incentives and regional payments

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36 Healthcare Management Forum Gestion des soins de santé poll tax is defined as one where everyone pays a fixed amount, regardless of age, sex, income or wealth. There is a proposition in economics that states that a poll or head tax (also called capitation) is the most efficient tax. It does not interfere with market processes which are responsible for delivering goods and services to the consumer, and it is incentive-free. The poll tax does not coincide with everyone’s view of “fair”; rich and poor pay the same amount. Despite this, it has been used twice in the United Kingdom – by John of Gaunt in the 14 th century and Margaret Thatcher in the 20 th . The poll tax was not wildly popular in either situation; it led to the Peasant’s Revolt in 1381, and it was replaced by a slightly different tax in England in 1992. When it comes to incentives, the capitation payment to health regions has some similarities to the poll tax. The region receives a payment that is based on, but cannot be affected by population characteristics of the region, including age, sex and income. This payment provides the financial resource with which regions pay for hospital care, public healthcare and some continuing care. How services are used (for example, the resulting hospitalization rates and lengths of stay) will not be affected by the capitation rate. The capitation rate is considered to be “fair”, but it does not address resource movement, and hence efficiency, in any way. The Regional Health Authorities (RHAs) were introduced into Canada in the mid 1990s, and indeed in many countries about that time, as look-alikes to the American Health Maintenance Organization model. There was a hope that the new payment system would encourage regions to spend more on health maintenance and public health activities, with associated benefits to population health status, and perhaps result in some savings due to lower utilization. But there is no component of the Canadian capitation formula that will bring this about. The regional capitation payment is merely a poll tax in reverse. At the same time, the Canadian capitation payment is very different from its American counterpart, the forerunner of this type of payment system. In the United States, the capitation payment is a competitive tool; Health Maintenance Organizations try to attract new members by lowering their costs (e.g., reducing hospitalizations and stays) and adjusting their rates. But the environment in Canada under which capitation payments are made is totally different from that in the United States. The Canadian payment system does not seem to have brought on efficiencies – nor should we have expected that it would – and the healthcare system is now faced with long waiting lists, a problem shared by many countries with primarily government systems. There is a movement in Canada towards a primary care model that integrates physician, nursing and other care into an extension of the Canadian capitation model. It is hoped by those who propose it that such a system will bring about more prevention and better health. However, no explicit incentives that will bring about these virtuous outcomes exist in the new primary care model. It is therefore difficult to see how this change will affect our fundamental healthcare problems, any more than did the capitation system. Northern European countries that have moved much further along the road towards this model are faced with the same problems as we are. If problems associated with shortages are to be solved in any way other than more money, incentives, public or private, will have to be recognized. MEMBERS SPEAK OUT Incentives and Regional Payments by Philip Jacobs Philip Jacobs, BCom, DPhil, is an economist and accountant, and a professor in the Department of Public Health Sciences at the University of Alberta. His research is in the areas of healthcare funding and the economic evaluation of health services and programs. A This is the second submission of our new regular feature, the “Members’ Speak Out” column. It has been designed to enhance and stimulate dialogue amongst our members and ultimately ignite the fires of debate. We encourage you to respond to these columns and let your voice be heard.

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Page 1: Incentives and Regional Payments

36 Healthcare Management Forum Gestion des soins de santé

poll tax is defined as one where everyone pays a fixed amount,regardless of age, sex, income or wealth. There is a proposition ineconomics that states that a poll or head tax (also called capitation) isthe most efficient tax. It does not interfere with market processeswhich are responsible for delivering goods and services to theconsumer, and it is incentive-free.

The poll tax does not coincide with everyone’s view of “fair”; rich andpoor pay the same amount. Despite this, it has been used twice in theUnited Kingdom – by John of Gaunt in the 14th century and MargaretThatcher in the 20th. The poll tax was not wildly popular in eithersituation; it led to the Peasant’s Revolt in 1381, and it was replaced bya slightly different tax in England in 1992.

When it comes to incentives, the capitation payment to health regions has somesimilarities to the poll tax. The region receives a payment that is based on, butcannot be affected by population characteristics of the region, including age, sex andincome. This payment provides the financial resource with which regions pay forhospital care, public healthcare and some continuing care. How services are used(for example, the resulting hospitalization rates and lengths of stay) will not beaffected by the capitation rate. The capitation rate is considered to be “fair”, butit does not address resource movement, and hence efficiency, in any way.

The Regional Health Authorities (RHAs) were introduced into Canada in the mid1990s, and indeed in many countries about that time, as look-alikes to theAmerican Health Maintenance Organization model. There was a hope that thenew payment system would encourage regions to spend more on healthmaintenance and public health activities, with associated benefits to populationhealth status, and perhaps result in some savings due to lower utilization. Butthere is no component of the Canadian capitation formula that will bring thisabout. The regional capitation payment is merely a poll tax in reverse. At the sametime, the Canadian capitation payment is very different from its Americancounterpart, the forerunner of this type of payment system. In the United States,the capitation payment is a competitive tool; Health Maintenance Organizations tryto attract new members by lowering their costs (e.g., reducing hospitalizationsand stays) and adjusting their rates. But the environment in Canada under whichcapitation payments are made is totally different from that in the United States.The Canadian payment system does not seem to have brought on efficiencies –nor should we have expected that it would – and the healthcare system is nowfaced with long waiting lists, a problem shared by many countries with primarilygovernment systems.

There is a movement in Canada towards a primary care model that integratesphysician, nursing and other care into an extension of the Canadian capitationmodel. It is hoped by those who propose it that such a system will bring aboutmore prevention and better health. However, no explicit incentives that will bringabout these virtuous outcomes exist in the new primary care model. It is thereforedifficult to see how this change will affect our fundamental healthcare problems,any more than did the capitation system. Northern European countries that havemoved much further along the road towards this model are faced with the sameproblems as we are. If problems associated with shortages are to be solved in anyway other than more money, incentives, public or private, will have to be recognized.

MEMBERS SPEAK OUT

Incentives and Regional Paymentsby Philip Jacobs

Philip Jacobs, BCom, DPhil,is an economist andaccountant, and aprofessor in the Departmentof Public Health Sciencesat the University of Alberta.His research is in theareas of healthcarefunding and the economicevaluation of healthservices and programs. A

This is the second submission of our newregular feature, the “Members’ Speak Out”column. It has been designed to enhanceand stimulate dialogue amongst ourmembers and ultimately ignite the fires of debate. We encourage you to respond to these columns and let your voice be heard.