Five Zeros

How would we deal with aflat line budget

February 26, 2013

www.pwc.com/ca

February 26, 2013

Who I am

Will Falk

Managing Partner – Healthcare, PwC Canada

Executive Fellow, Mowat Centre for Policy Innovation

Adjunct Professor, Rotman School of Management

PwC

william.f.falk@ca.pwc.com

Twitter: @willfalk

Slide 2

Why I was invited to speak today: Shifting GearsHealth

2nd of 3 Papers byMowat Centre and

PwC Slide 3

www.mowatcentre.ca

Mowat Centre andSchool of Public Policy& Governance

Disclaimer: This document may contain someforward looking statements!

It is intended to provoke thought and discussionamong “emerging health leaders.” The solutionsand scenarios presented are “What if” scenariosnot policy recommendations.

PwC Slide 4

The Straight Line of Death

Unsustainable Projected Health SpendingDrummond Underscores This!

PwC Slide 5

Unpacking the Straight Line

150000

200000

250000

Pu

blic

Exp

en

dit

ure

on

Healt

h(i

n000s)

Actual vs. 1991 (and prior 12-year period) Straight-LineProjected Health Expenditure

PwC Slide 6

0

50000

100000

150000

Pu

blic

Exp

en

dit

ure

on

Healt

h(i

n000s)

Year

Extrapolation based on 1992 data Actual Spending1991 data

PwC

Actual spending

billion

Slide 7PwC

PwC

billionProjected spending

Slide 8PwC

This is an alternative view

"The seven years ofabundance in Egypt cameto an end, and the seven

PwC Slide 9

to an end, and the sevenyears of famine began,just as Joseph had said.”

-(Genesis 41:53-54)

What are theresults of thesemissedprojections?

• They become self-fulfillingprophesies

• Anchor inflation expectationsfor managers and workers

• Set the context for

PwC

projections?• Set the context forfederal/provincial negotiations(and set them at 6%)

These straight lines have dominated federal/provincialdiscussions and set the contexts for the Federal and Ontarioelections. But post-Drummond, Flaherty’s “DecemberSurprise” looks generous.

Slide 10PwC

5.0

6.0

7.0

8.0

$B

illio

ns

$24 billion

2030

2010

The Demographic Challenge is AnotherForm of “Straight Line”

Health costs by 2030

PwC

10

-14

15

-19

20

-24

25

-29

30

-34

30

-34

35

-39

40

-44

45

-49

50

-54

55

-59

60

-64

65

-69

70

-74

75

-79

80

-84

85

-8920 <1

1.0

2.0

3.0

4.0

5.0

1-4

5-9

90

+

$B

illio

ns

$24 billion

Slide 11PwC

1995/962012/13

(forecast)

Deficit

Deficit as a % of Total Rev.

Deficit as a % of Prov. GDP

$8.8 bn

17.7%

2.8%

$14.4 bn

12.8%

2.2%

Selected Financial Indicators – Ontariomid- 90’s and Now

PwC

Deficit as a % of Prov. GDP

Net Debt as a % of Prov. GDP

Accumulated Debt

P.D.I.

Average Interest Rate

2.8%

32.4%

$89 bn

$8.7 bn

9%

2.2%

39.5%

$ 279 bn

$10.6 bn

4.2%

Health Expense

Health as % of Total Expense

Health as % of Program Expense

$17.6 bn

31%

37%

$48.4 bn

38.3%

41.8%

Slide 12

What did it take inthe 1990’s

1. Agreement that there really was aproblem (Hitting the Wall!)

2. Tough Decisions to roll-back costsper unit (usually wages). In the1990’s this was The Social Contract(includes caps and clawbacks onMD compensation)

3. Tough decisions to exclude services

DIGITISATION

the 1990’s3. Tough decisions to exclude servicesfrom the basket. In the 1990’s thiswas delisting

4. Major technological changes thathad been going accruing gains forsome time

5. Structured intervention to capturegains for the system.

Slide 13PwC

Disruptive Innovation in the 1980s and 90’schanged care delivery systems dramatically

PwC Slide 14

Change in Inpatient Hospital Days Continued

Ontario: 95/96 to 04/05 = 0.75 per capita to 0.5 per capita = 33% reduction

But realizing the savings from the technologicalchange was difficult on people

PwC Slide 15

Impact of Health Services RestructuringCommission Work from the 1990’s

• Amalgamation of 44 hospitals to form 14 new organizations

• Takeover of 4 hospitals by other hospital corporations

• Directed closure of 33 public, 6 private and 6 psychiatric hospital

sites – 27 of public hospitals closed

• Now 150 hospital corporations, down from 225 in 1989-90

PwC Slide 16

• Now 150 hospital corporations, down from 225 in 1989-90

• Creation of 14 JEC’s to provide shared governance tomultiple organizations

• Creation of 18 rural/northern hospital networks

• Establishment of a variety of regional and/or provincialnetworks (child health, rehab, FLS)

Riding the third rail: the story of Ontario's Health ServicesRestructuring Commission, 1996-2000http://books1.scholarsportal.info/viewdoc.html?id=37973

But It Did Work....Health Costs per capita 1975-2009

(Ontario Govt.)

$2,500

$3,000

$3,500

$4,000

Reduction in hospital funding over 3 years

Health Services Restructuring Commissionbegins hospital bed closures and restructuring

Social Contract

Caps and clawbacks onphysician compensation

Barer-Stoddart report – reductions$2,500

$3,000

$3,500

$4,000

Reduction in hospital funding over 3 years

Health Services Restructuring Commissionbegins hospital bed closures and restructuring

Social Contract

Caps and clawbacks onphysician compensation

Barer-Stoddart report – reductions

PwC

$-

$500

$1,000

$1,500

$2,000

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

f

2009

f

Recession begins

Barer-Stoddart report – reductionsin medical school spaces Steeper rate

of growth thanpre-recession

$-

$500

$1,000

$1,500

$2,000

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

f

2009

f

Recession begins

Barer-Stoddart report – reductionsin medical school spaces Steeper rate

of growth thanpre-recession

Slide 17

Ontario Hospital Efficiency Dividend, 2012

• Ontario’s hospitals areamong the most efficient inCanada

1,812

1,736

1,700

1,750

1,800

1,850

Exp

end

itu

rep

erC

apit

a($

)

PwC

• Hospital efficiency dividend= $ 2.6 Billion

• Ontario spendsapproximately 10.5% lessper capita than otherprovinces in Canada

Slide 18

1,621

1,500

1,550

1,600

1,650

1,700

Ontario Rest ofCanada*

Canada

Exp

end

itu

rep

erC

apit

a($

)

Source: National Health Expenditure Database, 1975-2012, CIHI

*Rest of Canada: BC, AB, SK, MB, QC, NB, NS, PE, NL, NWT, Nun

Even Fraser puts Ontario First!The Best Median Wait Times in Canada, 2012

Weeks waited from Referral by GP to Treatment

PwC Slide 19

95

100

105

110

115

Post ECFAA: With Declining HSMR scoresOntarioAverage

FY 2008 FY 2009 FY 2010 FY 2011

HSMR 99 96 92 88

PwC

65

70

75

80

85

90

95

Slide 20

Source: HSMR Region Results Ontario, 2011, CIHI

This Time We “Hit the Wall in 2009”Ontario Government Budget Deficit Projectionsas of October 15, 2012

-4.2

0.0

-5

0

$B

illi

on

s

Actual Projected

2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-182008-09

PwC Slide 21

-6.4

-19.3

-14.0

-13.0

-14.4-12.8

-10.1

-7.8

-25

-20

-15

-10

$B

illi

on

s

Sources: Ontario Economic Outlook and Fiscal Review p. 85, 104 (Released Oct. 15/12. ) 2012 Ontario Budget, p. 6.

1995/96 2009/102012/13

(forecast)

Deficit

Deficit as a % of Total Rev.

Deficit as a % of Prov. GDP

$8.8 bn

17.7%

2.8%

$19.3 bn

18.4%

3.3%

$14.4 bn

12.8%

2.2%

Selected Financial Indicators – The situationhas stabilized somewhat

PwC

Deficit as a % of Prov. GDP

Net Debt as a % of Prov. GDP

Accumulated Debt

P.D.I.

Average Interest Rate

2.8%

32.4%

$89 bn

$8.7 bn

9%

3.3%

33.3%

$212 bn

$8.9 bn

4.6%

2.2%

39.5%

$ 279 bn

$10.6 bn

4.2%

Health Expense

Health as % of Total Expense

Health as % of Program Expense

$17.6 bn

31%

37%

$43.1 bn

36.6%

39.5%

$48.4 bn

38.3%

41.8%

Slide 22

And Spending has Started to Come Down(CIHI: Total Health Exp. % of GDP)

PwC Slide 23

Source: National Health Expenditure Database, 1975-2012, CIHI

Ontario Public Sector Spending GrowthRates: Now and Before we Hit the Wall

6.0

7.0

8.0

9.0

Hospitals,$18.6 , 35%

Capital,$2.7 , 5%

PublicHealth,

$4.8 , 9%

Administration

$0.8, 1%Other Health

Spending,$3.0 , 6%

Growth rate from prior year2009 vs. 2012 (forecast)

PwC

Source: National Health Expenditure Database, 1975-2012, CIHI

0.0

1.0

2.0

3.0

4.0

5.0

Hospitals Physicians Drugs Other

%2009

2012 f

$18.6 , 35%

OtherInstitutions,

$6.1 , 11%

Physicians,$12,254.5,

23%Other

Professionals$0.6 , 1%

Drugs,$4.8 , 9%

(In billions of dollars and percentage share)

Slide 24

So, Where are WeAgainst our List of

1. Agreement that there really was aproblem (Hitting the Wall!). Yes,but still a lot of stimulusthinking.

2. Tough Decisions to roll-back costsper unit (usually wages).Aggressive actions on wages,OMA Negotiations, and Drugcosts.

DIGITISATION

Against our List ofFive Actions?

3. Tough decisions to exclude servicesfrom the basket. Not much yet

4. Major technological changes thathad been going accruing gains forsome time. Yes but we areunaware…

5. Structured intervention to capturegains for the system. Inadequatefor the challenge

Slide 25PwC

Year 3 (2014/15)

• Other Transplants and relateddisorders

• Respiratory Disorders

• Pneumonia

• Hepatobiliary Liver & Pancreas

• Cancer

Year 2 (2013/14)

• Chemotherapy

• COPD

• Congestive Heart Failure

• Stroke

• Coronary Artery Diseasewith SI

Year 1 (2012/13)

• Hips & Knees

• CKD

• Cataracts

Quality-Based Procedures: Continued Pressure onper Unit costs in the Acute Care Sector

PwC

• Neurosurgery

• Cardiovascular other

• Gastrointestinal Disorders

• Coronary artery disease

• Gastrointestinal Surgery

• Cardiovascular Surgery

• GI Bowel Surgery

• Phase 2 Orthopaedics

• Kidney Disease

HBAM Inpatient Groups (HIG) breakdown further

Sector Phase 1April 2012

Phase 2April 2013

Phase 3April 2014

Hospitals(% of ABFHospital Base)

QualityGroupings

Rate* x Volume

5% 15% 30%

HBAM 40% 40% 40%

Global Funding 55% 45% 30%

Slide 26

Quality-Based Procedures: ImplementationConsiderations

• Clinical integration and partnerships – bundled paymentsand commercial partnerships

• Service portfolio analysis – core services and secondaryservices

• Leveraging innovative solutions – virtual care environments

• Financial viability – alignment of cost & funding

• Quality & outcomes – framework for implementation,

5%

55%

40%

April 2012

QBP

HBAM

Global

PwC

• Quality & outcomes – framework for implementation,reporting & monitoring

• Board assurance – leading indicators

RSM 2016

Slide 27

30%

40%

30%

April 2014

QBP

HBAM

Global

Do Don’t

• Incentivize efficiency and quality

• Use normative profiles to reflectchanges in clinical practice

• Use dynamic costing to harnessefficiencies and allows targetedinvestments

• Use pathways to reduce variationin practice

• Make it too complex

• Use historic costs to promoteefficiency

• Use it to increase unnecessaryprocedures

• Cream skim leading to accessissues

• Rely on population-based modelsto embed impact of prevention

How can physicians and patients have the important conversations necessary to ensure theright care is delivered at the right time? Choosing Wisely® aims to answer that question.

An initiative of the ABIM Foundation, Choosing Wisely is focused on encouragingphysicians, patients and other health care stakeholders to think and talk about medical testsand procedures that may be unnecessary, and in some instances can cause harm.

DIGITISATION(Modern and Appropriate

Evidence-Based Delisting)

and procedures that may be unnecessary, and in some instances can cause harm.

To spark these conversations, leading specialty societies have created lists of “ThingsPhysicians and Patients Should Question” — evidence-based recommendations that shouldbe discussed to help make wise decisions about the most appropriate care based on apatients’ individual situation.

Consumer Reports is developing and disseminating materials for patients through largeconsumer groups to help patients engage their physicians in these conversations and askquestions about what tests and procedures are right for them.More than 35 specialty societies have now joined the campaign, and 17 unveiled new lists onFebruary 21, 2013

Slide 28PwC

Slide 29PwC

Virtual Health Care: Major Technological Shift forour era …

VirtualCare

1992…More people leave

hospital after procedurethan remain overnight

PwC

InpatientCare

OutpatientCare

Care

202X?…More virtual visits than

physical visits

• Each transition involved people, process, and technology changes.Major shifts in how we organize our care delivery services and assets

Slide 30

Modernization through the Virtualization of careis most advanced in imaging (broadly defined)

• Marie Curie dies of cancer because she looked at patients• Reading pathology, ECG. Still the standard for Derm and OphthDirect Visualization

• Film comes early to DI (see above), Path slides, printed ECG• Can stay in this phase for a long timeHard Copy of the Image

• Harder work to acquire images in some modalities• Many images are still not hereDigitization of the Image

Path

Opth

Derm

PwC Slide 31

• Many images are still not here

• Starts happening with hard copies but combersome• Digital images become obvious

Movement of the Image AmongCenters

• Centralization & decentralization both occur. Provider Substitution• QA/QI, Industrial techniques, process improvements, efficiencyIndustrialization

• Nighthawk services for coverage. Move the image to higher quality• Eventually price-baseddoptions

Time, Quality, and PriceAuctions of Image Interpretation

• Starts as an interpretation aid but eventually Moore’s Law takesover and we see automated diagnosisArtificial Intelligence

DI

Path

ECG

Referring Clinician Consulting Clinician

eReferral

4. eConsult (ask a question)

Provider to Provider: The Future

Specialists’ OfficesRegional Hospitals

On-Call Emergency PhysiciansPublic Health Units

Mental Health and Addiction Treatment Centres

Primary CareFamily Health TeamsCommunity HospitalsCancer CentresFirst Nations CommunitiesPsychiatric HospitalsCCACsMental Health FacilitiesFederal and Provincial PrisonsRural Nurse PractitionersLong-Term Care Homes

3. eConsult (full assessment)

2. Clinical Videoconference

1.Face-to-Face

A Possible Future is to use our drug systems forApps…

Take 2 Apps and

Tech RxApps Pharmacy not Apps Store

PwC

Take 2 Apps andCall Me in theMorning

Apps Formulary

AliveCor Cardiac

Withings Blood Pressure

bant Diabetes

Pain Squad Pain Mgmt

MyIBD Crohn’s Disease

UK (Cambridge Healthcare): “Europe’s First Health-App Store” developing certification process for apps itsells.US (Happtique): market-leader in health appspublished set of standards to certify apps operability,privacy, security, content reliability

Slide 33

http://healthydebate.ca/opinions/techrx-building-the-apps-pharmacy

Virtualization: The Future is Now…

Book Review: The Creative Destruction of Medicine: How the Digital RevolutionWill Create Better Healthcare : http://www.longwoods.com/content/23053

PwC Slide 34PwC

http://mowatcentre.ca/Fellows/Will-Falk/BreakfastWChiefs-TheVirtualDoctorIsIn20121115.pdf

Virtualization: But How do we benefitand who shares the gains (InfowayRadiology Example on twitter)…

The value of a 2-3% reduction in unnecessary duplicate examsresults in $47-71M of value, or annual avoidance of 0.8-1.3 millionunnecessary exams for the Canadian health system

PwC

A 25-30% improvement in Radiologists’ productivity results in$169-203M of value, or 450-540 Radiologists delivering 9-11million exams, for the Canadian health system on an annual basis

Improving Technologists’ efficiency and productivity by 25-30%produces $122-148M of value, or the equivalent of 2,400-2,900Technologists, or 8-10 million exams, for the Canadian healthsystem

Slide 35PwC

Of course, the structural question remains.LHINs, CCACs, Health Links, and even Health Hubs may notbe enough….

“There is a remarkable consistency and repetition in the findingsand recommendations for improvements in all the information wereviewed. Current submissions and earlier reports highlight the needto place greater emphasis on primary care, to integrate andcoordinate services, to achieve a community focus for health and

PwC Slide 36

to increase the emphasis on health promotion and diseaseprevention. The panel notes with concern that well-foundedrecommendations made by credible groups over a period offifteen years have rarely been translated into action.”

Ontario Health Review panel 1987 (Evans Report)

Slide 36PwC

Structural Question: the notion of 1% and 5%“frequent flyers” is now central in policy discussions

1%

34%

5%

10%

0%

10%

20%

Ontario Population Health Expenditure

Figure 1. Health Care Cost Concentration:Distribution of health expenditure for the Ontario population,

by magnitude of expenditure, 2007

ExpenditureThreshold

(2007 Dollars)

PwC Slide 37

66%

79%

50%

99%

30%

40%

50%

60%

70%

80%

90%

100%

$33,335

$6,216

$3,041

$181

Source: ICES

StructuralQuestions Still

1. New models like QBP and BundledPricing run against establishedpayment models

2. Health Links are an interim silo-busting measure to get us through aMinority legislature. What is thepermanent structure for bundlingacross silos

3. Do we need HSRC-2 for hospitals?

DIGITISATION

Questions StillNeed Resolution

3. Do we need HSRC-2 for hospitals?For hospital hubs?

4. Can HQO/OHTAC be leveraged toprocess all of the technologysubstitution questions associatedwith Virtualization of Care?

5. Is Regionalization in our future?

Slide 38PwC

Closing Comments:http://mowatcentre.ca/fellows.php?action=view&fellowID=11

This content is for general information purposes only, and should not be used as a substitutefor consultation with professional advisors.

© 2012 PricewaterhouseCoopers LLP, an Ontario limited liability partnership. All rightsreserved.

PwC refers to the Canadian member firm, and may sometimes refer to the PwC network. Eachmember firm is a separate legal entity. Please see www.pwc.com/structure for further details.

william.f.falk@ca.pwc.com@willfalk

Slide 39