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Drummond's Prescription for Health Care Won't Cure the Spending Bug

Posted: 02/28/2012 5:08 pm

Political debate in Ontario is now dominated by a simple question: Did Drummond recommend it or didn't he?

On February 15, rock-star economist Don Drummond turned in several hundred pages worth of recommendations to the government, providing advice on how to balance Ontario's budget.

Premier Dalton McGuinty has already rejected two of Drummond's biggest cost-saving ideas: cutting energy rebates and eliminating early kindergarten. Opposition critics at Queen's Park are still trying to get a yes or no answer on the hundreds of remaining recommendations.

Last week, I argued in the Financial Post that the report's biggest mistake was its failure to focus on economic growth. But even measured by the standard of its main purpose -- deficit reduction -- the report falls badly short. With that in mind, this is the first of a series of posts I'll make here examining Drummond's recommendations.

I'll start with Drummond's weakness on health reform. If Ontario hopes to contain future budgets with spending cuts, health spending is a critical target. Drummond himself notes Ontario's health budget has risen by 6.9 per cent on average in recent years; private sector projections suggest cost rises in the 6.5 per cent range. Looking forward, Drummond's "status quo" scenario projects annual increases of 4.9 per cent through to 2017.

Meanwhile, Drummond's target rate of cost growth is 2.5 per cent or below.

The report's ideas to achieve that goal are riddled with contradictions.

He would concentrate administration under local health networks to cut the number of health organizations, yet he wants new organizations to manage chronic care. He calls for clearer lines of accountability, yet he seeks to give another agency completely new regulatory authority to impose system-wide changes from the outside.

Drummond wants Ontario to "[c]reate policies to move people away from inpatient acute care settings by shifting access to the health care system away from emergency rooms and towards community care." He insists that "[t]his alone should reduce the number of people who end up being admitted to hospital beds..." It's an amusing claim. Health managers have struggled to "create policies" to do just that for decades, without success. The most common tool used worldwide to reduce emergency room pressure -- user fees for non-emergency treatments -- is, of course, rejected outright.

Drummond is also well-versed in the health system's trendiest solution: He wants to shift more work to lower tiers of medical staff, including pharmacists and physician assistants. More primary care, more "care quarterbacks," and more changes to physician compensation.

Toronto Star columnist Thomas Walkom thrives on attacking this sort of report. Yet even he had trouble finding any red meat, calling Drummond's health plans "vague," a "litany of familiar nostrums" and "quixotic."

In fact, Drummond's health prescription is so generic, Health Minister Deb Matthews believes she's already implementing most of it. And she's probably right. Yet nobody was projecting the end of health inflation when the Minister announced these initiatives, so it's unclear how stamping Drummond's name on the same model will bring cost growth down from five to seven per cent to 2.5 per cent.

Virtually every public health system in the industrial west has seen cost rises stubbornly stay within a range of three per cent to 10 per cent -- even in countries where brutal rationing is used to contain costs. The downturn hasn't changed that. U.S. analysts recently claimed victory after recessionary pressures brought Medicare and Medicaid inflation to record lows in 2009-2010. "Record lows" means that spending grew 3.8 per cent and 3.9 per cent, respectively.

Since health care consumes over 40 per cent of Ontario's budget, even a modest shortfall could burn up much of what Drummond hopes to save elsewhere. Ontario's health budget is $47 billion this fiscal year. Suppose we contain cost growth in 2012-2013 to just three per cent, instead of the target 2.5 per cent. That half-point margin of failure means $235 million must be made up somewhere else to hit Drummond's targets. And the $235 million will have to be saved every year thereafter, unless reductions in the following year are pushed even lower to compensate.

My own view -- the closing to each of these posts -- is that Ontario must take some risks to promote an aggressive economic recovery. Selective savings won't raise enough to balance the budget alone -- especially if the savings ideas are as vague, generic, and contradictory as those in Drummond's health review.

So let me repeat my basic point: When Premier Dalton McGuinty went looking for advice, he hired Drummond. What he got was an economist who told him to charge more for parking and amalgamate public health boards. What he needed more was an economist to explain how to get Ontario working again.