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Canada's health-care costs continue to grow without corresponding improvements in quality and outcomes. This is coupled with the fact that, in many provinces, health-care expenditure is approaching 50 per cent of total provincial spending. Medicare as we know it is at a tipping point, and we need to fundamentally re-evaluate how we pay for health services in this country.

In the past two decades, health-care systems have undergone structural changes such as regionalization of health-care providers, reconfiguration of the primary care system and a push toward improving access to care through federally funded initiatives such as the Wait Times Guarantee. These initiatives have achieved some impressive results. But reform was primarily focused on improving the delivery side of the health-care equation without significant efforts to transform the way we pay for the health care we receive as citizens.

The tipping point is that the impact of rising health-care expenditures combined with mediocre outcomes-based value for the money we spend is increasingly in the Canadian consciousness. A significant amount of health care in Canada is provided for, and paid for, by the transaction, with minimal visibility into cost, performance, quality or outcomes. The payment systems for the professionals and organizations providing health services are driven by volume and we pay for it, without questioning what we get in return.

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Physicians and hospitals are the two largest expenditure items as a share of total public-sector spending on health care, accounting for nearly 57 per cent of total public spending. In the case of physicians, we have an over-reliance on the fee-for-service physician payment system. This system creates financial incentives encouraging overconsumption of care, since physicians are rewarded for a higher volume of services. In addition, the system doesn't tie remuneration to patient health outcomes, nor does it encourage physicians to consider the cost of the care they provide to patients and how it affects the overall health system.

On the other hand, hospitals are financed through a global budget - that is, a fixed amount of funding distributed to each hospital to pay for all hospital-based services over a specified period of time (usually one year). Global budgets are traditionally based on historical funding amounts, inflation and politics rather than the type of care needed for the population that the hospital serves. Historically, global budgets are not tied to outcomes and have no inherent mechanisms to encourage improving access to or quality of care.

It has become clear that we need to shift the payment (and therefore incentives) of health-care providers from "pay for volume" to "pay for outcomes." There are a number of existing and emerging alternative payment mechanisms that aim to do just this. They are in place in different parts of the world across different types of health-care systems. These outcomes-based payment mechanisms aim to increase provider accountability and reward for quality and efficiency, while rewarding providers to manage the total cost of care.

One such example is episode-based payment. This bundles all costs of care across a clinical condition for a defined period of time that includes several levels and types of care providers. A key feature of this payment method is its alignment with evidence-based best practices, including clinical guidelines and quality measures. The physician-led Geisinger Health System in the U.S. is an organization that uses episode-based payments for coronary artery bypass graft surgery, among other clinical conditions. An evaluation of this practice for the surgery found that, one year after implementation, there was a 10-per-cent reduction in readmissions, reduction in most complication rates, a shorter-than-average length of stay and reduced hospital costs.

Current payment systems won't change overnight. But the more we can experiment with implementing outcomes-based payment systems, the better chance we have of realigning the incentives of health-care providers and affecting health-care sustainability. Provincial governments have an opportunity to set the foundation for this type of reform in negotiations with physician associations by moving away from volume-driven models to those that tie patient outcomes with care provided. Similarly, governments must link hospital budgets with health outcomes.

Leadership in health-care financing reform can also come from the federal government. With the 10-year accord setting out the Canada health transfer payments expiring in 2014, the majority Conservative government has an opportunity to influence health-care reform and provincial health policy for the next decade by setting a common vision and standards for outcomes-based health-care payment reform.

Sanjay Cherian is the health industry lead for Accenture in Canada.

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