12/20/16

Ontario is aging as hospital funding falls behind

Funding for hospital services in 2015/16 was 25% more in the rest of Canada than in Ontario. Some have tried to downplay this, arguing that economies of scale should allow Ontario to provide hospital care more cheaply.  Notably, however, the World Health Organization dismisses the notion that economies of scale are a significant factor in hospital costs:

It is tempting to think that larger hospitals are more cost-effective
than smaller ones because of the operation of economies of scale.  
However, the evidence does not back up this belief.  While increasing
hospital size can cut costs for some specific procedures, such
economics are exhausted at a relatively small size.

In any case, with a population dispersed over a large geographic area, Ontario has scores of small hospitals, despite its large population.  Moreover, in other provinces, small hospitals are managed by larger regional health organizations, while in Ontario they are not.  If there were economies of scale in hospital services, such larger regional health organizations should achieve them — but the funding figures provide no evidence of that, quite the reverse.

Are there other, better demographic explanations of different hospital cost pressures?
In fact the key demographic factor suggests that Ontario hospital funding should be increasing, not decreasing, relative to the rest of Canada. 

While economies of scale are not very relevant to the issue of hospital funding, there is wide consensus that aging is a key factor.  So it is notable that as Ontario hospital funding fell behind the rest of Canada from the time the Liberals were elected, the median age in Ontario has changed from being less than the rest of Canada to now slightly more than the rest of Canada. 


In other words, as Ontario’s population got older relative to the rest of Canada, funding fell behind the rest of Canada.

This chart shows the changes in median age in Canada and in Ontario.  In 2003, when the Liberals were elected, Ontario median age was 0.6 years less than the Canadian median age.  But by 2015, it was 0.1 years higher than the Canadian median age (as Ontario is a significant portion of the “Canada” figures, the change between Ontario and the rest of Canada excluding Ontario is actually even larger).  

Bottom line:  Unlike the notion that hospital economies of scale should reduce cost pressures, aging is widely accepted as the key demographic determinant of funding cost pressures.  Despite this, hospital funding in Ontario fell far behind the rest of Canada over the same period as Ontario’s median age increased relative to the rest of Canada.   

Demographic factors suggest Ontario hospital funding should be increasing relative to the rest of Canada, not decreasing.

3 comments:

  1. What is your source for aging being a key demographic determinant of funding?

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  2. Ross -- CIHI indicates that provincial health expenditures for 15-19 year olds was about $1500 in 2008, while it is about double that for 50-54 year olds, and about 16 times that for those 90 and older. The other demographic factor that I believe is particularly significant (within Canada) is personal income -- but I don't believe it has such a major effect.

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  3. CIHI places aging as a 1% per year cost driver for hospital services. Another demographic factor is population growth, which I believe has been growing by 1% per year in Ontario. The other cost drivers CIHI cites are increased utilization, health care inflation, and technology, i.e. non-demographic factors. See https://secure.cihi.ca/free_products/health_care_cost_drivers_the_facts_en.pdf

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