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Canada Health-care spending projected to grow at slowest pace in 17 years

Overall, Canadian health care spending amounted to more than $200-billion in 2012. Of this amount, over $140-billion was financed by federal and provincial tax revenues

Matthew Sherwood/The Globe and Mail

Health-care spending was supposed to be the insatiable monster, gobbling up provincial budgets until there was little money left over for other programs.

But in the last three years, spending on health has actually slowed down. It is still rising, just not at the breakneck pace of the last decade, according to a new report from the Canadian Institute for Health Information (CIHI), the agency that crunches numbers on Canada's health-care system.

This year, Canada is projected to post health-care spending growth of 2.1 per cent, the slowest rate of growth in 17 years. That is a much lower rate than the roughly 7-per-cent annual increases that were the norm from 2000 to 2010, the report says.

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Experts say the trend toward less-ravenous health-care budgets is likely to continue for the "foreseeable future," largely because cash-strapped provincial governments have little choice but to rein in the system's costs. Austerity measures and budget deficits have forced some provinces to re-examine how they spend scarce health-care dollars.

"One of the things that they've been trying very hard to do is do cost constraint and start getting a little bit more efficient around how they do things," said Raisa Deber, a professor of health policy at the University of Toronto.

But there are potential pitfalls on the road to continued restraint: If the provinces cannot keep a lid on what they pay nurses and doctors, or if a slew of new, expensive prescription drugs floods the market, spending could begin to rise more sharply again.

Health-care spending increases are slowing against the backdrop of a looming change in how Ottawa contributes to health care, the largest line item for provincial budgets.

Last March, the 10-year, $41-billion Canada Health Accord expired and with it the guarantee of a 6-per-cent annual increase in health-transfer payments to the provinces.

The federal government has already promised to maintain the 6-per-cent increases until 2017, but after that, Ottawa will rely on economic growth and inflation figures to determine the increase, a formula that some premiers warn will leave a hole in their health-care budgets. The Conservatives have said, however, that they will not let the increase drop below 3 per cent per year.

"[The federal government] has made it clear that this is all really a provincial responsibility and all they are going to do is hand over some dollars from time to time," said Colleen Flood, a University of Ottawa law professor who specializes in health policy. "Lots of people have various opinions about that, but in a way I think it has been good from the perspective of making it very clear that the provinces really need to take responsibility and run their respective health-care systems adroitly."

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The new CIHI report shows the growth rate has slowed for health care's three big-ticket items – hospitals, drugs and doctors – because of a mix of cost control and good luck.

Hospital spending is projected to grow by 2.1 per cent in 2014. That figure averaged 6.7 per cent annually between 1998 and 2008.

Salaries gobble up about 60 per cent of hospital budgets, meaning modest wage settlements are key to keeping costs in check.

But hospitals have also found other ways to control their bottom lines, such as shifting some services out of the hospital setting and hustling out patients who do not need to be there more swiftly.

"A good example now is knee surgery," said Brent Diverty, the vice-president of programs at CIHI. "The length of stay is much shorter than it used to be, or it's actually done as day surgery. Things like that have tended to reduce some of the costs."

Public spending on pharmaceuticals has also slowed, with a projected increase of just 0.8 per cent this year.

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Part of the explanation is that patents for several blockbuster drugs – including widely used anti-cholesterol pills such as Lipitor – have expired, meaning provincial governments can turn to cheaper generic versions instead. The provinces have also negotiated cheaper prices for some products with generic drug makers and turned to bulk buying to drive down prices.

Still, Canada continues to pay some of the highest drug prices in the industrialized world. "We've made some gains here, but we're still the second highest spender on drugs in the world," Prof. Flood said. "That's nuts. It's just giving money away for free."

The growth in spending on physicians remains faster than the other big spending categories – a projected 4.5-per-cent increase in 2014 – but that is the smallest annual increase in physician pay since at least the late 1990s.

"What we think is happening there is the more recent salary negotiations between physicians and provinces have resulted in more moderate increases in fees than in the past," Mr. Diverty said.

Ontario, for instance, froze the total amount of money it makes available annually for physician pay in 2012, after a bitter standoff with the Ontario Medical Association. In 2012-2013, the total amount Ontario paid to all its doctors rose 1.7 per cent; in the three years previous the increases were 9.6 per cent, 5.4 per cent and 6.2 per cent.

Average gross pay for Ontario physicians actually fell by 1.3 per cent to $370,731 from $375,543.

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Prof. Deber, the health policy professor at the University of Toronto, pointed out that Canada has a habit of over-correcting when it doles out too little or too much for health care. Increases were virtually flat during the difficult economic times of the early 1990s. They rose again substantially in the late 1990s and the first decade of 21st century.

"They really, really put on the brakes [in the early 1990s]," she said. "When they got a little more money, they pulled off the brakes a bit."

Mr. Diverty, the CIHI vice-president, predicts provincial governments will keep their feet on the brakes for at least the next few years.

"This period of slowdown will continue," he said. "What we're suggesting is that we're likely in a period of sustained slow growth for the foreseeable future."

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