In terms of access, Canada does poorly internationally. We should stop comparing ourselves with other provinces and compare ourselves with other countries. We should also measure and report some of the wait times that are really important to patients but we are astonishingly silent about, particularly the waits to see specialists. I suspect the picture wouldn’t look that great.

    • Christal Huang says:

      I agree – compared to other countries with fewer resources than we have, the Canadian system is not at its peak performance. We should be looking into ways to take advantage of the resources we have and take out of them as much as we can. We need a system reform that re-allocates resources appropriately to serve the different health and medical needs present. With the training of other healthcare or medical roles, we can decrease the traffic in ERs, for example, and decrease wait times there. Much of the wait in ERs is contributed by emergencies that could otherwise be attended to by nurses. We need a system reform that sufficiently educates professionals and the public about the value and potential of our healthcare resources. Patients need to be aware of the impact that they have on the system when they do not show up for appointments without notice. Much of this can be inspired from other healthcare systems around the world. Comparing ourselves with other provinces/territories in Canada will not lead to significant progress to see the changes we want to see right now and in the future.


Will Falk


Will Falk is a senior fellow at the CD Howe Institute, an innovation fellow at the Women’s College Hospital Institute for Health System Solutions and Virtual Care and an executive-in-residence at the Rotman School of Management at the University of Toronto.

Matthew Mendelsohn


Matthew Mendelsohn is the Director of the Mowat Centre at the University of Toronto.

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