CIHI: Health spending to reach $200 billion in 2011

Compensation of health professionals, evolution in the use of services important cost drivers of past decade

November 3, 2011 – Total spending on health care in Canada is expected to grow by more than $7 billion this year to reach a forecast $200.5 billion in 2011. This amounts to roughly $5,800 per Canadian, about $150 more per person than last year, according to a new report released today by the Canadian Institute for Health Information (CIHI).

National Health Expenditure Trends, 1975 to 2011, one of two CIHI reports released today, shows that growth in health care spending is slowing down. Spending is expected to increase by 4.0% in 2011 over last year—the lowest annual growth rate seen in the last 15 years. In contrast, average annual growth in health care spending between 1998 and 2008 was 7.4%.

While health care spending continues to rise faster than inflation and population growth, it is expected to grow more slowly than the overall economy this year. Spending on health care is forecast to reach 11.6% of Canada’s gross domestic product (GDP) in 2011, a slight decrease from the historic peak of 11.9% in 2009 and 2010.

“Like in many other countries in the developed world, health care in Canada has seen a period of tremendous growth and major reinvestments in the new millennium,” explains CIHI’s President and CEO, John Wright. “While the pace of that growth appears to be slowing down, it’s important to understand how we reached the $200-billion mark this year. In light of global economic uncertainty and efforts here at home to address government deficits, it’s important to examine what’s been driving health care costs in order to better plan for the future of the health system.”

Main factors that drove health expenditures since 1998

CIHI is also releasing another major study today, called Health Care Cost Drivers: The Facts. The report examines the key factors that contributed to the $200-billion milestone. It focuses on public-sector health care spending between 1998 and 2008—a boom period when annual health expenditure in Canada more than doubled—and identifies issues to monitor in the future.

The study shows that in Canada, as in many countries in the Organisation for Economic Co-operation and Development (OECD), there was a tendency to spend more on health care during a period of economic growth and higher income. From a fiscal policy perspective, the period from 1998 to 2008 saw a reduction in the interest that governments in Canada had to pay on outstanding debt, which allowed them to divert resources to overall program spending and tax reduction. The major cost drivers of public-sector health care spending in the past decade were compensation of health care providers, increased use of services and an evolution in the types of services provided and used.

Compensation of health professionals a major cost driver

CIHI’s data shows that compensation paid to health care providers has been one of the most significant cost drivers of public-sector health care spending. Hospitals represent the largest category of public-sector spending (37%), and compensation represents about 60% of total hospital budgets. Between 1999 and 2008, the number of hospital workers grew by 21%, while their compensation increased faster than that of workers in the general labour market. The hourly paid hospital employees wage index from Statistics Canada increased by an average of 3.3% per year, compared with an average annual wage increase of 2.7% in the general economy.

After hospitals, physicians represent the second-largest category of public-sector health care spending (20% in 2011). Between 1998 and 2008, physician expenditures increased on average by 6.8% a year. CIHI data shows that the price of doctors’ services was the most important cost driver of spending in this category, with compensation for doctors’ services growing by 3.6% a year—faster than that for other health workers and the labour market in general. However, physician compensation grew more slowly than the prices of other public goods and services from 1975 until 1998.

“Over the last decade, a host of factors may have contributed to the compensation hike for physicians and other health professionals,” explains Wright. “For example, increased competition between provinces to recruit and retain health providers, tighter credentialing of health professionals and stronger bargaining positions due to increased government revenues may have all played a role.”

With the number of practising doctors on the rise in Canada, CIHI data shows that spending on physicians is expected to be one of the fastest-growing categories of health expenditure in Canada in 2011, outpacing growth in spending on drugs and hospitals for the fifth year in a row.

Increased use of services and evolving types of services used

Over the past decade, population growth contributed about 1% annually to health care costs. Beyond the demographic factors, the data shows that Canadians are using more health care in some areas. For example, the volume of drugs sold in Canada contributed an average increase in spending of 6.2% a year between 1998 and 2007, even after accounting for population growth and aging. Overall drug spending grew by an average of 10.1% per year during this period. This makes increased utilization the single largest cost driver of drug spending over the past decade. The increased volume was driven largely by use of anti-hypertensive, cholesterol-lowering and gastrointestinal drugs.

Canadians are also seeing their doctors more often and getting more medical procedures. Over the past decade, use of physician services grew by 1.5% annually per Canadian, after adjusting for population aging. The 10-year period also saw a significant increase in the number of Canadians receiving priority-area procedures, such as hip and knee replacements; diagnostic imaging exams, such as magnetic resonance imaging (MRI) and computed tomography (CT) scans; and cataract surgery procedures.

A change in the types of health services used by Canadians—such as the emergence of new drugs and new diagnostic and surgical tools—has also contributed to the growth in health costs. For example, changes in the types of drugs used were an important driver of drug spending, particularly during the last five years. New cancer drugs and immunosuppressants were two of the fastest-growing drug classes during this period. Investments in technologies, such as diagnostic imaging equipment, also grew significantly over this period. Between 1997 and 2010, the number of CT scanners operating in Canada nearly doubled (from 245 to 484), while the number of MRI machines increased more than fivefold (from 55 to 281).

Aging population a modest health care cost driver

CIHI also analyzed the extent to which the aging population is driving costs.

The report demonstrates that population aging is a cost driver of modest importance relative to other drivers, accounting for less than 1% of average annual growth in health care spending (0.8% per year) from 1998 to 2008.

“There is no doubt that as we grow older, we often need more health services and that this costs the health system more money. However, while the Canadian population is aging, it is aging slowly as a whole,” says Jean-Marie Berthelot, Vice President of Programs at CIHI. “Over the past decade, the proportion of health dollars spent on seniors by provincial and territorial governments has remained relatively stable at 44%. This tells us that spending on seniors is not growing faster than spending for the population at large.”

CIHI data shows, however, that the impact of aging on health care spending varies considerably by province. It is more significant in the Atlantic provinces and Quebec, for example, than in Ontario and the west.
Health care spending not growing as share of provincial and territorial government budgets

Since health care delivery is a provincial/territorial responsibility in Canada, the vast majority of public-sector health dollars are spent by provincial and territorial governments. In 2010, the latest year of available data, health care is estimated to account for about 38% of provincial/territorial government spending. However, this proportion varies among provinces, from 30.4% in Quebec and 33.9% in Newfoundland and Labrador to 44.5% in Manitoba and 47.2% in Nova Scotia.

“Our study identifies several areas to monitor for the future in terms of health care spending,” says Berthelot. “For example, increases in the number of health professionals, changes in their scope of practice and the introduction of new technologies—such as new cancer biologic drugs—may all continue to have a significant impact on what we collectively pay for health care. Canadian governments, and society as a whole, will need to balance the health needs of the population against overall costs to ensure Canadians have an efficient, effective and sustainable system.”

About National Health Expenditure Trends, 1975 to 2011

This annual report provides an overview of health care spending trends from 1975 to 2009, as well as forecasts for 2010 and 2011. The report draws upon data compiled from CIHI’s National Health Expenditure (NHEX) Database, Canada’s most comprehensive source of information on health care spending. Where appropriate, the report provides data in both current and constant dollars. Current dollars measure actual expenditure in a given year. Constant dollars remove the effects of inflation to measure expenditure based on price levels prevailing in a base year (in this case, 1997). Real growth rates measure annual changes of data reported in these constant dollars.
About Health Care Cost Drivers: The Facts.

This supplement to CIHI’s annual NHEX report analyzes the areas that drove health care spending in the public sector during the major growth period of the last decade (1998 to 2008), as well as issues to watch in the future. Public-sector spending represents 70% of the total health bill, a proportion that has remained relatively stable since 1997. The report examines factors within the three major categories of public health expenditure—hospitals, physicians and drugs—as well as those affecting health care spending overall.

About CIHI

Established in 1994, CIHI is an independent, not-for-profit corporation that provides essential information on Canada’s health system and the health of Canadians. Funded by federal, provincial and territorial governments, CIHI is guided by a Board of Directors made up of health leaders across the country. Our vision is to improve Canada’s health system and the well-being of Canadians by being a leading source of unbiased, credible and comparable information that will enable health leaders to make better-informed decisions.

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