Medical care in the USA:
A case of terminal disease

By Haresh Kirpalani and Gordon Guyatt

Introduction

The high cost of health care in the USA has fuelled urgent talk of reform. These high costs are troublesome not
only to the consumer, but also to American business. In the debate concerning health care reform, Canada has been cited, by both proponents and opponents of reform, as an alternative system. As Lee Iacocca has pointedly stated, American business interests consider themselves at a disadvantage relative to Canadian business. This is because they have to bear the cost of health care insurance -- inadequate though that might be for workers in the USA -- themselves. Canadian business pays only to the extent that they contribute to general income tax from which health care in Canada is paid. It has been estimated that the penalty
for American automakers amounts to an additional $500 per car.

The Medical Reform Group believes that the underlying values of the society will be the major determinant of the choices ultimately made. A careful examination of the evidence regarding the effects of alternate funding and health care delivery systems on quality, equity, and efficiency remains crucial for making rational decisions.
The key decision to be made is between tinkering with the current American patchwork private system of care, and a major overhaul which will result in a universal single-payer system. The latter is advocated by, among other groups, the Physicians for a National Health Care System.

The following issues are crucial when considering the system of health care to be adopted:
1. Health care services should be of the highest quality.
2. They should be delivered in an equitable fashion to all members of society.
3. They should be delivered as efficiently as possible. Any private system where access to services is
dependent on ability to pay, threatens the goal of equitable delivery of services. Those who favour a private health care administered by private institutions argue that problems with equity can be minimized, and that advantages in quality, and particularly in efficiency, more than compensate for any losses in equity. To substantiate their argument, those favouring remodelling of the current patchwork private system have made many statements about the Canadian -- and other universal -- systems. We will present data which demonstrates these statements to be, at best, distortions.

Perhaps the most notorious distortion is the contention that universal-access systems of care have failed. One such system is the British. We will begin by dealing with the issue of medicine in U.K.

The problem of the UK

Great Britain has adopted a peculiar mix of policies. The pressures responsible for this include the same features encountered in other countries, of course combined in a unique mix. The combination of a crumbling patchwork system, coupled with militant pressure from the population worked towards a State system. Resistance from the most reactionary of the medical profession and the private companies worked
both to delay the inevitable, and to allow some flaws that would later prove fatal. But the importance of history here is that militant pressure from below was crucial in forcing the change.

Britain is often painted as having chosen a "socialistic" approach. But Britain never enacted legislation forbidding competing private health insurance plans for publicly insured services. In addition, Britain never prevented physicians from continuing with private practices outside of the National Health Service, and from
charging whatever they liked to patients seen in these private practices. In practice this never led to problems of access to quality of care while the system was relatively well funded. A very small minority of the population ever sought out private advice.

But the Thatcher government's extreme tight-fistedness with respect to the National Health Service has been
responsible for a resurgence of private medicine in Great Britain. The financial starvation of the National Health Service was geared to have this effect. Indeed the private medical companies jumped into the developing breaches in a disintegrating health care system. As the managing director of Medical International said of the openings in the UK: "There is more profit to be made out of health than in selling Kentucky Fried Chicken"1. Thus, while advocates of private medicine point to Britain's problems as an example of the detrimental effect of "socialized" medicine, an alternative interpretation is much more likely. We argue that we are seeing the effect of a system in which medicine is not "socialized" enough. If on top of an ill funded system, one allows physicians to charge whatever they like to private patients; and if one allows private insurance for publicly insured services; the public system will be emasculated. The quality of services then declines, and the well off will turn to private alternatives. The result is a two-tiered system of medical care in which the poor receive inferior quality care. In this context, proposals for the reform of the system in the USA that involve merely expansion of the public without eliminating the private, involve a similar "fatal flaw". There are other reasons why they are unlikely to help in the long term (see below). Turning to the direct comparison between Canada and the United States there are some obvious differences. Canada has consistently opted for a system in which private enterprise is minimized and public control maximized; the United States has consistently chosen a system with a much larger role for the private sector, and much less influence for the government.
Some of the historical features that allows this can be briefly outlined.

History

In effect, a natural experiment has occurred in North America. Two large and wealthy countries, the United States and Canada, exist side by side. Although the United States is in population much larger, the two countries are similar in their cultural heritage, wealth, and the aspirations of the populace. They have gone two quite different ways with respect to administering their health care systems. Canada has opted for what is essentially a government run system. The provincial governments administer the health plan, are responsible for the hospitals, and are the sole insurers. People pay for their health care through general taxation and, in some provinces health premiums. Health care is free for the sick; the cost of health care is shared by the whole population. There are virtually no charges at the point of delivery of services. Seeing a physician and being
admitted to hospital entails no payment of extra fees.

In the United States, in contrast, the government role is restricted to being the third party payer for some of the
indigent and for a proportion of the costs of those over 65. Private health insurance is big business, and a large
proportion of the hospitals are privately owned. Patients pay a substantial proportion of their medical costs as out-of-pocket expenses, or through private health insurance.

If the free-enterprise dogma regarding the greater efficiency of a privately run health care system were true,
the following predictions would also be true. First, given the unwieldy bureaucracy that runs the system, administrative costs of health care would be higher in Canada. Secondly, private for-profit hospitals would run more efficiently than their public counterparts. Finally, given all the incentives to be efficient and avoid going for unnecessary care, the American medical system would be less expensive. Is this the case?

An overall comparison of health care in Canada and the U.S.A.

The immediate answer is no. To demonstrate this, let us examine total health care costs in Canada versus the United States.

In the early 1960s, before the introduction of nationwide universal health insurance in Canada, the proportion of the gross national product devoted to health care was the same in both countries. Since then however,
health costs have accelerated at a considerably greater rate in the United States than they have in Canada. Presently, just over 8% of Canada's gross national product is spent on health, where the comparable figure in the United States is almost 11% The difference is even greater when one considers that the per capita GNP is larger in the U.S. than in Canada. (See graph 1 below from Barer et Evans - reference 2).
Graph 1, Hospital and Physician Expenditure as % of GNP, Canada and US; 1948-1983.
The conclusion is inescapable: planning at a provincial level has been more effective in controlling health costs
than the market forces at play in the United States. The reasons for this difference are detailed below.

Administrative Costs

To begin with, the administrative costs of private and public health insurance plans can be compared. The
administrative costs of administering health insurance in Canada constitute 2.5% of total health care costs and only 1.5% of these costs are accounted for by public plans. Similar costs in the United States for private and public plans combined represent 8.3% of total health care costs,and rise to 12% for only private plans3.

The reduction in costs is not restricted to administration of health insurance, but extends to hospital
administration, and even to administrative costs of physicians in private practice. In an estimate that included
hospital administration, nursing-home administration, and physicians' overhead, American administrative spending was calculated as consuming 22% of all health care expenditures4. These same authors estimated that thecomparable figure in Canada is 13.8%.

The case of nursing home administrative costs is interesting. In Canada, nursing home care is reimbursed
through payments by private insurance or direct payments by residents: a system similar to that of the United States.

The result is that administrative costs are comparable to those in the United States (10.5%) and greater than those in Canada's acute care hospitals4. In Britain, where nursing homes are part of the National Health Service, administrative costs are 5.7% of total spending. This suggests that bringing nursing homes within the provincial health service would save appreciably on administrative expenses.

These results are not surprising when one examines the administrative systems. In Canada there are a total of 10 administrative bodies -- one in each province. These are charged with all the paperwork associated with health insurance in the province -- and that is their sole responsibility. In the United States there are literally
hundreds of insurers. Thus, one disadvantage for the USA system is that economies of scale are lost. The disadvantage for the US consumer is a bewildering confusion of clauses and rules. This was demonstrated in an issue of the Consumer Report of the Consumers' Union5.

There are, however, other major disadvantages of the American approach. In addition to administering health
insurance the insurers have another job -- getting as much business as possible. This requires advertising, and hiring sales people -- an expensive proposition. In addition, they have to compete for senior executives who command extremely high salaries.

The waste of the American system extends into the hospitals. American hospitals require a sophisticated
billing department with an extensive internal accounting structure that is necessary to attribute all costs and
charges to individual patients and physicians. This is unnecessary in Canadian hospitals. In addition, physician
billing is simplified by universal health insurance, reducing the overhead of individual physicians.

When one considers all these factors together, it is no wonder public programs are so much cheaper to administer.

The American system forces higher American administrative costs to ensure that those who cannot pay don't get the same access to services as those who can pay. Thus the American administrative costs are spent enforcing the restrictions that limit access to health care by the poor.

Public versus private hospitals

Those who believe in the private patchwork health system argue that for-profit hospitals must be more
efficient because they have the appropriate incentives to be responsive to market forces. Although there are no data directly comparing Canadian and American institutions, there are data examining public and private hospitals in the U.S. Information is available from a number of studies; the results are consistent and convincing. We shall briefly review three representative studies.

In the first study, 53 investor-owned hospitals in California, Florida, and Texas were compared with 53 closely matched nonprofit hospitals in the same states6. Total operating expenses per admission were 4% higher in the investor-owned hospitals, which nevertheless managed to generate a greater net income by virtue of their higher charges.

A second source of information is data from the Florida Hospital Cost Containment Board comparing all proprietary and not-for-profit hospitals in that state for the years 1980 and 19817. Again, the private hospitals had operating expenses that were 4% higher.

A third study examined voluntary non-profit hospitals, public hospitals, and investor-owned chain and independent hospitals in California8. Total operating expenses per admission were 2% higher in the investor-owned chains than in the voluntary hospitals. Interestingly, this study demonstrated that one problem for the for-profit chains was administrative costs, which included each hospital's share of the costs of corporate headquarters. In addition, the for-profits conducted more tests and used more supplies per admission as well as charging a higher price per test or unit supply.

These figures are an underestimate of the differences because of a cynical strategy used by private hospitals to
improve profits. There are groups of patients, generally the sicker and more complicated, who are more expensive to take care of, and who thus threaten the profit margin. Private hospitals have often been successful in shunting such patients to the public system. This is called "dumping" and has been shown to result in deaths9. This process, while making the private hospitals, in isolation, look better, increases transportation costs and therefore actually makes the total system -- i.e. private and non-profit together -- more costly.

The success of investor-owned hospitals in the United States has been a function of their marketing of services
and manipulation of prices and NOT their ability to control costs. Not-for-profit hospitals are actually more efficient and less costly than their for-profit counterparts.

Up to now, we have focused primarily on the issue of cost. The private system is unlikely to provide advantages in terms of quality. Since at the same time it undermines equity, and if costs are equal or greater than public funding -- the private option need be given no further consideration. However, it is worthwhile looking at the quality issue.

Is health care quality better in the USA than in Canada? Could it be that American health costs are higher
because the Americans deliver higher quality health cares? The answer is no.

Despite the lower expenditures on health care, all the conventional indices of health, including life expectancy
and infant mortality, are actually better in Canada than in the U.S.10. To provide specific numbers: life span in 1986 was 77.1 years in Canada versus 75.3 years in the United States; infant mortality was 7.9 deaths per thousand live births in Canada versus 10.4 deaths per 1,000 births in the United States (See Graph 2 below from CCAW Manual Reference 10).

Further, it is worth noting that before the introduction of universal free access to care in Canada and Great Britain, both countries had age-adjusted mortality rates that were higher than those in the United States.
Within a decade of the introduction of free access, a sharp decline in mortality occurred, so that the levels in both Canada and Great Britain are now lower than in the United States4.

Access to care

A final irony of the relative administrative costs of Canada and the Untied States has been pointed out by
Himmelstein and Woolhandler4. Overall, health status is better in Canada than in the United States, and this is not surprising when one considers that the barriers to high quality health care for the poor (who have higher morbidity and mortality than do the more affluent) are far more formidable in the United States than in Canada.

What is worse, these barriers, as measured by the numbers of the population that are not covered by health
insurance in the USA is, as Graph 3 below shows, actually growing11.

The burden of costs on the elderly affects all races. This acts as a major barrier to care and is rising rapidly,
as the accompanying figure from the New York Times details.

See Graph 4 from New York Times on next page.12.

From the physician's point of view, an ethical practice of medicine is difficult, if not impossible, in the American
private system of health care delivery. A publicly funded and publicly administered system allows patient needs to remain the sole consideration in physicians' decisions concerning the nature of the services an individual patient should receive. There is no comparable restriction of access to care in Canada.

It is not surprising that the Canadian population is very happy about their health service in contrast to the
American population. The following survey statistics make this point clear13.

Proportion of Americans Preferring Canadian Health System,
1988 and 1990
1988 1990

Prefer Canadian system 61% 66%

Income group
Low income 58% 63%
Middle income 68% 68%
High income 56% 65%

Race
White 64% 68%
Black 61% 54%
Hispanic 62% 57%

Role of physicians

The American Medical Association has long argued that universal-care systems restrict free choice. They argue that they cannot deliver ethical care under a universal-access system, as the system will constrain costs to the point where legitimate needs cannot be fulfilled.

Fortunately, studies are at hand demonstrating that on the whole physicians in Canada support the universal-access system. Thus the following table comes from a survey of physician satisfaction under the Ontario Health Insurance Plan.

Canadian physicians are on the whole happy with the system and feel that they can deliver quality care. The very few that make the noise as they emigrate to the South are after very big bucks and their gloom about the Canadian system should be discounted.

Will a private - public mix solve the USA health care crisis?

From what we have argued, it is clear that patchwork reform will not solve the American health care crisis. If
government health insurance schemes can be extended, access to care will improve. But this will not prevent
administrative confusion and waste. The opportunity to radically eliminate the waste in the system by simplifying to a single payer scheme (i.e. the government) will be lost.

The ability to perform quality of care assessments will also be compromised where there is no single payer system. In addition, programs targeted for the disadvantaged are easily attacked in times of financial stringency, as the poor and indigent are not perceived as politically important. Furthermore, simply extending the present government schemes will not address the issue of the under-insured. This includes all those with high co-payment schemes and deductibles who are still spending high amounts (on average 18% of their income) upon medical bills. Finally, we have pointed out the effects of private-public mixes in both the UK and in Canada. Where there was a loophole for profit to be made out of health care, this distorted the actual delivery of care. To not deal with this in any reform will effectively hostage the future.

Are there no problems in the Canadian system?

Of course Canada is not Utopia. But in comparing the health care delivery to that in the USA, it could be argued that it is close! The problems that exist in Canada have been exploited by the American Medical Association, and generally have been vastly exaggerated. Thus the perennial issue comes up about rationing and waiting lists. It seems forgotten that there are waiting lists in the USA!

There is doubt that there is rationing of health care. However, this does not translate into a poorer health
outcome for the population. Rationing in Canada is largely geographical. Small towns, for instance, do not have large numbers of sophisticated machines, such as computerized tomography scanners. This relates to the ability of the Canadian system to plan in a manner which is impossible in the USA. Though planning of the system may be incomplete in Canada, it is certainly far more effective than in the USA. This is primarily due to the absence of the profit motive.

Where restricted service becomes a problem, the government is forced to respond quickly. One recent example concerned the availability of cardiac bypass surgery. After a public outcry about waiting lists for open-heart surgery, additional money was targeted specifically for cardiac surgery facilities. In addition, through a concerted effort that involved government and physicians, guidelines were evolved that allowed those most at medical need, and most likely to respond, to obtain treatment ("Waiting list for surgery cut by third". Globe and Mail, 23.3.91). As one cardiac surgeon said about the government response to the
problem: "Before we had to off-load a lot of patients.... now we are able to service our entire region, a population of 1.2 million, and it's because the ministry has been putting a substantial amount of money into the expansion of regional services.." Dr. Shragge, Surgeon, Hamilton Civic Hospital. (Cited Globe and Mail, 23.3.91)

It is crucial to note that where it is demonstrated that there are defects in the health care system, the
population of Canada do not hold back their anger. Canadians feel they have a right to high quality health care.

The future for medical care in Canada

Perhaps the biggest problem for the Canadian system are threats to universal access. These are a result the
financial deficits prompted by the international recession. Despite the popularity of the system, politicians have begun to cut back and restrict care.

Ultimately, discussion about being able or unable to afford a societal health care system revolve around notions of a progressive tax system. It has been argued that there is still a lot of room for improvement in this regard in Canada. For instance, at a time of national deficit and talk about cutbacks, the federal government has introduced a tax windfall for the wealthy -Release No. 91-018. This potentially amounts to billions16.

These are issues that will have to be fought. It is a battle that requires progressives of all stripes to come
together. The Canadian Health Coalition, of which the Medical Reform Group is a part, has recently announced its' vocal opposition to any move to restrict the "jewel in crown of social programs in Canada", the health care system (Globe and Mail, 20.12.90)

A successful conclusion for a universal health care single payer system in the USA will help the Canadian
advocates of universal care, as well as the American population.

Conclusion

It is clear from the data that the oft-quoted relative efficiency of free market, free enterprise, capitalist
methods is a myth when it comes to health care in North America. Universal-access medicine in Canada has produced a superior product, and a healthier populace, at a lower cost, than the free enterprise American system. Further, the quality of health care delivered to the entire populace is better, and the gross inequities of the American system have been avoided. A broad alliance of Americans is fighting for a comprehensive single payer system. If they are successful, health care in America will improve in quality, efficiency, and access.

References

1. "Banking on illness." Commercial medicine in Britain and the USA. Griffith B., Illiffe S., and Raynor G. Lawrence and Wishart, London, 1987.
2. Evans R. et al. Cited in "Controlling health expenditures -- The Canadian reality." New England J. Med. 1988; 319:787- 90.
3. Stoddart GL, Labelle RJ. Privatization in the Canadian Health Care System: Assertions, Evidence, Ideology, and Options. National Health and Welfare, 1985.
4. Himmelstein DU, Woolhandler S. Cost without benefit. New England J. Med. 1986; 314:441-444.
5. Consumer Reports. "The crisis in health insurance."August 1990; 55(8): 533-550.
6. Lewin LS, Derzon RA, Marguiles R. Investor-owned and nonprofits differ in economic performance. Hospitals. 1981; 55:52-59.
7. Pattison RV, Katz HM. Investor-owned and not-for-profit hospitals: A comparison based on California data. New England J. Med. 1983; 309:347-353.
8. Relman AS. Investor-owned hospitals and Health-care costs. New England J. Med. 1983; 309:370-372.
9. Schiff RL, Ansell DA, Schlosser JE, et al. Transfers to a public hospital -- a prospective study of 467 patients. New England J. Med. 1986; 314:532-557.
10. CCAW information manual. Oil, Chemical and Atomic Workers International, AFL-CIO. P.O. Box 2812, Denver, Colorado, 80201 USA.
11. Comparison of coverage 1977 and 1987. From Farley Short P, Cornelius LJ, Goldstone DE. "Health insurance of minorities in the USA." Journal of Health Care for the Poor and Underserved. Vol 1 Summer 1990.
12. New York Times, New York, 10.03.91.
13. Blendon RJ, Leitman R, Morrison I, Donelan K. "Satisfaction with health systems in ten nations."
Datawatch, In Health Affairs, Summer 1990; 185-193.
14. Kravitz RL, Linn LS, Shapiro MF. Physician Satisfaction Under the Ontario Health Insurance System. Medical Care, June 1990; 28:502-512.
15. Brooks N, McQuaig L. Globe and Mail, Toronto, 13.3.91.

This article was first published in the May 1992 issue (Volume 12, Number 2) of Medical Reform, published by the Medical Reform Group.

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