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Integrated Healthcare – Structural Mechanisms

By: Ashim Khemani

While Romanow, Kirby, Mazankowski, Claire, and several other patriotic Canadians have laid out thoughtful imperatives for reforming the Canadian healthcare system, changes in the political landscape have essentially put most of the collective work of this group in the back rooms.

However, with the introduction of a new government, healthcare sustainability and renewal will once again most certainly be front and centre on the agendas of government across Canada.

These deliberations drew on findings from two new federal studies, as well as recent provincial task forces and commissions. One of the common themes running through many of these reports was the need for any new investments in healthcare to be used to buy lasting change in the system. To help inform the debate, growth in total public and private spending on healthcare has regularly outpaced inflation over the last 30 years. Overall, we spent an estimated $112 billion in 2002 to improve or maintain our health, an average of $3,572 per person.

Healthcare reform in Canada, once again, has reached an impasse. The public sector, medical bodies, and private insurers remain focused on squeaking out some efficiency in their independent verticals. Medicare retains popular support, but is structurally incapable of containing demand for health services or restricting expenditure growth even though its available resources are limited.

Private insurers are unable to curb health treatment costs and fight the economic challenges of a mature market, which is being principally combated with unprecedented consolidation. Medical organizations protest the high turnover in general practice, the availability of specialists, and the long waiting lists at public hospitals, but fiercely resist the introduction of contracted arrangements with insurers or alternatives to fee-for-service payments in primary care.

So the question is whether the key to healthcare reform now lies in the development of structural mechanisms which can assign to consumers the capacity and the incentive to contain health costs and to integrate service delivery systems.

The following is a strategic approach to healthcare reform based on the development of these structural mechanisms so as to create the conditions for favourable public policy change. Without the necessity of setting a new dynamic for performance, the present stalemate will continue.

One model is called Integrated Health Care. It is a collaborative effort to provide health consumers with both a capacity and an incentive to contain health costs and to integrate service delivery systems. The model is drawn from the principals of some of the largest consumer-governed non-profit healthcare systems in the world.

Rationale For Change

Neither Medicare, insurers, nor doctors currently have the capacity, and, perhaps, a sustainable incentive to contain health costs and integrate service delivery.

Medicare provides medical benefits for highly compartmentalized interventions with no structural ability to integrate primary care or to curtail over-servicing. It provides hospital benefits, but its only means of containing costs is rationing of services (exercised indirectly by provincial governments). It provides no means for the substitution of lower cost regimes of care for higher cost regimes.

Health insurers reimburse medical, paramedical, and hospital expenses, but have no capacity to contain the unit costs of these expenses or to co-ordinate or integrate service delivery. There is no mechanism available whereby insurers can identify and manage disease risk before it becomes an episode of illness.

Doctors are pre-dominantly remunerated on a fee-for-service basis for compartmentalized interventions. They are not reimbursed or rewarded for collaborating with practitioners across disciplinary boundaries to develop integrated care regimes or to monitor health outcomes. Fee-for-service incorporates powerful financial incentives to over-servicing and discourages preventative care.


The strategy is based on five principles:  Information asymmetries between doctor and patient require the intervention of intermediaries which make comparative price and service quality data available to patients and enable patients as consumers to purchase their preferred services.  The purchases facilitated by consumer intermediaries must be fully cost-conscious. Costs for episodes of treatment must be specified and transparent so that intermediaries may substitute lower cost for higher cost purchases.  To offer integrated and cost-effective care, consumer intermediaries must be able to package a mix of services and insurance products to meet a variety of consumer preferences.  Consumer intermediaries must be able to compete for subscribers of members on the basis of package price and service quality.  Consumer intermediaries require a framework of internal and external regulation to limit the impact of adverse selection and moral hazard.

Putting The Structure In Place

As a first step, the Integrated Health Care collaborators would jointly underwrite a health insurance plan for the members of organizations participating in the venture. These may be plan sponsors or other membership-based organizations. Participating organizations will be entitled to input in product design, marketing, and management levels for the plan. The financial performance of the plan may be linked to commission and fee income for participating organizations. Transactions and marketing will be undertaken by the underwriters.

Through the provision of health insurance products, members of participating organizations will be introduced to the concept of enhanced market purchasing power for consumers of healthcare, beginning with price and service arrangements for services not listed in the Medicare benefits schedule (dental, supplementary health, vision care, prescription drugs, some home-based care services) and services which are listed in the schedule but priced in excess of the scheduled fee.

These arrangements would be packaged in various formats, develop preferred provider and practitioner arrangements, and introduce billing and payment systems for episodes of care which are inclusive of various practitioner and service types. It would then develop information and health record systems, which are transferable across practitioner and service types.

These activities are possible within present public policy settings. The integration of insurance and service delivery in the form of fully cost-conscious healthcare packages is dependent on a series of far-reaching policy changes. The Integrated Health Care model aims to create structural innovations whose enterprise operations and structural capacities create conditions which are favourable for, and facilitate further, public policy change and break the healthcare reform stalemate.

Ashim Khemani is executive vice-president and region leader with Aon Consulting.

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